• A tax trigger aimed to replace the current complex tax structure of multiple indirect taxes to a single tax.
• GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
• GST Law has replaced many indirect tax laws that previously existed in India.

Taxes subsumed under GST –

Taxes levied by Central – Central Excise Duty, Service Tax, Additional Excise Duty, (CVD & SAD), Surcharge & Cess
Taxes levied by State – VAT, CST, Purchase Tax, Entry Tax, Octroi, Luxury Tax, Taxes on Lottery/Betting

Input Tax Credit Mechanism under GST –
The Input Tax Credit of Central GST can be set off against Central GST liability on the output at each stage. Likewise, the credit of SGST shelled out on inputs can be used to offset payment of SGST on output. However, the mechanism does not facilitate cross utilisation of credit; that is, credit for SGST cannot be set off against CGST and vice-versa.
In case of inter-state transactions, the central government would be responsible for collecting the Integrated Goods and Services Tax (IGST), which will be the sum of CGST and SGST. The purpose of this system is to facilitate smooth flow of Input Tax Credit between states. Input taxes paid in the form of IGST can be set-off against output tax liability of IGST/CGST/SGST.

Anti-Profiteering Law
As per Section 171 of the CGST/SGST Act-

• If there is reduction in rate of tax on the supply of goods or services or
• Benefit of input tax credit which was not available in previous law but is now available under GST then a person registered under GST must pass on the benefit through a commensurate reduction in prices of those goods and services.

We have been training and giving presentations to industries of different sectors. Our team keeps a close watch on all the updates related to GST and its impact on various business sectors.

Dual Tax Structure

• CGST to be administered by Centre
• SGST to be administered by State
• Dual monitoring- if one fails other may not fail

Seamless Credit Mechanism

Apportionment Mechanism of ITC

Taxable Event

What is a taxable event?

“Any event or transaction that results in a tax consequence for the party who executes the event. In other words an occurrence which affects the liability of a person to tax.”

Taxable Event Under Previous Laws

• Excise Duty– Manufacture or Production of Goods
• MVAT– Sale of Goods in course of Intra-State
• Central Sales Tax- Sale of Goods in course of Inter-State Trade
• Custom Duty– Import or Export of Goods into or from India
• Service Tax– Service provided or agreed to be provided by one person to another person in the Taxable Territory

Taxable Event under Goods & Services Tax
The taxable event under GST is SUPPLY of goods and services made for consideration (except schedule I) in the course or furtherance of business.

Concept of Supply

Section 2(92)

• The term “Supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of the business.
• It also includes import of service in the course or furtherance of business. Consideration is not necessary for import service to be termed as supply.
• Activities to be treated as supply even if made without consideration-
  • Permanent transfer or disposal of business assets on which ITC was availed
  • Supply of goods or services between “related persons” & “distinct persons”
  • Supply of goods between agent and principal

How to Determine Supply of Goods vs. Supply of Services in GST

• Schedule II of model GST law provides clarity in determining the type of supply as supply of goods or supply of services.
• This aims at eliminating the dilemma that exists in the current indirect tax system.
• For example VAT & Service Tax on works contract, AC Restaurant, Software, etc.

Deemed Supply of Goods & Services Goods

Composite Supply

• Composite Supply of goods and services is made by a taxable person to a recipient, and:
  • It comprises two or more supplies of goods or services, or
  • A combination of goods and services, which are naturally bundled and supplied, in the ordinary course of business.
• This means that the goods and services are bundled owing to natural necessities. The elements in a composite supply of goods and services are dependent elements on the ‘principal supply’ of goods or services.

Tax Liability of Composite Supply

• To calculate the tax liability the tax rate applicable on the principal supply of such goods or services will be effected on the composite supply.
• A 5-star hotel in Mumbai provides a 4 days/3 nights package with the breakfast. Let us assume, the hotel accommodation attracts 18% tax and the restaurant service attracts 12% tax.
• As per the example, hotel accommodation is the principal supply, and the entire supply will be taxed at 18%.
• It is important for businesses to look at the types of supplies made by them and re-assess them in order to achieve the objectives of bundling the goods and services, in context with the concepts of mixed supply and composite supply.

Mixed Supply

• Mixed supply under GST means two or more individual supplies of goods or services, or any combination, made together with each other by a taxable person for a single price. Each of these items can be supplied separately and is not dependent on any other.
• In Mixed Supply, the combination of goods and/or services are not bundled due to natural necessities, and they can be supplied individually in the ordinary course of business.

Tax Liability on Mixed Supply

To calculate the tax liability on mixed supply, the tax rate applicable on the goods or services attracting the highest rate of tax, in the combination of goods & services, will be considered.

Time, Place & Value of Supply

There are three important concepts under Supply

TIME OF SUPPLY :
To determine rate of tax, value & due dates for tax payments

PLACE OF SUPPLY :
To determine whether it is Intra-State or Inter-State

VALUE OF SUPPLY :
To determine the value of supply on which tax is to be levied

Value of Taxable Supply section 15(1)

• “Transaction Value” is the basis for Valuation for supply of goods and/or services under the GST Regime.
• For the levy of tax i.e. GST first we have to determine the transaction value. ‘Transaction Value’ is the price actually paid or payable for supply of goods and/or services.
• This is subject to dual condition as mentioned below:
  • Supplier and recipient of the supply are not related; and
  • Price is the sole consideration for the supply

Transaction Value

Transaction Value comprises of following:

• Any taxes, duties, cess, fees and charges levied under any act, except GST. GST Compensation Cess will be excluded if charged separately by the supplier.
• Any amount that the supplier is liable to pay which has been incurred by the recipient and is not included in the price.
• The value will include all incidental expenses in relation to sale such as packing, commission etc.
• Subsidies linked to supply, except Government subsidies will be included.
• Interest/late fee/penalty for delayed payment of consideration will be included.

Valuation of Taxable Supply

Discounts will be treated differently under GST. Discounts given before or at the time of supply will be allowed as deduction from transaction value. Discounts given after supply will be allowed only if certain conditions are satisfied.

The various aspects of product pricing, valuation of goods and services, and others will experience significant transformation as the tax system is simplified.

Place of Supply of Goods

• Place of supply is in the same state then it will attract CGST + SGST
• Place of supply is in other state then it will attract IGST
• Movement of Goods

Place of Supply = Place where movement of goods terminates

• ABC of Goa places an order with XYZ of Gujarat with an instruction to deliver the goods at the location of ABC in Goa. Movement of goods terminates in Goa so XYZ will levy IGST.
• ABC of Goa places an order with XYZ of Gujarat with an instruction to deliver the goods at the location of branch office of ABC in Gujarat. Movement of goods terminates in Gujarat so XYZ will levy CGST + SGST.

Place of Supply of Services

If other than specified services – Thumb Rule

• Supply of service to a Registered Person then Location of Registered Person
• Supply of service to a Unregistered Person then if address exists then Location of Unregistered Person and in case of non-availability of address then Location of Supplier

Supply between related persons/distinct persons

Section 25(4) & 25(5)

• Person having more than one registration in a state (Different Business Verticals)
• Registration in more than one state

Gifts exceeding Rs. 50,000/- in value by employer to employee to be considered as supply

Reverse Charge Mechanism

• Reverse Charge is a concept where liability to pay tax shifts from supplier to recipient,
• Act provides
  “The tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”
• We can infer that tax on Reverse Charge basis shall be payable only following conditions are satisfied:
  • There must be supply of some goods or services
  • Supply must be of taxable goods or services
  • The supplier of goods or services is an unregistered person
  • The recipient of goods or services must be a registered person

When to pay tax under RCM

GOODS – EARLIEST OF THE FOLLOWING

However, where it is not possible to determine the time of supply as above, the time of supply shall be the date of entry in the books of account of the recipient of supply.

SERVICES – EARLIEST OF THE FOLLOWING

FAQ Related to RCM

Q. Whether ITC allowed of tax paid under RCM?
Tax paid under RCM will be available as ITC to the registered recipient person.

Q. How to pay tax under RCM?
ITC can be utilized only for payment of Output Tax thus, ITC cannot be utilized for payment of tax under RCM. This means it can be paid through cash mode only.

Transitional Rules

Section 139 to 142

Section 140
A registered person shall be entitled to take the credit of CENVAT c/f in the last return furnished under existing law.

Section 140(3)
A registered person who was not registered under other law (Excise, Service Tax or CST) shall be entitled to claim credit of CENVAT of goods held in stock.

Section 140(5)
A registered taxable person shall be entitled to take, in his Electronic Credit Ledger, credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid before the appointed day, provided that document of same was recorded in the books of account within 30 days from the appointed day.

Input TAX Credit

Section 2(62) – Input Tax
“input tax” in relation to a registered person, means the

• IGST
• CGST
• SGST
• UTGST

charged on any supply of goods or services or both but does not include the tax paid under the composition levy.

Manner in which ITC to be claimed

• Every registered taxable person
• Shall be entitled to take credit of input tax
• Charged on any supply of goods or services to him
• Which are used or intended to be used in the course or furtherance of his business and
• The said amount shall be credited to the electronic credit ledger of such person.

• If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.
• Make payment to the supplier within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, along with interest. However, once the amount or part amount is paid he will be entitled to avail the credit accordingly.

Types of Returns to be filed and their Due Dates