Janya (a fictional character is very inquisitive and wants to question each and everything)

Tanishi (a fictional character finds answers from nowhere and everywhere and wants to give solutions for everything)

Janya: I have seven transactional questions in my mind. I am stating them one by one to you- Tanishi

Also Read- Some GST Aspects & Transactions Explained thru Q&A – Series II

QUESTION 1

Janya : Some Unaccounted stock was surrendered under income tax survey and I want to record the same in the books of accounts.

Tanishi

Applicable Section:

(i) As per sub section (6) of section 35;

“Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax.”

(ii) As per sub section (4) of section 16;

“A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.”

Interpretation: Section 35(6) could have been invoked if the GST authorities would have conducted a search and found unaccounted stock. Since the search was conducted by the income tax authorities and now for the purpose of GST the registered person is himself recording the unaccounted stock therefore the provisions of 35(6) are not attracted.

Hence the registered person can account for the unrecorded stock and claim ITC on it. However the claim of ITC shall be time restricted by provisions of 16(4). If the time limits of 16(4) have not expired then the ITC shall be claimed.

Conclusion: Unaccounted stock can be recorded without resulting in tax liability and ITC on it can be claimed subject to time limits of 16(4).

QUESTION 2

Janya : I have received scrutiny notice for my Gst return. Is it in the Power of the officer to issue notice of scrutiny of return.

Tanishi

Applicable Section:

As per sub-section (1) of section 60;

“The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.”

Interpretation: As per the section the power to issue the notice under 61(1) is invested in the proper officer and there is no pre requirement of getting a list from the higher authority. Since the proper officer is empowered with the right to issue a notice, he shall not be in the need of a permission or a list from higher authority.

In this regard, circular 3/3/2017 also defines who is the proper officer with whom the power shall be invested. As per para (4) of the said circular, the empowered officer is Superintendent of Central Tax.

Conclusion: Superintendent of Central Tax, or corresponding officer of state tax act, can issue notice under 61(1) without a list from higher authority.

QUESTION 3

Janya:  a) When the customer is in India but location of service is out of India but payment is received in INR

b) When the customer is out of India and location of service out of India and the payment is received in Foreign Currency.

Whether the above transactions are considered as Export of Service or not?

Tanishi

Law Applicable:

SECTION 2 of IGST Act

(6) ‘export of services’ means the supply of any service when,”

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; or in Indian rupees wherever permitted by the Reserve Bank of India and

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

Interpretation:

For service to be Export, all the conditions specified above must be fulfilled.

In case 1 where customer is in India but the location of service out of India and payment is received in INR, then it does not constitute as Export of service.

In case 2 where customer is out of India, location of service out of India and payment is received in Foreign Currency, then all the conditions of Export are fulfilled, hence it will be export of service.

Conclusion:

Case 1 It is not export of service

Case 2 It is export of service

QUESTION 4

Janya : We are Merchant exporters (export of goods) and taking GST refund of Input tax credit on inward supplies (in our case 18%,12% and 0.1%). We are also claiming duty drawbacks on export of goods (in our case roughly between 2-3%). Can we claim GST refund on inward supplies (i.e. 18%,12% and 0.1%) as well as duty drawbacks (2-3%) simultaneously?

Tanishi

The Central Government has notified the Customs and Central Excise Duties Drawback Rules, 2017 (hereinafter referred to as Drawback Rules 2017) vide Notification No. 88/2017-Customs (N.T.) dt 21.09.2017.

In these Rules Definition of Drawback has been amended to provide for drawback of Customs and Central Excise duties excluding integrated tax leviable under sub-section (7) and compensation cess leviable under sub-section (9) respectively of section 3 of the Customs Tariff Act, 1975 chargeable on any imported materials or excisable materials used in the manufacture of goods exported;

Further the Central Government has also revised All Industry Rates (AIRs) of Drawback vide Notification No. 95/2018-Customs (N.T.) dated 06.12.2018 which comes into force on 1.10.2017. Now the Composite rates of Drawback are being discontinued w.e.f.19.12.2018 and only the custom duty is now being refunded in drawback rate.

There are two types of drawback:

One is AIR, other is Brand rate fixation. AIR is available to every product mentioned in rate list whether manufactured from indigenous product or imported products.

So far as Brand rate fixation is concerned you get drawback of actual duty paid in Bill of Entry or Duty paying document.

Conclusion : Thus you can take drawback of custom portion as per AIR rate as well as refund/credit of IGST paid (as per GST provisions) on inputs used for manufacture of product exported.

However if you are importing inputs to manufacture the export goods then you should do a cost and benefit analysis to check whether the custom duty paid on imports is more than the drawback (AIR) If yes then go for brand rate fixation.

QUESTION 5

Janya: Entire Business is being transferred along with stock, creditors, debtors to one registered person.

Tanishi:

Law Applicable:

SECTION 18 OF CGST ACT

(3) Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.

CGST RULE 41

RULE 41. Transfer of credit on sale, merger, amalgamation, lease or transfer of a business

(1) A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee:

Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.

Explanation: – For the purpose of this sub-rule, it is hereby clarified that the ‘value of assets’ means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.’.

(2) The transferor shall also submit a copy of a certificate issued by a practicing chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.

(3) The transferee shall, on the common portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.

(4) The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.

Notification No. 12/2017- Central Tax (Rate)


Chapter 99
Services by way of transfer of a going concern, as a whole or an independent part thereof. Nil Nil

Interpretation: 

In case of transfer of business as going concern unutilized ITC can be carried forward as per Section 18(3) in transferee’s credit ledger by filing FORM GST ITC-02 as per Rule 41 on the basis of going concern.

The Proprietor can transfer closing stock and capital goods of  business under their name without paying any GST only if the business is transferred on the concept of going concern.

As the “Service by way of transfer of going concern, as  a whole or independent part thereof ” is exempt under GST vide Notification No. 12/2017- Central Tax (Rate).

However if only capital assets and stock is transferred not the business as a whole in going concern, then it will be considered as taxable supply and GST would be leviable as sale of capital goods and stock.

Conclusion:
In case of  transfer of business, transferor is required to file ITC -02 which should be accepted by transferee to carry forward the unutilized ITC in his credit ledger.

In your case if business is transferred as going concern then it is exempt under GST otherwise if only capital goods and stock are transferred then it is taxable supply under GST as discussed above.

QUESTION 6

Janya: A Commission agent charges commission exclusively in respect of their product i.e. Turmeric and charge the agriculturist by providing storage service in warehouses owned or rented by the agent. The charges are a certain percentage of the sale price of goods. They do not identify the buyers. The actual charges are in line with EMC norms. They undertook to provide write-up on the activities, criteria for charges, contract copies, invoices etc.

Tanishi

Law Applicable

The agent is supplying service to agriculturist which is exempt under Heading 9986(i)(g) of Notification No 11/12 of 2017 Central Tax(Rate) dated 28.06.2017 Heading 9986(i)(g).

Further SI. No. 24 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 issued under the Central Goods and Services Tax Act, 2017 (herein after referred to as the ‘CGST Act, 2017’) is reproduced below :

SI NO. Chapter, Section or Heading Description of Services Rate
(Percent)
Condition
24 Heading 9986 (i) Support services to agriculture, forestry, fishing, animal husbandry.

Explanation. – “Support services to agriculture, forestry, fishing, animal husbandry” mean –

(i) Services relating to cultivation of plants and rearing of all life forms of
animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce by way of

(a) ……..,

(b).

(c) ………,

(d).

(e) ………,

(f).

(g) “Services by an Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce”

NIL

Explanation 4 (vii) and (viii) of the Notification No. 11/2017-CT (Rate) states that (vii) “agricultural produce” means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.”

(viii) “Agricultural Produce Marketing Committee or Board” means any committee or board constituted under a State law for the time being in force of the purpose of regulating the marketing of agricultural produce.

Further Section 2(5) of CGST Act defines ‘agent’ as:

“agent” means a person, including a factor, broker, commission agent, ahartia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another;

In the instant case, the agent, who is a member of the applicant stores the turmeric in their godown, the sales of which is as per the guidelines of EMC. It is seen that the invoice is raised by the agent on the buyer wherein the agriculturist is mentioned as the seller and is signed by the Farmer, agent and the buyer. Further the buyer pays the agent who after deducting his commission for the services rendered passes on the sale proceeds to the farmer. Hence it is evident that these activities of the applicant are those covered by the definition of ‘Commission agent’ under ‘The Tamil Nadu Agricultural Produce Marketing (Regulation) Act, 1987’. Section 7(8) of this Act also states that trading in agricultural produce must take place on in notified areas which are licensed from a Market Committee under that Act. These Commission agents provide the space for storage, weighment and facilitate buying and selling of the produce. The word ‘Commission agent’ under SI.No. 24 of the Notification No. 11/2017-CT (Rate) is not specifically defined in the said notification but Section 2(5) of the CGST Act defines ‘agent’ as a person, including commission Agent who carries on the business of supply or receipt of goods or services or both on behalf of another. From the supporting documents and materials filed by the applicant and the various statutory provisions discussed above, it is clear that the activities of the applicant are those services provided by an agent to the farmer, generally provided in relation to agricultural produce in the primary market regulated by a marketing committee.

In conclusion, the applicant is only a Commission Agent providing support services for agricultural produce and the services extended are rightly classifiable as ‘Support service to agriculture..’ under the Heading 9986 and the activity of the applicant attract ‘NIL’ rate as per SI. No. 24 (i) (i) (g) of the Notification No. 11/2017-CT (Rate) dated 28.06.2017 as amended and ‘NIL’ rate of SGST as per SI.No. 24 (i) (i) (g) of G.O.(Ms) No 72 dated 29.06.2017 No.I1(2)/CTR/532(d-14)/2017 as amended.

Conclusion :  The service by the Commission Agents to the agriculturists of turmeric is service under the Heading 9986 and is taxed to ‘NIL’ rate of CGST as per SI.No. 24 (i) (i) (g) of the Notification No. 11/2017-CT (Rate) dated 28.06.2017 as amended and ‘NIL’ rate of SGST as per SI.No. 24 (i) (i) (g) of G.O.(Ms) No 72 dated 29.06.2017 No.II(2)/CTR/532(d-14)/2017 as amended.

QUESTION 7

Janya: An EOU unit wants to material for job work to a unit in SEZ.

Tanishi :

Law Applicable: As per sub section (2) of section 16 of IGST, the following shall be treated as zero-rated supply;

“supply of goods or services or both to a Special Economic Zone developer
or a Special Economic Zone unit”

Interpretation: SEZ is considered to be a foreign land for understanding and practical purpose of indirect taxes. When material is sent to SEZ the same is treated as zero rated supply. Refund needs to claimed on input ITC or outward tax paid as per section 54.

To get material back from SEZ, procedure of import needs to be followed. That is, bill of entry will be filed and custom duty will be paid. ITC of IGST paid under 3(7) of IGST will be available.

Conclusion: The procedure for sending material to SEZ and getting it back will be lengthy and the same will be treated as export and import respectively. The procedure of Job work challan cannot be followed if job worker is in SEZ. Therefore, it is advisable to get job work done from DTA rather than SEZ since it is a much simpler process without liability to pay tax.

While every care has been taken to ensure the accuracy/ authenticity of the above, the readers are advised to recheck/ reconfirm the same from the original sources/ relevant departments. The company shall in no way be responsible for any loss or damage suffered to any person on account of the same.

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