The government has issued approx. 114 tax rate notification from 01/07/2017 from till now, this will just change for the government but this changes require taxpayer to realigning their entire business process. I have identified here some important aspects to be checked by the taxpayer when there is amendment in the tax rate.
1. CORRECT TAX RATE TO BE CHARGED IN CASE OF SUPPLY OF GOODS OR SERVICE OR BOTH
The liability to pay tax on goods or service shall arise at the time of supply so it is very important to understand when “TIME OF SUPPLY” arises in case when there is a change in the GST rate which is govern by Section 14 of the CGST Act, 2017.
When there is a change in the rate of tax during the occurrence of these 3 below events there may be some concern about the applicability of the correct rate of tax.
1. Supply of Goods or Services
2. Issue of Invoice
3. Payment for the Supply
I have categorised here two scenarios based on when Goods or Service or Both have been supplied:-
| FIRST SCENARIO
Goods or Services or Both have been supplied BEFORE THE CHANGE IN RATE OF TAX |
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| Invoice Issued | Payment Received | Time of Supply | Rate Apply |
| After the change in rate of tax | After the change in rate of tax | The date of receipt of payment or the date of issue of invoice, whichever is earlier | New Rate |
| Before the change in rate of tax | After the change in rate of tax | Date of Issue of Invoice | Old Rate |
| After the change in rate of tax | Before the change in rate of tax | Date of Receipt of Payment | Old Rate |
| SECOND SCENARIO
Goods or Services or Both have been supplied AFTER THE CHANGE IN RATE OF TAX |
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| Invoice Issued | Payment Received | Time of Supply | Rate Apply |
| Before the change in Rate of Tax | Before the change in Rate of Tax | The date of receipt of payment or the date of issue of invoice, whichever is earlier | Old Rate |
| Before the change in rate of tax | After the change in rate of tax | Date of Receipt of Payment | New Rate |
| After the change in rate of tax | Before the change in rate of tax | Date of Issue of Invoice | New Rate |
- “The date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.
- The date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after four working days from the date of change in the rate of tax.
2. COMPLIANCE SWORD OF ANTI-PROOFITEERING MEASAURE U/S SECTION 171
In case if changes in tax rate leads to lower tax rate for your goods or service then the taxpayer will face the compliance of anti-profiteering measures.
As per anti-profiteering measure, a registered person shall pass the benefit of reduction of rate of tax on any supply of goods or service to the recipient by way of commensurate reduction in prices.
If the taxpayer does not complied the same, then such taxpayer shall be liable to pay penalty equivalent to 10% of the amount so profiteered and interest at the rate of 18% from the date on which the amount is realized till the date of its deposit.
Due to non-compliance of this provision, taxpayer will face huge litigation over the period of time, involvement of higher tax authority, loss of manpower, financial issue, mental harassment etc.
It is beneficial for the taxpayer when when there is reduction in rate of tax then they should identify the benefit of reduction in rate of tax with their cost management and internal audit team.
3. ISSUE OF DEBIT NOTE OR CREDIT NOTE AS PER THE CORRECT TAX RATE
On checking it has been found that the tax rate charge in the invoice is wrong then taxpayer may comply the provisions by issuing debit note or credit note.
LOWER TAX RATE CHARGED EARLIER AND CORRECT TAX RATE IS HIGHER
Where the taxpayer has issued tax invoices for supply of any goods or services or both and it has been found that the tax rate charged in that tax invoice is lower than the correct tax rate than the taxpayer may issue to the recipient debit note for the same.
HIGHER TAX RATE CHARGED AND CORRECT TAX RATE IS LOWER
Where the taxpayer has issued tax invoices for supply of any goods or services or both and it has been found that the tax rate charged in that tax invoice is higher than the correct tax rate than the taxpayer may issue to the recipient credit note for the same.
4. ILLUSTRATIVE ASPECTS TO BE CHECKED WHEN THERE IS CHANGES IN THE GST RATE
- Changes/Updation in the accounting software, inventory software etc
- Aligning or realigning selling price for goods or service particularly cumbersome process for manufacturing industry
- Changes in the company standard guidelines and training/intimate to the concern staff of the company such as finance department, accounts office, purchase department, sale department, marketing department etc.
- Evaluation of working capital cycle due to accumulation of input tax credit in case of lower tax rate on outward supply, higher tax rate on procurement of goods or service etc.
- Evaluation/Revision of legal agreement or tender due to revision of tax rates
- Higher demand in case of low tax burden (change tax rate lower) to the end user this may require to deploy new marketing ideas
- Lower demand in case of high tax burden (change tax rate higher) to the end user resultant lower demand for goods or service (accumulation of old stock)
- Changes in the printed stationary such as pre-printed tax rate invoice (tax rate already mentioned), packaging items (printed already printed)
- GST refund in case of inverted duty structure where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (please check more details of the provisions)
Disclaimer:
(Note: The view expressed in this article is expressed by Mr. Nayan Jain (Jarak) (Author Member of Team GSTCORNOR®). Information compiled above is based on my understanding and review. Any suggestions to improve above information are welcome with folded hands, with appreciation in advance. All readers are requested to form their considered views based on their own study before deciding conclusively in the matter.)
Feedbacks are invited at nayan.jarak@gmail.com or at team@gstcornor.com
Author : Nayan Jain (Jarak) | nayan.jarak@gmail.com
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