Monthly Archives: June 2017

Prime Minister Modi and Prime Minister Costa launch unique Start-up portal

Prime Minister Modi and Prime Minister Costa today launched a unique startup Portal – the India-Portugal International StartUp Hub (IPISH) – in Lisbon.

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This is a platform initiated by Startup India and supported by Commerce & Industry Ministry and Startup Portugal to create a mutually supportive entrepreneurial partnership.

IPISH hosts a range of tools and will provide information on the start-up hotspots of Bangalore, Delhi and Lisbon; and on associated subjects, such as policy, taxation, and visa options. It will develop a Go-To-Market Guide to support start-ups.

IPISH is expected to help in mutual capacity building, and enable connections between start-ups, investors, and incubators from relevant sectors. It is also expected to establish a network of honorary ambassadors based in India and Portugal to guide start-ups from both countries.

Background:

There are strong complementarities between India and Portugal in the start-up sector. Portugal has one of the highest rates of business creation in Europe and has emerged as one of the most vibrant European eco-systems for entrepreneurship. Lisbon is hosting the Web Summit – a key annual international technology conference – for 3 years from 2016 onwards. The last Web Summit had 700 participants from India, and the number is expected to go up further this year. The governments of both India and Portugal are focusing on promoting Start-ups.

source: Press Information Bureau – June 24, 2017

India’s exposure to US govt securities touches a high of $124 bn in April

India had the third largest exposure to the US government securities after China and Brazil

Washington: India increased its holding of American government securities to USD 124.1 billion at the end of April.


This is also the highest level since July 2016 when the exposure stood at USD 123.7 billion.

At the end of April, Japan had the maximum holding of USD 1.106 trillion, followed by China with USD 1.092 trillion.

The latest data available with the US Treasury Department show that India’s exposure jumped by USD 7 billion to USD 124.1 billion in April. The country had holding to the tune of USD 117.1 billion in March.

Among the BRIC nations, India had the third largest exposure to the US government securities after China and Brazil. Brazil’s exposure stood at USD 267.7 billion in April.

During the same period, Russia’s holding of the securities rose to USD 104.9 billion.

In a release earlier this month, the Treasury Department said foreign residents increased their holdings of US Treasury bills by USD 7.2 billion in April.

“Foreign resident holdings of all dollar-denominated short-term US securities and other custody liabilities increased by USD 26 billion,” it added.

India has hiked its exposure to the securities amid the US economy seeing relatively better economic growth trends.

“Real gross domestic product (GDP) increased at an annual rate of 1.2 per cent in the first quarter of 2017,” as per the latest estimate from the Bureau of Economic Analysis that was released last month.

source: Business Standard, June 25, 2017

SpiceJet is world’s top airline stock in 2017 with 124% gain

SpiceJet stock is up 124% in 2017 and has gained more than 800% since the company’s near-demise in December 2014, with market value of $1.2 billion.

New Delhi/Mumbai: Two and a half years after SpiceJet Ltd was forced to ground its entire fleet on its inability to pay a mere $2.2 million in fuel bills, the budget airline has become the world’s best-performing airline stock—with $26 billion in plane orders to boot.

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The company’s co-founder and chairman, Ajay Singh, has played the white knight, injecting capital, cutting loss-making routes and aggressively adding capacity in one of the world’s fastest growing markets. To top it all off, crude prices are staying low.

For investors, that’s been a winning formula: SpiceJet shares are the best performers on a Bloomberg Intelligence index of airline stocks this year. The stock is up 124% in 2017 and has gained more than 800% since the company’s near-demise in December 2014, giving SpiceJet a market value of $1.2 billion.

The outlook for aviation stocks looks good “as long as oil prices are under control,” said Mahesh Patil, co-chief investment officer of Birla Sun Life Asset Management Co., which has $30 billion in assets. Birla held a stake of about 1.2% in SpiceJet as of 31 May, according to Bloomberg data.

More people will prefer to travel by plane as ticket prices fall, Patil said, declining to comment specifically on SpiceJet.

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India, which was the world’s fastest growing aviation market last year, is crucial for planemakers like Boeing Co. and Airbus SE, as airlines see increased demand from the rising middle class. Demand has pushed Singapore Airlines Ltd and AirAsia Bhd to set up local units that are grappling with poor infrastructure, stiff competition resulting in below-cost fares and taxes that make jet fuel the costliest in Asia.

SpiceJet’s majority shareholder and chairman Singh announced an order for the latest variant of Boeing’s workhorse 737 model worth $4.7 billion on 19 June. A day later, he followed up with an order for as many as 50 Bombardier Q400 turboprops worth $1.7 billion.

Profits, funding

SpiceJet is “doing extremely well” and expects profit to rise this year, spokesman Tushar Srivastava said in an e-mail. Funding arrangements for the plane orders are coming together and Srivastava sees “no great challenge” to financing the aircraft, he said.

None of the analysts covering SpiceJet recommends selling the stock, according to Bloomberg data. HDFC Securities Ltd, the only firm recommending the equivalent of a hold rating, still predicts profitability will increase “sharply” on a stronger rupee and weak oil prices.

Enterprenuer Ajay Singh and London-based Indian businessman Bhulo Kansagra started SpiceJet by reviving Royal Airways in 2005 and they both left the company in 2010. SpiceJet’s fortune hit a bottom in December 2014 when lessors took away some aircraft, the carrier missed salary payments and cancelled more than 2,000 flights that month. State oil companies added to the airline’s troubles by refusing to fuel the jets unless dues were cleared.

Singh came back to rescue SpiceJet—which names each of its aircraft after a spice like mint, coriander and pepper —with an initial investment of 5 billion rupees in February 2015. The government then permitted the carrier to accept forward bookings, which brought money into the airline’s accounts and giving it a new lease of life. Singh cut costs, renegotiated contracts with vendors and piggy-backed on a surge in domestic aviation traffic to help turn around the fledging airline. Bloomberg

Job Work Under GST (Goods And Services Tax)

Introduction

Job-work sector constitutes a significant industry in Indian economy. It includes outsourced activities that may or may not culminate into manufacture.

The term Job-work itself explains the meaning. It is processing of goods supplied by the principal. The concept of job-work already exists in Central Excise, wherein a principal manufacturer can send inputs or semi-finished goods to a job worker for further processing. Many facilities, procedural concessions have been given to the job workers as well as the principal supplier who sends goods for job-work.


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The whole idea is to make the principal responsible for meeting compliances on behalf of the job-worker on the goods processed by him (job-worker), considering the fact that typically the job-workers are small persons who are unable to comply with the discrete provisions of the law.

The GST Act makes special provisions with regard to removal of goods for job-work and receiving back the goods after processing from the job-worker without the payment of GST. The benefit of these provisions shall be available both to the principal and the jobworker.

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What is Job work?

Section 2(68) of the CGST Act, 2017 defines job-work as ‘any treatment or process undertaken by a person on goods belonging to another registered person’.

The one who does the said job would be termed as ‘jobworker’. The ownership of the goods does not transfer to the job-worker but it rests with the principal. The jobworker is required to carry out the process specified by the principal on the goods.

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Job work Procedural aspects:

Certain facilities with certain conditions are offered in relation to job-work, some of which are as under:

a) A registered person (Principal) can send inputs/ capital goods under intimation and subject to certain conditions without payment of tax to a job-worker and from there to another job-worker and after completion of job-work bring back such goods without payment of tax. The principal is not required to reverse the ITC availed on inputs or capital goods dispatched to job-worker.

b) Principal can send inputs or capital goods directly to the job-worker without bringing them to his premises and can still avail the credit of tax paid on such inputs or capital goods.

c) However, inputs and/or capital goods sent to a jobworker are required to be returned to the principal within 1 year and 3 years, respectively, from the date of sending such goods to the job-worker.

d) After processing of goods, the job-worker may clear the goods to-

(i) Another job-worker for further processing

(ii) Dispatch the goods to any of the place of business of the principal without payment of tax

(iii) Remove the goods on payment of tax within India or without payment of tax for export outside India on fulfilment of conditions.

 
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The facility of supply of goods by the principal to the third party directly from the premises of the jobworker on payment of tax in India and likewise with or without payment of tax for export may be availed by the principal on declaring premise of the job-worker as his additional place of business in registration. In case the job-worker is a registered person under GST, even declaring the premises of the job-worker as additional place of business is not required.

Before supply of goods to the job-worker, the principal would be required to intimate the Jurisdictional Officer containing the details of the description of inputs intended to be sent by the principal and the nature of processing to be carried out by the job-worker. The said intimation shall also contain the details of the other job-workers, if any.

The inputs or capital goods shall be sent to the jobworker under the cover of a challan issued by the principal. The challan shall be issued even for the inputs or capital goods sent directly to the job-worker. The challan shall contain the details specified in Rule 10 of the Invoice Rules.

The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.

Input Tax credit on goods supplied to job worker

Section 19 of the CGST Act, 2017 provides that the principal (a person supplying taxable goods to the jobworker) shall be entitled to take the credit of input tax paid on inputs sent to the job-worker for the job-work. Further, the proviso also provides that the principal can take the credit even when the goods have been directly supplied to the job-worker without being brought into the premise of the principal. The principal need not wait till the inputs are first brought to his place of business.

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Time Limits for the return of processed goods

As per section 19 of the CGST Act, 2017, inputs and capital goods after processing shall be returned back to principal within one year or three years respectively of their being sent out. Further, the provision of return of goods is not applicable in case of moulds and dies, jigs and fixtures or tools supplied by the principal to job-worker

Extended meaning of input

As per the explanation provided in Section 143 of the CGST Act, 2017, where certain process is carried out on the input before removal of the same to the jobworker, such product after carrying out the process is to be referred as the intermediate product. Such intermediate product can also be removed without the payment of tax. Therefore, both input and intermediate product can be cleared without payment of duty to job-worker.

 

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Waste clearing provisions

Pursuant to 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 or such waste may be cleared by the principal, in case the job-worker is not registered.

Transitional provisions

Inputs, as such, or partially processed inputs which are sent to a job-worker prior to introduction of GST under the provisions of existing law [Central Excise] and if such goods are returned within 6 months from the appointed day [i.e. the day on which GST will be implemented] no tax would be payable. If such goods are not returned within prescribed time, the input tax credit availed on such goods will be liable to be recovered.

If the manufactured goods are removed, prior to the appointed day, without payment of duty for testing or any other process which does not amount to manufacture, and such goods are returned within 6 months from the appointed day, then no tax will be payable. For the purpose of these provisions during the transitional period, the manufacturer and the job-worker are required to declare the details of such goods sent/received for job-work in prescribed format GST TRAN-1, within 90 days of the introduction of GST.

Source: Directorate General of Taxpayer Services CENTRAL BOARD OF EXCISE & CUSTOMS

Accounts and records in GST (Goods And Services Tax)

1.  Assessment in GST is mainly focused on self-assessment by the taxpayers themselves.

Every taxpayer is required to self-assess the taxes payable and furnish a return for each tax period i.e. the period for which return is required to be filed.

The compliance verification is done by the department through scrutiny of returns, audit and/or investigation. Thus the compliance verification is to be done through documentary checks rather than physical controls.

This requires certain obligations to be cast on the taxpayer for keeping and maintaining accounts and records.

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2.   Section 35 of the CGST Act and “Accounts and Records” Rules (hereinafter referred to as rules) provide that every registered person shall keep and maintain all records at his principal place of business.

It has cast the responsibility on the owner or operator of warehouse or godown or any other place used for storage of goods and on every transporter to maintain specified records.

The section also empowers the Commissioner to notify a class of taxable persons to maintain additional accounts or documents for specified purpose or to maintain accounts in other prescribed manner.

It also provides that every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant

3.  Section 35 provides that every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of:

(a) production or manufacture of goods

(b) inward and outward supply of goods or services or both

(c) stock of goods

(d) input tax credit availed

(e) output tax payable and paid and

(f) such other particulars as may be prescribed

In addition, the rules also provide that the registered person shall keep and maintain records of-

(a) goods or services imported or exported or

(b) supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers, refund vouchers and e-way bills.

4.  In case more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business. A registered person may keep and maintain such accounts and other particulars in electronic form in such manner as may be prescribed.

5.  Following accounts and records will have to be maintained by every registered person:

(a) accounts of stock in respect of goods received and supplied; and such account shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and balance of stock including raw materials, finished goods, scrap and wastage thereof

(b) a separate account of advances received, paid and adjustments made thereto

(c) an account containing the details of tax payable, tax collected and paid, input tax, input tax credit claimed together with a register of tax invoice, credit note, debit note, delivery challan issued or received during any tax period

(d) names and complete addresses of suppliers from whom goods or services chargeable to tax under the Act, have been received

(e) names and complete addresses of the persons to whom supplies have been made

(f) the complete addresses of the premises where the goods are stored including goods stored during transit along with the particulars of the stock stored therein

(g) monthly production accounts showing the quantitative details of raw materials or services used in the manufacture and quantitative details of the goods so manufactured including the waste and by products thereof

(h) accounts showing the quantitative details of goods used in the provision of services, details of input services utilised and the services supplied

(i) separate accounts for works contract showing –

  • the names and addresses of the persons on whose behalf the works contract is executed
  • description, value and quantity (wherever applicable) of goods or services received for the execution of works contract
  • description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract
  • the details of payment received in respect of each works contract and
  • the names and addresses of suppliers from whom he has received goods or services


6.  The books of account shall be kept at the principal place of business and at every related place(s) of business mentioned in the certificate of registration and such books of account shall include any electronic form of data stored on any electronic devices. The data so stored shall be authenticated by way of digital signature.

7.  Any entry in registers, accounts and documents shall not be erased, effaced or overwritten and all incorrect entries, other than those of clerical nature, shall be scored out under attestation and thereafter the correct entry shall be recorded and where the registers and other documents are maintained electronically, a log of every entry edited or deleted shall be maintained. Further each volume of books of account maintained manually by the registered person shall be serially numbered.

8.  Period for preservation of accounts: All accounts maintained together with all invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply shall be preserved for seventy-two months (six years) from the due date of furnishing of annual return for the year pertaining to such accounts and records and shall be kept at every related place of business mentioned in the certificate of registration.

9.  Electronic Records: The following requirements have been prescribed for maintenance of records in electronic form.

  • Proper electronic back-up of records
  • Produce, on demand, the relevant records or documents, duly authenticated, in hard copy or in any electronically readable format

10.  Records to be maintained by owner or operator of godown or warehouse and transporters: The transporters, owners or operators of godowns, if not already registered under the GST Act(s), shall submit the details regarding their business electronically on the Common Portal in FORM GST ENR-01.

A unique enrolment number shall be generated and communicated to them. A person in any other State or Union territory shall be deemed to be enrolled in the State or Union Territory.

11.  Every person engaged in the business of transporting goods shall maintain records of goods transported, delivered and goods stored in transit by him and for each of his branches.

Every owner or operator of a warehouse or godown shall maintain books of accounts, with respect to the period for which particular goods remain in the warehouse, including the particulars relating to dispatch, movement, receipt, and disposal of such goods.

The goods shall be stored in such manner that they can be identified item wise and owner wise and shall facilitate any physical verification or inspection, if required at any time.

source: Directorate General of Taxpayer Services CENTRAL BOARD OF EXCISE & CUSTOMS

RETURNS Under GST (Goods And Services Tax)

The basic features of the returns mechanism in GST include electronic filing of returns, uploading of invoice level information and auto-population of information relating to Input Tax Credit (ITC) from returns of supplier to that of recipient, invoice-level information matching and auto-reversal of Input Tax Credit in case of mismatch.

The returns mechanism is designed to assist the taxpayer to file returns and avail ITC.

Under GST, a regular taxpayer needs to furnish monthly returns and one annual return.

There are separate returns for a taxpayer registered under the composition scheme, nonresident taxpayer, taxpayer registered as an Input Service Distributor, a person liable to deduct or collect the tax (TDS/ TCS) and a person granted Unique Identification Number.

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It is important to note that a taxpayer is NOT required to file all types of returns. In fact, taxpayers are required to file returns depending on the activities they undertake.

All the returns are to be filed online.

Returns can be filed using any of the following methods:

  1. GSTN portal (www.gst.gov.in )
  2. Offline utilities provided by GSTN
  3. GST Suvidha Providers (GSPs) – If you are already using the services of ERP providers such as Tally, SAP, Oracle etc., there is a high likelihood that these ERP providers would provide inbuilt solutions in the existing ERP systems

Following table lists the various types of returns under GST Law:

GSTR-1

Monthly Statement of Outward supplies of Goods or Services

by 10th of the next month

GSTR-2

Monthly Statement of Inward supplies of Goods or Services

by 15th of the next month

GSTR-3

Monthly Return for a normal taxpayer

by 20th of the next month

GSTR-4

Quarterly Return Taxable Person opting for Composition Levy

by 18th of the month succeeding the quarter

GSTR-5

Monthly Return for a non-resident taxpayer Non-resident Taxpayer

by 20th of the month succeeding the tax period & within 7 days after expiry of registration

GSTR-6

Monthly Return for an Input Service Distributor (ISD) Input Service Distributor

by 13th of the next month

GSTR-7

Monthly Return for authorities deducting tax at source

Tax Deductor 10th of the next month

GSTR-8

Monthly Statement for E-Commerce Operator depicting supplies effecting through it

E-Commerce Operator 10th of the next month

GSTR-9

Annual Return

Registered Person other than an ISD, TDS/TCS Taxpayer, Casual Taxable Person and Non-resident Taxpayer

31st December of next Financial Year

GSTR-10

Final Return

Taxable Person whose registration has been surrendered or cancelled

Within three months of the date of cancellation or date of order of cancellation, whichever is later.

 


Filing Process

A normal taxpayer has to file the following returns:

  1. GSTR-1 (Statement of Outward Supplies):
  2. This return signifies the tax liability of the supplier for the supplies effected during the previous month.
  3. It needs to be filed by the 10th of every month in relation to supplies effected during the previous month. For example, a statement of all the outward supplies made during the month of July 2017 needs to be filed by 10th August, 2017.
  1. GSTR-2 (Statement of Inward Supplies):
  2. This return signifies accrual of ITC (Input Tax Credit) from the inputs received during the previous month.
  3. It is auto-populated from the GSTR-1s filed by the corresponding suppliers of the Taxpayer except for a few fields like imports, and purchases from unregistered suppliers.
  4. It needs to be filed by the 15th of every month in relation to supplies received during the previous month. For example, a statement of all the inward supplies received during the month of July 2017 needs to be filed by 15th August, 2017.
  1. GSTR-3: This is a consolidated return.

It needs to be filed by the 20th of every month. It consolidates the following details

  1. Outward Supplies (Auto-Populated from GSTR-1)
  2. Inward Supplies (Auto-Populated from GSTR-2)
  3. ITC availed
  4. Tax Payable
  5. Tax Paid (Using both Cash and ITC)

NOTE: Payment should be made on or before 20th of every month.

Annual Return

This return needs to be filed by 31st December of the next Financial Year. In this return, the taxpayer needs to furnish details of expenditure and details of income for the entire Financial Year.

The population of these returns is explained by the following graphic:

NOTE:

  1. Taxpayer’s GSTR-2 is auto-populated from the Suppliers’ GSTR-1s
  2. Taxpayer’s GSTR-3 is significantly auto-populated from tax payer’s GSTR-1 and GSTR-2

Revision of Returns:

The mechanism of filing revised returns for any correction of errors/ omissions has been done away with.The rectification of errors/ omissions is allowed in the subsequent returns. However, no rectification is allowed after furnishing the return for the month of September following the end of the financial year to which, such details pertain, or furnishing of the relevant annual return, whichever is earlier.

 

Penal Provisions Relating to Returns:

Any registered person who fails to furnish form GSTR-1, GSTR-2, GSTR-3 or Final Return within the due dates, shall be liable to pay a late fee of Rs. 100 per day, subject to a maximum of Rs. 5,000.

ITC Matching and Auto-Reversal:

    1. It is a mechanism to prevent revenue leakage.
    2. The process of ITC Matching begins after the due date for filing of the return (20th of every month). This is carried out by GSTN.
    3. The details of every inward supply furnished by the taxable person (i.e. the “recipient” of goods and/or services) in form GSTR-2 shall be matched with the corresponding details of outward supply furnished by the corresponding taxable person (i.e. the “supplier” of goods and/or services) in his valid return. A return may be considered to be a valid return only when the appropriate GST has been paid in full by the taxable person, as shown in such return for a given tax period.
    4. In case the details match, then the ITC claimed by the recipient in his valid returns shall be considered as finally accepted and such acceptance shall be communicated to the recipient. Failure to file valid return by the supplier may lead to denial of ITC in the hands of the recipient.
    5. In case the ITC claimed by the recipient is in excess of the tax declared by the supplier or where the details of outward supply are not declared by the supplier in his valid returns, the discrepancy shall be communicated to both the supplier and the recipient. Similarly, in case, there is duplication of claim of ITC, the same shall be communicated to the recipient.
    6. The recipient will be asked to rectify the discrepancy of excess claim of ITC and in case the supplier has not rectified the discrepancy communicated in his valid returns for the month in which, the discrepancy is communicated, then such excess ITC as claimed by the recipient shall be added to the output tax liability of the recipient in the succeeding month.
    7. Similarly, duplication of ITC claimed by the recipient shall be added to the output tax liability of the recipient in the month in which, such duplication is communicated.

  1. The recipient shall be liable to pay interest on the excess or duplicate ITC added back to the output tax liability of the recipient from the date of availing of ITC till the corresponding additions are made in their returns.
  2. Re-claim of ITC refers to taking back the ITC reversed in the Electronic Credit Ledger of the recipient by way of reducing the output tax liability. Such re-claim can be made by the recipient only in case the supplier declares the details of the Invoice and/or Debit Notes in his valid return within the prescribed timeframe. In such case, the interest paid by the recipient shall be refunded to him by way of crediting the amount to his Electronic Cash Ledger.

Source: Directorate General of Taxpayer Services, CENTRAL BOARD OF EXCISE & CUSTOMS

INPUT TAX CREDIT Under GST (Goods And Services Tax)

Uninterrupted and seamless chain of input tax credit (hereinafter referred to as, “ITC”) is one of the key features of Goods and Services Tax. ITC is a mechanism to avoid cascading of taxes.

Cascading of taxes, in simple language, is ‘tax on tax’. Under the present system of taxation, credit of taxes being levied by Central Government is not available as set-off for payment of taxes levied by State Governments, and vice versa.

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One of the most important features of the GST system is that the entire supply chain would be subject to GST to be levied by Central and State Government concurrently.

As the tax charged by the Central or the State Governments would be part of the same tax regime, the credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage.

Let us understand how ‘cascading’ of taxes takes place in the present regime. Central excise duty charged on inputs used for manufacturing of final product can be availed as credit for payment of central excise duty on the final product.

For example, to manufacture a pen, the manufacturer requires plastic granules, refill tube, metal clip, etc. All these ‘inputs’ are chargeable to central excise duty.

Once a ‘pen’ is manufactured by using these inputs, the pen is also chargeable to central excise duty. Let us assume that the cost of all the above mentioned inputs is say, Rs.10/- on which central excise duty @10% is paid, means Re.1.

The cost of the manufactured pen is say Rs.20/-, the central excise duty payable on the pen @10% will be Rs.2/- . Now the manufacturer of the pen can use the duty paid on inputs, i.e. Re.1/- for payment of duty on the pen.

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So he will use Re.1 paid on inputs and he will pay Re.1/- through cash (1+1=2), the price of the pen becomes Rs. 22/-.

In effect, he actually pays duty on the ‘value added’ over and above the cost of the inputs. This mechanism eliminates cascading of taxes.

 

However, when the pen is sold by the manufacturer to a trader, he is required to levy VAT on such sale. But under the present system, the manufacturer cannot use the credit of central excise duty paid on the pen for payment of VAT, as the two levies are being levied by Central and State government respectively with no statutory linkage between the two.

Hence, he is required to pay VAT on the entire value of the pen, i.e. Rs.22/-, which actually includes the central excise duty to the tune of Rs.2/-. This is cascading of taxes or tax on tax, as now VAT is not only paid on the value of pen i.e. Rs.20/- but also on tax i.e. Rs.2/-.

Goods and Services Tax (GST) would mitigate such cascading of taxes. Under this new system, most of the indirect taxes levied by Central and the State Governments on supply of goods or services or both, would be combined together under a single levy.

The major taxes/levies which are going to be clubbed together or subsumed in the GST regime are as under:

CENTRE TAXES

  • Central Excise duty
  • Additional duties of excise
  • Excise duty levied under Medicinal & Toilets Preparation Act
  • Additional duties of customs (CVD & SAD)
  • Service Tax
  • Surcharges & Cesses

STATE TAXES

  • State VAT/Sales Tax
  • Central Sales Tax
  • Purchase Tax
  • Entertainment Tax (other than those levied by local bodies)
  • Luxury Tax
  • Entry Tax (All forms)
  • Taxes on lottery, betting & gambling
  • Surcharges & Cesses

GST comprises of the following levies:

  1. Central Goods and Services Tax (CGST) [also known as Central Tax] on intra-state or intra-union territory without legislature supply of goods or services or both.
  2. State Goods and Services Tax (SGST) [also known as State Tax] on intra-state supply of goods or services or both.
  3. Union Territory Goods and Services Tax (UTGST) [also known as Union territory Tax] on intra-union territory supply of goods or services or both.
  4. Integrated Goods and Services Tax (IGST) [also known as Integrated Tax] on inter-state supply of goods or services or both. In case of import of goods also, the present levy of Countervailing Duty (CVD) and Special Additional Duty (SAD) would be replaced by integrated tax.

The protocol to avail and utilise the credit of these taxes is as follows:

Credit of              To be utilised first for payment of            May be utilised further

for payment of

CGST                     CGST                                                                    IGST

SGST/UTGST        SGST/UTGST                                                       IGST

IGST                       IGST                                                                    CGST, then SGST/UTGST

Credit of CGST cannot be used for payment of SGST/UTGST and credit of SGST/UTGST cannot be utilised for payment of CGST.

Some of the technical aspects of the scheme of Input Tax Credit are as under:

A. Any registered person can avail credit of tax paid on the inward supply of goods or services or both, which is used or intended to be used in the course or furtherance of business.

B. The pre-requisites for availing credit by registered person are:

  1. He is in possession of tax invoice or any other specified tax paying document.
  2. He has received the goods or services. “Bill to ship” scenarios also included.
  3. Tax is actually paid by the supplier.
  4. He has furnished the return.
  5. If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.
  6. He should pay the supplier, the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed.

C. Documents on the basis of which credit can be availed are:

  1. Invoice issued by a supplier of goods or services or both
  2. Invoice issued by recipient alongwith proof of payment of tax
  3. A debit note issued by supplier
  4. Bill of entry or similar document prescribed under Customs Act
  5. Revised invoice
  6. Document issued by Input Service Distributor

D. No ITC beyond September of the following FY to which invoice pertains or date of filing of annual return, whichever is earlier

E. The Input Service Distributor (ISD) may distribute the credit available for distribution in the same month in which, it is availed. The credit of CGST, SGST, UTGST and IGST shall be distributed as per the provisions of Rule 4(1) (d) of ITC Rules. ISD shall issue invoice in accordance with the provisions made under Rule 9(1) of Invoice Rules.

F. ITC is not available in some cases as mentioned in section 17(5) of CGST Act, 2017. Some of them are as follows:

a. motor vehicles and other conveyances except under specified circumstances.

b. goods and/or services provided in relation to:

i. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except under specified circumstances;

ii. Membership of a club, health and fitness center;

iii. Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law;

iv. Travel benefits extended to employees on vacation such as leave or home travel concession;

c. Works contract services when supplied for construction of immovable property, other than plant & machinery, except where it is an input service for further supply of works contract;

d. Goods or services received by a taxable person for construction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business;

e. Goods and/or services on which tax has been paid under composition scheme;

f. Goods and/or services used for private or personal consumption, to the extent they are so consumed;

g. Goods lost, stolen, destroyed, written off, gifted, or free samples;

h. Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.

G. Special circumstances under which ITC is available:

  1. A person who has applied for registration within 30 days of becoming liable for registration is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day immediately preceding the date from which he becomes liable to pay tax.
  2. A person who has taken voluntary registration under section 23(3) of the CGST Act, 2017 is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day, immediately preceding the date of registration.
  3. A person switching over to normal scheme from composition scheme under section 10 is entitled to ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) and capital goods on the day immediately preceding the date from which he becomes liable to pay tax as normal taxpayer.
  4. Where an exempt supply of goods or services or both become taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) relatable to exempt supplies. He shall also be entitled to take credit on capital goods used exclusively for such exempt supply, subject to reductions for the earlier usage as prescribed in the rules.
  5. ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the supplier.
  6. In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilised ITC shall be allowed to be transferred to the transferee.
  7. A person switching over from composition scheme under section 10 to normal scheme or where a taxable supply become exempt, the ITC availed in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) as well as capital goods will have to be paid.
  8. In case of supply of capital goods or plant and machinery, on which ITC is taken, an amount equivalent to ITC availed minus the reduction as prescribed in rules (5% for every quarter or part thereof) shall have to be paid. In case the tax on transaction value of the supply is more, the same would have to be paid.

Source: Directorate General of Taxpayer Services CENTRAL BOARD OF EXCISE & CUSTOMS