Panel 2 - Goods & Services Tax (GST)

1. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
Goods and Services Tax
TaxSutra Conclave | Issues for Discussion
L. Badrinarayanan | Partner

2. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
Managing GST Transition
 When GST is likely to be implemented
 Where are we now?
 Government
 Legislation – Model POT/POPS
 IT Infrastructure – GSTN
 Trade
 Book Keeping – event based to consumption based
 Credit Chain Analysis
 Supply Chain Impact
 LongTermContracts,Salesreturn,WarrantyandAftersale
 Australian approach for smooth transition

3. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
Transition Provisions
 Treatment for opening credit in the books of accounts on the date of
implementation of GST?
 CENVAT ( ED +ST ) and VAT credit closing balance
 CST paid goods in-transit :- GST ?
 Stock in trade, Work in progress, Raw materials
 Credit of all taxes subsumed in GST
 Bad debts
 Apportionment & Adjustments
 Special Time of Supply Rules for transition
 Deemed Credit Mechanism

4. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
GSTN:
 How GSTN is going to manage GST for the Centre and the States
 Insights on Registration
 Insights on Payments & Receipts
 Insights on Refund

5. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
Revenue Neutral Rate (RNR)
 What is RNR?
 Proposed RNR @ 27% but FM promises lower rate
 Tax on a Common Base
 State gains – tax on services
 Centre gains – tax on distribution of goods
 GST Council
 Floor Rates, Band rates, Exemption, Threshold
Implications for MRP
Supply Chain analysis to take care of MRP

6. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
Price: Supply Chain Innovation
 Supply & Procurement Costing Impact
 CST
 VAT on ED
 1 % origin based additional tax
 Contract re-negotiation to pass on benefit
 Price Rationalization: International Approach
 Free Market (Canada)
 Regulatory (Australia - ACCC)
 VAT- benefits not passed on by manufactures: CAG -2010
 Streamlining of warehouses
 MRP and distribution margin
 Sale by Transfer of Document of Title whether Interstate Sale

7. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
E-Commerce
 Treatment of Trade Promotion Schemes – Vouchers, Discounts, etc
 Treatment for Place of Supply
 Insights from BEPS
 Managing Inverted Duty Structures – Credit Implications

8. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
IGST: How it Operates
 How IGST will operate?
 Impact of 1% additional Tax
 Credit for IGST
 Issues with IGST

9. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
Input Service Distributor
 Need for robust ISD Rules
 Managing Common Inputs and Input services
 Transfer of Credit from one unit to another
 Refund of excess credit if no transfer?

10. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
Area Based Exemption
Factory
Excise Exempt Units
Buyer
Current Scenario
Cost : X (No ED)
No credit on inputs
Post GST
Cost : Y (X-input credit) +
27 +1 (IGST + 1%)
Customer
Tax refund from Govt.
(27 – IGST)
• GST: input credits available and output taxable
• Refund scheme for existing units
• Working capital increase for buyer
• Contract re-negotiation to pass on benefit
• Anti-forestalling measures in Transition

11. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
Credit Issues
 Credit is sacrosanct for GST System to work
 Accumulated / unutilized credit :- EU Approach (Refund)
 Apportionment & adjustments
 Credit on equipment or inputs lying in stock on which no credit has been taken
 VAT /Carousel Fraud: collected but not deposited
 Who should suffer – the innocent customer or the duped Government?
 Mahalaxmi Cotton 2012 (51) VST 1 (Bom)
 International Approach – ECJ : Optigen, Fulcrum & Bond C-354/03

12. Copyright (c) 2015. Lakshmikumaran & Sridharan / Confidential.
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