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Semblance of Stability

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What CBIC circular on GST for job work means

In the nine months since GST went live, the Central Board of Indirect Tax and Customs (CBIC) has issued 310 notifications, 68 circulars and 13 orders on different aspects of the tax law. That’s an average of 43 a month, or more than one a day.

Recently, the CBIC issued a circular (No 38/12/2018 dated March 26, 2018) clarifying six important issues relating to ‘job work’ (that’s work on raw materials or semi-finished goods supplied by a principal manufacturer). The circular clarifies that, in addition to the goods received from the ‘principal’, the ‘job worker’ can use his own goods for providing the services of job work.

It goes on to clarify that a job worker is required to obtain registration only in cases where his aggregate turnover, to be computed on all India basis, in a financial year exceeds the threshold limit regardless of whether the principal and the job worker are located in the same State or in different States. It also clarifies that the supply of goods by the principal from the place of business / premises of the job worker to the principal’s customer will be regarded as supply by the principal and not by the job worker.

The circular uses a lot of words to clarify six instances of movement of goods from the principal to the job worker and the documents and intimation required in those instances — where goods are sent by principal to only one job worker; where goods are sent from one job worker to another; where the goods are returned to the principal by the job worker; where the goods are sent directly by the supplier to the job worker; and where goods are returned in piecemeal by the job worker.

The circular also provides useful clarifications on the liability to issue invoice, determination of place of supply and payment of GST.

The circular ends rather timidly by clarifying that input tax credit would be available to the principal, irrespective of the fact that whether the inputs or capital goods are received by the principal and then sent to the job worker for processing or whether they are directly received at the job worker’s place of business/premises, without being brought to the premises of the principal.

It is also clarified that the job worker is also eligible to avail input tax credit on inputs, etc. used by him in supplying the job work services if he is registered. Though fairly comprehensive, the circular would have been complete had it clarified on the treatment of goods damaged at the premises of the job worker and when the job worker decides to purchase the goods himself.

Though the magical concept of matching of invoices through taxpayers’ returns hasn’t been implemented yet, the GST laws appear to be getting some semblance of stability. Circulars that provide some clarity such as the one related to job work will only add to the stabilisation of the laws.

CBIC should take a cue from the RBI and issue Master Circulars on important aspects of the GST law —namely, invoices, e-way bills, returns, job work, input tax credit and taxation of e-commerce operators.

These Master Circulars would be reviewed annually and would be amended only if there are significant changes to the law; this could also restrict the number of notifications being issued.

GST & Nirav Modi

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PNB can easily be booked for GST violations:

The first few days after a major scam has been exposed are interesting — facts change, amounts invariably increase, all the regulators want to imprison the same scamsters, and similar scams by others show up furtively.
A similar pattern is playing out in the PNB-Nirav Modi scam as well. Many arrests have been made and the tentacles of regulators are spreading to anyone related to the scam in any manner, including employees and auditors. That said, the one department that hasn’t made much noise about the scam is the Central Board of Indirect Tax and Customs (CBIC), which may have lost quite a substantial amount of GST on the fraudulent LUTs (Letters of Undertaking aka LoU).
As ₹11,300 crore is the most popular number that is doing the rounds, we can calculate GST revenues lost using this number. Assuming LUT fees of 2.5 per cent, the GST revenues lost is in excess of ₹50 crore (18 per cent GST on ₹282 crore, which is 2.5 per cent of ₹11,300 crore). If the inevitable interest and penalties are included, the amount could well exceed ₹100 crore from a single taxpayer — an amount that the CBIC would certainly welcome.

Penalties & More..

One of the most frequently used words in the CGST Act are interest and penalty — both have been mentioned around 140 times in an Act with 174 sections. Imprisonment has been mentioned seven times. Without batting an eyelid, the CBIC can invoke Section 132 of the CGST Act on Punjab National Bank and book them for committing the offences of supplying any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder with the intention to evade tax and falsifying or substituting financial records or producing fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act.
Section 132 offers an eclectic variety of imprisonment periods commencing from six months and going up to five years depending on the amount of tax that has been evaded.
However, history teaches us that in scams of such magnitude, the agency that arrests a person first gets to keep him during the investigation period. CBIC would probably be happy to let other agencies do the arresting while they focus on getting their pound of flesh in the form of taxes.
GST laws do not disappoint in terms of provisions for levy of interest, penalty and imprisonment. Unwittingly, the period from July to March is turning out to be a gestation period for the CBIC, which has led them into a situation wherein provisions regarding interest and penalty couldn’t be liberally slapped on the taxpayer.
Taxpayers can expect interest and penalty notices from April 2018 onwards by which time it is expected that most of the glitches in the portal would have been plugged. The news doing the rounds is that yet another simplified monthly return form is being invented and will be implemented from April 2018 along with details of sales and purchases in an annexure — an extremely diluted version of the concept of matching of invoices.
It is to be expected that the form would mandate payment of interest while the penalty can still be negotiated. CBIC should probably think of mandating payment of penalty too online in instances where GST has been evaded by fraudulent means.
The writer is a chartered accountant

Circular No 27/01/2018-GST, 4 th January 2018

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In a Circular No 27/01/2018-GST dated 4th January 2018, the Ministry of Finance has attempted to clarify certain issues on the levy of GST for specified services.

 

 

  1. Accommodation Services

 

 

The Circular clarifies that GST would be levied on the tariff published anywhere. In case the actual amount charged differs from the published tariff, GST would be charged on the actual amount charged. If tariff changes between booking and actual usage, GST would be charged on the published tariff at the time of supply (which, one should assume, would be the time of booking).

 

Somewhere else in the Circular, it has been stated that Price/ declared tariff does not include taxes and that Room rent in hospitals is exempt.  Any service by way of serving of food or drinks including by a bakery qualifies under section 10 (1) (b) of CGST Act and hence GST rate of composition levy for the same would be 5%.

 

A final clarification on accommodation services states that homestays with a turnover below the threshold of Rs 20 lakhs who provide accommodation services through electronic commerce operators, need not take out a GST registration.

 

  1. Casinos and Gambling

 

The Circular clarifies that GST would be charged @ 28% on the value of admission fees and the total bet value.

 

  1. Race Clubs

 

In the Circular, the Tax Research Unit clarifies that GST would be leviable on the entire bet value i.e. total of face value of any or all bets paid into the totalisator or placed with licensed book makers, as the case may be. As an Illustration, they clarify that if the entire bet value is Rs. 100, GST leviable will be Rs. 28/-.

 

A critique by GST Garage

 

The value on which casinos and race clubs have to charge tax has always been unclear. This can be attributed to the needless attempt to frame valuation rules for services way back in 2004. Prior to this, service tax laws had the concept of “ Gross Amount Charged” which should ideally be what GST should be paid on. Casinos and race clubs charge only the entry fee while they collect the other betting money on behalf of the customers. Soon, both these issues are going to land up in the courts.  The GST Council would do well to prevent long-winded litigation by removing the valuation requirement for services and going back to the concept of “gross amount charged for services rendered”.

 

 

 

 

 

  1. 4. Publishing/Printing/Selling of books

 

A lot of questions were asked on whether the following activities were supply of goods or a supply of services:

 

  1. The books are printed/ published/ sold on procuring copyright from the author or his legal heir
  2. The books are printed/ published/ sold against a specific brand name
  3. The books are printed/ published/ sold on paying copyright fees to a foreign publisher for publishing Indian edition (same language) of foreign books

 

  1. The books are printed/ published/ sold on paying copyright fees to a foreign publisher for publishing Indian language edition (translated).

 

To all the above questions, the Circular has only one answer:

 

The supply of books shall be treated as supply of goods as long as the supplier

owns the books and has the legal rights to sell those books on his own account.

 

A critique by GST Garage

A very simple response to lots of questions! However, the response does not clarify who is the supplier. For instance, who would be the supplier if an author decides to self-publish a book through a publisher?

 

  1. Legal Services:

 

The Circular ends by stating that in case of legal services including representational services provided by an advocate including a senior advocate to a business entity, GST is required to be paid by the recipient of the service under reverse charge mechanism, i.e. the business entity.

OPINIONS ON GST

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If you ask 3 Indians for their opinion on GST, you will get 5 views. These opinions would basically on the law overall and whether it has been good or bad for the country. We are not talking about these opinions.

Readers would be aware that the major parts of the GST law are from the existing VAT, Central Excise and Service tax laws. Still, there are a number of issues that could be interpreted differently by different people. For example, claiming credits for GST paid on reverse charge paid as per Section 9(4) (which has been deferred till 31st March 2018) of the CGST Act- whether the credit can be taken this month or the next month. Opinion is divided on this issue ( gstgarage.com is of the opinion that it should be taken in the subsequent month). There are innumerable such issues that could arise in interpreting GST laws.

Here are our ten commandments for a good opinion:

1. The opinion should clarify the issues, not compound it.
2. It should be structured properly and the contents should flow sequentially.
3. The contents should be worded well- not in a language that even a judge cannot understand.
4. Decided cases in VAT/Central Excise/Service Tax should be used to justify the stand being taken.
5. References to opinions of other consultants should not be made.
6. Interpreting the provisions in GST should be done as per the law as on date.
7. Disclaimers are fine but the extent of disclaimers should not vitiate the opinion given.
8. Don’t blame the law- your job is to interpret it.
9. Don’t contradict your opinion in the same opinion- take a stand and stick to it.
10. Don’t take a stand based on the fees that the client pays you ( we are assuming he will).

In case you do want to issue an opinion to your client on a GST issue, all you have to do is to send a mail to info@gstgarage.com or log on to www.gstgarage.com

A specific exemption was notified under service tax for services rendered by an employee to an employer. Employees all over the country should be relieved that the same exemption has been continued as the opening entry in Schedule III of the Central Goods and Services Tax (CGST) Act — services by an employee to the employer in the course of or in relation to his employment shall never be treated as supply of either goods or services.

As far as the employer is concerned, Schedule I of the CGST Act states that gifts not exceeding Rs 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. There was some confusion in interpreting this clause. The Ministry of Finance has issued a clarification through a press note that reads as follows:

“It is being reported that gifts and perquisites supplied by companies to their employees will be taxed under GST. Gifts up to a value of Rs 50,000 per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000 made without consideration are subject to GST, when made in the course or furtherance of business.”

The question arises as to what constitutes a gift. Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift. Another issue is the taxation of perquisites.

It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows there from that the supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health or fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer, then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer.

The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

At a time when the government is issuing a plethora of notifications and circulars under GST, the reason for issuing a press note to clarify this issue is not clear. Taxpayers would prefer to have a notification or a circular that they can refer to and quote when necessary.

Yet, the press note does not resolve the issue completely. The HR departments of companies are going to maintain they every payment received by an employee from an employer arises from the employer-employee relationship.

The press note mentions that providing membership of a club, health and fitness centre free of cost or providing free housing would not be taxable. These supplies would not be taxable in any case since the inclusive definition of supply uses the word for a consideration.

An issue that arose during the last stages of the erstwhile service tax regime was that the tax department was under the impression that buyout of the notice period was a service that was rendered by the employer to the employee.

The reasoning they gave for this was the strangely worded “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”.
No definitive conclusion was reached on this during the service tax era. This sentence has been repeated in Schedule II to the CGST Act as a supply of services – this would mean that this issue may arise again under GST.

The press note clarifies that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

A stand can be taken here that even a buyout of a notice period is as per the terms of a contractual agreement between the employer and the employee and hence would not be eligible for GST.
Since the advent of GST, the government has gone on an advertisement blitzkrieg propagating the positive aspects of the law. A number of questions are also being answered through the notifications, circulars, press notes, advertisements, twitter feeds and public announcements.

It would appear that there is an overdose of information through various channels. Some of the responses given on Twitter are being questioned as being incorrect. Since the issues under GST are not going to vanish overnight,

 

the Central Board of Excise and Customs (CBEC) would do well to stick to the notification/circular route to clarify various issues.

The CBEC should come out with a master circular that clarifies the taxability or otherwise of all possible transactions that could take place between an employee and an employer. The press note does not help one to understand what could be considered to be a gift.

Employees who have car leases from their employers are already having to take a hit in their take-home pay due to the increase in the rate of taxes on car leases. The HR departments would do well to take a relook at their employment contracts.

They may want to include all payouts and benefits to employees under the umbrella of cost-to-company in order that no transaction takes the colour of a gift in excess of Rs 50,000. They would need to balance between incentivising employees through innovative means and ensuring that the transaction does not meet the definition of supply.