CMA ASHOK B NAWAL B.Com (Hons.), FCMA

TYPICAL ISSUES IN GST ERA AND PRACTICAL CASE STUDIES CMA ASHOK B NAWAL B.Com (Hons.), FCMA Chairman - Taxation Committee of Institute of Cost Accountants of India Central Council Member of Institute of Cost Accountants of India National Council Member of ASSOCHAM - Direct & Indirect Taxes including GST Founder - Bizsolindia Services Pvt. Ltd. President – All India Exporter’s Forum Advisor - Confederation of Export units, New Delhi. Trainer - Central Excise Officers of Various Commissionerate Advisor - Laghu Udyog Bharati

SUPPLY • HIGH SEA SALE • SUPPLY FROM BONDED WAREHOUSE • SUPPLY FROM FTWZ • TRANSIT IMPORTS / EXPORTS • IMPORT OF SERVICES WITHOUT CONSIDERATION • GOODS HELD OR USED FOR THE PURPOSES OF THE BUSINESS PUT TO ANY PRIVATE USE / FOR OTHER THAN BUSINESS PURPOSE, WHETHER OR NOT FOR A CONSIDERATION • SUPPLY TO EMPLOYEES • FOC SUPPLY SCHEMES • FOC SUPPLY WARRANTY • COMPOSITE & MIXED SUPPLIES

HIGH SEA SALE • Sale takes place while the goods are yet on high seas i.e. before they are imported into India • Goods do not cross the customs frontier of India - “crossing the customs frontiers of India'' means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities • Outside the purview of Section 7(2) and do not qualify as supply in the course of inter-state trade

SUPPLY FROM BONDED WAREHOUSE • "customs area" - area of a customs station or a warehouse and includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities • Supply of goods imported into India, till they cross customs frontier of India, shall be treated to be supply of goods in course of inter-State trade or commerce. • Essence here is that the goods have been imported into India but they have not crossed the Customs Frontiers • Any supply which takes place from the time of import till the time they are cleared from the customs frontiers will be treated as interstate sales • Supply made from public bonded warehouse of Customs will be treated as interstate sales

TRANSIT IMPORTS • When goods are imported for purpose of exports and are not cleared for home consumption, there is no clearance from Customs. • The Customs Act, 1962 provides for removal of goods from a customs station to a warehouse without payment of duty. ‘Warehouse’ is included in the definition of “customs area” to ensure that an importer would not be required to pay the Integrated tax at the time of removal of goods from a customs station to a warehouse. • Since there is no supply in India and therefore there will be no GST applicable on the same

WARRANTY • Inclusive part of transaction value as specified in Section 15 of CGST Act 2017 do not include the warranty in line with transaction value as defined in pre-GST ERA in Section 4 of Central Excise Act 1944. • Supply during warranty period is without consideration. In view of the Schedule I, it can be covered under Serial number 1 of the schedule, since ITC on all the inputs and input services is availed • Free supply during warranty period, where input tax credit has been availed will be treated as taxable supply and have to be supplied against tax invoice or alternatively when ITC has not been availed on such supply then it will be non-taxable supply and to be supplied against bill of supply • Reversal of cenvat credit as per Rule 3(5), was not required under CCR, 2004 if the value of warranty is included in the price of the final product. In other words, if the value of warranty is not included in the price of the final product, then reversal of cenvat credit was required even if supplied free of cost or under warranty. Input tax credit is extended to input goods which are used in the provision of warranty services provided it is included in value of the final product. If the intention was to exclude supplies under warranty from GST levy, wordings similar to CCR would have been incorporated under GST.

WARRANTY • Warranty is part of contractual commitment and therefore it is part of the commitment to supply free of cost goods, if there is manufacturing defect and free services for the same. It is neither goods nor services alone. It will be a composite supply, in case goods & services are also supplied during the warrantyperiod. • The payment made against original supplies cannot be treated as advance for the supplies under warranty and hence the supplies under warranty are free of cost and taxable. • As per FAQ on IT & ITES, warranty is not a taxable supply – “As parts are provided to the customer without a consideration under warranty, no GST is chargeable on such replacement. The value of supply made earlier includes the charges to be incurred during the warranty period. Therefore, the supplier who has undertaken the warranty replacement is not required to reverse the input tax credit on the parts/components replaced.”

SUPPLIES TO EMPLOYEES EMPLOYEE REIMBURSEMENT CHART

DEEMED SUPPLIES • IMPORT OF SERVICES WITHOUT CONSIDERATION • 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. • Provisions made in books for MIS purpose without any actual charge will be considered as import of services • GOODS HELD OR USED FOR THE PURPOSES OF THE BUSINESS PUT TO ANY PRIVATE USE / FOR OTHER THAN BUSINESS PURPOSE, WHETHER OR NOT FOR A CONSIDERATION • Basic elements of supply under Section 7(1)(a) includes furtherance of business and for a consideration. • Section 7(1)(b) is for import of service and hence not applicable • Section 7(1)(c) deals with deemed supplies for no consideration as specified under Schedule I. • However, assets put to private use does not get covered under either of these sub-sections and Schedule II has travelled beyond the Law to enhance scope which is not tenable

COMPOSITE SUPPLY • Determining principal supply in a composite supply • Zinc plating is primarily a service, however at times, the value of the zinc coating is substantial as compared to the service component. • Issues such as to whether value needs to be considered for determining the principal supply remain unanswered and could have tax implications • Guidelines to be laid down for determining principal supply

COMPOSITE / MIXED SUPPLY

DEEMED SUPPLIES • SUPPLIES BY PRINCIPAL TO AGENT • Supply of Goods by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal is deemed to be a supply under Schedule I • Following are the 4 arms of the transactions between the principal and the supplier: • transfer of goods between principal to agent without consideration – supply of goods being covered under deeming provision • transaction between agent and principal - Supply of services by the agent on commission basis • transaction between agent and customer - no supply since not covered under any of the definition of supply • transaction between principal and customer - included in supply definition as made for consideration • Whether the same transaction will get taxed twice is a matter of interpretation and could lead to litigation.

SUPPLY - MISCELLANEOUS • As per FAQ, Supply from URD to URD is not taxable and hence no liability under RCM is to be discharged. Eg: A company in Mumbai sends its employees to Gujarat on a sales tour and the expenses are incurred by the employee which include goods / services from URD. Since this amounts to supply from URD to URD, it will not be taxable and no liability under RCM is payable. • Supply of services by an Indian company to a foreign company in India w.r.t. services such as repairs, maintenance of goods, commission, will be treated as inter-state supply and IGST will be applicable in accordance with Section 7(5) of IGST Act, 2017. • If the goods specified under Section 9(3) which are subject to RCM are supplied, then the recipient will be liable to pay the tax even if the tax is paid by the supplier • If a supplier is unregistered or providing specified goods / services which are liable to RCM u/s 9(3) & 9(4) (other than importation of services), such transactions will be treated as intra-state supply. Location of supplier in case of RCM is required to be considered as the location of recipient and place of supply is to be determined as inter-state or intra-state.

VALUATION • WHAT IS OPEN MARKET VALUE VIS-À-VIS TRANSACTION VALUE? • FREE SUPPLIES BY RECIPIENT • AMORTIZATION • CONTRADICTION BETWEEN SECTION 15 (2) VS SECTION 16 4(A) • DISCOUNT (QUANTITY, CASH, TURNOVER, VOLUME, ANNUAL, FESTIVE ETC. ETC. ) • FREIGHT

VALUATION

OPEN MARKET VALUE • Open Market Value - Neither adopts the concept of transaction value i.e. invoice price nor the concept of identical goods & value thereof • Open market value definition does not account for differences in the parameters impacting the supply such as the quantitative difference, market differences, etc • If we consider the supply such as exchanges, whether the open market value will still be considered for the same. • Illustration: If A sells a washing machine to B for Rs.40000/-. At same time, A sells the same washing machine to C for Rs.25000 in exchange of an old washing machine. Because of the open market value concept, whether the value will be adopted at Rs.40000/- for discharging the GST liability.

FREE OF COST SUPPLIES

AMORTISATION • Section 15(1) of CGST Act, 2017 stipulates, the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply • Section 2(31) : “consideration” in relation to the supply of goods or services or both includes- • (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; • (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: • Provided that 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;

AMORTISATION • Inducement means advantage, benefit, or consideration that causes a party to enter into a binding agreement, or motivates it to perform more efficiently and cost effectively. Act of providing moulds, dies, tools, etc by the recipient is no doubt for the inducement of the supply of goods by the supplier • Phrases used in the definition such as in respect of, in response to, or for the inducement of, have made the definition wider. Further paid by recipient or any other person w.r.t supply and goods & services has been included in the definition of the consideration • Value of supply will include all the amount which the supplier was liable to pay but which is incurred by the recipient or any other person • Payment signifies the partial or complete discharge of an obligation by its settlement in the form of the transfer of funds, assets, or services equal to the monetary value of part or all of the debtor's obligation

AMORTISATION • Rule 27 of CGST Rules, 2017 • Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,- • (a) be the open market value of such supply; • (b) if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply; • (c) if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality; • (d) if the value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order. • Definition of consideration itself includes payment in money or other form • Reasonable value is to be attached to the supply of moulds, dies, tools, etc by the recipient and the same needs to be included in valuation of the goods by the supplier

FREIGHT • If the question involves inclusion / exclusion of freight in the valuation, it is important to understand whose liability it is to pay the freight, the liability to discharge GST and the input tax credit of the same

DISCOUNTS

INPUT TAX CREDIT • REVERSE CHARGE • ISD • NEGATIVE LIST • REVERSAL OF COMMON CAPITAL GOODS (RULE 42) • REVERSAL OF COMMON INPUTS (RULE 43) • NON-GST SUPPLIES / EXEMPT SUPPLIES / NIL RATED SUPPLIES

INPUT TAX CREDIT

TIME LIMIT FOR CREDIT AVAILMENT • Credit cannot be availed after the due date of furnishing of the return for the month of September following the end of financial year to which such invoice or invoice relating to a debit note pertains or furnishing of the relevant annual return, whichever is earlier. • Further no credit can be availed in respect of any supply of goods or services or both after the expiry of one year from the date of issue of tax invoice relating to such supply. • Despite the period being 1 year from date of issue of tax invoice, the limitation imposed w.r.t. availment of credit on or before September end or date of filing of Annual return, whichever is earlier, restricts the period for credit availed w.r.t goods / services received during the later half of the financial year and period goes on reducing as and when one approaches the end of the financial year. This means that a taxpayer would roughly get a minimum of 6.5 months for an invoice issued by a supplier on the last day of any financial year (i.e., 31 March).

EXPENDITURE TOWARDS CSR • Expenses incurred on voluntary basis will be treated as used or intended to be used in the course or furtherance of business since the expenditure can qualify as expenses towards brand development • CSR is mandatory to specified companies as per Companies Act, 2013 • This may be considered as appropriate of profit and not used in the course or furtherance of business

ELIGIBILITY

INPUT SERVICE DISTRIBUTOR • Multiple ISD registrations can be obtained under the same PAN • Aggregate turnover only excludes taxes under GST. It is not clear as to whether tax / duties paid under Excise on products such as excise duty on petroleum products, excise duty on alcoholic liquor for human consumption, etc i.e. taxes on non-taxable turnover will be excluded from aggregate turnover • As per instruction No. 4 of GSTR-6, ISD will not have any reverse charge supplies. If ISD wants to take reverse charge supplies, then in that case ISD has to separately register as Normal taxpayer. ISD cannot pay GST liability under RCM, hence separate normal registration is required to be taken and not as ISD. If ISD registration has already been taken, ISD credit to be transferred for the month of July 2017. • Any balances of ISD return as on 30th June should be reported in TRAN-1 and the existing registration of ISD should be surrendered

MISCELLANEOUS ITC • Reverse charge liability is to be discharged before filing of GSTR-1 i.e. RCM for a particular month is paid in next month. Credit can however be availed immediately on payment i.e. in the same month to which the liability discharged relates

CMA ASHOK B NAWAL B.Com (Hons.), FCMA