Tax Experts react to the proposed amendments to GST law

The amendments suggested by the GST council are noteworthy in the direction of smoothening the experience for the assessee. The council is taking steps in the right direction to help businesses comply with the latest tax regime. The amendments proposed will have a significant impact on the functioning and ease of doing business.

The amendments that I would like to highlight are: 

1. Clarity in scope of Supply: The term ‘supply’ has been amended to exclude transactions listed in Schedule II to make it clear that the said schedule is limited to decide what constitute goods or services. The scope of Schedule III which specifies transactions to be treated neither as goods nor services has been expanded to include transactions like merchant trading, high sea sales, in bond transfer which is a major relief to the taxpayers. Further, it has been proposed that the same shall not be regarded as exempt supply for the purpose of input credit reversal.

2. Reverse Charge: The major relief to the registered persons (assessee​s​) is by way of curtailment of scope of applicability of section 9(4) i.e. reverse charge on supplies received from unregistered suppliers. This proposed amendment is not a complete waiver from the applicability of the above provision but it has been proposed that reverse charge will apply to the supplies received by certain notified persons only. The details of the such notified person​s​ are awaited. So, it is a welcoming step for majority of the assessee​s​.

3. Input tax credit is another proposed amendment that one needs to watch out. The value of exempt supply shall not include transactions covered under Schedule III except sale of land and building. Further, the restriction on input tax credit for motor vehicles with respect to dumpers, work trucks, fork lift trucks and other special purpose vehicles will be removed. It is also proposed that input tax credit related to general insurance, repair and maintenance for motor vehicles, vessels, aircrafts shall not be available. This will end the uncertainty relating to availment of credit on such supplies. Further, it has been proposed to remove the liability of payment of interest in case of reversal of input tax credit on account of non-payment of invoice within 180 days.  

4. Credit of Cesses: As a major setback to the industry, the transitional provisions are proposed to be amended to disallow the credit of cesses like EC/SHEC/KKC and additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 etc. 

5. Registration of assessee: The proposed amendment allows multiple places of the taxpayers within the state to be registered separately. This provides a major relief to certain industries like transporters, PSU etc. by increasing the ease of doing business.

6. Issuance of Debit Note/Credit Notes: The Government has finally agreed and proposed to amend the provision relating to issuance of single debit note/credit note in respect of multiple invoices issued in a Financial Year without linking the same to individual invoices. It has brought a major relief to the manufacturing sector.  

7. Simplification of Returns: As a major implication measure, it has be proposed that the returns filed can be amended by taxpayer. Further, the provisions is being introduced to enable the new return filing procedure as proposed by the Returns Committee and approved by GST Council.  However, the detailed mechanism of giving effect to the above proposal is awaited.

A year after the introduction of GST, the government has proposed major changes in GST laws.

The proposed changes include newer version of the Reverse Charge Mechanism, no transitional credit for Cess in clear terms, definition of services for composition scheme and input tax credit, among many others.

It proposes 38 changes in CGST Act 2017, six changes and explanations in IGST Act 2017 and two in GST (Compensation to States) Act.

Representations are invited by the Government from trade and industry and all other stakeholders by July 15.

Government is expected to table the amendments during the forthcoming session of Parliament scheduled from July 18.

Amendments like deletion of general reverse charge provisions on procurements from unregistered dealers, enabling provisions for new GST return filing process, allowing single debit/credit note for multiple invoices, etc., are to be greatly aiding ease of doing businesses from a GST perspective, it is hoped by many.

It has now proposed to delete the present Section 9(4) and introduce a new Section 9(4), which will permit the government, on the recommendations of the GST Council, to notify a specific class of registered persons and goods that would be covered under the RCM provision.

Transportation of goods from a place in India to a place outside India by a transporter located in India would be liable to pay GST.

Given situation, an overseas transporter was left scot free because he was outside the taxing jurisdiction of GST.

In order to provide a level playing field to the domestic transportation companies and promote export of goods, it is proposed as follows -

That the transportation of goods from a place in India to a place outside India by a transporter located in India would not be chargeable to GST.

This is in view of place of supply/destination of goods is being made the criteria for taxability instead of the location of the person making the supply of goods transporter.

This is only in line with the old Rule 10 of the Place of Provision of Services Rules, 2012, which read as below -

"insofar as goods transportation service, other than by way of mail or courier, the place of provision of service shall be the place of destination of goods".

This is an Export-friendly amendment.

Now, based on decision by the GST Council, there is a proposal to raise the Composition threshold to Rs. 1.5 crore which scheme is applicable only to goods with the exception of restaurant/Catering services.

As we know provision has since been made in the Statute to raise the threshold to Rs. 2 Crore in future, if required to saturate it, as it is being raised from Rs. 50,000 to start with to Rs. 1 Crore and now to Rs. 1.5 crores.

 In the proposed amendment, a manufacturer or trader can opt for composition scheme even if they supply services. But there is a condition prescribed that supply of services should not be more that 10 per cent of the total turnover or Rs. 5 lakh, whichever is lower in the previous financial year’s services.

The expansion of the input tax credit provisions and the beneficial changes in compliance provisions such as issue of consolidated debit/ credit notes, the proposed new return filing process, extension of the bill to ship to concept for goods to cover cases where the recipient of service is different from the payer etc. would benefit all businesses.

Transactions like denial of credit on repair and maintenance, general insurance, etc. for motor vehicles, transition of cess credits, like education cess are still opined to be retrograde.

Supply of goods as high seas sales and sale of warehoused goods, before being cleared for home consumption, were being levied to IGST twice, once under the Customs Tariff Act, 1975 (read with the IGST Act) and then for a second time, on clearance for home consumption under the IGST Act.

Any amount of Circulars and Notifications failed to cure this anomaly and at last recourse is being made to Schedule III to the CGST Act itself to term it as ‘no supply’ to set at rest the issue in the end.

Hopefully, the said change should disable the effect of Section 7(2) of the IGST Act from a double taxation of the above described phenomenon, despite the proviso to Section 5(1) of the IGST Act being perfectly in place still due to the overriding effect created under Schedule III to the CGST Act.

(Views are purely personal and  not official in any way)

The changes suggested are broadly in line with the objective of expanding tax base, increased credit availability, reduced compliance burden and clarifying taxability of certain transactions.

Threshold limit for taxpayers to opt for composition scheme has been proposed to increase from INR 1 crore to INR 1.5 crores, apart from allowing manufacturers/ traders having incidental service income to opt for the scheme. A taxpayer can obtain separate registration for each place of business in a State, even if the same are not separate business vertical.

Proposed amendment for allowing input tax credit on specified vehicles such as dumpers, vehicles used for transportation of money, and various employee related expenses which are obligatory for an employer to provide such as canteen inside factory, cab services etc. is a huge relief for the industry.

GST liability under reverse charge basis on procurements from unregistered vendors is proposed to be restricted only to specified class of registered persons. Curiously, the amendment is only proposed in the CGST Act and similar amendment in IGST Act is not proposed, which seems to be an oversight.

Enabling provisions for an ‘amendment return’ and revised procedure of availing input tax credit in line with the new return formats approved have also been proposed. Allowing issuance of consolidated credit/ debit note in respect of multiple invoices issued in a financial year shall substantially reduce compliance burden for businesses.

Considering merchant sale and high-sea sale transactions neither as supply of goods nor as supply of services shall help in resolving ambiguity on taxability and credit reversal requirement of such transactions.

The industry will however be disappointed on provisions relating to restriction on transfer of accumulated credit balances of education cess etc. The proposed amendments do not cover some of the suggestions which were highlighted to GST council such as tax liability on services deemed to be provided by branch offices to foreign offices/parents.

It is a welcome step to invite public comments for the proposed amendments in the GST law. However, it would be interesting to see which provisions are given retrospective effect and which are given effect prospectively.

& Krishnan Venkatasubramanian 

The Government has through series of circulars, FAQs and advance rulings provided its views on various industry wide issues faced since GST implementation, bringing clarity and relief to the industry. The most recent amendments proposed, released yesterday, seeking comments from stakeholders by 15 July is another step forward by the Government to ensure GST is considered as a taxpayer friendly regime.

It is proposed to exclude high sea sales, supplies of warehoused goods before clearance for home consumption and goods not entering India from the definition of supply. While this was clarified in the advance rulings and circulars issued, the amendment is now proposed to be incorporated in the law to avoid any confusion. At the same time, the issue of reversal of input tax credits in such cases is also sought to be clarified by excluding the same from the definition of exempt supply, as a result, no input tax credit needs to be reversed on such supplies.

Relief is sought to be provided to small manufacturers and traders, who were providing services, but were not allowed to opt for the composition scheme. It is proposed to allow manufacturers / traders who provide services, to opt for the composition scheme, provided the value of services supplied does not exceed higher of 10% of the turnover or Rs 5 lakhs.

Certain facilities are mandatory for organizations to provide to their employees, such as canteen, medical insurance, cab, etc. The credit of GST on such expenses is not specifically allowed to the organizations at present. It is proposed that input tax credit be allowed on expenses which are obligatory for the employer to provide to its employees under any law for the time being in force.

A major relief across industries sought to be provided through the amendment is the issuance of a single credit note against multiple invoices. It is common industry practice to issue a single credit note against multiple tax invoices; however, there were issues in adjusting the tax component in such cases. This anomaly is sought to be rectified by allowing a single credit note to be issued against multiple invoices, without linking the same to individual invoices.

Another respite sought to be provided to the industry is the removal of interest on the non-reversal of input tax credit, where payment to the vendor is not done within 6 months from the date of invoice, which is applicable at present.

Besides the above, the proposed amendments also seek to provide the facility of amendment of GST returns, utilization of SGST / UTGST credit against IGST liability only after exhaustion of CGST credit, as well as lay down the rules for availing input tax credits under the proposed mechanism of matching transactions with vendors.

One major amendment which was expected, but not considered, is clarity in the definition of export of service which provides that for a service to qualify as export, the service provider and service recipient are not merely establishments of a distinct person. The term merely has not been defined leading, to a situation of services rendered by a branch in India to its HO outside India not qualifying as export and being subject to GST.

While there would be the concern of whether these amendments would be prospective – in all probability it would be – it is definitely a positive move for the industry, as it reduces ambiguity, eases compliance and brings cost savings.

& Dinesh Kumar 

Many of the proposed GST amendments are rectification of drafting errors or to herald tax payer friendly reforms. 

The scope of the term ‘Supply’ is proposed to be amended to emphasize that the purpose of Schedule-II of the CGST Act, 2017 (the Act) is to aid in determining whether a transaction would constitute supply of ‘goods’ or ‘service’. Merely because transactions fall within the amplitude of Schedule-II, would not make them ‘Supply’. The transactions covered under Schedule-II have to be evaluated in the back-drop of the main part of the supply definition, to subject them to GST.

Proposed inclusion of certain transactions (supplies originating and concluding outside India, High Sea sales and sales from customs-bonded-warehouse) in Schedule-III of the Act to remove them from the scope of ‘Supply’, is in line with the erstwhile practice. By virtue of simultaneous amendment to Sec.17 (3) of the Act, the reversal of Input Tax Credit (ITC) also would not arise.

An amendment proposes to restrict the reverse charge levy only on notified registered person and services, as against supplies from un-registered suppliers, would reduce the hardships to the business community.

Replication of the restrictions in ITC, as existed under the earlier law, in GST regime is sought to be removed partially now, to allow ITC of GST paid on certain motor vehicle, transportation of money and obligatory provision of goods/service by employer, etc. However, denial ITC on other general/life insurance, food & beverages, out-door catering, construction of immovable property, etc., which are genuine business expenditure, needs re-consideration by the Government. 

Restricting carry-forward of transitional credit, cross-utilization of GST credits, debit/credit note covering multiple invoices, permitting limited supply of service by composition taxpayer, simplification of return and permitting multiple registrations are the other proposed amendments.

The far reaching changes proposed in the GST law demonstrate that the Government has kept its ears to the ground to ascertain stakeholder feedback and is now trying to resolve interpretational and other issues as per such feedback.

The most important change, to my mind, is the proposed amendment to the definition of ‘Supply’ – if this amendment goes through, for any activity to qualify as a ‘supply’ under GST, mere inclusion in Schedule II (“ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES”) would not suffice; the said activity has to qualify as ‘supply’ first (under Section 7) and only then it would get further classified as ‘supply of service’ or ‘supply of goods’ as per Schedule II. This is a fundamental clarification and would go a long way in mitigating future litigation. For example, when one is examining if ‘liquidated damages’ qualifies as a ‘supply’ or if two parties entering into a joint enterprise sharing risks and rewards are providing ‘supply’ to each other, this proposed amendment will further buttress the currently prevalent opinion that there is no ‘supply’ in either of these scenarios.

Another crucial amendment is the proposed amendment in Schedule III (“ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES”) read with the proposed amendment to Section 17(3) pertaining to value of ‘exempt supply’ for credit reversal – vide this, no credit reversal will be required in cases of ‘High Sea Sales’ or ‘In-Bond Sales’, even though the high-sea/in-bond seller would not be liable to pay IGST thereon. This is an important explanation and would effectively overrule the recent advance ruling in the case of BASF (which mandated credit reversal for high-sea-seller).

The other amendments are also mostly beneficial – overall, assessees have a lot of reason to welcome these proposed amendments.

One only hopes that the beneficial/clarificatory amendments are made retrospective so that tax authorities do not get to come up with tax demands for the pre-amendment period and thus add to the maze of tax litigation.

& Kavish K. Shah

It has been more than a year post implementing GST law in India. GST law is not clear on many areas and which has resulted into various Advance Rulings and which has further raised the level of discussion on position to be adopted. Many areas are yet not clear, and industry is taking position based on precedent from previous law. Yesterday, the GST Council, the apex decision-making body for the GST, unveiled the draft of proposed changes to the GST law for comments of the industry before it is introduced in the upcoming monsoon session of parliament.

Major relief is proposed in form of granting eligibility for availing certain input tax credit such as food, transport and insurance where there is compulsion on employer under any statute to incur certain expenses. Further definition of Motor vehicle is also amended on which input tax credit would not be available, it is now restricted to the motor vehicle having approved seating capacity of not more than 13 persons – given this trucks, dumpers will now fall in eligible criteria.

Further, various changes have been proposed which clearly spear heads reduction in litigation thought process such as non availment of input tax credit of accumulated balances of cesses.  Proposed amendment will put to rest to said ambiguity by way of restricting the expression “eligible duties” and thereby denying input tax credit of said cesses. Further, amendment of non applicability of GST on international drop shipment will also help businesses to align their business and run without an exposure of tax on the said transaction in future. 

There is also good news as far as compliance is concerned as cumbersome compliance was one of the major roadblock to GST being called as user friendly. Amendments on returns, consolidated credit / debit notes is surely welcome move.  Few amendments also are proposed to remove inadvertent typographical error under current GST law.

From the above proposed amendment, it appears that substantial changes are aimed at streamlining the current GST law and correcting inconsistencies, errors and reducing compliance burden to some extent. It appears that inviting comments of the stake holders on the proposed amendment shows the intention of the Government to continue to have consultative approach and it seems that law makers are trying to make GST more tax friendly.

Several changes have been suggested in GST law, including those recommended by GST Council.  Some of the key changes proposed are –

- Exclude from tax net the transactions by a registered person involving movement of goods from one country to another, without entering India

- No double taxation of transactions where supply of goods is in the course of high sea sales and sale of warehoused goods

- No tax on job work done on goods temporarily imported into India which are exported after the job work

- Place of supply in respect transportation of goods to a place outside India would be the place of destination of such goods (and not the location of the registered person)

- Omission of provision to pay tax on reverse charge basis on purchases made from unregistered persons.  It is now proposed to empower Government to notify a class of registered persons who would be liable to pay tax in such situation

- Permitting issuance of consolidated credit / debit note in respect of multiple invoices, without linking the same to individual invoices

- Allowance of input tax credit for services too in case of ‘bill-to-ship-to’ situations; currently, the provision in law is for goods only

- Removal of liability to pay interest where input tax credit is taken and the supplier is not paid within a period of 180 days

- Availability of input tax credit on dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles

- Non-availability of input tax credit on services of general insurance, servicing, repair and maintenance in respect of specified motor vehicle, vessels and aircraft

- Availability of input tax credit where it is obligatory for an employer to provide to its employees the goods and services under any law for the time being in force

- Only transitional credit of eligible duties can be carried forward in the return and not all credit – this is to disallow credit of cess like education cess and Krishi Kalyan Cess

- Persons having multiple places of business in a State (for a single business vertical) would be allowed to obtain separate registrations for each such place of business; similarly, a person having multiple units in a SEZ would be allowed to take separate registration for each such unit

- Allowing tax payers to amend the returns by filing an amendment return

- Enabling the new return filing procedure as proposed by the Returns Committee and approved by GST Council (details of the same are not provided now)

- Recovery of tax from distinct persons (establishments of a registered person) present in different States / Union Territories

The transitional credit related change is likely to be retrospective, which may lead to litigation.  The step to seek comments from the stakeholders is a welcome step.

While there are couple of important changes, the industry was hoping to get clarity and amendment on various other issues such as amendment to section 7 of the IGST Act. The most encouraging changes relate to section 9(4) of the CGST Act with respect to reverse charge mechanism for procurements from unregistered dealers and with respect to certain changes for eligibility of input services. While there are several writ petitions pending before different Courts, the GST Council has taken a pragmatic view to address various such issues. The moot point which now remains is with respect to the date when these proposed amendments would be incorporated in the respective statutes

& Poonam Harjani

Prologue…

After a year-long topsy-turvy journey, introducing pragmatic amendments to the GST laws is imperative and overdue. At the outset, the sheer number of amendments currently under consideration is highly reflective of an agile mindset of the law & policy makers. 

The positive side…

Some of the proposed amendments are indeed positive and eagerly awaited. In particular, characterizing merchant trading, high seas sales and sale of warehoused goods as non-supply transactions relieves businesses from the unmerited requirement of reversing common input tax credits on these transactions. Similarly, the proposal to allow credit on expenditures incurred by employers for their employees which are obligatory under law (for instance, factory canteen) is also a welcome step and is in line with the position under the erstwhile laws. Furthermore, from compliance perspective, permitting issuance of single credit / debit note against multiple tax invoices is a big process simplification. This will reduce paperwork as well as make the compliance reporting easier. Implementing this change, will however, correspondingly require requisite changes in GSTN portal too.

The darker side…

The amendment proposed in the transitional provisions to allow CENVAT credits balances of only the ‘eligible duties’, besides being a draconian move, is also in big time departure with the Government’s explicit promises not to bring in any major retrospective changes in law. Further, the interpretation that credit cannot be denied on expenses like insurance, repair & maintenance, renting or hiring of motor vehicle is hand-picked by the legislature and in the proposed amendment it is specifically provided that no credit will be allowed on these expenses.

The new return model…

The new return model is also seemingly on cards with the proposed amendments. Under the new model, both the supplier and recipient will be jointly and severally liable where recipient has availed the credit, but supplier has not paid the tax. That said, for recovery proceedings the department will have first recourse to the supplier. The GST rules will be amended to provide the circumstances under which tax can be recovered from the recipient.

The uncovered territory…

While some ground does get covered through these amendments, there are various other important areas which remain unaddressed. For instance, the proposed amendments fail to provide better clarity on the scope of taxability of inter-unit transactions. Similarly, the issue of unwarranted loss of credits on inward supplies (e.g. hotel accommodation) where place of supply is in a state other than where a recipient is registered has not been resolved. Also, the issue of overlap of tax liability on a non-resident taxable person and simultaneously levy of reverse charge on recipient, has not been rectified and so on. 

Epilogue…

Holistically speaking, barring a few amendments that bring substantive relief for India Inc in computing taxes and undertaking compliances, the proposed amendments are largely only corrective in nature.  Thus, what is being staged as GST Version 2.0, if implemented in this form only, in the author’s view, will fall much short of a legislation that would in real sense address the stakeholders’ concerns.