GST LUT – File Letter of Undertaking (LUT) Online

Letter of Undertaking is commonly known as LUT. The Letter of Undertaking (LUT) is prescribed to be furnished in form GST RFD 11 under rule 96A, whereby the exporter declares that he/she would fulfil all the requirements prescribed under GST while exporting without making IGST payment. Know more about exports under GST.

Filing Letter of Undertaking is mandatory to export goods or service or both without payment of Integrated Taxes (IGST). If LUT has not been furnished, the export can only be made through payment of IGST or by furnishing an export bond.

Initially, only the options of export bond was allowed. However, to improve ease of doing business, the Government introduced LUT. LUT was to be filed offline at the concerned GST office. Now, the Government has made the process of filing GST LUT online. Now, exporters can file LUT online through their respective GST Portal account easily by following the steps below.

Eligibility for Export under LUT

All GST registered goods and service exporters are eligible to submit LUT except the exporters who have been prosecuted for any offence and the amount of tax evasion exceeds Rs.250 lakhs under the CGST Act or the Integrated Goods and Services Tax Act,2017 or any of the existing laws.

In such cases, where the exporter is not eligible to file LUT, they would have to furnish an export bond.

Procedure for Filing Online LUT under GST

As mentioned above, filing of LUT has been made online through the GST Portal. You can follow the steps below to file LUT online:

1. Login to the GST Portal with valid credentials.
2. Go to menu bar and select ‘Service’ option. Under ‘Service’ option go to ‘User Service’ option’ and select the Tab “Furnishing Letter of Undertaking”.
3. Now, Form GST RFD-11 is displayed.
4. Select the Financial Year for which period you want to furnish the LUT.
5. You can also upload LUT that belong to an earlier period by clicking on the choose file option and uploading the LUT file.
6. If you have already furnished LUT Offline, for previous period, please attach the same here and continue to file your application.
7. If you’re filing LUT, please read and select all the three check boxes for accepting the conditions prescribed in Letter of Undertaking.
8. In name, address and occupation of the independent witnesses section, enter name and address of two witness.
9. In the Place field, enter the place where the form is filed.
10. Next step is to select name of Primary Authorized signatory or other Authorized signatory who will sign the Application form.
11. You can click the PREVIEW button to preview the form.
12. You can click the SAVE button to save the form and retrieve later.
13. Click the SIGN AND FILE WITH DSC or SIGN AND FILE WITH EVC button.
14. Once signed and filed, Form cannot be edited. Kindly recheck at least once before signing and submitting.

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GST AAR on Canteen Services

The Authority of Advance Ruling (AAR) in Kerala had passed an advance ruling clarifying that GST would be applicable on payments made by an employee of a company towards canteen expenses. This advance ruling is a significant shift from the existing service tax regulations and has enormous implication for employers operating a canteen on their premises for use by their employees. In this article, we look at the GST AAR on Canteen Services in detail.

GST Advance Ruling Authority (AAR)

Advance ruling under GST has been made very taxpayer friendly under GST. Advance ruling helps taxpayers plan for GST liability in advance. Advance ruling is binding on both the taxpayer and the Government. Hence, advance ruling can also be used by taxpayer to avoid costly litigations. One of the major advantages of advance ruling under GST compared to advance ruling under service tax is that under GST, advance ruling can be obtained on a proposed transaction as well as a transaction already undertaken by the appellant. To handle all aspects of advance ruling under GST, the Government has created the Authority for Advance Ruling (AAR), which can give a binding ruling to an applicant who is a registered taxable person or is liable to be registered.

Advance Ruling on Canteen Service

The Advance ruling on Canteen services was requested by Caltech Polymers Private Limited, a maker and trader of footwear in Kerala, Malappuram. As the factory employs more than 250 employees, the company was legally forced to render canteen services to its employees as per Section 46 of the Factory Act,1948. A space for the canteen was also given by the company inside the factory premises and the cost incurred to run the services were retrieved from the employees as an abstraction from their monthly pay in relative to the food intake. In the application to AAR the company stated the following facts:

• The space for the canteen is provided by the Company, inside the factory premises.
• The cook is employed by the Company and is paid monthly salary.
• The vegetables and other items required for preparing the food items are purchased by the Company directly from the suppliers .
• The number of times, the Canteen facility is availed, each day, by the employees is tracked on a daily basis.
• Based on the details above, the expenditure incurred by the Company on the vegetables and other items required for preparation of food is recovered from the employees, as a deduction from their monthly salary, in proportion to the foods consumed by them.
• The company does not make any profit while recovering the cost of the food items, from the employees. Only the actual cost incurred for the food items is recovered from the employees.

Hence, the company contended that the activity of providing canteen services to its employees does not fall within the scope of supply, as the same in not in the course or furtherance of its business. The company is only facilitating the supply of food to its employees, which is a statutory requirement, and is recovering only the actual expenditure incurred in connection with the food supply, without making any profit.

AAR on Canteen Services

In the AAR ruling on Canteen services, the Authorities made the following observations and justifications to hold canteen services provided to an employee as being taxable under GST.

Definition of Business

The term “business” is defined in Section 2(17) of the GST Act as: “Business” includes:-

• (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit
• (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a)

Hence, the definition of “business” includes a transaction incidental or ancillary to the main business. Thus supply of canteen services to employees would be a supply that is transaction incidental or ancillary to the main business and is taxable.

Activities Treated as Supply

Schedule II to the GST Act describes the activities to be treated as supply of goods or supply of services. As per clause 6 of the Schedule, the following composite supply is declared as supply of service.

“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.”

Hence, even though there is no profit, the supply of food to its employees, would be a “supply” as provided in Section 7(1)(a) of the GST Act, 2017.

Consideration

Finally, the GST Act defines consideration as follows:

‘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.

Since the company recovers the cost of food from its employees, there is consideration as defined under the GST Act.

Conclusion

Taking into the above aspects, the GST Advance Ruling Authority has ruled that GST is applicable on canteen services provided by an employer to its employees. (Know the GST Rate for Canteen Services.)

There is a process of appeal for Advance Ruling under GST. Hence, it is to be seen if the order would be appealed against and its conclusion.

Copy of AAR Order on Canteen Services

A copy of the GST Authority of Advance Ruling (AAR) order in the matter of Caltech Polymers Private Limited:

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Job Work under GST

Simple concept of job work is that principal manufacturer would send inputs or capital goods, under intimation and without payment of tax to a job worker and if required, goods are further sent from one job worker to another job worker and after completion of job work, the goods are returned back to the principal manufacturer without payment of tax. In this article, we look at job work under GST, along with job work procedure and eligibility for claiming input tax credit.

Under the whole process, the principal manufacturer is not required to reverse the input tax credit availed on inputs or capital goods dispatched to job-worker. Hence, in simple terms job work means undertaking any process on inputs / semi-finished goods supplied by the principal manufacturer.

Definition of Job Work

Job work means any treatment or process undertaken by a person on goods belonging to another registered person. The ownership of the goods does not transfer to the job-worker but it rests with the principal manufacturer. The job worker is required to carry out the process specified by the principal manufacturer on the goods supplied by him.

As per section 143(2) of CGST Act, the responsibility for keeping proper accounts of inputs or capital goods sent for job work lies with principal manufacturer.

Job Work Procedure under GST

In order to send inputs or semi-finished goods, without payment of duty / without reversal of input tax credit to a job worker, the principal manufacturer has to prepare a ‘ Delivery Challan’ in the prescribed format. Challan should contain following details:

• Date and number of the delivery challan;
• Name, address and GSTIN of the consigner and consignee;
• HSN code, description and quantity of goods;
• Taxable value, tax rate, tax amount- CGST, SGST, IGST, UTGST separately;
• Place of supply and signature.

Details of the challans must be reflected in Form GSTR-1. Finally, details of challans must also be filed through Form GST ITC – 04. Form GST ITC – 04 must be submitted on quarterly basis by 25th day of the month succeeding the quarter. Under form GST ITC – 04, following details are to be provide:

• Goods dispatched to job-worker;
• Goods received from job-worker;
• Goods send from one job-worker to another job-worker.

E-way Bill for Job Work

As per GST provisions on e-way bill, e-way bill must be generated by every registered person who causes movement of goods of consignment value exceeding fifty thousand rupees even in cases where such movement is for reasons other than for supply. Hence even in case of movement of goods for job work, e-way bill must be generated. In case of interstate movement of goods, e-way bill would be generated either by the principal manufacturer or by the registered job worker irrespective of the value of the consignment.

Return of Goods to Principal

Return of goods to principal is a very important aspect under job work. Inputs and/or capital goods sent to a job worker are required to be returned to the principal within 1 year (in case of inputs) and 3 years (in case of capital goods) from the date of sending such goods to the job worker.

Provision of return of goods is not applicable in case of moulds and dies, jigs and fixtures or tools supplied by the principal manufacturer to job worker. However, when such moulds and dies, jigs and fixtures or tools are disposed off as scrap by the job worker, GST would be payable by the job worker (if job worker has GST registration), otherwise GST on sale of scrap would be payable by the principal manufacturer. When input and/or capital goods are not returned within the specified time, the same is required to be disclosed in Form GSTR-1 and the principal manufacturer is liable to pay the tax along with applicable interest.

Waste Generated by Job Worker

As per section 143 (5) of the CGST Act, 2017, waste generated at the premises of the job-worker may be supplied directly by the registered job-worker from his place of business on payment of tax, in such case GST is payable by job-worker, however, if job-worker is not registered than such waste may be cleared by the principal manufacturer and GST would be payable by the principal manufacturer.

Input Tax Credit for Material Supplied to Job Worker

As per section 19 of CGST Act, 2017, the principal manufacturer can avail credit on input tax paid on inputs sent to job worker. The principal manufacturer can even avail credit on goods which are directly supplied to job worker.

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Cess on Tea

Tea is a common man’s beverage. It is the second most consumed beverage in India after water. Bengal and Tamil Nadu are the two major tea growing states in India. As per recent statistics, Assam produces over 53% of our country’s tea and over 13% of world’s tea. In this article, we look at Cess on Tea and its applicability under GST.

Know more about GST Cess and its applicability.

Cess on Tea – Tea Act, 1953

Tea Act, 1953 was formed and made effective from 1st April, 1954. Provision of section 25 (1) of the Tea Act, 1953, provides that Cess on Tea is payable on all the tea produced in India.

The cess is collected by the center and credited to Consolidated Fund of India after deducting the expenses of collection. Funds are released by the Central Government in favour of Tea Board from time to time on the basis of the sanctioned budget after due
appropriation by the Parliament. Such funds received by the Board are being utilised for meeting the non-plan expenditure.

Rate of Tea Cess – Tea Act, 1953

The Tea Act provides for levy of cess upto 50 paisa per kilogram of tea produced in India, however, the cess is levied at the rate of 30 paisa per kilogram, except in case of Darjeeling tea cess is levied at the rate of 12 paisa per kilogram.

GST Rate and Cess on Tea

The Government of India had abolished various Cess on goods and services in General Budgets viz 2015-16, 2016-17 and 2017-18 to prepare the ground for smooth roll- out of Goods and Service Tax (GST) from 1st July, 2017.  Accordingly, the cess on tea was abolished in India from 1st July, 2017 – the date on which GST was rolled out in India. Hence, under GST, cess on tea will not be applicable and only GST will be applicable in the following rates:

Find GST rate for other tea and tea products.

Green Leaf Cess – Assam

The Assam government levies a green leaf cess of 0.40 paise per kilogram of green leaf for big plantation under the Assam Taxation on Specific Land. However, the Assam government has recently withdrew the green leaf cess for small tea grower and according to statistics small grower produce 40% of Assam green leaf.

Please note that cultivators with an area up to 10.12 hectares are considered small growers, who contribute 44 per cent of the state’s total produce per year, and recently Assam government has withdrawn green leaf cess on such small tea growers.

Cess Abolished with GST

Other Cess that was abolished with the GST rollout are:

1. The Rubber Act 1947 – Cess on Rubber
2. The Industries (Development and Regulation) Act 1951 – Cess on Automobile
3. The Tea Act 1953 – Cess on Tea
4. The Coal Mines (Conservation and Development) Act, 1974 – Cess on Coal
5. The Beedi Workers’ Welfare Cess Act 1971 – Cess on Beedis
6. The Water (Prevention and Control of Pollution) Cess Act 1977 – Cess levied on Water consumed by certain industries and by local authorities.
7. The Sugar Cess Act 1982, the Sugar Development Fund Act 1982 – Cess on Sugar
8. The Jute Manufacturers Cess Act 1983 – Cess on Jute Goods manufactured or produced or in part of Jute.
9. The Finance (2) Act 2004 – Education Cess on Excisable Goods
10. The Finance Act, 2007 – Secondary and Higher Education Cess on Excisable Goods
11. The Finance Act 2010 – Clean Energy Cess
12. The Finance Act 2015 – Swachh Bharat Cess
13. The Finance Act 2016 – Infrastructure Cess and Krishi Kalyan Cess

Cess NOT Abolished with GST

The following cess has not been abolished under GST. Hence, the following cess continue to be applicable.

1. The Finance (2) Act 2004 – Education Cess on Imported Goods
2. The Finance Act, 2007 – Secondary and Higher Education Cess on Imported Goods
3. Cess on Crude Petroleum Oil under the Oil Industry Development Act, 1974
4. Additional Duty of Excise on Motor Spirit (Road Cess)
5. Additional Duty of Excise on High Speed Diesel Oil (Road Cess)
6. Special Additional Duty of Excise on Motor Spirit
7. NCCD on Tobacco and Tobacco Products and Crude Petroleum Oil.

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High Sea Sales – GST Applicability

High sea sales is a sale carried out by the actual consignee (i.e. the consignee shown in the Bill of Lading) to another buyer while the goods are on high seas or after their dispatch from the port of loading and before their arrival at the port of discharge. For example, if a buyer in India purchases iron scrap from USA and while the shipment is in transit, the goods are sold to another person, the transaction would be termed as high sea sales. Hence, the high sea sales agreement / contract should be signed after dispatch of goods from the origin and prior to their arrival at destination. On concluding the high sea sales agreement, the bill of lading should be endorsed in favour of the buyer. The title of the goods transfers to the buyer and bill of entry is also filed in the name of buyer. In this article, we look at the applicability of GST on high sea sales.

High Sea Sales under GST

After the high sea sale of the goods, the Customs declarations i.e. Bill of Entry etc is filed by the person who buys the goods from the original importer during the said sale. In the past, CBEC has issued various instructions regarding high sea sales appropriating the contract price paid by the last high sea sales buyer into the Customs valuation.

• Under GST, the question raised by the industry was the applicability of GST on high sea sales – specially if GST would be levied on the transaction between the buyer and seller while the goods were in transit and if GST.
• When levy of GST will happen in high sea sales?
• Who will be responsible for the payment of GST in a high sea sales?

As per provision of section 7 (2) of the IGST Act, supply of goods in the course of import into the territory of India, till they cross the Customs frontiers of India will be deemed to be a supply in the course of Interstate trade or commerce. Hence, GST would be applicable on the transaction. However, the time of levy of GST would be different for high sea sales as under.

Time of Levy of GST

For high sea sales, the GST Council has decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, will be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, any value addition accruing in each such high sea sale will form part of the value on which IGST is collected at the time of clearance. Thus the final buyer would be responsible for payment of GST on the full value of goods plus any value addition, at time of import. (Know more about GST on import)

Payment of GST for High Sea Sales

The GST Councils decision with respect to GST on high sea sales is similar to that of the rules provided under the Customs Tariff Act, 1975. Under the Customs Tariff Act, in respect of imported goods, all duties, taxes, cessess etc will be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for the customs clearance purposes.

The last buyer in the chain and importer would be required to furnish the entire chain of documents, such as original invoice, high-seas-sales-contract, details of service charges/commission paid etc, to establish a link between the first contracted price of the goods and the last transaction.

Hence, under GST as well, the final buyer in a high sea sales transaction is responsible for payment of GST and providing the necessary documents as required under Customs for clearance of the goods.

GST Council Notification

The above clarification was provided by the GST Council vide Circular No. 33 /2017-Cus dated  1st August, 2017. GST Council Circular No.33 / 2017 is reproduced below for reference:

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GST Demand Notice

The Goods & Service Tax (GST) is payable on self-assessment basis i.e. assessee himself has to determine it’s tax lability. If the determination of assessee goes wrong i.e. assessee has short paid any taxes or not paid any taxes or has wrong availed and utilized
any input tax credit or has erroneously been refunded, than, under such circumstances demand would be raised by the GST officials. In this article, we look at GST demand notice and cases wherein demand would be raised, interest and penalty payable on such demand etc.

Types of Demand under GST

The GST demand notice can be issued by the GST officials for short payment or non-payment of GST in following two different situations:

1. When there is no reason of fraud or wilful misstatement or suppression of facts
2. When there is reason of fraud or wilful misstatement or suppression of facts

Section 73 of GST Act – No Fraud or Misrepresentation

When there is no reason of fraud or wilful misstatement or suppression of facts, demand notice is issued under Section 73 of the GST Act.

Section 73 of the CGST Act, deals with the cases where any taxes has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax.

Time Limit for Issue of Notice and Adjudication under Section 73

If there is any non-payment, short payment, or where input credit has been wrongly availed or utilized for any reason other than fraud or willful misstatement or suppression of facts, than, the adjudication of the case should be done within 3 years from the date of filing of annual GST return for the relevant financial year.

If the assessee received an erroneous refund, the case must be adjudicated within 3 years from the date on which such refund was credited to the assessee’s account.

The officer should issue notice for recovery of tax at least 3 months prior to the limit of adjudication or issue of order.

The officer should issue order of adjudication within 3 years from the due date for furnishing of annual return for the financial year for the relevant period of dispute

Once the above notice has been issued within the time limit, the proper officer can serve a statement, with details of any unpaid tax/wrong refund etc. for other periods not covered in the notice. A separate notice does not have to be issued for each tax period.

Finally, an assessee can voluntarily pay taxes along with interest before issue of notice / statement and inform the departmental officer about the same in writing. The departmental officer, if satisfied, will not issue notice in that respect.

Payment of Tax on Receiving GST Demand Notice

If a demand notice is issued under Section 73 and the taxpayer makes payment, the following would be the penalty under Section 73 of the GST Act:

Penalty under Section 73 of the GST Act

Section 74 of GST Act  – Fraud or Misrepresentation

When there is reason of fraud or wilful misstatement or suppression of facts, GST demand notice is issued under Section 74 of the GST Act.

Section 74 of the CGST Act, deals with the cases where any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly  availed or utilised by reason of fraud or any wilful misstatement or suppression of
facts to evade tax.

Time Limit for Issue of Notice and Adjudication under Section 74

If there is any non-payment, short payment, or where input credit has been wrongly availed or utilized with the reason of fraud or willful misstatement or suppression of facts, than, the adjudication of the case should be done within 5 years from
the date of filing of annual return for the relevant financial year.

If the assessee received an erroneous refund, the case must be adjudicated within 5 years from the date on which such refund was credited to the assessee’s account.

The officer should issue notice for recovery of Tax at least 6 months before the deadline for adjudication of case or issue of order.

The officer should issue order of adjudication within 5 years from the due date for furnishing of annual return for the financial year for the relevant period of dispute.

Please note that, once the notice has been issued, the proper officer can serve a statement, with details of any unpaid tax/wrong refund etc. for other periods not covered in the notice. A separate notice does not have to be issued for each tax period.
Taxes paid before issue of show cause notice/

Finally, an assessee can voluntarily pay taxes along with interest and 15% penalty before issue of notice / statement and inform the departmental officer about the same in writing. The departmental officer, if satisfied, will not issue notice in that respect.

Penalty under Section 74 of GST Act

Section 75 of GST Act

Section 75 of the CGST Act, deals with the general provisions relating to determination of tax and demand under GST. The following are some of the important provisions under Section 75 of GST Act.

Stay of Notice

If the service of notice or issuance of order is stayed by an order of Court or Appellate Tribunal, the period of stay will be excluded in computing the period 3 years or 5 years  – the time limit for issue of notice or adjudication.

No Fraud or Wilful Misrepresentation

If any Appellate Authority or Appellate Tribunal or Court concludes that the notice issued under Section 74 is not sustainable for the reason that the charges of fraud or willful misstatement or suppression of facts to evade tax has not been established, the officer shall determine the tax payable deeming as if the notice were issued under Section 73.

Time Limit for Passing Order

Where any order is required to be issued in pursuance of the direction of the Appellate Authority or Appellate Tribunal or a court, such order should be issued within 2 years from the date of communication of the said direction.

Opportunity for Being Heard

An opportunity of hearing should be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is proposed against such person.

Maximum Adjournments Allowed

The officer can, if sufficient cause is shown by the person chargeable with tax, adjourn the hearing for reasons to be recorded in writing. Adjournment will be allowed for maximum of 3 times.

Passing Order

The officer, in his order, should set out the relevant facts and the basis of his decision.

Limitations

The amount of tax, interest and penalty demanded in the order should not be in excess of the amount specified in the notice and no demand can be confirmed on the grounds other than the grounds specified in the notice.

Further, where any penalty is imposed u/s 73 or section 74, no penalty for the same act or omission can be imposed on the same person under any other provision of this Act.

Finally, if the order is not issued with 3 years or 5 years as provided u/s 73 and 74, respectively, then it shall be deemed that the adjudication proceedings are completed and no order can be issued afterwards.

Applicability of Interest

The interest on the tax short paid or not paid should be payable whether or not specified in the order determining the tax liability.

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Employee Reimbursement under GST

With implementation of GST, lot of confusion has prevailed regarding taxability of transactions between employee and employer and applicability of reverse charge mechanism on such transactions. In this article, we look at the applicability of GST on employee reimbursements in detail.

GST Act & Law

Before we analyse the applicability of GST on employee reimbursements, lets look at some related rules:

• As per clause 1 of schedule III, read with section 7 of the CGST Act, 2017, services provided by the employee to the employer in the course of or in relation to his employment shall neither be treated as supply of goods nor supply of service.
• As per section 15 of the CGST Act, 2017, employer and employee are related persons.

Employee Reimbursement – Purchase from Registered Dealer

A registered dealer is a supplier having GST registration. When expenses are incurred by an employee on behalf of the employer in terms of purchases from a registered dealer, GST would not be applicable on the money reimbursed by employer to employee. For GST not to be applicable, the transaction must have the following characteristics:

• The expenses incurred is for the furtherance of the business of the employer.
• Expenses are incurred by the employee in the course of or in relation to employment, and such expenses are reimbursed by the employer.
• The supplier has issued a tax invoice and has charged GST on such services. The tax invoice contains the name and GSTIN of the employer as recipient.

If all of the above conditions are satisfied, the employer will be eligible to avail of the Input Tax Credit (ITC) of the GST paid by employee.

Employee Reimbursement – Purchase from Unregistered Dealer

An unregistered dealer is a supplier not having GST registration. In such cases, the supplier would not have charged GST on the supply of goods or services as well.

As provided above, even for purchase from unregistered dealers, the expenses incurred by the employee in the course of or in
relation to employment and reimbursement of such expense by the employer will not attract GST.

However, when services are provided by unregistered dealer to the employee (who is merely receiving the service on behalf of the employer) than in such case provisions of reverse charge mechanism would apply.

Note: GST reverse charge mechanism is suspended temporarily.

Reverse Charge on Employee Reimbursement

As per relevant provisions of section 9 (4) of the CGST Act, 2017 :

“The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to
such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”

Plain reading of above provisions clarifies that when there is supply from unregistered dealer to a registered dealer, it is the liability of registered dealer to pay GST under reverse charge mechanism.

Hence, when an employee incurs expenses on behalf of the employer than the employee is simply acting as an agent of the employer and hence on the basis of section 2(93) of the CGST Act, 2017 the employer i.e. the principal would be considered as the
‘recipient’.

Thus when employee has incurred any expense on behalf of the employer, the recipient of the service would be the employer. Further, if such services are received from any unregistered dealer, the employer would be liable to pay GST under reverse charge mechanism on such transaction.

Gift to Employee under GST

As per provisions of Schedule II, read with Section 7 of the CGST Act, “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”.

The definition of gift has not been provided in the GST Acts hence we have to consider the definition as provided under other Acts. As per section 122 of the Transfer of Property Act, 1882 the definition of gift is as under:

“Gift is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the done, and accepted by or on behalf of the donee.”

Hence it can be concluded that anything given voluntarily without any consideration can be considered as a gift. Therefore, reimbursement of personal expenses of employee can on special circumstances be considered as gift and should not be subject to GST if value is less than INR 50,000 in any financial year.

Know more about Gifts under Income Tax Act.

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Assessment under GST

Under GST, the term “assessment” means determination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment. Normally, persons having GST registration file GST returns and pay GST every month based on self-assessment of GST liability. However, the Government at all times has the rights to re-assess or perform an assessment by itself and determine if there is a short payment of GST. In this article, we look at the various types of assessment under GST in detail.

Types of Assessment under GST

The different types of assessment under GST are as under:

• Section 59 – Self assessment of taxes payable
• Section 60 – Provisional assessment
• Section 61 – Scrutiny of tax returns filed by registered taxable persons
• Section 62 – Assessment of registered taxable person who have failed to file the tax returns
• Section 63 – Assessment of unregistered persons
• Section 64 – Summary assessment in certain special cases

Section 59 – Self Assessment

The taxable person is required to pay tax on the basis of self-assessment done by himself. Hence, all GST return filings are based on self-assessment by the taxpayer.

In this regard, provisions of Section 59 of the GST Act is reproduced hereunder:

“Every registered person shall self-assess the taxes payable under this Act and furnish a return for each tax period as specified under section 39.”

Section 60 – Provisional Assessment

Provisional assessment can be conducted for a taxable person when the taxpayer is unable to determine the value of goods or service or both or determine the rate of tax applicable thereto.

Procedure for Provisional Assessment

Step 1: The taxable person has to give, the concerned GST officer, a request for provisional assessment in writing.

Step 2: The GST officer on reviewing the application, will pass an order, within a period not later than ninety days from the date of receipt of the request, allowing payment of tax on provisional basis or at a GST rate or on such value as specified by him.

Step 3: The taxable person, who is making payment on provisional basis, has to issue a bond with a security promising to pay the difference between provisionally assessed tax and final assessed tax.

Step 4: The GST officer will pass final assessment, with a period not exceeding six months from the date of communication of order of provisional payment.

Interest Payable for Provisional Assessment

n case, after final assessment, the tax is held payable i.e. taxable person is held liable to pay more tax than tax paid at the time of provisional assessment, in such case, the taxable person will be liable to pay interest on such tax payment. Interest would be calculated from the actual due date of tax (please note original due date should be considered and not provisional tax payment date) till the date of actual payment of tax. The interest calculation position will remain same, even if the payment of tax is done before or after final assessment.

Refund under Provisional Assessment

In case of refund, interest will be paid on such refund as provided under section 56.

Section 61 – Scrutiny Assessment

GST Officers can scrutinize a GST return and related particulars furnished by the registered person to verify the correctness of the return. This is called a scrutiny assessment. In case there is any discrepancies noticed by the officer, he/she would inform the same to the registered person and seek his explanation on the same. On the basis of the explanation received from the registered person, the officer can take following action:

• If the explanation provided is satisfactory, the officer will inform about the same to the registered person and no further action will be taken in this regard.
• If the explanation provided is not satisfactory or the registered person has failed to take corrective measures after accepting the discrepancies, the proper officer will initiate appropriate action like conducting audit of registered person, conducting special audit, inspect and search the place of business of registered person, or initiate demand and recovery provisions.

Section 62 – Failure to File GST Return – Best Judgement Assessment

When a registered person fails to furnish the required returns, even after service of notice under Section 46 an assessment would be conduced by the GST Officer. In such cases, the GST officer would proceed to assess the tax liability of the taxpayer to the best of his judgement taking into account all the relevant material which is available or which he has gathered and issue an assessment order within a period of five years from the date for furnishing of the annual return for the financial year to which the tax not paid relates.

On receipt of the said assessment order, if the registered person furnishes a valid return within a period of 30 days from the date of issuance of assessment order, then in such case, the assessment order would deemed to have withdrawn. However, the registered person will be liable to pay interest under Section 50 (1) and/or liable to pay late fee under Section 47.

Section 63 – Assessment of Unregistered Person – Best Judgement

When a taxable person fails to obtain GST registration even though liable to do so or whose registration has been cancelled under section 29 (2) but who was liable to pay tax, the GST officer can proceed to assess the tax liability of such taxable person to the best of his judgment for the relevant tax periods and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates.

Section 64 – Summary Assessment

A GST Officer can on any evidence showing a tax liability of a person coming to his notice, proceed to assess the tax liability of such person to protect the interest of revenue and issue an assessment order, if he has sufficient grounds to believe that any delay in doing so may adversely affect the interest of revenue. In order to undertake assessment under section 64, the proper officer is required to obtain previous permission of additional commissioner or joint commissioner. Such an assessment is called summary assessment.

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GST on Joint Development Agreement

An agreement between a landowner and a real estate developer to construct new projects is called a Joint Development Agreement. In a joint development the capital, the builder carries out construction and legal work whereas the landowner provides the land. There are two common types of JDA. They are as follows:

• Area Sharing JDA
• Revenue Sharing JDA

The key feature of JDA is that the landowner contributes land and developer undertakes the responsibility of obtaining approvals, property development, launching and marketing the project with his financial resource. Hence, Joint Development Agreements are very common in the real estate industry in India. In this article, we look at the applicability of GST on Joint Development Agreement in detail.

Advantages of Joint Development Agreement

Some of the main advantages of a Joint Development Agreements are:

• The initial investment on land/site is not required for developer.
• Stamp duty could be avoided partly.
• Fast mode of development of the property, working capital requirement restricted towards approval and construction.
• A secured loan is obtained by pledging land, which is obtained under JDA.
• Investor/landlord will be benefitted with competent consideration.

Joint Development Agreement

The parties and transaction involved in a Joint Development Agreement are as follows:

Landowner – Developer

The Landowner provides development rights to the Developer by signing the Joint Development Agreement. The Developer in turn provides continuous supply of construction services to the Landowner over a period of time.

Developer – End Customer

The Developer enters into purchase/construction agreements with homebuyers for providing construction services. GST is applicable on the property transaction, wherein the Developer provides construction services to a homebuyer. The aspects relating to applicability of GST on property transaction involving under construction property is covered in the following article:

• GST on Property Transactions – Under-Construction Flats and Completed Flats

Hence, its now important to determine the applicability of GST on the transaction between the Landowner – Developer while entering into a Joint Development Agreement.

Applicability of GST on Joint Development Agreement

To clarify the doubts of the real estate industry post the implementation of GST with respect to applicability of GST on Joint Development Agreements, the Government has released a notification on the said matter. The crux of the GST notification is as follows:

When a developer enters into a development agreement with a Landowner, GST would become payable by the Landowner when the developer transfers possession or the rights in the constructed complex, building or civil structure, to the Landowner by entering into a conveyance deed or allotment letter.

Hence, when the Landowner receives a constructed property from the Developer in exchange for providing land, the Landowner would become liable for payment of GST. The GST rate applicable on such a transaction would be 18%.

GST Notification on Joint Development Agreement

The GST notification with respect to the applicability of Joint Development Agreement is reproduced below for reference:

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GSTR3B Due Date for April 2018

The GSTR3B due date for April, 2018 has been extended upto 22 May, 2018. Normally, the GST3B returns are due on the 20th of each month. Hence, the GSTR3B return for the month of April would normally be 20th May 2018. However, due to a glitch in the GST Portal, the GSTR3B return due date for the month of April, 2018 has been extended upto 22nd May, 2018. The announcement for the due date extension was made through the official GST Twitter handle as follows:

Press Release on extension of date for filing return in FORM GSTR-3B for the month of April, 2018 till 22nd May, 2018 pic.twitter.com/JgPnLKOhBd

— GST@GoI (@askGST_GoI) May 18, 2018

Know more about GST Return Due Date here.

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GST on Free & Sample Products

In a fast growing, competitive market, one of the most effective ways to gain new customers is to give away free and sample products. Providing free or sample products is a tried and tested marketing method used by various companies in India and in this article, we review the applicability of GST on free and sample products in detail.

Applicability of GST on Free and Sample Products

A taxable event under GST is supply of goods or services for which GST is leviable. Section 7 of GST Act deals with the term supply and the it states:

“All forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business”.

As there is no consideration paid by a person for a free or sample product, it would not be treated as supply under GST.

Further, Schedule I contains activities to be treated as supply even if made without consideration. The provisions of schedule I are reproduced hereunder:

Activities Treated as Supply Even If Made Without Consideration

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
2. 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 –
   1. By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
   2. 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.

From Schedule I reproduced above, it can be noted that supply of free sample does not fall under the category of activities to be treated as supply even if made without consideration.

Note: Free sample cannot be classified as business asset where input tax credit has been availed.

Hence, the transaction of free or sample products does not quality as supply. Thus, taxable event will not arise and hence is not applicable on the same.

Input Tax Credit for Free and Sample Products

Various clients often ask us, can a person having GST registration avail input tax credit on free and sample products distributed?

To arrive at an answer, we must first look at Section 16(1) of CGST Act.

Section 16 (1) of CGST Act

Every registered person under GST is eligible to avail input tax credit on any supply of goods and services that can be used in the course or furtherance of business.

Specific exemptions to the above general principle is provided under section 17 (5) of CGST Act.

Section 17 (5) specifically states in point (h) that goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample is not eligible for input tax credit.

Thus, according to above provisions of section 17 (5) (h), input tax credit is not available for free sample. If input tax credit has been availed than the taxpayer, then the taxpayer must reverse input tax credit pertaining to goods which are to be disposed of by
way of free sample.

Conclusion

In case of free and sample products, GST is not applicable as it doesn’t fall under the definition of supply. Also, input tax credit pertaining to goods which has been disposed of by way of free sample is not available under GST.

Click here to find GST rate and HSN code for goods in India.

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GST on Export Oriented Unit (EOU)

Export Oriented Unit (EOU) scheme was introduced in the year 1981. Under EOU scheme, units registered as a EOU are required to export their entire production of goods and services. However, certain portion is allowed to be sold out in domestic tariff area (DTA).

The main objective of introduction of Export Oriented Unit scheme is to increase exports, to increase foreign exchange earnings in the country and generate additional employment. In this current article, we look at the impact of GST on Export Oriented Units in detail.

Supply of Goods to EOU (Purchase by EOU from DTA)

Under GST, there is no exemption available to supplier of goods to EOU. IGST, CGST and SGST, as applicable, will be payable by the supplier who supplies the goods to EOU. EOU has to options to offset GST paid on goods received from suppliers, the options are narrated below:

Option 1 – To take input tax credit of GST paid and utilize the same towards supplies made by EOU to DTA.

Option 2 – Claim refund of GST paid.

It is always advisable to go for first option and option 2 is available only when there is no enough DTA supplies against which input tax credit can be used.

Supply of Goods by EOU

When EOU units supply admissible goods to DTA units, EOU units are required to pay applicable GST on such supply. Only in case of zero rated supplies, as defined under section 16 of the IGST Act, EOU are exempted from payment of GST. Provisions of section 16 (1) are summarized hereunder for ready reference:

Zero rated supply means any of the following supplies of goods or services or both, namely –
a) export of goods or services or both; or
b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Hence, when an EOU units undertakes physical export of goods or services or supplies goods or services to special economic zone (SEZ) developer or special economic zone unit, then, in such cases, EOU units are exempted from payment of GST.

Supply from EOU to EOU

When the goods are supplied by one EOU to another EOU, such supply would be treated any other supplies under GST law and hence GST would be payable on the same as payable under any other supplies.

Tax Benefits for EOU under GST

After implementation of GST, EOU units is like any other supplier under GST and all the provisions of GST law will be applicable to EOU units. The only benefit available to EOU unit is duty free import i.e. benefit of basic customs duty exemption is available to EOU.

Further, exemption from the additional duties of customs, if any, under section 3(1), section 3 (3) and section 3 (5) of the Customs Tariff Act, 1975 and exemption from central excise duty will be available for goods specified under the Fourth Schedule to the Central Excise Act.

In order to avail benefit of import duty exemption, EOU unit needs to follow the procedure under the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017.

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Input Tax Credit for Capital Goods under GST

Calculation of input tax credit for capital under GST, input tax credit availability and non-availability and calculation of reversal of input tax credit has its own special provisions. Further there is special provisions for capital goods which are used for both taxable as well as exempted supplies. In this article, we look at the applicability of input tax credit for capital goods under GST in detail along with input tax credit formulas under GST.

Know more about Input Tax Credit under GST.

Capital Goods as per GST Act

As per provisions of section 2 (19) of the Act, “Capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

Input Tax Credit on Capital Goods

When capital goods are used exclusively for business purpose, input tax credit is available under GST. To be eligible to claim input tax credit on capital goods, the transaction has to be reflected in the GST return filing.

However, input tax credit on capital goods purchase is not available for capital goods used exclusively for effecting exempt supplies and for capital goods used exclusively for personal use.

Input Tax Credit Formula

In case a capital good is used for both business and personal use, then the input tax credit on the same has to be calculated as per the following formula:

GST Paid on Monthly Basis – Input Tax Credit on Capital Goods – Mixed Use

Input Tax Credit = Input Tax Credited to Electronic Ledger / 60

The number 60 is derived from multiplying 5 years by number of months. Hence, 5 * 12 = 60.

GST Paid on Quarterly Basis – Input Tax Credit on Capital Goods – Mixed Use

Input Tax Credit = Input Tax Credited to Electronic Ledger / 20

The number 20 is derived from multiplying 5 years by number of quarters. Hence, 5 * 4 = 20.

Personal Use Converted to Mixed Use

Below formula is to be used when capital goods which was earlier used for personal purpose and later on used for both, personal and business purpose.

Input tax to be credited to electronic credit ledger = Input Tax – 5% of Input tax for every quarter or part thereof from date of invoice.

Common Input Tax Credit Attributable Towards Exempted Supplies

Formula for calculating common credit towards exempted supplies is:

Step 1: Credit Attributable to Exempted Supplies = (Value of exempted supplies / total turnover) * Credit for tax period.

Step 2: Allowable Input Tax Credit = Total input tax credit – credit attributable to exempted supplies.

Sale of Capital Goods

Section 18 of CGST Act, contains provisions of sale of such capital goods and conditions and restrictions in case of supply of goods on which input tax credit has been taken below is payable:

• An amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage as per provisions of Rule 44(6); or
• The tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.

As per rule 44 (6) amounts of input tax credit involved in capital goods held in stock, the Input tax credit involved in the remaining useful life in months shall be computed on prorata basis, taking the useful life as five years.

Further, section 18 of CGST Act, also provides that, dies, moulds and jigs, refractory bricks, fixtures and jigs to be treated as scrap, the registered person under GST Act may pay taxes on transaction value of such goods prescribed under section 15.

Reversal of Input Tax Credit on Capital Goods

Following are the situations under which input tax credit availed on the capital goods needs to be reversed:

• When taxpayers opts to pay tax under composition scheme.
• When goods or services supplied by the taxpayer becomes exempted.
• When there is supply of capital goods, on which input tax credit has been availed.
• When the registration of registered tax payer has been cancelled Input tax credit involved in the remaining useful life in months will be computed on prorata basis, taking the useful life as five years.

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Applicability of GST for Merchant Exporters

Merchant exporter is a person who is engaged in trading activity only. Further, the goods purchased are exported by the merchant exporter. Hence, a merchant exporter is not involved in any manufacturing activity, he just undertakes trading of the goods.

Under earlier law special tax benefit was provided to the merchant exporter for procurement of goods without payment of duty, however, the same is not available under Goods and Service Tax law. After several representation from the exporter, the Government of India, with effect from 23.10.2017, has exempted CGST and SGST above 0.05% and IGST above 0.1%. Meaning thereby that, from 23.10.2017, the merchant exporter can procure goods @0.05% CGST + 0.05% SGST and 0.1% IGST from domestic market.

In this article, we look at the applicability of GST for Merchant Exporters and the procedure to be followed by Merchant Exporters to avail benefit of the exemption notification.

Merchant Exporter under GST

Under GST, “Manufacturer Exporter” means a person who manufactures goods and exports or intends to export such goods. “Merchant Exporter” means a person engaged in trading activity and exporting or intending to export goods.

Application of GST for Merchant Exporter

Under GST, supply of goods or service and as per provisions of section 7 (5) (a) when the supplier is located in India and the place of supply is outside India, supply of goods or services or both, would be treated to be a supply of goods or services or both in the course of inter-state trade or commerce.

Since the activities of merchant exporter is covered under criteria of supply, the merchant exporter is required to obtain GST registration and follow all the rules and regulations, thereon. As per notification no. 40/2017-central tax (rate) and 41/2017-central tax (rate) both dated 23.10.2017, the registered supplier would supply the goods to the registered recipient on a tax invoice charging GST as follows :

• In case of intra-state supply – CGST is payable @0.05% and SGST is payable 0.05%
• In case of inter-state supply – IGST is payable @0.1%

Conditions for Availing Exemption

In order to avail the above exemption, the Merchant Exporter must fulfil the following conditions:

1. The registered supplier should supply the goods to the registered recipient on a tax invoice;
2. The registered recipient should export the said goods within a period of ninety days from the date of issue of a tax invoice by the recipient supplier;
3. The registered recipient should indicate the Goods and Service Tax Identification Number of the registered supplier and the tax invoice number issued by the registered supplier in the shipping bill or bill of export.
4. The registered recipient should be registered with an Export Promotion Council or a Commodity Board recognized by the Department of Commerce;
5. The registered recipient shoud place an order on registered supplier for procuring goods at concessional rate and a copy of the same shall also be provided to the jurisdictional tax officer of the registered supplier;
6. The registered recipient should move the said goods from place of registered supplier –
   1. Directly to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported; or
   2. Directly to a registered warehouse from where the said goods shall be move to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported;
7. If the registered recipient intends to aggregate supplies from multiple registered suppliers and then export, the goods from each registered supplier should move to a registered warehouse and after aggregation, the registered recipient should move goods to the Port, Inland Container Deport, Airport or Land Customs Station from where they shall be exported;
8. In case of situation referred to in condition (vii), the registered recipient shall should receipt of goods on the tax invoice and also obtain acknowledgement of receipt of goods in the registered warehouse from the warehouse operator and the endorsed tax invoice and the acknowledgment of the warehouse operator shall be provided to the registered supplier as well as to the jurisdictional tax officer of such supplier; and
9. When goods have been exported, the registered recipient shall provide copy of shipping bill or bill of export containing details of Goods and Services Tax Identification Number (GSTIN) and tax invoice of the registered supplier along with proof of export general manifest or export report having been filed to the registered supplier as well as jurisdictional tax officer of such supplier.

It is most important to note that the Merchant Exporter will not be eligible for the above mentioned exemption (payment of GST at concessional rates) if the Merchant Exporter fails to export the said goods within a period of ninety days from the date of issue of tax invoice.

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GST on Discounts

Offering various discounts like cash discount, trade discount, volume discount, percentage discount etc. is the part and parcel of the sale promotion activities now a days. Under GST law cash discount, trade discount, volume discount, percentage discount etc. are not bifurcated. However, under GST, discount provisions are bifurcated under following two criteria; 1. Discount offered before or at the time of supply and 2. Discount offered after the supply has been effected. In this article, we look at the applicability of GST on discounts and procedure for invoicing.

Section 15 of GST Act

Section 15 of the CGST Act, 2017, deals with the provisions of discounts under GST, the same has been reproduced hereunder for reference purpose:

The value of the supply shall not include any discount which is given:

• Before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
• After the supply has been effected, if –
  • Such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices, and
  • Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

On the basis of the above provisions of Section 15, it is pretty clear that discounts are bifurcated in two category i.e. discounts offered before or at the time of supply and discounts offered after the supply has been effected.

Discounts at Time of Supply

Discount offered before or at the time of the supply or at time of invoice, will be allowed as deduction, from the value of the supply, if the same is separately recorded in the invoice.

Example

Suppose company offered discount @10% on sales of INR 10,000/-.

Discount amount would be INR 1,000/-.

If such discount amount is reflected in the tax invoice than such discount would be allowed as deduction. Value of supply INR 10,000 (-) Discount INR 1,000.

Hence, net value of supply on which GST is payable is INR 9,000. Thus, when discount is mentioned in the invoice and payment is not collected, GST on discount amount would not be applicable.

Find GST rate for goods and services.

Discount Offered After Supply

In some cases, a discount could be offered by a supplier after sale of the goods or services to improve collections or customer loyalty. In such cases, the value of supply at the time of invoicing would not have included the discount. In such cases, GST on discount would not be applicable only if the following conditions are satisfied:

• There is a written agreement between the supplier and the receiver, at or before the time of supply.
  • For example, an agreement that if the customer paid the amount due within 30 days, a discount of 10% would be applicable.
• Discount offered should be specifically linked to the relevant invoice.
• Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

When all the above conditions are fulfilled, the value of supply will not include the discount amount and GST would not be applicable on the discount provided.

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GST on Stock Broking Services

Stock broking is a service which gives retail and institutional investors the opportunity to buy and sell shares. Stock broker is a person or a firm that offers a stockbroking service. Stock exchanges imposes strict rules and regulations on who can trade shares directly on their books and that is the reason why most of the individuals / companies hoping to deal in shares will do the same via stock brokers.

Further, a ‘Sub-Broker’ is any person who is not a Trading Member of a Stock Exchange but who acts on behalf of a Trading Member as an agent or otherwise for assisting investors in dealing in securities through such Trading Members. In this article, we look at the GST implications on stock broking service including stock broker and sub-broker.

Place of Supply

Provisions of place of supply of service in case of stock broking services are contained in section 12 (12) of IGST Act and the same is reproduced hereunder:

“The place of supply of banking and other financial services, including stock broking services to any person shall be location of the recipient of services on the records of the supplier of service. Provided that if the location of recipient of service is not on the records of the supplier, the place of supply shall be the location of the supplier of services.”

On the basis of above provisions of section 12 (12), it can be concluded that, the place of supply of service in case of stock broking service would be classified in to following two categories:

1. When records of supplier of service is available – In such case, place of supply of service would be location of the recipient of service
2. When records of supplier of service is not available – In such case, place of supply of service would be location of the supplier of service.

Place of Business

Section 2 (85) of the CGST Act provides that the term ‘place of business’ includes:

• A place a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or
• A place where a taxable person maintains his books of account; or
• A place where a taxable person is engaged in business through an agent, by whatever name called.

In case of operations of stock broker, the place of business would be following:

1. All the branches of the stock broker where the stock exchange trading terminals are located and where trade is carried out on behalf of the clients;
2. Main office / Head office / Registered office / Branch office where back office operations are carried out including issuing of bills / contracts / tax invoices / account statements to the clients.

Applicability of GST

There are various types of services and supply provided by a broker as under:

Brokerage Earned in Stock Broking

Stock brokers are engaged in the business of supplying the stock broking service and hence GST is payable on the brokerage earned by providing stock broking service.

Interest or Delayed Payment Charges

Also, GST would be application on any interest / delayed payment charges charged for delay in payment of brokerage amount / settlement obligations / margin trading facility.

GST for Sub-Brokers

Sub-brokers, as defined under Stock Brokers and Sub Brokers Regulation, 1992, means any person, not being a member of stock exchange, who acts on behalf of a stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock brokers.

As per section 2 (5) of CGST Act, 2017, the term “agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another. Sub-broker would apparently be providing services to the stock broker as well as to the clients / investor and receiving consideration from both. Thus, in such a case, where the sub broker is providing services both to the broker and the investor on behalf of the broker, the sub broker would be duly covered within the definition of ‘agent’ as provided in Section 2(5) of the CGST Act, and needs to compulsorily register themselves under GST without the threshold exemption under Section 24(vii) of the CGST Act, 2017. However, if the sub-brokers do not provide any service to the clients / investor on behalf of stock broker (for example referral commission only), then the said sub-brokers would not fall in the definition of “agent” under the CGST Act, 2017 and provisions of GST would be made applicable accordingly.

Treatment of Securities

Section 2 (101) of the CGST Act, 2017 defines “securities” to have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.

Section 2 (52) of the CGST Act, 2017 defines “goods” to mean 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.

Thus from the above definition it can be concluded that the securities are not goods under the CGST Act, 2017.

Section 2(102) of the CGST Act, 2017 defines “services” to mean 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. Thus, securities are not services under the CGST Act, 2017.

Since securities neither fall in the definition of goods nor in the definition of services, they fall in the definition of “non-taxable supply” under section 2 (78) of the CGST Act, 2017 and provisions of GST would be made applicable accordingly.

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GST TDS – Rate, Applicability & Payment

Tax Deducted at Source which is most commonly known as TDS is the system through which certain percentage of tax is collected at the source of the income. Certain Government Department, Local Authorities, Agencies and Public Sector Undertaking are required to deduct GST TDS. TDS acts as a powerful tool towards reduction of tax evasion. In this article, we would try to understand the concept of GST TDS as provided under GST law.

Section 51 of the CGST Act, 2017, contains the provisions of Tax Deducted at Source (TDS) under GST. As per the said provisions, following list of persons are liable to deduct tax at source under GST;

1. A department or establishment of the Central Government or State Government;
2. Local authority;
3. Governmental agencies;
4. Such person or category of persons as may be notified by the Government on the recommendations of the Council.

On the basis of rights available to the Government (refer point no. 4 above), the Government has held following additional category of person liable to deduct tax at source, vide notification no. 33/2017 dated 18.09.2017:

1. An authority or a board or any other body which has been set up by Parliament or a State Legislature or by a government, with 51% equity (control) owned by the government;
2. A society established by the Central or any State Government or a Local Authority and the society is registered under the Societies Registration Act, 1860;
3. Public Sector Undertakings.

TDS Rate under GST

The TDS rate under GST is 2%. In other words, the deductor has to deduct tax at source @ 2% from the payment made or credited to the deductee for supply of taxable goods or services or both.

Click here to find GST rate for all goods and services.

GST Registration

It is compulsory to obtain GST registration for the person who are liable to deduct TDS as per the provisions of section 51 of CGST Act, 2017. Threshold exemption limit is not applicable to such persons.

Unique feature of GST registration, for person liable to deduct TDS, is that PAN is not mandatory while obtaining GST registration, however, GST registration can be obtained on the basis of existing Tax Deduction and Collection Account Number (TAN).

Liability to Deduct TDS under GST

GST TDS is required to be deducted when total value of supply, under a contract, exceeds and an amount of INR 2,50,000/-.

For the purpose of GST TDS, the value of supply shall be an amount excluding the amount of central tax, state tax, union territory tax, integrated tax and cess as reflected in the invoice.

GST TDS – Non-Applicable Transactions

When location of the supplier and the place of supply is in a State or Union Territory, which is different from the State, or as the case may be, Union Territory of the registration of the recipient, than in such case no TDS should be deducted. In simple words, when both the supplier and the place of supply are different from the recipient, no tax deduction at source would be made.

Payment of GST TDS

The deductor of Tax Deducted at Source is required to deposit the amount so deducted to the Government by the 10th day of the succeeding month in which the tax is so deducted. The payment of TDS should be made to the respective Government i.e. IGST
and CGST should be deposited to Central Government, whereas, SGST should be deposited to State Government.

GST TDS Certificate

TDS certificate in FORM GSTR-7A is to be issued by the deductor to the deductee within a period of 5 days of crediting the amount to the Government. In case the deductor fails in issuing the certificate in required time limit, he would be liable to pay a late fee of INR 100/- per day from the expiry of the 5th day till the date certificate has been issued. Maximum amount of late fee payable would be INR 5,000/- i.e. late fee payable amount will not be more than INR 5,000/-.

GST TDS Credit

Tax Deduction at Source deducted by the deductor and deposited to the Government shall be reflected in the electronic cash ledger of the deductee (i.e. supplier). The deductee would be able to use the said amount against payment of tax or any other
amount.

GST Return Filing

The person deducting TDS (i.e. deductor) is liable to file GST return in FORM GSTR-7 within a period of 10 days from the end of the month.

GST TDS Refund

When TDS has been deducted erroneously or has been deducted in excess of the amount actually to be deducted, than, in such case deductor or deductee can claim for refund of such excess / erroneous TDS. However, if the excess / erroneous amount so deducted is already credited to electronic cash ledger of the deductee than no refund is available. Know more about GST refund.

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E-Way Bill Exemption

The Government has introduced concept of E-way bill in order to track the movement of goods and to avoid tax evasion. E-way bill generation is mandatory in case of movement of goods by a person having GST registration where the consignment value exceeds INR 50,000. However, under certain situations, E-way bill generation is not required and the same situations are listed down under current article.

Rule 138 of GST

As per provisions of rule 138 (14) of CGST Rules, no E-way bill is required to be generated under following situations:

1. E-way bill is not required to be generated when below-mentioned goods are being transported:
   1. Liquefied petroleum gas for supply to household and non domestic exempted category (NDEC) customers;
   2. Kerosene oil sold under PDS;
   3. Postal baggage transported by Department of Posts;
   4. Natural or cultured pearls and precious or semi-precious stones; precious metals and metals clad with precious metal (Chapter 71);
   5. Jewellery, goldsmiths and silversmiths wares and other articles (Chapter 71);
   6. Currency;
   7. Used personal and household effects;
   8. Coral, unworked (0508) and worked coral (9601)
2. In case of transport of goods from customs port, airport, air cargo complex and land customs station to an inland container depot or a container freight station for clearance by Customs, E-way bill is not required.
3. When goods are being transported by a non-motorised conveyance, E-way bill generation is not required.
4. When following goods are being transported, the e-way bill is not required to be generated;
   1. Alcoholic liquor for human consumption
   2. Petroleum crude
   3. High-speed diesel
   4. Motor spirit (commonly known as petrol)
   5. Natural gas,
   6. Aviation turbine fuel
   7. When there is no supply as per provisions contained in Schedule III of the Act, E-way bill is not required.
5. E-way bill is not required to be generated when the goods are being transported—
   1. under customs bond from an inland container depot or a container freight station to a customs port, airport, air cargo complex and land customs station, or from one customs station or customs port to another customs station or customs port, or
   2. under customs supervision or under customs seal;
   3. where the goods being transported are transit cargo from or to Nepal or Bhutan;
   4. where the goods being transported are exempt from tax under various notifications;
6. When Central Government, State Government or a local authority acting as a consignor undertakes transport of goods by rail, no E-way bill is required.
7. When goods movement has been caused by defence formation under Ministry of defence as consignor or consignee, no E-way bill is required.
8. No E-way bill is required in case of transport of empty cargo containers.
9. In case goods are being transported for weighment purpose and the distance is not more than 20 Kms from the place of the business of the consignor to the weighbridge or vice versa, E-way bill generation is not required. However, the movement of goods must be accompanied by a delivery challan.
10. When goods specified in schedule appended to notification no. 2/2017-Central Tax (Rate) dated 28.06.2017 is being transported, other than de-oiled cake, than in such case e-way bill is not required to be generated.

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Revocation of GST Registration Cancellation

The GST Act is very comprehensive and covers various situations a taxpayer may face with provision and procedures. In this article, we look at the procedure for revocation of GST registration cancellation order along with the applicable forms. The provision for revocation are contained under rule 23 of the CGST Rules, 2017.

Note: Revocation of GST registration can be initiated if a GST registration certificate has been cancelled by GST authorities.

Time Limit for Revocation

Any registered taxable person can apply for revocation of cancellation of GST registration within a period of 30 days from the date of service of order of cancellation of GST registration. It must be noted that the application for revocation can be done only during the circumstances when the registration has been cancelled by the proper officer on his own motion. Hence, revocation cannot be used when GST registration was cancelled voluntarily by a taxpayer.

Application for Revocation

Application in FORM GST REG-21 needs to be filed by the registered person, for revocation of GST registration, either directly or through a facilitation centre notified by the Commissioner.

Online Revocation Procedure

Following are the steps which a registered person needs to be followed, who wants to apply for revocation online through the GST Portal:

1. Access the GST Portal at www.gst.gov.in.
2. In order to enter into the account, enter the username and appropriate password.
3. In the GST Dashboard, select services, under services select registration and further under registration select application for revocation of cancelled registration option.
4. Select the option of applying for revocation of cancelled registration. In the select box, enter the reason for revocation of GST registration cancellation. Further, you need to choose appropriate file to be attached for any supporting documents and you need to select verification checkbox and select name of authorized signatory and fill up the place filed box.
5. The final step would be to select SUBMIT WITH DSC OR SUBMIT WITH EVC box.

Processing of Application

When the proper officer is satisfied that the reason being provided for revocation of cancellation of registration is appropriate, then, the officer will revoke the cancellation of registration.

The time period of revocation, by the proper officer, is 30 days from the date of application. The proper officer is required to pass an order revoking the cancellation of registration in FORM GST REG-22.

Rejection of Application

If a GST officer is not satisfied with the revocation application, the officer would issue a notice in FORM GST REG-23. On receipt of the notice, the applicant is required to furnish a suitable reply in FORM GST REG-24 within a period of 7 working days from the date of service of the notice. On receipt of a suitable reply from the applicant, the officer is required to pass a suitable order in FORM GST REG-05 within a period of 30 days from the date of receipt of a reply from the applicant.

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Multiple Vehicle Option – GST E-Way Bill

E-Way bill implications is continuously expanding its legs. E-way bill generation is compulsory for movement of goods of consignment value exceeding INR 50,000. The Government is continuously updating, amending and upgrading the E-way bill generation procedure. One such updation, is the introduction of ‘Multiple Vehicle Option under E-way Bill’ in the GST portal. Through the present article, we would try to understand the use of ‘Multiple Vehicle Option’ and online procedure thereof.

Multiple Vehicle Option is useful in case where the consignment of a single E-way bill needs to be moved in to multiple vehicles after reaching a transhipment place. Let us understand the said situation with the help of an illustration;

Suppose Mr. A situated in Mumbai wants to transfer goods to Mr. B situated in Mahabaleshwar. Mr. A has transported heavy loaded goods on a big vehicle through a transporter and has generated required E-way bill for the same.

The transporter has reached to a point after which due to a hilly area, the big vehicle cannot continue. In this situation, the transporter has to move the goods to say 10 smaller vehicles. At this point in time, Multiple Vehicle Option would come into the picture. It must be noted here that Initially, E-way bill was generated in the normal manner, however, once the goods need to be moved from bigger vehicle to smaller ones, the Part- B of E-way bill needs to be updated by selecting ‘Change to Multiple vehicle’.

Generating E-Way Bill with Multiple Vehicle Option

1. The first and foremost step would be to generate normal E-way bill mentioning source and destination as per the invoice.
2. Once the vehicle has reached the transshipment place, after which big vehicle cannot move and goods need to be shifted to small vehicle, the E-way bill will have to be updated to ‘Multiple vehicle option’.
3. For selecting ‘Multiple vehicle option’, one has to go to menu and select ‘Change to Multiple Vehicle’.
4. On selection of ‘Change to Multiple Vehicle’ a dialog box will appear, wherein, you need to enter e-way bill number.
5. Once the e-way bill number is entered, e-way bill details would be automatically generated and displayed in the dialog box.
6. In the same dialog box, a question would be asked ‘Do you wish to move the goods in Multiple Vehicles?’
7. When above question is answered in affirmative, one needs to provide Multiple Vehicle Movement Details like –
   1. Mode of transport
   2. From place
   3. To place
   4. Total quantity
   5. Unit
   6. Reason
   7. Remarks
8. On submission of above details, new dialog box mentioning Update Vehicle Number would appear. Here you need to update Part B of E-way bill and on updation of vehicle details and further submission, print form of E-way bill would be displayed.

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