GOODS & SERVICES TAX

1. GOODS & SERVICES TAX REGIONAL RESIDENTIAL COURSE Under the aegis of Indirect Taxes Committee of ICAI Organised by SIRC of ICAI Hosted by Madurai Branch of SIRC of ICAI Venue: Hotel Heritage Madurai, Kochadai, Madurai-16 Date: 05.05.2017 (Session II) Resource Person: CA V SUDHARSAN, SALEM

2. TOPICS TO BE COVERED • LEVY OF CGST, SGST, IGST & COMPOSITION LEVY; • NON-TAXABLE SUPPLIES & EXEMPTIONS • TIME OF SUPPLY OF GOODS & SERVICES

3. INTRODUCTION

4. GST JOURNEY SO FAR • In the year 2000, Mr.VajpayeeGovt started discussion on GST by setting up an empowered committee head by Mr.AsimDasgupta (Finance Minister, West Bengal); • Between 2002-2004, Kelkar Task Force suggested for a Comprehensive Goods and Service Tax (GST); • In the Union Budget 2006-07, then Finance Minister Sri.P.Chidambaram mooted a proposal to introduce a national level GST; • During 2007, Empowered committee of State Finance Ministers started working on the GST Roadmap; • During 2008, Empowered Committee finalized its views on GST and submitted a report titled “A Model and Roadmap for GST in India” • In November 2009, First Discussion Paper on GST was released by Empowered Committee; • In the Union Budget 2010-11, then FM Mr.PranabMukherjee mentioned that the GST to be introduced in April 2011

5. GST JOURNEY SO FAR (Contd) • In March 2011, the Constitution 115th Amendment Bill introduced in LokSabha for the levy of GST on all goods or services except for some specified goods; • In August 2013, Parliamentary Standing Committee submitted its report on GST • In November 2013, Empowered Committee rejected Govt’s proposal to include Petroleum products in GST nets; • In the year 2014, the Constitution 115th Amendment Bill was lapsed due to the dissolution of 15thLokSabha in May 2014; • BJP Government took over the power and after extensive talks with States, Finance Minister Mr.ArunJaitley introduced the revised Constitution Amendment Bill (122nd) in the LokSabha in December 2014. • On 03.08.2016, the Bill was passed by RajyaSabha also; • After 16 of the country’s 29 States passed the Bill in the State Assembly, on 08.09.2016, President PranabMukherjee gave his assent to the Bill and The Constitution (101st Amendment) Act, 2016 came into effect

6. PRESENT SYSTEM OF INDIRECT TAX

7. LEVY OF CGST, SGST, IGST

8. Power to levy GST • Article 246A of the Constitution of India confers concurrent power to both Parliament and State Legislatures to make laws with respect to GST.

9. Goods & Services Tax? • Article 366 Clause 12A of the Constitution defines GST as follows – • “Goods & Service Tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. • Goods – Goods includes all materials, commodities and articles (Article 366 Clause 12) • Services – Services means anything other than goods (Article 366 Clause 26A).

10. Goods & Services covered under GST • As per Constitution, all goods (except alcoholic liquor for human consumption) & all services are covered under GST; • However Government has decided to keep Petroleum products out of GST for a while (i.e., till a consensus is reached between Union & States). • Till such time, Petroleum products will continue to attract Central Excise Duty & State VAT/CST. • Tobacco products will attract both Central Excise Duty & GST. • Alcoholic liquor will continue to attract State Excise & VAT/CST.

11. Broad Structure of GST Law • Central Goods and Services Act (CGST), 2017 • 174 Sections • 3 Schedules • Union Territory Goods and Services Act (UTGST), 2017 • 26 Sections • Integrated Goods and Services Act (IGST), 2017 • 25 Sections • Goods and Services (Compensation to States) Act, 2017 • 14 Sections • 1 Schedule • State Goods & Services Act (SGST) Act, 2017 • GST Draft Rules • 14 Draft Rules issued so far (01.05.2017)

12. INCIDENCE OF TAX / TAXABLE EVENT • Taxable Event under GST is supply of goods or services or both. • CGST & SGST/UTGST will be levied on intra-state supplies. • IGST will be levied on inter-state supplies. • What is meant by Supply?

13. SUPPLY • Section 7 of CGST Act defines Supply as follows - For the purposes of this Act, the expression “supply” includes- (1) • all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; • import of services for a consideration whether or not in the course or furtherance of business; • the activities specified in Schedule I, made or agreed to be made without a consideration; and • the activities to be treated as supply of goods or supply of services as referred to in Schedule II. ….. ….. • Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods

14. Sec.7(1)(a) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; • All forms of supply of goods or services or both • (Such as) sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made • Supply should be for consideration • Supply should be made by a person • Supply should be in the course or furtherance of business

15. Goods & Services – defined • “Goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply; (Sec.2(52) of CGST Act) • “Services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; (Sec.2(102) of CGST Act)

16. “Or both” – implies ? • A combination of goods and/or services may be a composite supply or a mixed supply: • Composite Supply: Sec.2(30) of CGST Act “Composite Supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. Illustration.- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

17. “Or both” – implies ? (contd.,) • Mixed Supply: Sec.2(74) of CGST Act “Mixed Supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. 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.

18. ….made or agreed to be made – Implies? • Supply may be present or future. • An agreement to supply goods or services in a future date is also a supply. Supply for a Consideration • Sec.2(31) of CGST Act defines Consideration. • First Part • Any payment made or to be made • Whether in money or otherwise • In respect of goods or services or both • Whether by recipient or by any other person • But shall not include subsidy given by the Government.

19. Supply for a Consideration (Contd) • Second Part • Monetary value of any act or forbearance • In respect of goods or services or both • Whether by recipient or by any other person • But shall not include subsidy given by the Government. • Third Part (Proviso) • A deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

20. By a Person • Section 2(84) defines “Person” • “Person” includes— (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a firm; (e) a Limited Liability Partnership; (f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India; (g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013;(h) any body corporate incorporated by or under the laws of a country outside India; (i) a co-operative society registered under any law relating to co-operative societies; (j) a local authority; (k) Central Government or a State Government; (l) society as defined under the Societies Registration Act, 1860; (m) trust; and (n) every artificial juridical person, not falling within any of the above;

21. In the course or furtherance of Business? • As per Sec.2(17) of the CGST Act “Business” includes– • any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; • any activity or transaction in connection with or incidental or ancillary to sub-clause (a); • any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; • supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

22. Sec.7(1)(b) Import of services for a consideration whether or not in the course or furtherance of business; • Import of Service (Sec.2(11) of IGST Act) • “Import of service” means the supply of any service, where: • a) the supplier of service is located outside India. • b) the recipient of service is located in India; and • c) the place of supply of service is in India

23. Sec.7(1)(c) The activities specified in Schedule I, made or agreed to be made without a consideration • Schedule I of CGST Act ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION • Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. • Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. 3. Supply of goods- (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. 4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

24. Related Persons & Distinct Persons Related Persons (Sec.15) Distinct Persons u/s.25 For the purposes of this Act, persons shall be deemed to be “related persons” if– (a) (i) such persons are officers or directors of one another’s businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; (b) the term “person” also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related. Persons having multiple business verticals can be granted separate registration in the same State. In such case, each registrations will be considered as distinct persons. Persons having registrations in different States will be considered as distinct persons. Establishment obtained registration in one State and also having an establishment in another State (unregistered). Both will be considered as distinct persons.

25. Sec.7(1)(d) The activities to be treated as supply of goods or supply of services as referred to in Schedule II. • Transfer • any transfer of the title in goodsis a supply of goods; • any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services; • any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.

26. Schedule II (Contd) 2. Land and Building • any lease, tenancy, easement, licence to occupy land is a supply of services; • any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. 3. Treatment or process Any treatment or process which is applied to another person's goods is a supply of services.

27. Schedule II (Contd) 4. Transfer of business assets • where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person; • where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services; • where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless- (i) the business is transferred as a going concern to another person; or (ii) the business is carried on by a personal representative who is deemed to be a taxable person.

28. Schedule II (Contd) 5. Supply of services The following shall be treated as supply of services, namely:- • renting of immovable property; • construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. • temporary transfer or permitting the use or enjoyment of any intellectual property right; • development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software; • agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and • transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.

29. Schedule II (Contd) 6. Composite supply The following composite supplies shall be treated as a supply of services, namely: • works contract as defined in clause (119) of section 2; and • supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration. Sec.2(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;

30. Schedule II (Contd) 7. Supply of Goods The following shall be treated as supply of goods, namely:— Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

31. NON TAXABLE SUPPLY & EXEMPTIONS

32. NON TAXABLE SUPPLY Section 7(2) reads as follow - (2) Notwithstanding anything contained in sub-section (1),– (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

33. Activities described in Schedule III ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES • Services by an employee to the employer in the course of or in relation to his employment. • Services by any court or Tribunal established under any law for the time being in force. • (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities; (b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.

34. Activities described in Schedule III(Contd.,) 4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased. 5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. 6. Actionable claims, other than lottery, betting and gambling. Explanation.- For the purposes of paragraph 2, the term "court" includes District Court, High Court and Supreme Court.

35. Activities/Transactions undertaken by the Government • Activities or transactions undertaken by Central/State Governments or Local Authority in which they are engaged as public authorities; • Recommended by the GST Council • Notified by the Government u/s.7(2) of the CGST Act.

36. EXEMPTIONS

37. Basic Threshold Exemption • Section 22(1) provides as follows – “Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rs.20 Lakhs. Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds Rs.10 Lakhs.” Explanation(i) to Sec.22 – the expression “aggregate turnover” shall include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals. Special category States: Arunachala Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarkhand

38. Notification based Exemption • Section 11 of the CGST Act and Section 6 of the IGST Act provides power to Central Government to exempt on recommendation of the council either absolutely or subject to such condition as may be specified goods or services of specified description from the whole or any part of the tax leviable thereon. • Notifications yet to come.

39. LEVY & COLLECTION

40. Tax on Goods / Services • Section 9 of the CGST Act is the Charging Section. • Ingredients of Section 9 are as follows – • CGST shall be levied on all intra-state supply of goods or services or both; • No CGST on alcoholic liquor for human consumption; • Tax shall be levied on the value determined under section 15 of the CGST Act; • In addition to the regular tax, an additional tax of not exceeding 20% shall be collected as notified by the Govt as per the recommendation of the GST Council. • Tax shall be paid by the taxable person. • CGST on petroleum products shall be levied from such date as may be notified by the Govt on recommendation of the GST Council

41. Tax on Goods / Services (Contd.,) • Tax shall be paid by the recipient on Reverse Charge Basis on certain specific category of goods or services or both; • In case of supplies made by a non-registered person to a registered person, tax shall be payable by the registered person on reverse charge basis; • Government may notify certain category of services, supplied intra-state, on which tax shall be paid by the Electronic Commerce Operator (ECO), as if such services are supplied by him. Tax shall be paid by the ECO if he has got a physical presence in the taxable territory. If he does not have physical presence in the taxable territory, any person representing the ECO shall pay the tax. If no one represents the ECO in the taxable territory, the ECO should appoint a representative in the taxable territory who is responsible for the payment of tax.

42. Tax on Composite Supply • To Recall: “Composite Supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. Illustration.- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply (Sec.2(30)) • Tax Liability: Tax shall be charged at the rate applicable to such principal supply as per Sec.8(a) of CGST Act.

43. Tax on Mixed Supply • To Recall: “Mixed Supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. 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.(Sec.2(74)) • Tax Liability: The supply that attracts highest tax rates shall be charged (Sec.8(b) of the CGST Act)

44. COMPOSITION LEVY

45. Present Scheme under VAT The current state indirect tax regime has provided a simpler compliance for small dealers known as the Composition Scheme.  In Tamilnadu, Composition Scheme is provided for works contract, hotels, bakeries, sweet stalls & bricks manufacturers. Salient features of the scheme are - • Pays taxes only at a certain percentage of turnover or lumpsum on the basis of production capacity. • Have an option of not having to maintain detailed records or follow tax invoicing rules • Is not allowed to take Input Tax Credit (ITC) • Is not allowed to collect tax on sales

46. Composition Levy under GST • Similar to State VAT, benefit is provided under GST wherein an assessee can opt to pay tax under composition scheme at certain percentage of his turnover. • Threshold Limit: • Special States – Aggregate turnover of above Rs 10 lakhs during the previous financial year but does not exceed Rs 50 lakhs. • Rest of India – Aggregate turnover of the person having same PAN of above Rs 20 lakhs during the previous financial year but does not exceed Rs 50 lakhs. Note: As per the recommendation by the council, the government may increase the threshold limit of Rs.50 lakhs but not exceeding Rs.1crore.

47. Composition Levy under GST (Contd) • Aggregate Turnover (Sec.2(6)of CGST Act): “Aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess; • Rate of Levy:

48. Composition Levy under GST (Contd) • Other Conditions: • Not eligible to take input credit; • Not engaged in interstate outward supply; • Neither a casual taxable person nor a non-resident taxable person; • Not engaged in supply of services, other than supply of food/drinks for human consumption; • Not engaged in manufacture of notified goods u/s.10(2)(e) – to be notified; • Goods held in stock on the appointed day have not been purchased in the course of inter-state trade or imported from outside India or received from his branch outside the State or from his agent or principal outside the State where the optioned is exercised under sub-rule 1 of rule 1;

49. Composition Levy under GST (Contd) • Goods held in stock have not been purchased from an unregistered person and where purchased, he pays the tax under reverse charge; • He shall pay tax on reverse charge basis in respect of inward supplies covered under Sec.9(3) and (4); • He should not collect tax on invoices. He shall mention the words “Composition Taxable Person, not eligible to collect tax on supplies” at the top of the bill of supply; • He shall mention “Composition Taxable Person” on every notice or sign board at the prominent place at his principal place of business and at every additional place(s) of business. • Applicable for all business verticals under the same PAN – Composition levy will be applicable for all business verticals operating within state or interstate under the same pan.

50. Composition Levy under GST (Contd) • What does this mean?An individual with different business verticals, like: • Mobiles & Accessories • Stationery • Wearing apparel In the above scenario, the composition scheme will be applicable for all three business verticals. The dealer cannot opt for any one business vertical to fall under the composition scheme.  For example, if the business vertical’s place of business is in Tamilnadu & Karnataka for a single PAN, each of the business vertical in that particular state should have only ‘Intra-State’ supplies.