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“GST consultancy is the need of the hour, and sign of our effort to help in the transition from the old to the new system. It was implemented a month ago but it still remains cumbersome,”
Before the roll out in July, agencies ran ‘Study Circles’ to disseminate knowledge among all stakeholders, clients and business owners and continues to do so, “We conducted a lot of programs for educating people because the idea of One Tax, One Nation is great but implementation of the same has not been.
Many of the GST consultants said people still didn’t know how their businesses would be impacted by it. Some were still dealing with problems regarding raising an invoice.
“The main problem is that while the tax structure has become simpler, the process itself is difficult to understand. Lots of small and medium businesses, and even some large ones, don’t have qualified people who understand the GST process. Earlier you could file VAT and Service Tax returns manually, but now it has to be filed online. There is a lot of demand for people now for GST compliance".
The Institute of Chartered Accountants of India is providing certificate course to train people in the new regime.
“There are proper classes post which an examination is conducted. A certificate is given at the end of the term,” said Rajendar Arora, an elected member of Northern India Regional Council of ICAI.
A minimum of 30-hour structured training is required to get a certificate. The assessment test will be conducted twice in a period of 12 months around August and February from this year. Only CAs can enroll for the course.
“Keeping in mind what we see today in terms of a complete shift in the indirect tax system, we need to respond accordingly, make things convenient and help in adaptability. Our regulatory body has taken the responsibility in guiding this feeling of getting into GST consultancy,”
There are study circles sprouting across the country for helping people adapt to the new regime. The new GST consultants are holding webinars. Additionally, there have been 100s of workshops, 200 seminars, and setting up of helpdesks to look into the queries after one month of GST.
Clerical work has increased because of GST. “Just a fortnight before the roll out, the rates were decided. Many industries had a small timeframe to understand the impact of the new regime on their sector. Therefore, now we need expertise and consultancy in GST". ||
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Facts about Composition scheme under Good and Services Tax:
A casual taxable person
Manufacturers, Dealers, traders have an annual turnover of more than Rs.75 Lakhs
Manufacturers of Ice cream and other edible ice, Pan Masala, tobacco and manufactured tobacco substitutes.
Service Providers other than Restaurant services
Suppliers making supplies Inter State, Non-taxable goods or supplies through E-commerce and required to collect tax on supply.
Non-resident suppliers under GST
Persons purchased goods on Reverse charge mechanism from unregistered suppliers
How the turnover will be calculated for opting this scheme?
Opt prior to the beginning of any financial year
What conditions to be followed after opting for composition scheme under GST?
He has to mention in the bill of supply as "composition taxable person, not eligible to collect tax on supplies"
He should mention "composition taxable person" in the sign boards and notice boards at the principal place of business and all other additional business places.
Violating the Composition scheme attracts severe penalty and Interest.
What is the due date to pay tax under composition scheme?
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The GST implementation has raised many major challenges initially as under:
Law put in place with the following person/ processes not being ready:
Drafters who are still working on many formatsThe IT readiness of the GSTN - software needed for claim of credit on stocks, uploading of returnsThe reasonable knowledge of law not being available with other than for a handful of tax officersThe professionals starting to get trained - way behindThe industry/ trade not expecting the implementation due to known lack of preparedness of all sectors who are involved,The GSPs & ASPs not in position to design systems and processes due to formats not being in place even todayNo in-depth analytical book appears to be available. Large number of huge books with schedules put in different ways are available. Difficult for any reader to be able to come to even a simple classification confidently.
In this challenging and uncertain times the bringing in of reverse charge for supplies from unregistered persons along with multiple rates and schedule wise rates with separate exemption list are perhaps the main areas of concern for continuing businesses as well as safeguarding the margins of the business.
Mistakes in Classification and Exemption could come to light when the revenue department could object at rate adopted or exemption claimed. This mistake or error may come to light in the course of assessment, investigation or revenue audit.
The assessee himself may come to know of the error due to competitors using different rates, paying or not paying, attending some awareness session, reading articles, books. The errors may also come to light or at time of due diligence, internal audit, statutory audit, outsourced consultant changing, etc.
The cost of mistakes in GST classification would include the following:
Loss of business in period of uncertainty till proper classification arrived at. Nobody could have got ready for the numerous rates and exemptions due to the fact that they were announced too late. A period of at least 6 months should have been provided for getting ready. However those who got ready in May 2017 when list discussed in GST council as released were able to be better prepared and in case of unreasonable rates, represented and got the same corrected before 1st July.
In case of higher tax charged, the loss of orders and cost of re-establishing with the customers, the loss of credibility with customers. The cost of discounts not factored which one is forced to give to retain the customer.
In case of goods or services supplied which are nil rated or exempted the denial of credit by the revenue after 5 years can be fatal for the business.
In case of short charge due to incorrect classification or claim of exemption which is not available non recoverability of taxes from the customers and cost of interest. In business the breaking the credit chain could make business unviable.
In case of revenue raising the short charge or ineligible exemption issues in addition to the above cost: the cost of penalty, denial of credit availed, cost of dispute resolution at adjudication, appeal, Court stages. It should be kept in mind that the internal manpower resources could get substantially involved to resolve the issue inspite of the fact that a specialist in GST maybe outsourced the reply, appearance etc.
The tax department (adjudication, appeal), the Tribunals and Courts are clogged with old disputes and in India are a major reform area being focused by Government. Their time and effort for a non productive activity is a loss to the nation. It is a fact that in indirect taxes the pendency's at appeals, tribunals and courts is alarming with disputes taking decades to get settled. Further the propensity of the revenue to safeguard itself and issue protective demands on any audit objection inspite of specific instruction against the same.
The industry / professionals may do well to list out the probable errors/ mistakes in classification and put in place practices to avoid the huge impact.
Unfortunately some of the dubious practices adopted in these times of uncertainty are:
Non recoding of supplies to consumer fullyOnly recording the supplies being paid through banking channel.Incorrect nomenclature adopted by individual groups and in some cases whole industryUnder billing (10% of the value being billed)Sending goods by way of Delivery challans on approval basis.Stopping of business by the wary.Billing the lower rate.
All these practices are fraught with big risk elaborated above.
It is said that a stitch in time saves nine - an old English proverb. It is a business fact that cost of prevention is negligible against the cost of a cure. The time involved in seeking clarity later or resolving the dispute could be used more productively for doing business. It is suggested to get the clarification on classification or exemption in writing and provide the factual position to experts. In case of doubt advance rulings may also help.
Suggestion to Government:
It would have been great if the Government could come up with a temporary quick fix solution of deciding on the classification in writing within 7 working days. This clarification would become final in case there is no revert in 6 months time. In case the clarification is found not correct on further detailed study, intimation maybe given to the tax payer on the change with a period of 1 month to correct. For the intervening period an initial differential tax waiver maybe provided.
The author can also be reached at firstname.lastname@example.org
Madhukar N Hiregange
31 July 2017
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Huge impact of Exemption under Service Tax not continued in GST
There could be a number of service providers who are not updated on the GST law. Some maybe hearing rumours that many changes are expected. However 1 month has passed. Those service providers who were enjoying the exemption would be in shock if they continue not to collect the GST applicable normally at 18%. If one does not collect and pay the impact maybe as high as 25% along with the interest and penalty in later years. In this article we examine what exemptions have been done away with in the GST regime.
Cases where Exemptions not carried forwarded from Service Tax Law which are taxable under GST are listed below:
a. Trading of Goods: Earlier Covered under Negative list - Sec 66D (e) of Finance Act
Sale of goods amount to Supply as defined under Sec 7 of the CGST Act and hence Taxable. Trading of goods was not subject to Sales Tax/VAT and hence not liable for Service Tax due constitutional restriction on Central to levy tax on State matters. However now the Constitution being amended to enable both State and Centre to levy tax on sale of goods and accordingly GST would be applicable on sale of goods unless specifically exempted elsewhere.
b. Services by way of Carrying out any process amounting to manufacture or production of goods: - Earlier Covered under Negative list - Sec 66D (f) of Finance Act
c. Selling of Space for advertisement in Print Media - Earlier Covered under Negative list - Sec 66D (g) of Finance Act
d. Betting, Gambling and Lottery - Earlier Covered under Negative list - Sec 66D (i) of Finance Act
Services provided to the united nations or a specified international organisation - Earlier exempted vide entry 1 of the Mega Exemption Notification 25/2012-ST
e. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -
a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);canal, dam or other irrigation works;pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or
Earlier exempted vide entry 12A of the Mega Exemption Notification 25/2012-ST
Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -
a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; ora residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause (44) of section 65 B of the said Act; under a contract which had been entered into prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date:
Provided that nothing contained in this entry could apply on or after the 1st April, 2020;
Earlier exempted vide entry 12A of the Mega Exemption Notification 25/2012-ST
Services by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port provided under a contract which had been entered into prior to 1st March 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date:
Provided that Ministry of Civil Aviation or the Ministry of Shipping in the Government of India, as the case may be, certifies that the contract had been entered into before the 1st March 2015:
Provided further that nothing contained in this entry could apply on or after the 1st April 2020
Earlier exempted vide entry 14A of the Mega Exemption Notification 25/2012-ST
Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright-
(a) covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical or artistic works; or
(b) of cinematograph films for exhibition in a cinema hall or cinema theatre;]
Earlier exempted vide entry 15 of the Mega Exemption Notification 25/2012-ST
Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year
Earlier exempted vide entry 19 of the Mega Exemption Notification 25/2012-ST
19A. Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year
Earlier exempted vide entry 19A of the Mega Exemption Notification 25/2012-ST
Services by way of transportation by rail or a vessel from one place in India to another of the chemical fertilizer and oil Cakes, Cotton ginned or baled.
Earlier exempted vide entry 20(j) & (k) of the Mega Exemption Notification 25/2012-ST
Services provided by a goods transport agency, by way of transport in a goods carriage of chemical fertilizer and oil Cakes, Cotton ginned or baled.
Earlier exempted vide entry 21(e) & (i) of the Mega Exemption Notification 25/2012-ST
Services by the following persons in respective capacities -
(a) sub-broker or an authorised person to a stock broker;
(b) authorised person to a member of a commodity exchange;
(c) selling agent or a distributer of SIM cards or recharge coupon vouchers;
(d) sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt;
Earlier exempted vide entry 29(a)(b)(f) & (h) of the Mega Exemption Notification 25/2012-ST
Services by way of carrying out,
(i) any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption; or
(ii) any intermediate production process as job work not amounting to manufacture or production in relation to -
printing or textile processing;cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central ExciseTariff Act, 1985 (5 of 1986);any goods excluding alcoholic liquors for human consumption, on which appropriate duty is payable by the principal manufacturer; orprocesses of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;”.]
Earlier exempted vide entry 30 of the Mega Exemption Notification 25/2012-ST
Services by operator of Common Effluent Treatment Plant by way of treatment of effluent;
Earlier exempted vide entry 43 of the Mega Exemption Notification 25/2012-ST
Service provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members;
Earlier exempted vide entry 46 of the Mega Exemption Notification 25/2012-ST
Services by way of right to admission to exhibition of cinematographic film
Earlier exempted vide entry 47(i) of the Mega Exemption Notification 25/2012-ST
Deciding the eligibility of exemption would be crucial business decision for any entity. Availing wrong exemption could lead to huge long term demand along with interest and penalty burden and at the same time not availing exemption could impact the competitiveness business and compliance cost. As discussed non-availing eligible exemption could lead to reversal of input tax credit when demanded by department which would be a major threat for any business to survive.
Hence, assessee and professional suggesting their clients need to make sure the compliance from all the corners of law.
This article is adapted from a Classification & Exemption Book to be released by Bharat Law House this Month jointly authored by Madhukar N Hiregange, Vasant K Bhat& Nagendra Hegde (All Chartered Accountants)