Critical Aspects for GST Returns in 2019

In light of the recent barrage of notifications, Act amendments, we have prepared a small article on few major changes that GST has undergone, and the impact it could have on the GST returns in the year 2019. We would be speaking on the following topics:

1. RCM on Security Personnel services

2. RCM on purchases from unregistered persons

3. Amendment in manner of utilisation of ITC (updated with Rule 88A)

4. Amendment in definition of Supply

5. Amendment in ITC Reversal

6. Other Important amendments

Reverse Charge Mechanism applicability on security services:

In terms of Notification no. 29/2018- Central Tax (Rate) has been issued to include the security personnel services under the ambit of Reverse Charge Mechanism. The notification is effective from the 01/01/2019 and to be considered for the GSTR-3B of January 2019. This is similar to security agency services liable to RCM under Service Tax regime.

According to the notification: Security services provided by any person other than body corporate to a registered person, the recipient is liable to discharge GST under RCM.

Following persons are excluded from paying GST under RCM, these continues to be liable under the hands of security Agency (forward charge)

1. When the following authorities only taken registration for the purpose of deducting TDS

a. Department/establishment of CG, SG or UT

b. Local authority

c. Government agencies

2. Persons registered under composition scheme

The reverse charge provisions have been introduced only where services provided are in the nature of ‘supply of security personnel’ only. Further, the tax has to be paid under reverse charge mechanism on the gross amount charged (security personnel cost+PF+ESI+service charges+ other charges) by the security service providers and not merely on the service charges.

Let us take few illustrations for easy understanding:

Supplier	Recipient	Reverse/Forward Charge
Body corporate (Unregd.)	Registered person	No GST
Body corporate (Regd.)	Registered person	FCM
Other than body corp. (Regd.)	Registered person	RCM
Other than body corp. (Regd.)	Regd. For TDS	FCM
Other than body corp. (Regd.)	Composite Dealer	FCM
Other than body corp. (uregd.)	Registered person	RCM
Registered person	Unregistered	FCM
Unregistered	Unregistered	No GST

Reverse Mechanism not applicable on purchases from unregistered persons Section 9(4):

a) Notification no. 01/2019 Central Tax (Rate) rescinded the notification no.08/2017 Central Tax (Rate) which deferred the present RCM u/s 9(4) of CGST Act till 30th September 2019 CT(R)

b) Therefore, the deferment of RCM on URD procurements till 30th September 2019 is not applicable.

c) According to the latest amendment of CGST Act applicable from 1^st February 2019, Section 9(4) of CGST Act which states that GST liable under RCM for the procurements from unregistered persons would be payable only by the notified class of registered recipients and for the notified goods or services.

d) Goods or services or the class of registered recipients has not been specified or notified by the government.

e) Effectively, no RCM is liable on URD procurements till the goods or services and the class of registered recipients are specified or notified by the government.

Amendment in Manner of utilization of ITC:

Section 49A has been inserted which prescribes the manner of utilization of ITC. The extract of the section provided below:

“notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully towards such payment.”

Read with Rule 88A of CGST Rules (inserted on 29^th March 2019):

Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order:

Provided that the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully.”.

Impact of above section is illustrated below:

Particulars	IGST	CGST	SGST
Output	1,00,000	1,00,000	1,00,000
TRAN C/f	–	-50,000	–
Input	-2,00,000	-80,000	-80,000

According to Section 49(5) – Applicable up to 28^th March 2019:

Payment of Tax	IGST	CGST	SGST
IGST	1,00,000
CGST		1,00,000
SGST	20,000		80,000
ITC Balance	-80,000	-30,000

According to Section 49A r/w Rule 88A – effective from 29/03/2019:

Payment of Tax	IGST	CGST	SGST
IGST	1,00,000
CGST	0	1,00,000
SGST	1,00,000		20,000
ITC Balance	–	30,000	60,000

The above amendment helps the assessee to utilise the IGST ITC either for CGST/SGST in any order he desires.

Note-1: CGST/SGST ITC can be utilised only once IGST ITC is NIL.

 Note-2: SGST/UTGST ITC can be utilised once CGST ITC has been utilised fully.

Interpretational issue: Whether the IGST ITC can be utilised against CGST/SGST “in any order” and “in any manner”? There are no specific restrictions. Considering the intention of the change, I opine that IGST ITC can be applied in any manner (or ratio) against CGST/SGST output after utilising first against IGST ITC.

Practical Issue: The GSTR 3B of March 2019 due on 20^th April 2019, still discloses the odl method of ITC utilisation (not as per Rule 88A). Also, it can be questioning whether the Rule 88A prospectively introduced from 29^th March 2019 can apply to transaction of March 2019. Therefore, considering the GST portal and the intention of the change, I opine that the above amendment to be considered for the GSTR-3B of April 2019 month.

Amendment in Definition of Supply

The definition of supply has been changed with retrospective with effect from 01/07/2017

Section 7(1) the definition of Supply includes:

a) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business

b) Import of services for a consideration whether or not in the course or furtherance of business (and)

c) The activities specified in Schedule I, made or agreed to be made without a consideration: ( and – removed)

(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.

(2)  Notwithstanding anything contained in sub-section (1), ––

a) Activities or transactions specified in Schedule III; or

b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,

shall be treated neither as a supply of goods nor a supply of services

(3)  Subject to the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as—

a) a supply of goods and not as a supply of services; or

b) a supply of services and not as a supply of goods.

Our comment:

Schedule II of CGST Act provides the transactions which are fall under the ambit of either supply of goods or supply of service, merely transactions covered under schedule II does not make it has a supply. First, it has to satisfy ‘supply’ within clause (a) to (c) of section 7(1). After satisfying the above conditions, reference would be made to Schedule II to determine as to whether it ‘supply of goods’ or ‘supply of services’.

Amendment in input tax credit reversal:

According to the amendment (w.e.f 01/02/2019) provides that if the persons engaged in the both taxable as well as transaction covered under Schedule III, except in case of sale of land or building sold after occupancy certificate (neither supply of goods nor supply of services), there is no need to reverse ITC for the transactions covered under the Schedule III.

Miscellaneous amendments:

1. The turnover limit for eligibility to opting composition scheme has been increased from Rs.1crore to Rs.1.5crores. Notification 14/2019 was issued to make the same effective from 1^st April 2019 onwards. Tax payer to have filed CMP-02 by 31^st March 2019 to opt for this scheme.

2. Composition dealers to be allowed to supply services (other than restaurant services), for up to a value not exceeding 10% of turnover in the State in the preceding financial year or Rs. 5 lakhs, whichever is higher.

3. New composite tax rate of 6% for supply of goods or services upto Rs. 50 lakh in a FY extended. Restrictions and conditions similar to composition supply. Registered person can file CMP-02 to opt for this scheme by 30^th April 2019 under “Any other supplies eligible for composition levy”.

4. Section 13(3)(a) has been amended which prescribes that services supplied in relation to goods temporarily imported to India for the treatment or process (Job work), which are not put to use in India other than for such job work. This ensures that the place of supply is shifted from the place where services are performed, to the location of the recipient (outside India), therefore, qualifying the supplier to claim the benefits under Export of Service.

5. Registered persons may issue consolidated credit / debit notes in respect of multiple invoices issued in a Financial Year. However, references of all the invoices to be given. This option has not yet been enabled in the GST portal.

6. GSTR 9C user manual and offline utility options are available from 14^th April 2019 onwards.

The above summary has been prepared considered only few amendments/recent notifications which has a significant impact on the GST industry as a whole. Views expressed herein are of the authors only.