GST India - Key issues & Concerns (July 2017)

GST - Key issues & concerns
12th June, 2017
Deliberation by: P K Bansal, Advocate
Balwant Rai Bansal & Co, Advocates
Akhil Bansal & Associates, Chartered Accountants
119-121, Anarkali Complex Jhandewalan Extension
Delhi - 110024

Problems in existing tax structure
Balwant Rai Bansal & Co, Advocates 2

 Different tax rates in different states
 Taxes cascading & credits restriction
 No offset of CST against VAT
 No service tax credit in case of trading entities
 Excise on capital goods not available to trading entities or service providers
 Restrictive list where input credits available on capital goods
 Branches being maintained unnecessarily for reducing impact of taxes as CST is not
cenvatable
 Credit available on capital goods, where applicable, is proportionate over number of
years
 Above resulting in unnecessary price increases
Problems in existing system

 Forms requirement (C, F, E1, etc forms) – cumbersome process
 Different compliances, based on different tax laws. For example – 25 states have different
law. Compliances, procedures, forms filing, etc. Some filings are even manual, and not
system driven.
 Different type of invoice formats under each law
 Multiple taxes (VAT, Excise, Octroi, service tax, etc) requiring multiple compliances
 Abatement on goods and service portion, unnecessarily increases the transaction value (like,
in case of works contract)
 Both VAT and service tax on same transaction (like software, Trade Marks, Patents,
Copyright, Works contract, Food supply in AC restaurants ). Buyers also impacted as high
Cost
 Multiple authorities to deal with by the taxpayer. Each authority undertakes own
assessment / audits

Sale in Transit
transaction (i.e. C + E1)

GST - overview

Central
Levies
Customs
Duty
Service
Tax
Excise
Duty
Central
SaleCsesTsa
x
Entry Tax & Octroi
EntertainmentTax
Electricity Duty
LuxuryTax
VAT
State
Levies
Which taxes go away
7

Type of taxes

 On Intra-State supplies of goods or services - CGST & SGST
 On Inter -State supplies of goods or services - IGST
 Determination as whether IGST or CGST/SGST, based on
where movement of goods terminate Evidence of movement of
goods may still be relevant in GST regime for applicability of
IGST (E-way bills can also evidence the same)
 Above is important as Tax wrongly deposited, will have to be
paid again in correct head and refund claimed for paid
wrongly
Type of taxes

Key issues in GST

 PAN based Registration
 required to be obtained for each State from where taxable supplies are being made
 Liability to be registered based on turnover
 Every person whose turnover in a year exceeds Rs
20 lacs (Rs. 10 lakh for special category States)
 Vendors registered on E-Commerce Marketplace, to be also registered as E-Commerce Cos
will be collecting TCS on behalf of vendors
 Compounding threshold limit to be Rs. 50 lakh – not available to inter-State suppliers, service
providers (except restaurant service) & specified category of manufacturers. No participation in ITC
chain
 Concept of Casual traders also introduced
Registration

Composition Levy

 Tax on supply of goods or services rather than manufacture /
production of goods, provision of services or sale ofgoods
 Tax also applicable in case of branch transfers (outside the
state)
 Tax also applicable in case of consignment transfers (both in
and outside the state)
 No Tax on goods sent on job work, subject to return of goods
in 1 year (in case of inputs) / 3 years (in case of capital goods).
Intimation to authorities to be given in respect of goods sent
on job work
Taxable Event

Time of supply
 Tax payable by Seller on advances received (> Rs 1000) or date of
invoice
 Credit available by buyer only when goods or services are
received & invoices issued and not at time of payment of
advances
 No impact on advances and creditors, appearing on the
transition date of GST
 If amount not paid within 6 months, credit to be reversed.
Further extension can be applied for another 6 months

Consideration
16Balwant Rai Bansal & Co, Advocates
 Tax is to be paid on Transaction value (TV) of supply (except related party
transactions or where price is not sole consideration). Supply can be at
lower then cost as well. However, Free supplies can result in GST credits
reversal
 Supplies made to related persons be in accordance with valuation rules
 Any material / services received from recepient to be included in the
consideration amount (and subject to tax)
 Other costs covered under GST
 All incidental expenses incurred before supply
 Freight cost, even if recovered from customer on actuals
 Interest, fine, late fee or penalty recovered from customer

Only following discounts to be reduced from transaction
value
Consideration

Purchase from unregistered dealer

GST credits availability
 All credits on inputs and input services used in course of furtherance of business
available (subject to small list of blocked credits – discussed in next slide)
 Conditions –
 possession of invoice;
 receipt of goods or services;
 tax actually paid by supplier to government;
 furnishing of return [Credits mis-matching will be big issue]
 Full ITC allowed on capital goods in one go (subject to small list of blocked credits –
discussed in next slide)
 Proportionate credits allowed in case inputs, inputs services and capital goods are used
for taxable including zero rated and exempt (including non-taxable) supplies

 If amount not paid within 6 months, credit to be reversed Huge compliance
cost as genuine reasons (like disputes on quality issues, short receipt, etc) be
also covered under this. Govt. acting as recovery agent for supplier by
introducing this kind of provision (especially, when government has
recovered the amount of tax on the transaction)
 Matching of supplier’s and recipient’s invoice details
 ITC to be confirmed only after matching of such
information
 ITC to be reversed in case of mis-match
 Advisable to withhold certain amounts, till it reflects as credits online
GST credits availability

GST credits availability – list of blocked credits
• Motor vehicles and conveyances except where motor vehicles and
conveyances are further supplied i.e. sold or used for Transport of
passengers / goods
• food and beverages, outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery (unless goods and/or services are taken to
deliver the same category of services)
• Sale of membership in a club, health, fitness centre.
• rent-a-cab, health insurance and life insurance except the following:
• travel benefits extended to employees on vacation such as leave or home
travel concession.
• Works contract service for construction of an immovable property

 CGST cannot be offset
against SGST
 SGST cannot be offset
against CGST
22
GST credits availability – utilization

GST credits availability – CGST / SGST vs IGST
Company
A
Delhi
Vendor
Credits of IGST is available to
Company A in Delhi
IGST
Mumbai
Company
A
Delhi
Vendor
No Credits of CGST & SGST paid in
Mumbai is available to Company A in
Delhi
CGST / SGST
Mumbai
Option A Option B

Company
ADelhi
Vendor
Credits of CGST / SGST in Mumbai is available
to Mumbai branch of Company A – which in
turn will transfer to Delhi office
IGST
Mumbai
Branch
Mumbai
Variant of Option B (to avoid credits
going waste)
CGST / SGST

Type of supply
Situations where local CGST / SGST is
charged on invoice by supplier and not
IGST
Our Remarks
Services
Rentals paid for premises in other states
(where no registration taken)
Credits will not get lost if registration
also taken in other states. Decision to
depend on following
1. Cost of compliances of registering
in other states
2. Materiality of credits
3. Frequency of transaction (for
deciding between casual traders vs
normal registration)
Hotel bills paid
Flight / train tickets (place of start of journey
is in other state)
Telecommunication services in other states
Goods
Delivery of goods taken in other state /
delivery terminates in state of supplier only

Exporters / Importers

Importer / Exporter of goods & services
 Declaration of valid GST Identification Number in Customs documents
(Bill of Entry/Shipping Bill) would be mandatory with effect from July 1,
2017
 declared GSTIN would be validated for correct Import Export Code
(IEC)/ PAN linkage
 All import of goods to attract IGST (to replace CVD and SAD portion –
BCD continue to stay)
 Applicability of GST on High Sea Sales is still an issue. Government
to release clarification
 Current customs import tariff is loaded with multiple exemption
notifications which are likely to reviewed and possibly withdrawn or
converted into a refund mechanism

GST credits – for Importer of goods & services
 IGST paid during import will be available as a credit under “Import and
Sale” model, whereas no such credit is available presently.
 Refund of SAD which is available now, after doing specific
compliance, no such restrictions are placed under GST.
 IGST credits available on GSTN portal, immediately on payment of
duty as Customs will get linked with GSTN. Updation of IEC in GSTIN
is important
 In case of any difference in PAN declared for GSTIN vis-à-vis IEC
registration, amendment of PAN in IEC may be undertaken
immediately

GST credits – for Exporter of goods & services
 no GST involved for exporters
 No concept of exemption of GST on goods and services, used for
ultimate export of goods / services (unless SEZ unit or developer
receiving goods for exports)
 Problem areas
 Refund of GST credits available in such cases. Claiming
refunds from government will be pain point
 Working capital requirements shall increase considerably
 Existing export benefits / exemptions may go away

Registration Credits Requirement for availing credits
VAT registered VAT • As claimed in last return filed
• Available as SGST
• Statutory Forms filed before due date (if not, tax credits to
adjust with tax on outstanding forms account)
Excise registered Excise • As claimed in last return filed
• Available as CGST
Transitional provisions on Credits
30

Non-Excise registered Excise Option 1
• Duty paying document / invoice available
• Stock not more then 1 year old
Option 2 - Duty paying document / invoice not available
• Deemed credit – 60% of CGST applicable
• Credit available only when CGST paid
• Scheme available in first 6 months
• Return to be filed in prescribed form
• Proof of procurement available
Non-VAT registered VAT Almost same as above
31
Transitional provisions on Credits

Name of duty Manufacturer
Manufacturer cum
service provider
Service
Provider
Basic excise duty ✔️ ✔️ ✔️
CVD 3(1) ✔️ ✔️ ✔️
CVD 3(5) ✔️ ✔️ ❌
Education cess ✔️ ✔️ ✔️
SHEC ✔️ ✔️ ✔️
Service Tax ✔️ ✔️ ✔️
KKC ❌ ✔️ ✔️
SBC ❌ ❌ ❌
VAT ✔️ (SGST) ✔️ (SGST) ❌
NCCD ✔️ ✔️ ✔️
Eligible credits in transition on Stocks

Non-Excise registered Excise Option 1
• Duty paying document / invoice available
Option 2 - Duty paying document / invoice not available
• Deemed credit – 60% of CGST applicable
• Credit available only when CGST paid
• Scheme available in first 6 months
• Return to be filed in prescribed form
• Proof of procurement available
Non-VAT registered VAT Almost same as above
33

GST compliance rating
 Every registered person will be assigned a GST compliance score by
the government based on their record of compliance with the
provisions of the GST Act
 On a scale of 1 – 10, where a taxpayer’s degree of compliance
increases as we move up the number scale, i.e., 1 indicates least
compliant and 10 indicates highest compliant
 Why higher rating desirable
 potential business partners may not do business with persons
having lower rating
 Delayed issue of Refunds
 Selection of cases for audit or scrutiny will also be influenced

Other important areas
 Reduce the amount of stock as on 30.6.2017 to minimize the problem of
carry forward
 Free gift and samples – Credits to be reversed
 Goods lost or destroyed - Credits to be reversed
 Mixed supply vs Composite supply – new concepts introduced in GST

Impact of taxes with Example
Branch 1 Pune
Head
office
Branch 2 Bhopal
Branch 3 Mumbai
Retail
customers
Delhi
Vendors for
goods &
services
Branch 4 Delhi
German
exporter
C. Agent Mumbai
Retailer Delhi
Pan
India
Imports
Stock transfer
Sale
36

Branch 1 Pune
Head
office
Branch 2 Bhopal
Branch 3 Mumbai
Retail
customers
Delhi
Vendors for
goods &
services
Branch 4 Delhi
German
exporter
C. Agent Mumbai
Retailer Delhi
IGST or CGST / SGST
(depending on Place
of supply rules &
location of vendors)*
IGST
CGST/SGSTinrespectivestates
37
Impact of taxes with Example

Compliances
38

Distance Validity Period
Less than 100 km 1 Day
100 km or more but less than 300 km 3 Days
1000 km or more 15 Days
Validity of E-Way Bill
E-way bill is an electronic way bill for movement of goods which can be generated on
the GSTN (common portal). A ‘movement’ of goods of more than ₹ 50,000/- in value
cannot be made by a registered person without an e-way bill.
What is E-Waybill ?

Generation of E-Way bill under GST
(Buyer)
Quicker
Transports
(Transport Co.)
Form GST INS 01
Part A
Stock
Details
Part B
Transporter
Details
E-Way
Bill


e-way Bill Number
(EBN)
Maharashtra
G a n e s h
M a n u f a c t u r i n g
(Supplier)
Need to authorize within
72 hours or else will be
deemed as acceptance.
Cancellation can be done
within 24 hours
E-way bill can also be
generated/cancelled through
SMS
Sheetal Traders

Returns Overview
41

Payment of Tax
Mandatory E-payment for amount exceeding ₹ 10,000
Online: Internet banking/credit or debit card/NEFT/RTGS/IMPS
Offline: Cash/ Cheque / DD etc.
42

Type of invoices in GST

• Revised invoices may be issued against the invoice already issued during the period starting from the
effective date of registration till the date of issuance of certificate of registration within one month from
date of issuance of certificate of registration.
• Composition dealers to issue a bill of supply instead of tax invoice
• Tax invoice is deemed to include a document issued by an ISD and a revised invoice
• Amount of tax to be prominently indicated in all documents relating to assessment, tax invoice and other
like documents
• For receipts of advances on supply of goods/ services: Receipt voucher/ other prescribed document
• In case of RCM, if goods/ services are received from an unregistered person, the registered taxable
person shall issue an invoice
44
Type of invoices in GST

Credit/ Debit Notes
45
Where Taxable value
and/or tax
Charged in Tax Invoice >
Amount Payable or
goods returned by
recipient or services
found deficient
Taxable Person to
issue CREDIT Note
On or before 30th
September following end
of FY of supply or date of
annual return whichever
is earlier
No Credit Note if
incidence of tax and
interest on supply has
been passed to any other
person
Charged in Tax Invoice <
Amount Payable
Taxable Person to issue
DEBIT Note
* Registered taxable person issuing Debit/ Credit notes to declare its details in the return for the month during
which such notes are issued /received or in the return for any subsequent month but not later than September
following the end of F.Y. of supply, or the date of filing of the relevant annual return, whichever is earlier, and the
tax liability shall be adjusted in the manner specified in this Act.

Sample format for Invoice
46

Aggregate Turnover Requirement of HSN/ SAC
Less than 1.5 crore HSN – not required
1.5 crore or more upto 5
crore
HSN – upto 2 digit
SAC - mandatory
More than 5 crore HSN – upto 4 digit
SAC – mandatory
All export including above HSN mandatory (8 Digit)
Requirement to furnish HSN Code
HSN – Harmonised systematic nomenclature
SAC- Service accounting code

Next steps

Next steps to move forward
Pointers Remarks
Migration of all registrations and obtain new
registrations wherever required
 Migration has again started on June 1st, 2017
 Important as number to be given to all customers and vendors, so that the
same can be recorded in the system
Stock records, where credits to be claimed
which were not availed earlier
 Certain Credit available where couldn’t be claimed earlier
 Appropriate stock records to be maintained
 Also, Goods lying for more then a year, credits not available
Price revisions of goods, to align with credits
and new tax rates
 Complete study on new credits to be coming to firm alongwith new tax
rates to be undertaken
 Based on the study, price revisions to be made
 Price revisions may impact sales in short run, so impact of same to be
accounted for in the production, especially in case of perishable items
Review of contracts and amendment where
required
 Contracts where taxes are inclusive, to be reviewed
 Benefits to be passed on to customers as there is anti-profiteering
regulations, so appropriate documentation required to be maintained
Revisit Procurement  Purchase from unregistered dealers (for goods, capital goods or services)
to attract GST on reverse charge. Procurement decisions to change
accordingly

Pointers Remarks
Vendor and customer enrollments, alongwith
their GSTN numbers
 Systematic database to be maintained for all the customers and vendors
having their appropriate details such as places of business, GSTN, nature
of services/goods received/ provided
 Critical for obtaining credits – purchases from vendors – supply to
customers
Ensure all credits are duly recorded in the
returns – Only credit recorded in returns
would be allowed to be carried forward
 Important as credits of pre-GST era, will not be available post-GST during
transition
 Only credits appearing in tax returns, shall be allowed for carry forward
Plan resources for increased compliance
requirement under GST
 Critical as existing accounting function may not be able to handle the
transition
 Resources may need to be augmented, either through hiring or
outsourcing activities
Revisit Supply chain  Considering GST on stock transfers and consignment agents, supply
chain to be re-visited as holding stocks in branches outside state to have
working capital impact

Pointers Remarks
Accounting & IT to be revamped  Flow of transactions between HO and Branches are critical in view of
credits and taxes
 Separate account would need tobe maintained for CGST, SGST and
IGST for output as well as input for each state
 Units in one state to be grouped in terms of codes
 Flow of transactions to be audited, ensuring errors removed at the initial
stages
 Trial balance should be generated for each State
 Determine place of supply, basis nature of supply
 Ensure payment of all invoices within a period of 6 months, to avoid any
reversal of credit. System checks to be built in
 Creating processes to track services/ goods which would attract GST
under reverse charge
 Identifying eligible and ineligible credit
 Tracking advances received
 Ensuring that reports generated from the system should be in a format
which can be used for filing returns

Deliberation by: P K Bansal, Advocate
Akhil Bansal & Associates, Chartered Accountants
119-121, Anarkali Complex Jhandewalan Extension
Delhi - 110024
Thank You

GST India - Key issues & Concerns (July 2017)

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