Diwali Gifts by GST Council

The GST Council held it’s 28th meeting recently and Shri Piyush Goyal, acting Finance Minister was the Chairman of this meeting. The Council took many decisions which are beneficial to the industry and business and which may serve as Diwali gifts to the consumers if the businessmen pass on the benefits of reduction in the rate of tax or increase in set off to them. Otherwise they could face action under anti-profiteering provisions as Dominos is facing at present. The decrease in the rate of tax is for nearly 85 goods of mass consumption and some services and are effective from 27th July 2018. It is expected that lowering of rate of tax would result in better compliance and boost consumption as well. CBIC issues 28 Notification Related to GST Rates on Goods & Services

The reduction in GST tax rate and benefits in case of some goods/services are :-

1) Washing machine, mixers, water coolers, vacuum cleaner, refrigerators and TV with screen size below 27 inches-(reduction from 28% to 18%)This would benefit the middle class as well as young generation as tax rate is reduced by 10 percent. Truly Diwali gift, this could revitalise the market for electronic goods.

2) Paints, varnishes –(reduction from 28% to 18%) This could give boost to the construction industry as well as automobile industry.

3) Handbags, perfumes ,leather products, footwear -The reduction in tax rate could give boost to personal consumption industry and benefit the common man.

4) Ethanol for blending with petrol-(reduction from 18% to 5%)This move could benefit the oil companies, common man as the price of fuel could reduce as well as save precious foreign exchange.

5) Sanitary napkins -The tax rate is reduced from 12 percent to zero percent. However ,the prices may not reduce by 12 percent as the manufacturers would not get ITC on the purchases of inputs which suffer 12 to 18 percent tax. Also, it is feared by the local industry that the imports may turn out to be cheaper as they would suffer only custom duty (IGST is zero) whereas the domestic manufacturers would not get ITC on inputs.

6) Rakhi (without precious materials) These are now exempted goods. -This is meant as Rakshabhandan gift to all sisters.

7) GST Payable on actual tariff-The GST Council has decided that tax rate for the levy of GST on room rent charges by hotels would be decided on the basis of actual tariff and not declared tariff. This could give boost to the hotel industry from the coming festival season. This decision removes one of the anamolies of the GST Taxation system which was borrowed from the earlier regime.

8) Services supplied by electric distribution company by way of construction, erection, commissioning or installation of infrastructure for extending electricity distribution network upto the tubewell of the farmer for agricultural use are now exempted from the levy of tax. This is meant to give relief to the agriculturists. .

9) Supply of services by old age homes run by State/Central governments or bodies registered under section 12AA of Income tax Act to it’s residents aged 60 years and above for consideration upto Rs 25000 per month per member shall be exempt from GST. This consideration includes lodging, boarding and maintenance. This would be beneficial to all senior citizens staying in such old homes.

10) Services by establishment of person in India to it’s overseas establishment would be exempt from tax. This shall be beneficial to many software companies and construction companies having establishment /project offices outside India. For example L&T has project office in London which is well equipped to carry out construction activities. The head office in Mumbai supplies engineering drawings to it’s project office. Because of this amendment such services would now be exempt from GST.

11) The entry for restaurant services has been recast in view of the requests from the trade. The following supplies of food and non alcoholic drinks would be subject to 5% tax (2. 5% CGST and 2. 5% SGST)-

a) Supplies by a restaurant located in the premises of hotels, inns, guesthouses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff below Rs 7500/- per unit per day. These supplies include take away parcels.

b) Supplies by eating joint including mess, canteen, cafeteria or dining space of an institution such as a school, college, . hospital, industrial unit, office based on a contractual arrangement with such institution for such supply. These supplies include take away parcels. However,supplies which are event based or occasional (such as send off party/ birthday party)would not be covered by this entry and would be subject to 18% rate of tax.

c) Supplies by IRCTC or their licensees,whether in trains or at platforms.

12) Supplies of food/drink for human consumption at exhibition halls, events, conferences, marriage halls and other outdoor or indoor functions that are event based and occasional in nature would be subject to 18% tax rate(9% CGST and 9% SGST)

GST Council has taken a number of decisions for amending the Act for the purpose of ease of doing business and to remove the kinks. However these amendments shall be effective only after they are passed by the Parliament and the various state legislatures. Some of them are as follows –

1) The GST Council has recommended simplified provision regarding the filing of returns. Taxable persons having annual turnover below Rs 5 crores shall have the option to file single quarterly returns with monthly payments. The format for the return has been simplified. The taxable person can upload the details of outward supply invoices on continuous basis. The buyer can also view and lock the invoices for availing the ITC on continuous basis(instead of at the end of month). This would reduce the load on the system as 93% of the dealers could file quarterly returns as well as end the month end load. This would also reduce the load on the accountants as well as taxable persons as they could now upload the details continously instead of waiting for the end of month. The main concern would be the claim of ITC by those filing monthly returns and claiming ITC on the purchases from those filing quarterly returns . Also, in India there is tendency to file returns at the last moment which could upset the applecart. The format for filing the quarterly returns too has been simplified and 2 forms by the names of Sahaj and Sugam have been designed for this purpose. Besides, the Council has simplified the procedure for filing nil returns. These could be filed under the new system by sending SMS. The new system is expected to be implemented from 1st January ,2019.

2) Another field in which simplification has been recommended is the claim of ITC. It has been recommended that ITC could be claimed on passenger motor vehicles having seating capacity of more than 13 persons,vessels and aircraft. This could be huge booster for the passenger transport companies, airline companies and shipping companies. This could result in replacement of ageing vehicles as well as expansion of capacities. Also, industries providing the facility of transporting employees could also claim ITC on new purchases as well as on the purchases used in repairs and maintenance of such vehicles. The purchase of new aircraft/vessels by airline/shipping companies results in very heavy capital expenditure and grant of ITC would give huge relief to them. It is expected that this additional grant of benefit in ITC would be passed on to the passengers by reducing the fare rates as otherwise they could be held responsible under section 171 for profiteering.

Also,ITC could be claimed by banking companies or financial institutions on the purchases of vehicles used for transportation of money. This could be booster for the banks who are expanding the ATM network and require vehicles for the transport of money to such ATM’s.

It has also been recommended by the Council that ITC would be allowed on the purchases of services which are obligatory for the employer to provide to it’s employees due to the provisions of any law being in force for e. g. if the provision of canteen facility is mandated under the provisions of the Factories Act, the company shall be eligible to claim ITC on the purchases from canteen for the employees. Also ,if any service is provided to the employees on it’s own sweet will or due to any contract with it’s employees, it cannot claim ITC on the purchases of such service provided by it.

3) Another important recommendation is the declaration of some supplies to be supply of neither goods nor of services. One such supply is the supply of goods from place outside India to another place outside India. For e. g. if an Indian company purchases goods in Japan and sends such goods to Saudi Arabia without bringing such goods to the Indian shores, then such supply shall not be supply for the purposes of GST Act. Same is the case of all supplies taking place on high seas before the last supply (supply in which delivery has been taken and custom duty as well as IGST has been paid) which shall also be treated as non supply. For e. g. M/s Havells India purchases machine from Japan and sells this machine to M/s Avery India before the goods have crossed the customs frontier of India. M/s Avery India also sells such goods to M/s L&T Ltd before the goods have crossed the Indian customs frontier. The delivery of the machine is taken by M/s L&T Ltd which files bill of entry and pays customs duty and IGST on such purchases. The supplies made by M/s Havells India to M/s Avery India and by M/s Avery India to M/s L &T Ltd are not supplies on forward charge basis due to this proposed change

4) The Council has recommended raising the threshold exemption limit for registration in the states of Assam, Arunachal Pradesh, Himachal Pradesh, Meghalaya,Sikkim and Uttarakhand to be increased to Rs 20 lakhs from Rs 10 lakhs thus aligning them with most of the states. Also ,taxpayers can opt for multiple registrations in respect of multiple places of business within the same state or union territory. This provision could induce some businesses to take separate registrations and take the advantage of filing quarterly returns.

5) One of the most important recommendation is to raise the limit for composition scheme to Rs 1. 5 crores. Also, composition dealers would be allowed to supply services (other than restaurant services) for upto a value not exceeding 10% of the turnover in the preceding financial year or Rs 5 lakhs whichever is higher. This amendment shall be beneficial to small traders who had small percentage of receipts from repairs or rent and were therefore unable to take advantage of the composition scheme for e. g. small dealers trading in watches, gold smiths etc.

6) Some other recommendations are the suspension of RCM provision (payment of tax by the buyer on purchases from URP (unregistered person)upto 30-09-19 and allowance of consolidated debit note/credit note. The industry was against the RCM provision due to hazards in compliance and the recommendation has rightly been made as very little revenue is expected from this provision. The recommendation of allowance of consolidated credit notes would alleviate the hardship of the industry in claiming goods return/sales incentive as well as result in saving the environment due to saving of paper by issue of single credit notes for monthly/quarterly claims.

It is expected by the government that all the above recommendations would result in better compliance by the taxpayers thereby resulting in higher tax collection by the government. It is also expected that the taxpayers shall also pass on the benefits received by them to the consumers so that there is festive spirit all around.

(Article is based on my personal opinion and is not departmental opinion.)

Press Releases on 28th GST Council Meeting-