Some FAQs on GST, tried out in simple words

1. What will happen to balance of Central Excise / VAT Credit for stocks on 30.6.2017?

Manufacturer

Section 140(1) – Materials

 

• A Registered Person if they do not opt for compounding scheme, as provided in Section 10, can claim the balance of CENVAT Credit & Service tax Credit shown in last returns under existing laws before implementation of GST, as CGST credit. 

 

·      Similarly under provisions of SGST Act (to be enacted by States) balance of VAT shown in last returns in existing law before

Closing credit balance in books of accounts would be immaterial.

Section 140(2) – Capital goods

 

A Registered Person if they do not opt for compounding scheme, as provided in Section 10, can claim the unavailed CENVAT credit on capital goods as CGST. 

 

Similarly under provisions of SGST Act (to be enacted by States), unavailed balance of VAT on Capital goods can be claimed as SGST credit.

Dealers / Distributors

Section 140(3) – Materials

 

A Registered Person not eligible to be registered under existing laws or if they manufacture exempted goods or they are a first stage dealer or second stage dealer or a registered importer or a depot of a manufacturer, can claim the tax on closing stock provided (apart from  other conditions)

• They can show the invoice under which the stocks were purchased and this invoice should have excise duty value on it along with evidence of payment of such duty.
• This invoice should be within 12 months of the date of GST implementation. 

 

If the Registered person is not able to provide invoice with excise duty as mentioned above then they will be allowed credit in the below formula

• At the point of sales – provided sales happens within 6 months
• On the sale value 40% of CGST will be given as credit under CGST law.  Meaning a credit of 3.6% under CGST will be available

 

Similarly under provisions of SGST Act (to be enacted by States), VAT on closing stocks can be claimed as SGST credit subject to similar conditions under CGST.

2. Invoice by vendor on 29.06.2017 under old act, material received on 3.7.17 under GST, how to avail credit?

Section 140(5)

 

If invoice is raised by vendor prior to GST implementation and material is received after GST implementation then credit of these taxes can be availed under CGST provided the same is accounted within 30 days and proof of this accounting shown.  Extension of time beyond 30 days can be provided by Commissioner in case to case basis.  Similar provision is also available for SGST under State GST Act

3.  Material billed before 1.7.2017 under old laws, material returned by customer after 1.7.17 under GST, what is the treatment of taxes?

Section 142(1)

 

For Unregistered person, any material billed before GST implementation to be returned after GST implementation, then

 

• this material should have been invoiced maximum 6 months prior to GST implementation
• Should be returned within 6 months after GST implementation
• If the above 2 conditions are satisfied then refund will be provided

 

For Registered Person any material billed before GST implementation to be returned after GST implementation, then the person returning the material should make it as a supply under GST charging CGST / SGST / IGST on those products against which the registered person can claim credit.

 

Similar provisions will be part of to be enacted State GST acts for VAT

4.  Any price changes for sales prior to 1.7.17 how to be handled?

Section 142(2)

 

Any upward or downward price changes for supplies made before GST implementation should be made through supplementary invoice / debit notes / credit notes and GST to be paid or refunded accordingly.  If refund has to be taken to ensure that the vendor reveres the GST credit before going in for refund

5. Exporters how will they get taxed or refund under GST

Normal Export:

Supplier of Zero rated goods or services or both will have to receive inward supplies of goods or service or both as inputs, input services or capital goods after paying CGST/SGST or IGST as the case may be. Whatever tax has been paid under GST laws for which such supplier is entitled for the availment of credit the whole amount of eligible credits will become refundable, as his output tax liability will be NIL being a zero rated supply.

Zero rated supply means u/s 16(1) of IGST Act 2017

•           Export of goods or services or both or

•           Supply of goods or services or both to a special Economic zone developer or a SEZ unit.

Refund u/s 54 of CGST Act:

Refund application to be made within 2 years by any person-section 54(1)

An application for claiming refund of any tax and interest, if any, paid on such tax or any other amount paid, has to be filed electronically to the proper officer of the CGST within a period of two years from the relevant date in the FORM GST RFD-1. It is worth highlighting here that the aforesaid refund application may be filed by any person. Further, refund application has to be filed electronically through the common portal either directly or from facilitation centre, notified by the Board or Commissioner.

 

6. Place of goods of supply

Chapter V of IGST Act, 2017

• Section 10(1)(a) – Location of the goods at the time at which the movement  of goods terminates  for delivery to the  recipient     
  • Eg : Delhi customer order on Ranipet factory.  Delivery term ex-works – as delivery terminates at Tamilnadu, Ranipet factory will charge SGST & CGST treating it as a local sales.  
  • If alternatively terms are CIF Delhi then place of supply is Delhi and IGST will be charged treating it as a interstate sales.
• Section 10(1)(b) – Eg : If a customer in Delhi orders on Ranipet factory for delivery to warehouse in Coimbatore, then place of supply will be Delhi who is the original customer and IGST will be charged treating it as an interstate sales.

7. Time of goods of supply (Chapter IV – Section 12 to 14 of the CGST Act, 2017)

The taxable event under the GST regime shall be supply of goods and services. However, the time of supply when the liability to pay CGST/SGST (intrastate) or IGST (inter-state) on goods and/or services arises, shall be determined in the following manner:

General Provision:

The time of supply of goods and services shall be determined as under:

Time of supply for goods

Time of supply for services

Earliest of the following: a.     Date of Issue of invoice by the supplier or the last date on which he is required, to issue the invoice (under section 31(1)) with respect to the supply b.    Date on which the supplier receives the payment with respect to the supply

Earliest of the following: a.     Invoice issued within prescribed time period [under Section 31(2)]-> Date of issue of invoice by the supplier, or the date of receipt of payment, whichever is earlier: or b.    Invoice not issued within prescribed time period [under Section 31(2)]-> Date of provision of receipt of payment, whichever is earlier; or c.     Others-> Date on which the recipient shows the receipt of services in his books of account.

 

8.  Payment of tax on advances received

It is important to note here that unlike services, where service tax is payable on accrual basis, applicability of tax on advance payment received is going to be a new phenomenon for goods taxability in GST. GST would be payable on advance amount received in respect of both goods and services provided such advance is linked to the supply of goods and /or services.

  

9.  When to raise invoice?

Provisions for raising invoice:
Supply of goods [as per Section 31(1)]	Supply of Services [as per Section 31(2)]
Before or at the time of, a.     Removal of goods for supply to the recipient, where the supply involves movement of goods, or b.    Delivery of goods or making available thereof to the recipient, in any other case	Before or after the provision of service but within a period prescribed [i.e 30 days in all cases/ 45 days in case of banking and financial institution form the date of supply of services]

 

10. Sales returns

Section 34(1) when tax charged in tax invoice is higher or value charged higher in invoice or where the goods supplied are returned by the recipient, or where goods supplied are found to be deficient, the registered person, who has supplied such goods, may issue to the recipient a credit note

Section 34(2) Credit note can be adjusted before September 30^th of the completion financial year against tax liability.  Meaning if sales return happens on 1.10.17 & 31.03.18 credit note to be issued and adjusted before 30.09.2018 for both the cases, provided customer reverses the GST credit for the material and there is proof of the same.

Section 34(3) when tax charged in tax invoice is lower or value charged lower in invoice, the registered person, who has supplied such goods, may issue to the recipient a debit note

Section 34(3) Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient a debit note or supplementary invoice containing such particulars as may be prescribed.

Section 34(4) Any registered person who issues a debit note shall declare the details of such debit note in the return for the month during which such debit note has been issued and the tax liability shall be adjusted in such manner as may be prescribed.

11. Exemption for small traders – Rs.20 lacs

Section 22(2) Exemption limit for North eastern states - Rs.10lakh

Section 22(1) Exemption limit for rest of India – Rs.20lakh

The exemption limit is applicable only when supply (sale) is made within the state. Any supply outside the state will attract registration provisions.  If IGST charged no exemption. 

12. List of traders not allowed for the exemption of Rs.20 lacs

Section 24 of CGST Act, when Exemption limits is not applicable

The following person shall have to register irrespective of the turnover;

• Person making any inter-state taxable supply (i.e. selling outside the state)
• Casual Taxable person
• Person who required to pay under Reverse Charge
• Non-resident taxable person
• A person required to deduct tax (e.g. e-commerce business – marketplace).
• The person supplying goods or services or both as an agent of any other person.
• Input Service Distributor
• A person who supplies goods or services through e-commerce.
• Every e-commerce operator
• An aggregator who supplies services under his brand name

13. Composition scheme – Rs.50 lacs

Section 10 - This is applicable if annual turnover is below Rs.50 lakhs.  A registered taxpayer, who is registered under the Composite Scheme will pay tax at a rate not more than 1% for manufacturer, 2.5% for restaurant sector and 0.5% for other suppliers of turnover.

Composition Dealer is not allowed to avail input tax credit, such a dealer cannot issue a tax invoice as well. A buyer from composition dealer will not be able to claim input tax on such goods. A Composition Dealer is not allowed to avail input tax credit of GST paid to their supplier.

 Composition Scheme is available only for intra-state supplies. If a dealer is involved in inter-State supplies, then he cannot opt for the scheme.

14. List of traders not allowed for the exemption of Rs.50 lacs

Following taxable persons are not granted permission to opt for the scheme who:

• Supplies goods not leviable under the Act
• Supply of services
• Makes a supply of goods other than intra state ie interstate or import/ export
• Makes a supply of goods through Electronic Commerce Operator ie Ecommerce and liable to collect taxes
• Manufactures such goods as may be notified

Further, it is also if in case a taxable person has different business segments having same PAN as held by the taxable person, he must register all such businesses under the scheme.

If an individual has different business segments such as:

1. Textile
2. Electronics and accessories
3. Groceries

Then he must register all the above segments collectively under the composite scheme or simply opt not for the scheme.

 15. Importance of HSN – 2 digits, 4 digits

 In Indian Context, a taxpayer having a turnover exceeding Rs 5 crore is required to follow the HSN code of 4 digits. For taxpayers with turnover between Rs 1.5 Crores and Rs 5 Crores in the preceding financial year, HSN codes may be specified only at 2-digit chapter level as an optional exercise to start with. From second year of GST operations, mentioning 2-digit chapter level HSN Code will be mandatory for all taxpayers with turnover in previous financial year between Rs. 1.5 Crores and Rs. 5.0 Crores. HSN code at 2 digit will be little easy for taxpayers and make GST an international compatible tax as well.

16. Services Accounting Code

For every service there is a specific Tax collection accounting code and Interest/Penalty accounting codes.

17. How will imports be taxed under GST

The GST should be payable on the transaction value of imported goods plus any duties/ taxes, etc, levied under any statute other than the GST laws. This should mean that while paying IGST on the imported goods, basic customs duty (‘BCD’) should be added to the transaction value of the imported goods. Additionally, other duties such anti-dumping duties, safe guard duties, etc is envisaged to continue as well. This practice is in line with the current regime as well as the global practices where import VAT or GST is payable.

Section 7(2) of the IGST Act, 2017 states that imports will be subject to IGST similar to an interstate transaction

18. How will exports be treated under GST

Normal Export:

Supplier of Zero rated goods will have to receive inward supplies of goods or service or both as inputs, input services or capital goods after paying CGST/SGST or IGST as the case may be. Whatever tax has been paid under GST laws for which such supplier is entitled for the availment of credit the whole amount of eligible credits will become refundable, as his output tax liability will be NIL being a zero rated supply.

Zero rated supply  means u/s 16(1) of IGST Act 2017:

• Export of goods or services or both or
• Supply of goods or services or both to a special Economic zone developer or a SEZ unit.

19. Supplies without consideration, provisions under GST

Section 7(1)(c) read with Schedule 1 says that certain activities will be charged under GST even if transferred without any  consideration

20. Are samples taxed under GST

There is no GST on samples, however we have to reverse the input tax credit on those samples

21. Tax on composite & Mixed supply

Composite supply

Composite supply means a supply comprising two or more goods/services, which are naturally bundled and supplied with each other in the ordinary course of business, one of which is a principal supply. The items cannot be supplied separately.

Illustration in Revised GST law: Where goods are packed, and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply. Insurance, transport cannot be done separately if there are no goods to supply. Thus, the supply of goods is the principal supply.

Tax liability will be the tax on the principal supply i.e., GST rate on the goods.

If the second condition is not fulfilled it becomes a mixed 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.

It shall not be a mixed supply if these items are supplied separately.

For tax under GST, a mixed supply comprising two or more supplies shall be treated as supply of that item which has the highest rate of tax.

Illustration in Revised GST law: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. All can be sold separately. Assuming aerated drinks have the highest GST rate, aerated drinks will be treated as principal supply.

22. Reverse Charge meaning & implication

Under section 1(98) “reverse charge’’, means the liability to pay tax by the person receiving goods and / or services instead of the person supplying the goods and / or services in respect of such categories of supplies as the Central or a State Government may, on the recommendation of the Council, by notification, specify;

For example, if we buy from an unregistered dealer we have to pay tax on their behalf

23. Please explain Input Tax Credit provisions briefly

Chapter V

if you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned here, registered under GST, You are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.

To claim input credit under GST –

• You must have a tax invoice(of purchase) or debit note issued by registered dealer
• You should have received the goods/services
• Where recipient does not pay the supplier of goods the amount towards the  value of supply along with tax payable therein within a period of 180 days from the date of invoice he has to reverse the credit and pay GST along with interest
• The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit
• Supplier has filed GST returns

Possibly the most path breaking reform of GST is that input credit is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated before you can claim it.  Therefore, to allow you to claim input credit on Purchases all your suppliers must be GST compliant as well.

There’s more you should know about input credit –

• It is possible to have unclaimed input credit. Due to tax on purchases being higher than tax on sale. In such a case, you are allowed to carry forward or claim a refund.
  If tax on inputs > tax on output –> carry forward input tax or claim refund
  If tax on output > tax on inputs –> pay balance
  No interest is paid on input tax balance by the government

• Input tax credit cannot be taken on purchase invoices which are more than one year old. Period is calculated from the date of the tax invoice.
• Since GST is charged on both goods and services, input credit can be availed on both goods and services (except those which are on the exempted/negative list).
• Input tax credit is allowed on capital goods.
• Input tax is not allowed for goods and services for personal use.
• No input tax credit shall be allowed after GST return has been filed for September following the end of the financial year to which such invoice pertains or filing of relevant annual return, whichever is earlier.
  24. What are the provisions for Input service provider
  Input Service Distributor under GST includes

• an office of the supplier of goods and / or services which
• receives tax invoices issued under section 28 towards receipt of input services and
• issues a prescribed document for the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above

Conditions for distribution of Credit

• Prescribed documents must be issued to the receipts of credit containing prescribed details
• Amount of credit distributed must not exceed amount available to distribution
• Credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
• Credit of tax paid on input services attributable to all or more than one recipient of credit shall be distributed only amongst such or all recipient(s) to whom the input service is attributable and such distribution shall be pro rata on the following basis
• turnover in a State of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;
• if some or all recipients of the credit do not have any turnover in their States in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed

25. Please explain Anti-profiteering

Section 171 has been inserted in the GST bill which provides that it is mandatory to pass on the   benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices.

This clause further provides for the establishment of an authority against anti-profiteering in order to ensure its compliance. While the end consumer may have some reason to cheer, the industry is still doubtful of its implementation.

26. What is Compliance rating mechanism?

Section 149 states that every registered person will be given a compliance score based on his record of compliance with the provisions of this act

Please note this may be very crucial as all customers will look at this rating.