4.3.1 Taxation under pre-GST indirect tax era74 GST Law and Analysis - with Conceptual Procedures 4.3.1 Taxation under pre-GST indirect tax era Let us assume that the rate of excise

74 GST Law and Analysis - with Conceptual Procedures

4.3.1 Taxation under pre-GST indirect tax eraLet us assume that the rate of excise duty was 12.5%, VAT also 12.5% and CST as 2%. Thus, in the pre-GST scenario, taxes were levied in the following manner:

Chapter 4: Levy and Collection of GST - Inter-State Supply of Goods and Services 75

4.3.2 Taxation under GST regimeLet us assume the CGST rate as 9%, SGST rate as 9% and IGST rate as 18%. Thus, in GST scenario, taxes are levied in the following manner:

4.4 ILLUSTRATIONS TO UNDERSTAND TAXABILITY AND FLOW OF CREDIT – INTER-STATE SUPPLY OF SERVICES

Example:

Let us now understand as to how GST actually works for supply of services from one state/union territory to another in comparison to pre-GST indirect taxation system with the help of an example.

A,aninputserviceproviderinDelhiprovidesservicesatINR100toBwhoisanoutput service provider in the same state. B further provides the services to the service recipient of Mumbai after 15% value addition.


5.4 CERTAIN ACTIVITIES OF CG/SG OR LOCAL AUTHORITY TO BE TREATED NEITHER AS SUPPLY OF GOODS NOR SERVICES

Sec 7(2)(b) of the CGST Act provides that notwithstanding anything contained in sub-section (1), such activities or transactions undertaken by the central government, a state government or any local authority in which they are engaged as public authorities, as may be notified by the government on the recommendations of the GST Council, shall be treated neither as a supply of goods nor a supply of services.

In this regard, notification no. 14/2017- central tax (rate) , notification no. 11/2017- integrated tax (rate), notification no. 14/2017- union territory tax (rate), all dated 28.06.2017 as amended vide notification no. 16/2018- central tax (rate), notification no. 17/2018- integrated tax (rate), notification no. 16/2018- union territory tax (rate) all dated 26.07.2018 provides that ‘services by way of any activity in relation to a function entrusted a Panchayat under article 234G of the Constitution or to a municipality under article 243W of the constitution’ undertaken by the central government or state government or union territory or any local authority in which they are engaged as public authority, shall be treated neither as supply of goods nor as supply of services in GST.

5.5 POWER(S) OF GOVERNMENT TO SPECIFY NATURE OF SUPPLY TO BE TREATED AS SUPPLY OF GOODS OR SERVICES

Sec 7(3) of the CGST Act empowers the government, to specify by notification, upon recommendation of the GST council, the transactions that are to be treated as:

• Supply of goods and not as a supply of services; or• Supply of services and not as a supply of goods;The powers of the government, under sec 7(3) are subject to sub-sections (1), (1A) and (2) thereof i.e. the matters which are already specified as supply of goods or services either under schedule II or otherwise shall continue to remain same.

Our comments and concerns:• ‘Supply’ is the most critical and pivotal term under the GST regime, which

is the centric point to determine levy & collection of GST. The GST Law has chosen to define ‘supply’ in inclusive manner, without even defining what ‘supply’ means and its scope has been kept wide enough to include any form of supply like, sale, transfer, lease, rental etc. and even extended to cover barter and exchange.


• Refund for tax already paid on transactions now included in para 7 and 8 of schedule III - Relief in the form of possible refunds should be granted for the tax already paid earlier on sale of goods from custom bonded warehouse or hi-sea sales or merchant trading.

• Inclusion of inter-company supply of services under schedule III as no supply - Inter-company supply of services provided by head office to branch office/ representative office of the same legal entity having a common PAN located in the taxable territory or vice versa should be included in schedule III so that the same does not qualify as supply of services liable to GST. Examples of such services are centralized functions of accounting, legal, HR, management carried out from the central head office for all branches etc.

• Inclusion of export duty credit scrips in schedule III - Duty credit scrips viz. MEIS/ SEIS, issued on export of goods/ services are presently treated as exempted goods and therefore are subject to reversal of credit provisions of rule 42/ rule 43 of the CGST Rules on inputs/input services/capital goods. As an encouragement to exporters, these duty credit scrips should be included in schedule III as neither as supply of goods nor services.

• Non-GST supply v. Non-taxable supply - Form GSTR-3B has used the term Non-GST supply which is nowhere defined in GST law. GST law only discussed the term ‘non-taxable supply’ to mean a supply of goods or services or both which is not leviable to tax under GST Act [sec 2(78) of the CGST Act]. Like, supply of five specified petroleum products and alcoholic liquor for human consumption may be termed as non-taxable supply. Then, what constitutes non-GST supply? Whether schedule III items are being taken as non-GST supply? Clarity in this regard is required.

• Clarification on meaning of ‘non-taxable supply’ - A concrete list of activities constituting non-taxable supplies in GST be provided to avoid any confusion as to its inclusion in aggregate turnover and reversal of common credit.

ANNEXURE 1 EXTRACTS OF VARIOUS DEPARTMENTAL FAQS

Departmental clarification- FAQs on GST as updated on 15.12.2018:

Q1.WhatisthetaxableeventunderGST?

Ans. The taxable event under GST shall be the supply of goods or services or both made for consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’.


All TaxableSupplies

Exports ofgoods/services

AggregateTurnover

Excludes RCM Inward Supplies and taxes paid

in GST

Non -Taxable/ Nil

Rated Supplies

Inter StateSupplies

Exemptedgoods/services

8.2.4 Illustrations for computing aggregate turnover and need of registration

a) Suppose for a financial year, taxable supplies of ‘A’ is INR 5,00,000/-. He also supplied exempted goods of INR 3,00,000/- and exported goods of INR 1,20,200/-. The supplies mentioned are gross amount i.e. exclusive of tax. His aggregate turnover shall be computed as under:

Particulars AmountAll taxable supplies 5,00,000Exempt supplies 3,00,000 Export of goods 1,20,200Net Total (aggregate turnover) 9,20,200

Note: Registration in GST need not required as aggregate turnover is less than INR 20 Lakh.

b) For a financial year, taxable supplies of ‘B’ is INR 15,00,000/-. He also supplied exempted goods of INR 3,00,000/-. and exported goods of INR 1,66,200/-. Out of taxable supplies of INR 15,00,000/-, goods valuing INR 75,000/- is inclusive of GST @ 18%. His aggregate turnover shall be computed as under:

Particulars AmountAll taxable supplies 15,00,000Exempt supplies 3,00,000 Export of goods 1,66,200


15.6 PROCEDURAL REQUIREMENTS

Government

FurnishStatement(GSTR 8)*

Furnish AnnualStatement (Form

GSTR 9B)*

31stDecemberfollowing

endof FY

TCS collected & Reected Available as credit in E-Cash Ledger

* Details Outward supplies of goods orservices or both e�ected through E-ComOperator, including the supplies of goodsor services or both returned through it,and the amount of TCS collected

Supplier

Deposit TCS

Collect TCS

E-Com Operator

10 days after end of month

10 days after end of month

GSTN

15.6.1 Time limit for paymentAs per sec 52(3) of the CGST Act, the amount collected as TCS shall be paid to the credit of the appropriate government by the e-commerce operator within 10 days after the end of the month in which such collection is made.

Note: It is imperative here to note that payment of TCS is not allowed through input tax credit of e-commerce operator.

15.6.2 Monthly Statements In terms of sec 52(4) of the CGST Act read with rule 67 of the CGST Rules, every e-commerce operator who collects TCS, shall, furnish a monthly statement, electronically in Form GSTR-8, containing details of all amounts collected, towards outward supplies of goods or services or both effected through it, including the supplies of goods or services or both returned through it and the amount of TCS.

The details in Form GSTR-8 should be furnished within 10 days after the end of the month in which such collection is made.

Note: E-commerce operators, who have been unable to obtain registration in the month of October, 2018 but have already collected TCS for the said month, may furnish the details of TCS collected in the month of October, 2018 in the first return in FORM GTSR-8 to be filed after obtaining registration - Reply to Q 30 of FAQs issued on TCS dated 28.09.2018 (as updated on 30.11.2018).


Summary of demand and recovery proceedings:Below is a flowchart explaining the process of raising demand and initiating recovery proceedings as provided in sec 73 & sec 74 of the CGST Act.

Time limit for issuance of orderNon-fraudwithin 3 years from due date of �ling of annual return for relevant FYFraudwithin 5 years from due date of �ling of annual return for relevant FY

•

•

Penalty for Demand & Recovery Proceedings

Non-fraud cases (Sec 73)

Tax + Interest u/s 50 + inform in GST DRC-03

No SCNNo penalty

No penaltyNo further proceeding No further proceeding

Tax dueInterestPenalty (25% of tax due)

••

•••

••

••

Higher of10% of tax due orINR 20,000

Tax not paid/ Tax not paid/

Short paidShort paid

Within 30 days fromissuance of order

3 months prior to timelimit of issuance of order

6 months prior to timelimit of issuance of order

Tax + Interest u/s 50 + penalty (15% of tax due)& inform in GST DRC-03

Fraud cases (Sec 74)

No SCNNo penalty

••Tax due

InterestPenalty (higher of 10% of tax or INR 20,000 in non-fraud cases) or (100% of tax in fraud cases)

Show cause notice/ Supplementaryshow cause notice

•••

Tax not paid, short paid, erroneously refundedor ITC has been wrongly availed or utilized

YESYESTax paid within 30 days of issue of notice

Demand Order

Tax dueInterestPenalty (50%of tax amount)

•••

On payment ofself-assessed tax

Tax paid beforeissuance of notice

NO

Note: The amount of penalty above is total of CGST and SGST/UTGST or IGST, as the case may be.

Let us now discuss these provisions in detail.

18.3 DEMAND AND RECOVERY IN NON-FRAUD CASESThe provisions relating to the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any wilful-misstatement or suppression of facts are contained in sec 73 of the CGST Act.


Further, in the case of a non-cognizable and bailable offence, the deputy commissioner or the assistant commissioner, shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station [sec 69(3)(b) of the CGST Act].

Summary of nature of offences:Based on the above discussions, various offences and their punishment along with nature of offences viz. bailable or non-bailable, can be summarised as under:

Section Nature of offence Amount of tax evasion/ ITC wrongly

taken/refund

wrongly taken

Time period of impris-onment and im-position

of fine

Nature of offence

Cognizable and non-bailableSec

132(1)(a), (b), (c) and

(d)

(a) Supply of any goods or services or both without is-sue of any invoice in violation of the provisions of the GST Act(s) with the intention to evade tax;

(b) Issue of any in-voice without the supply of any goods or services of both leading to wrongful avail-ment or utilization of ITC or refund of tax;

(c) Availing input tax credit using fake invoice or bill;

(d) Collecting any amount as tax but failure to pay the

> INR 500 Lakhs

upto 5 years and fine

Cognizable and n o n - b a i l a b l e [sec 132(5)]

Chapter 21: Prosecution and Compounding of Offences 1157

Section Nature of offence Amount of tax evasion/ ITC wrongly

taken/refund

wrongly taken

Time period of impris-onment and im-position

of fine

Nature of offence

same to the Gov-ernment with-in a period of 3 months from the date on which such payment be-comes due.

Non-cognizable and bailableSec

132(1)(a), (b), (c) and

(d)

(a) Supply of any goods or services or both without is-sue of any invoice in violation of the provisions of the GST Act(s) with the intention to evade tax;

(b) Issue of any in-voice without the supply of any goods or services of both leading to wrongful avail-ment or utilization of ITC or refund of tax;

(c) Availing input tax credit using fake invoice or bill;

(d) Collecting any amount as tax but failure to pay the same to the Government

< INR 500 Lakhs

> INR 200 lakhs but ≤ INR 500 l a k h s : Imprison-ment upto 3 years and fine

> INR 100 lakh but ≤ INR 200 l a k h s : Imprison-ment upto 1 year and fine

Non- cogniza-ble and bailable [sec 132(4)]


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Chapter 27: Tax Invoice, Credit and Debit Notes 1467

AN

NEX

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XXX

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Date of R

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Rate [%

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the Re

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TERM

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invo

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e prep

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in triplicate, in

case of su

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Item Nam

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TAX INVO

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Supp

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sis

4.3.1 Taxation under pre-GST indirect tax era74 GST Law and Analysis - with Conceptual Procedures 4.3.1 Taxation under pre-GST indirect tax era Let us assume that the rate of excise

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