Suggestions on GST Implementation Issues 28.09.2017 by ICAI Indirect Tax Committee

By | September 28, 2017
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(Last Updated On: October 22, 2017)

Contents

Suggestions on GST Implementation Issues

A. Issue related to fundamental of GST like double taxation still happening in certain cases

(i) Reverse Charge U/s 9(4) of CGST Act, 2017

As per Section 9(4) of CGST Act, 2017 if taxable person procures goods or services from unregistered person then recipient is subject to pay tax under reverse charge which is subject to double taxation.

For eg. :
A company purchases mineral water bottle from an unregistered person, then company has already paid all taxes on MRP basis on the said water bottle and further it is liable to pay tax under RCM as per section 9(4) /Section 5(4) of Reverse Charge for which even credit is not allowed U/s 17(5) of CGST Act, 2017.

Issue :

(i) Practically procurement of goods from unregistered suppliers could not be avoided wherein the limit of Rs.5,000 per day is very less.

(ii) Recipient is required to identify the HSN Code and rate of taxable goods or services and in few cases compensation cess is also liable to be paid e.g Mineral water bottle.
(iii) Tax has already being paid on such transaction leading to cascading & compliance of taxation.

Suggestion : It is suggested that :

(i) Reverse charge compliances U/s 9(4) be deferred for the MSE Sector having turnover of less than Rs. 2 Crore in a year / not subject to audit under U/s 35 of CGST Act, 2017

(ii) Reverse charge mechanism U/s 9(4) be liable to paid at a uniform rate say @ 18% only instead of HSN Code wise as credit of the same is available to the assessee and per day limit be enhanced to 10,000 for next one year till July, 2018.

(iii) Credit U/s 9(4) be available in all cases even for goods or services on which credit U/s 17(5) is restricted one as it leads to cascading of taxes on which unregistered supplier has already paid the taxes at the time of procurement of goods from his immediate registered supplier.

(ii) Composition Scheme U/s 10 of CGST Act – subject to double taxation

Under composition scheme dealer is required to pay tax based on Turnover including exempted Turnover of goods.

Issue :

(i) Composition dealer can not avail the credit for the goods or services procured by him leads to cascading of taxes

(ii) Additional Turnover Tax needs to be paid by composition assessee which is part of the cost of the composition supplier which is generally equivalent to the value addition for eq. if 1% is payable then value addition is charged on 10%.

(iii) Registration applied for composition but granted under normal scheme

Suggestion :

(i) It is suggested that credit available by composition assessee be passed to the recipient like under central excise law First stage dealer provisions or any other model of adhoc credit basis like 40% or 60% or any other basis as procurement by the recipient from the composition dealer affecting MSE Sector as prices of supplies made by composition dealer are high in comparison to the normal dealer.

(ii) Registration wrongly granted be rectified to composition on immediate basis.

B. Implementation teething issues on GST

(iii) Compulsory Registration U/s 24 of CGST Act, 2017 in case of Inter State Supply

As per Section 24 of CGST Act, 2017 in case of Inter State Supply of Goods or Services Compulsory registration is required to be obtained.

Issue : Small assessee especially service provider is required to obtain registration causing hardship to the small and medium industry

Examples :
(a) Guest lecturer invited as the faculty from other States.
(b)Examiner of the Educational Institution.

Suggestions :
Exemption of Rs.10 Lacs / Rs. 20 Lacs be provided equivalent to the erstwhile service tax law wherein SSI exemption was available to such supplier. Hence exemption from registration be provided to such supplier.

Recipient will pay tax u/s 5(4) of IGST Act which in result resolve the problem being faced by the small and medium entrepreneur.

(iv) Mandatory Registration under section 9(3) for Reverse Charge purpose need not trigger the provisions of section 9(4)

Section 9(3) of the CGST Act, 2017 provides that the Government may, on the recommendations
of the Council, by notification, specify categories of supply of goods or services or both, the tax
on which shall be paid by the recipient on reverse charge basis.

Further section 9(4) of the CGST Act, 2017 provides that the central tax in respect of the supply
of taxable goods or services or both by a supplier, who is not registered, to a registered person
shall be paid by such person on reverse charge basis as the recipient.

Issue

There may arise a situation wherein an assessee has obtained registration under GST for availing
certain services on which tax is liable to be paid under Reverse Charge as per section 9(3) but the
outward supplies made by such an assessee is exempt under GST in case of Education Institution,
Hospital etc..

When an assessee is dealing in wholly exempted goods having turnover more than Rs.20 lakhs he
is not required to take registration by section 23 of CGST Act, 2017. However, Section 24
mandates to obtain registration in case the liability arises under reverse charge. This situation
requires clarity as provisions of section 24 overrides the provisions of section 22(1) only and not
section 23.

Suggestion
It is therefore suggested that there be provided a suitable clarification that in cases where
registration is taken only for the purpose of section 9(3) i.e. payment of tax under reverse charge
the provisions of section 9(4) will not be triggered.

(v) Transitional Credit is not available to Manufacturer / Service provider :

(a) Transitional credit not being available to some manufacturers/ service providers would be
discriminatory and impact the margins. Needs to be provided to all if the goods/ services earlier
were not liable to tax.

E.g. : Printing services were brought under the tax net w.e.f 01.07.2017 @ 18% / 12%, however
no transitional credit is available to such service provider under proviso to section 140(3) of CGST
Act, 2017 in case taxable person has procured the goods i.e paper of printing from the trader on
which VAT /CST was charged as well Entry Tax was imposed.

Suggestion :
a) Adhoc transitional credit be provided in the line of proviso to section 140(3) of CGST Act,
2017.
b) Capital goods credit not available for exempted units/ service providers as well as traders who
may have invested in pre GST period needs to be allowed with depreciations for number of years
to build in fairness and equal treatment under GST.

Suggestion :
Credit be allowed in such cases.

(vi) Exemption to exporter from payment of Tax on Inputs the time system stabilize :

A general exemption maybe issued for a period 6 months to enable exports of goods as well as
services to be carried out without any payment of taxes on inputs or inputs services as refund
mechanism is not finalized due to system glitches margin erosion and impracticality

(vii) Exemption to small assessee be provided to pay tax on receipt basis wherein in erstwhile law upto Rs. 50 Lacs assessee was permitted to pay tax on receipt basis.

C. GSTIN related issues

(viii) Deferment of matching requirement & Time line provided for filing of return is cumbersome

Issue : Due to the matching concept filing of return leads to 10th, 13th, 15th , 17th & 20th as the case may be wherein in the present form GSTIN System is unable to handle such data loads and Time provided to the taxpayer for filing of return & its reconciliation in GSTR Form 2 is too less.

Example :
Supplier are required to submit details of its purchases of supply made in Form GSTR-2 which
includes reconciliation of receipts of goods i.e good in transit/not received, calculation on the
restrictive credit , common credit etc. 5 days provided for the return filing including holidays leads
may lead to 2-3 days in some months.

Suggestion :
• Option of offset liability of tax payment at any time basis be provided to avoid interest as
merely payment of cash payment in the cash ledger is not fulfilling the requirement of tax
payment by the assessee.

• Matching concept be deferred in case of assessee having turnover less than Rs. 1 Crore/
Rs. 2 Crore of registration wise turnover for the initial period of 2 years as it was not there
in the erstwhile law and law provides the provision of scrutiny assessment, audit as well.

• Filing of return period from monthly basis be shifted to bi-monthly and quarterly basis
based on the turnover of the assessee.

(ix) One cash ledger instead of separate cash ledger(s)

Issue:

Credit in Cash ledger is segregated into different heads which made assessee unable to set off the
cash credit of one head for other which can be possible if there is a uniform cash ledger . E.g.: If
a person has 1,000/- in interest & a short amount of Rs.100/- in late fee then again, he need to
transfer amount from Bank Account although an excess amount is lying Electronic cash ledger.

Suggestion

It is suggested that in cash ledger there should be only one cash ledger only like late fee, interest
and penalty should not be there. Let cash ledger act as a E-wallet but, not as a dedicated column
for the payment type. (late fee, interest, penalty adjustment should be possible in cash ledger.)

(x) Delay in responses from GSTN Helpdesk

Due to bulk migration and registration many assessees have faced this issue that they are unable
to reach the GST helpdesk and are unable to receive satisfactory responses from the helpdesks
through emails or calls.

Suggestion

It is suggested that additional manpower be employed at GSTN helpdesk to cater to assessees
queries and their resolution in a timely manner

D. Twitter or FAQ related issues

Solution provided through Twitter and /or FAQ in some cases are contradictory in nature and
even FAQ are having disclaimer which is creating confusion.

(xi) Supply of Business Assets on which Credit has not been availed is subject to tax again

Twitter has clarified that tax on the sale of capital assets is not subject to tax whereas provision of
law does not provide such mechanism.

(xii) Salary to Partner by Partnership firm

Twitter has clarified that salary paid by partner by partnership firm is not subject to tax whereas it
has not been clarified through circular or any notification exemption being provided.

(xiii) An Individual renting residential dwelling to Pvt Ltd Co. for residential use of director/officer.

Twitter replied liable to GST wherein exemption being provided for residential use.

(xiv) Employee reimbursement

Twitter has clarified that employee reimbursement are generally (with disclaimer) are not liable
to GST. Earlier it was explained that it is subject to tax also.

(xv) Credit of tax paid on RCM [ Reverse Charge Mechanism ]

Twitter has clarified that tax paid under RCM be allowed in the next month and as well as same
month, dual answer. No such official clarification being provided.

(xvi) Credit of KKC ( Krishi Kalyan Cess)

Twitter has clarified that tax paid under KKC is not allowed, however it was an eligible duty under
earlier law and restriction of credit is unnecessary leading to cascading.

Law Related Issues

1. Definition of term Aggregate Turnover

Section 2(6) of CGST Act provides that “aggregate turnover” means the aggregate value of
all taxable supplies (excluding the value of inward supplies on which tax is payable by a
person on reverse charge basis), exempt supplies, exports of goods or services or both and
inter-State supplies of persons having the same Permanent Account Number, to be computed
on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and
cess;

Issue

• The term “exports of goods or services or both” cover all the exports which may be
taxable as well as non-taxable. Reference may be drawn from wordings in section
2(108) (taxable supply) CGST Act read with sections 2(5) (export of goods) and 2(6)
(export of services) IGST Act, 2017.

• If ‘exempt supplies’ are included in the aforesaid threshold of Rs.20 lakh that would
mean that if a dealer is involved in exclusive supply of exempt goods/services and if
he happens to make a small supply of taxable goods/services, then he will become
liable for registration. As such the turnover limit of Rs.20 lakh is too low a limit and
if the exempt supplies are also included therein than a very large number of people
will become liable for registration without any substantial revenue to the Government.

Suggestion
• It is therefore suggested that the reference of the words “export of goods / services”
be accordingly removed from definition of Aggregate Turnover.
• It is suggested that instead of words “aggregate turnover” the words “aggregate
turnover of taxable supplies” be used.

2. Definition of Capital Goods

Section 2(19) of CGST Act 2017 provides that “capital goods” means goods, the value of
which is capitalised in the books of accounts of the person claiming the credit and which
are used or intended to be used in the course or furtherance of business;

Issue

Under this definition, no treatment for the items have been provided which will be expensed
during the year of purchase but not written off in the books due to their nature and use in
industry.

Suggestion

• It is suggested that an exception be provided for items which are written off during
the year of purchase in books of accounts to treat them as capital goods even if not
capitalised in books of accounts.

• Further, it is suggested that this definition may also include the goods, the value of
which is amortized over a period in the books of accounts.

• Additionally, the term “in the course or furtherance of business” be replaced with
“for the purpose of business” so that no scope for restriction of credit is left. Same
change may also be done for definitions of “Input” & “Input Services”, “Outward
Supply” and also in Schedule I & II.
• The term “value” be replaced with the words ‘purchase consideration’ for better
clarity.

3. Separate consideration charged for goods and services supplied in conjunction:

Section 2(30) of the CGST Act, 2017 defines Composite supply as a supply made by a
taxable person to a recipient consisting of two or more taxable supplies of goods or services
or both, or any combination thereof, which are naturally bundled and supplied in
conjunction with each other in the ordinary course of business, one of which is a principal
supply;

Issue
If separate considerations are charged for various goods and services supplied in
conjunction with each other in ordinary course of business, whether the same shall also
amount to composite supply.

Suggestion
It is suggested that there be provided a suitable clarification regarding same.\

4. Definition of Electronic Commerce

Section 2(44) of the CGST Act defines the Electronic Commerce as supply of goods or services or both including digital products over digital or electronic network.

Issue

The current definition appears to include only ‘supply on own account’ and not ‘supply
through the portal but by other Suppliers’. Also, electronic commerce appears to exclude
‘information portals’ and ‘customer to customer’ portals but the same will be covered by
section 52(1).

Suggestion

It is suggested that words” supply of” ‘be replaced with the words ‘’facilitating the supply
of ……’’.

5. Definition of Exempt Supply – In line with Govt. Policy

As per the definition given in Section 2(47) of CGST Act, “exempt supply” means supply
of any goods or services or both which attracts nil rate of tax or which may be wholly
exempt from tax under section 11, or under section 6 of the Integrated Goods and Services
Tax Act, and includes non-taxable supply;

Issue

• Non-Taxable Supplies have been excluded from the scope of Aggregate Turnover
in the CGST Act but still the term “Exempt Supply” covers the same. Thus,
inclusion of non-taxable supply in the exempt supply would ultimately bring it
within the scope of aggregate turnover.
• Interpretation of aforesaid definition appears that supply made to job worker
covered under exempt supply. Since a registered taxable person may send any inputs
and/or capital goods without payment of tax, to a job worker for job-work and
therefrom subsequently send to another job worker.

Suggestions
• It is suggested that non-taxable supplies be kept outside the ambit of ‘exempt supplies’
as well as ‘aggregate turnover’. Inclusion of non-taxable supplies in aggregate
turnover results in an effectively lower limit for composition levy as well as for
threshold exemption. Further, when a supply is non-taxable, it should not affect the
taxability indirectly by affecting the threshold exemption and composition scheme.
• An amendment may be required in said definition that ‘’Exempt supply means any
supply of goods/services which are non-taxable under this act other than supply for
job work in accordance with Section 143 of the Act and includes such supply of goods
or services or both, which attract nil rate of tax or which may be exempt from tax under
section 11.

6. Sale of Canned software not included as services

Section 2 (52) of CGST Act, 2017 defines goods as ‘every kind of movable property other
than money and securities but includes actionable claim, growing crops, grass and things
attached to or forming part of the land which are agreed to be severed before supply or under
a contract of supply’.

Further section 2(102) defines services as “anything other than goods”

Issue

Draft Model GST Law specifically contained an explanation in the definition of goods which
clarified that goods do not include intangible property. The definition of services also
contained a similar Explanation to the effect that service includes intangible property. Hence,
it was made very clear that software in any form is always classifiable as a service and not
goods.

However, the explanations cited aforesaid have been deleted in the CGST Act. It has only
been specified in Para 5(d) of Schedule II that development, design, programming,
customization, adaptation, upgradation, enhancement, implementation of information
technology software is a service. The deeming provision in Schedule II is a replica of what
we have in Clause 66E of the Finance Act, 1994 which deals with Declared Services.

The deletion of the aforesaid Explanations would once again raise the long-standing
classification dispute as to whether sale of shrink wrapped software or canned software is a
supply of good or service.

Suggestion
It is suggested that an explanation as provided in Model GST law to the definitions of Goods
as well as Services be restored.

7. Definition of “Inward Supply” – If removed denial of credit.

Section 2(67) of CGST Act provides that “inward supply” in relation to a person, shall mean
receipt of goods or services or both whether by purchase, acquisition or any other means
with or without consideration;

Issue
• Inward Supplies made without consideration are also treated as a part of total inward
supplies. This means present definition shall cause the buyer to upload the purchases
on GSTR 2 for the free supplies which shall not be posted by the supplier causing
reconciliation issues. Since there is no levy on the free of cost supplies, this inclusion
of supplies without consideration need not be required.
• The current definition introduces new terms like ‘purchase, acquisition, etc.’ which
appear to convey that they are the mirror opposite of each of the forms of supply in
section 3(1)(a).

Suggestion
• It is suggested that supplies made without consideration be kept outside the purview
of the definition of “Inward Supply”.
• The above definition be changed to ‘Inward supply’ in relation to a person with
reference to whom the place of supply is determined means the corresponding
supply by the supplier of the outward supply”.

8. Definition of Job Work – Repair should be part of Job Work

Section 2(68) of CGST Act provides that “job work” means any treatment or process
undertaken by a person on goods belonging to another registered person and the expression
“job worker” shall be construed accordingly;

Issue
The definition of job work appears to overlap with repairs etc.

Suggestion

It is suggested that a proviso be inserted to the definition of Job Work to provide that job-
work will not include repair or maintenance or other forms of supply which are carried out with respect to the goods belonging to another taxable person.

9. Definition of “Location of the supplier of goods”

Section 2 (70) & (71) of CGST Act, 2017 defines “Location of the recipient of services” &
“Location of the supplier of services” but does not define “Location of the supplier of goods”.
Absence of definition is causing great concern.

Suggestion

It is suggested that “Location of the supplier of goods” be provided as Location of supplier
means the location where goods are situated under the control of the supplier ready for
supply

10. Term Provision to be included in Definition of Supply

Section 7(1) of CGST Act, 2017 provides that the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange,
licence, rental, lease or disposal made or agreed to be made for a consideration by a
person in the course or furtherance of business;

Issue
There are various terms given under clause (a) as example which constitutes supply.
However, the term “Provision of service” is not included here, which has been used at
various places in the CGST Act.

Suggestion
It is suggested that the term “provision” be included in the scope of supply.

11. Removal of words “such as” as the definition of Supply is inclusive one.

Section 7(1)(a) of the CGST Act provides that Supply includes—(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,

Issue
In section 7(1)(a), the words ‘such as’ while listing the various forms of supply appears to be
an indicative list and due to this, various concerns arise. It appears to render ‘manufacture’ also to be liable to GST even if it is only in preparation of supply. Contracts signed without any goods or services being appropriated appears to attract GST.

Suggestion
It is suggested to remove words ‘such as’ and even after deletion supply does not become
limited in any way as the definition is inclusive to take care of any extraneous situation.

12. Taxability of Import of services

Section 7(1)(b) of CGST Act provides that supply includes import of services, for a
consideration whether or not in the course or furtherance of business, and

Further, Schedule I Point 4 of the CGST Act provides that Import of services by a taxable
person from a related person or from any of his other establishments outside India, in the
course or furtherance of business will be treated as supply even if made without
consideration.

Issue

Import of services is anyway covered in section 7(1)(b) and establishments outside India is
a distinct person which will apply to import of services also. Dual coverage of import of
services might lead to interpretational issues.

Suggestion

It is suggested that entry 4 of Schedule I of CGST Act be deleted.

13. Business Goods put to Private use by an assessee

Clause 4(b) of Schedule II of CGST Act, 2017 as specified in Section 7 provides that where,
by or under the direction of a person carrying on a business, goods held or used for the
purposes of the business are put to any private use or are used, or made available to any
person for use, for any purpose other than a purpose of the business, whether or not for a
consideration, the usage or making available of such goods is a supply of services.

Issue

As per the provision, in the event, a car is owned by a taxable person in the name of a
company and the same is being used by him occasionally for his personal use then such
personal use would be considered as supply of service and would be subject to GST. In the
given scenario, how should the taxable person determine the value of such services (personal
use) for the purpose of leviability of GST?

Further, as per Section 17(1) Input Tax Credit on such services (used for other purpose)
would not be available. This is a double jeopardy to the Taxable person.

Suggestions
• It is suggested that an option be given to assessee to adopt some presumptive value
of the use of specified assets for personal purposes based on the quantum of usage
made by him.
• Further, if the Government intends to levy GST on such services (personal use) then
Input Tax Credit on such services also be allowed to the Taxable person.

14. Reimbursement of expense for which invoice is issued in the name of employee

As per Schedule III of the CGST Act, 2017 services by an employee to the employer in the
course of or in relation to his employment are treated neither as a supply of goods nor a
supply of services.

Issue
There may arise many instances wherein an employee is reimbursed by his employer for
expenses incurred by an employee during course of employment but for which a bill is
issued in the name if the employee. For example. Mr. A hires a cab while on a tour for
company work and makes the payment for the same. The bill is issued in name of Mr. A
and company reimburses the amount so borne by Mr. A. This reimbursement is not a part
of Mr. A’s salary. The taxability of such transactions need to be clarified.

Suggestion
It is suggested that there be provided a suitable clarification regarding taxability of
reimbursements made by an employer to the employee when the bill for a service etc. is
issued in the name of that employee.

15. Transfer of Land etc. by way of inheritance, testament, gift etc.

Clause 5 of Schedule III of CGST Act, 2017 as specified in Section 7 provides that
Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building
would be treated as an activity or transactions which shall be treated neither as a supply of
goods nor a supply of services.

Issue

Sale does not include transfer of land by way of will, inheritance, testament etc. Such
transactions if kept out of the purview may create problems and confusion.

Suggestion

It is suggested that transfer of land by modes other than sale also be included as an activity
or transactions which shall be treated neither as a supply of goods nor a supply of services.

16. Mandatory Registration under section 9(3) for Reverse Charge purpose need not trigger the provisions of section 9(4)

Section 9(3) of the CGST Act, 2017 provides that the Government may, on the
recommendations of the Council, by notification, specify categories of supply of goods or
services or both, the tax on which shall be paid on reverse charge basis by the recipient of
such goods or services or both and all the provisions of this Act shall apply to such recipient
as if he is the person liable for paying the tax in relation to the supply of such goods or
services or both.

Further section 9(4) of the CGST Act, 2017 provides that the central tax in respect of the
supply of taxable goods or services or both by a supplier, who is not registered, to a
registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for
paying the tax in relation to the supply of such goods or services or both.

Issue

There may arise a situation wherein an assessee has obtained registration under GST for
availing certain services on which tax is liable to be paid under Reverse Charge as per
section 9(3) but the supply made by such an assessee is exempt under GST. Example: A
hospital avails the services of an advocate for a pending litigation case needs to take
registration under GST for paying tax under reverse charge even though the supplies made
by hospital are exempt under GST. Now if the hospital makes any purchase from
unregistered dealer the provisions of section 9(4) would be triggered and hospital would be
liable to pay tax under reverse charge. This would not have been the case if the hospital
had not taken registration for the purpose of section 9(3) i.e. availing advocate services.
The aforesaid, situation implies that if an assessee obtains registration under section 9(3)
the provisions of section 9(4) automatically applies on such assessees. This proves to be a
burden on small assessees.

When an assessee is dealing in wholly exempted goods having turnover more than Rs.20
lakhs he is not required to take registration by virtue of section 23 of CGST Act, 2017.
However, Section 24 mandates to obtain registration in case the liability arises under
reverse charge. This situation requires clarity as provisions of section 24 overrides the
provisions of section 22(1) only and not section 23.

Suggestion

It is therefore suggested that there be provided a suitable clarification that in cases where
registration is taken only for the purpose of section 9(3) i.e. payment of tax under reverse
charge the provisions of section 9(4) will not be triggered.

17. Reimbursements to employees for business purposes whether liable to reverse charge u/s 9(4) of CGST ACT, if the supply of goods/service is from an unregistered person.

Section 9(4) of CGST Act, 2017 provides that a registered person will be liable to GST on
reverse charge if he receives supply of goods/services from unregistered person.

Issue
In case, an employee consumes services/goods on behalf of his company from an
unregistered person and claims reimbursement from the company as it is a business
expense, then, in such cases it appears that the services/goods are consumed by the
Company (registered person) through its employees from an unregistered person. Therefore
section 9(4) will get invoked and company will be liable to GST on reverse charge.

Suggestion
It is suggested that a suitable clarification be provided if tax under reverse charge is
payable on following reimbursements for business purposes if taken from unregistered
dealers
a) Conveyance of Employees through local conveyances like Taxi etc.

b) Food Expenses
c) Expenses for other goods/services consumed by the employee on company’s behalf.

18. Type of tax liability of person liable to pay tax under reverse charge scheme

Under CGST Act, Section 9(3) / 5(3) of IGST Act, 2017 requires tax to be paid by recipient
in case of receipt of supply notified by the government and Section 9(4) / 5(4) requires tax
to be paid by registered person on receipt of supply of goods or services from an
unregistered person.

Issue

Suppose, a recipient of supply of goods and services having registration at Delhi receives
supply from an unregistered person who is based at Haryana. Supposing, the place of
supply being Haryana as per the GST laws and the Location of supplier is at Haryana, the
transaction is an intra state supply within Haryana, and hence H-SGST & H-CGST shall be
charged on such transaction. But how the person registered at Delhi will pay the tax to the
Government as supply from the prospective of supplier is intra state whereas from the
prospective of recipient it is procurement in Haryana and goods brought to his registered
office at Delhi.

Suggestion

It is suggested that suitable clarification be provided in the law for such transactions else
it would create hardship for the recipient to get themselves registered in the States from
where the supply is procured.

19. Per Day Limit of Purchase from Unregistered Dealer`

Central Government vide Notification No. 08/2017-Central Tax (Rate), dt. 28-06-2017 has
w.e.f 1st July 2017 exempted supplies of goods or service or both received by a registered
person from any or all such unregistered supplier(s) if the aggregate value of such supplies
does not exceed Rs. 5000 in a day.

Issue

a) The aforesaid Notification does not clarify the situation where a registered person purchases goods or services or both from an unregistered supplier for a value more than Rs. 5000 in a day but the purchases made on any subsequent day during the same month from the same supplier is less than Rs. 5000. For Example: Mr. A (a registered dealer) purchases certain goods from Mr. B (an unregistered dealer) on 4 th July 2017 for Rs. 7000 and on 5th July 2017 for Rs. 4000. The purchases made on 4th July 2017 for Rs. 7000 are not eligible for exemption as per Notification No. 08/2017-Central Tax (Rate). However, it is not clear whether the purchases made on 5th July 2017 for Rs. 4000 would be eligible for exemption under said notification.

b) As per section 5(4) of the IGST Act, 2017 any purchases made by a registered dealer from an unregistered dealer will make the registered dealer liable to pay tax under reverse charge. However, exemption limit of Rs. 5000 in a day as per aforesaid notification does not apply to such inter-state supplies as no such notification is provided under Integrated Tax.

Suggestions
• It is suggested that it be suitably clarified that the exemption provided vide Notification No. 08/2017-Central Tax (Rate), dt. 28-06-2017 is for value of each day of transaction and transaction made on subsequent for a lower value will continue to remain exempted.
• Further, it be suitable clarified that even under IGST Act, 2017 supplies of goods or service or both received by a registered person from any or all such unregistered supplier(s) are exempted if the aggregate value of such supplies does not exceed Rs. 5000 in a day.

20 Availability of Composition Scheme to various assessees

Section 10 of the CGST Act, 2017 provides for Composition Scheme availability to registered persons whose aggregate turnover in the preceding financial year did not exceed
Rs. 75 lakhs.

Issue

The benefit of composition scheme is available for works contract as defined in clause (119)
of section 2 & supply, by way of or as part of any service or in any other manner whatsoever,
of goods, being food or any other article for human consumption or any drink (other than
alcoholic liquor for human consumption), where such supply or service is for cash, deferred
payment or other valuable consideration.

However, composition scheme is not available for other set of services not eligible for input
tax credit like outdoor catering, beauty treatment, health services, cosmetic and plastic
surgery, rent-a cab etc. as provided u/s 17(5)(b). Moreover, input tax credit is not allowed in
such supplies except when used for making outward supply of the same category.

This goes against the very intention of GST which was believed to bring manufacturers,
traders and service providers at parity. Such a provision may prejudice the interests of small
service providers not wanting to undertake the lengthy compliances applicable to a normal
supplier. This may further encourage tax evasion.

Suggestion
It is suggested that option of paying tax u/s 10 should also be extended to goods and services
covered u/s 17(5)(b), (c) & (d) and services provided by professionals having small turnover.

21. Availability of Composition Levy

Section 10 of the CGST Act provides that benefit of Composition Scheme would be available to a registered taxable person, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but

(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,
(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and
(c) half per cent. of the turnover in State or turnover in Union territory in case of other
suppliers, subject to such conditions and restrictions as may be prescribed:

Provided that the Government may, by notification, increase the said limit of fifty lakh
rupees to such higher amount, not exceeding one crore rupees, as may be recommended by
the Council.
Further, the registered person shall be eligible to opt under sub-section (1), if––
(a) he is not engaged in the supply of services other than supplies referred to in clause (b)
of paragraph 6 of Schedule II;
(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward supplies of goods;
(d) he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
(e) he is not a manufacturer of such goods as may be notified by the Government on the
recommendations of the Council:

Further sub-section (4) of Section 10 provides that if the proper officer has reasons to
believe that a taxable person was not eligible to pay tax under sub-section (1), such person
shall, in addition to any tax that may be payable by him under other provisions of this Act,
be liable to a penalty and the provisions of section 63 or Section 74, as the case may be, shall apply
mutatis mutandis for determination of tax and penalty.

Issue
Non-availability of composition scheme to those who are supplying services or making any
supply of goods which are not leviable to tax under the Act seems to be harsh on such
person. Small suppliers, supplying services only shall be required to comply with the
normal provisions of the law which could prove to be cumbersome for such suppliers.
Further, small suppliers making few of the supplies not chargeable to tax while majority of
supplies are taxable may find this provision an unnecessary burden on them.

Suggestion
It is suggested that benefit of composition scheme be extended to those who are supplying
services or making any supply of goods which are not leviable to tax under the Act.

22. Eligibility for Composition Scheme to dealers when they are receiving Interest Income.

Section 10(2)(a) of CGST Act, 2017 provides that the registered person shall be eligible to
opt under sub-section (1), if he is not engaged in the supply of services other than supplies
referred to in clause (b) of paragraph 6 of Schedule II.

Issue

Interest received on any amount appears to be a service and has been provided exemption
under the exemption notification. Therefore, there is a doubt that in case dealer receives
interest then he may not be eligible for composition scheme.

Suggestion

It is suggested that it be suitably clarified that in case a dealer receives interest the he
would be eligible for opting Composition Scheme. Similar clarity is also required for
inclusion/exclusion of non-operational income e.g. interest/dividend while calculating
aggregate turnover for computing limit of Rs. 20 L for registration purpose under Section 22 & Section 24 of CGST Act,2017

23. Restriction from making supplies through an e-commerce operator for opting composition scheme

Section 10 of CGST Act, 2017 provides that the person exercising the option to pay tax
under composition scheme shall comply with certain conditions and one of the condition
is that a person opting for the scheme is not allowed to affect any supply of goods through
an e-commerce portal, unless such portal is owned by the same person

Issue

As in the present trade, supply of goods through an e-commerce operator has become a
general practice putting such restriction for opting composition scheme is irrelevant.
Suppose a trader has complied with all other condition for composition levy but supply of
few goods through an ecommerce portal makes him ineligible to opt for such scheme.

Suggestion

It is suggested that appropriate amendment be made to remove such restriction so that a
trader can trade through an e-commerce portal and opt for composition scheme as well.

24. Ineligibility to opt for Composition Scheme if assessee has interstate purchased stock

Rule 5 of CGST Rules, 2017 provides that the person exercising the option to pay tax under
section 10 shall comply with the following conditions, namely:

a) he is neither a casual taxable person nor a non-resident taxable person;
b) the goods held in stock by him on the appointed day have not been purchased in the
course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State, where the option is exercised under sub-rule (1) of rule 3;
c) the goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (4) of section 9;
d) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;

e) he was not engaged in the manufacture of goods as notified under clause (e) of sub-section (2) of section 10, during the preceding financial year;

f) he shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him; and
g) he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

Issue

There may arise a situation wherein an assessee who has been granted provisional
registration and wishes to opt for Composition scheme satisfies all the conditions specified
in Rule 5 of CGST Rules, 2017 except that he holds the stock which has been purchased in
the course of inter-State trade or commerce or imported from a place outside India or
received from his branch situated outside the State or from his agent or principal outside
the State.

A further a condition provides that his stock should not include goods purchased from an
unregistered dealer where tax has not been paid under reverse charge. But if he pays tax
under reverse charge he is eligible to opt for Composition Scheme. Such a relaxation for
payment of tax and opting for Composition levy is not available in case of purchases made
in the course of inter-State trade or commerce or imported from a place outside India or
received from his branch situated outside the State or from his agent or principal outside
the State.

Also, Section 10 only restricts inter-state outward supply of goods, no restriction w.r.t.
inter-state purchase or purchase from unregistered dealer.

Suggestion:
It is suggested that in case where the person wishing to opt for Composition Scheme holds
such goods in stock which have been purchased in the course of inter-State trade or
commerce or imported from a place outside India or received from his branch situated
outside the State or from his agent or principal outside the State, he be allowed to opt for
Composition Scheme upon payment of appropriate applicable tax under GST.

25. Double taxation on supply made by composition dealer

Section 17(5) of CGST Act 2017 provides that input tax credit shall not be available in
respect of goods or services or both on which tax has been paid under section 10.

Issue

If a trader takes inward supply of goods from a registered dealer who has opted for
composition scheme than although the trader is not liable to pay tax under reverse charge
under section 9(3) of CGST Act but on making further supply of goods he becomes liable
to pay tax. As per the provision of section 17(5) of CGST Act 2017 he is not eligible to
avail input tax credit which leads to double taxation as well as cascading effect

For example: Manufacturer Mr. A supply goods to registered dealer Mr. B after charging
GST @ 28%. Since the dealer Mr. B has opted for composition scheme he must pay tax
@1% without availing input tax credit and Now Mr. C, who has purchased goods from
Mr. B, supply goods to registered dealer Mr. D than he will be liable to pay GST@28%
on its further supply this leads cascading of taxes on account of non-availability of credit
by composition dealer to registered dealer. This restriction on the credit transfer making
the composition scheme ineffective.

Suggestion
It is suggested that appropriate amendment be made to avoid double taxation and
cascading effect on supply made by composition dealer to registered dealer.

26. Applicability of composition scheme in case of caterer and banquet hall food supply:

Section 10 read with Section 6 (1) (b) of Schedule II of the CGST Act provides that
composition scheme is available to the supplier who is providing services by way of or as
part of any service or in any other manner whatsoever, of goods, being food or any other
article for human consumption or any drink (other than alcoholic liquor for human
consumption), where such supply or service is for cash, deferred payment or other valuable
consideration.

Issue
Whether caterer or banquet hall may claim composition scheme u/s 10.

Suggestions

It be clarified that whether caterer or banquet hall may claim composition scheme as it has
been raised by such industries as Government in the press releases announce for the
Restaurant only where in law does not stop it.

27. Composition tax on entire turnover

section 10 of CGST Act 2017 provides that, a registered person, whose aggregate turnover
in the preceding financial year did not exceed Rs.75 lacs / Rs.50 Lacs rupees, may opt to
pay @ 0.5%/1%/2% of the turnover, in lieu of the tax payable by him, an amount
calculated at such rate as may be prescribed, but not exceeding, ––

Issue

section 10 provides tax rates as a % of turnover i.e. on opting for composition levy an
assessee becomes liable to tax on the entire turnover including exempted or nil rated supply
of goods

Suggestion
It is suggested that appropriate amendment be made to provide relief to composition dealer
on exempted supply or nil rated supply of goods as it is against the principal of taxability
as well as creating inequality with the normal dealer.

28. Deferment of levy till Time of Supply

Section 12(1) Section 13(1) of CGST Act provide that liability to pay CGST/ SGST shall arise
at the time of supply…….

Issue
The language employed appears to indicate that the levy is deferred till the time of supply.
Tax levied under section 9 appears to be suspended until time of supply determined as per
provisions of sections 12 & 13.

Suggestion
• It is suggested to clarify that the levy under section 9 would be final but the payment of
the levy would be deferred under time of supply under section 12. Alternatively, it may
be clarified that the levy under section 9 is complete only at the time of supply under
sections 12 & Section 13.
• Thus, section 12(1) & Section 13(1) may be reworded as “Tax levied under section 9 is payable
at the time of supply as determined in terms of the provisions of this section.”

29. Time of supply of goods and services under RCM

Section 12(3) of the CGST Acts provides that in case of supplies of goods in respect of
which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be
the earliest of the following dates, namely—
(a) the date of the receipt of goods; or
(b) the date of payment as entered in the books of account of the recipient or the date on
which the payment is debited in his bank account, whichever is earlier; or
(c) the date immediately following thirty days from the date of issue of invoice or any other
document, by whatever name called, in lieu thereof by the supplier:
(d) However, as per section 13(3) of the CGST Acts provides that in case of supplies of
services, the time of supply shall be the earlier of the following dates, namely-
(e) the date of payment as entered in the books of account of the recipient or the date on
which the payment is debited in his bank account, whichever is earlier; or
(f) the date immediately following sixty days from the date of issue of invoice or any other
document, by whatever name called, in lieu thereof by the supplier:

Issue
The time period of 30/60 days from the date of issue of invoice by the supplier is quite short
considering the time taken for delivery of goods with invoice and may create unnecessary
interest liability if payment is not made within 30 or 60 days.
Suggestion
It is suggested that the time limit prescribed in both the cases be made 90 days in line with
the current provision of service tax.

30. Change in Rate of tax w.r.t Supply of Services

Section 14 of the CGST Act indicates the provisions for determining the time of supply in
case where there is a change in the rate of tax in respect of services.
In case service has been provided before change in rate of tax the time of supply will be
date of payment or invoice whichever is earlier.
In case service has been provided after change in rate of tax the time of supply will be date
of payment or invoice whichever is later. In case both payment and invoice are received
before change in rate of tax the time of supply will be earlier of the two dates.

Suggestions

In order to avoid possible litigation, it must be suitably clarified regarding time of supply
in case of change in rate of tax w.r.t continuous supply of services/goods.

31 Manner of determination of amount liable to be paid by the supplier

Section 15(2)(b) of the CGST Acts provides that the value of supply shall include any amount
that the supplier is liable to pay in relation to such supply but which has been incurred by the
recipient of the supply and not included in the price actually paid or payable for the goods or
services or both

Issue:
Since the value of supply includes an amount liable to be paid by the supplier but incurred
by the buyer, the basis for determination of the amount liable to be paid by supplier is not
specifically mentioned herein. It could lead to large scale litigations if the amount to be
determined is left open to the discretion of taxpayers.

Suggestion:
Therefore, it is suggested that the amount liable to be paid by supplier may have a reference
to the contract or agreement between suppliers and recipient by the words ‘by reason of or
in connection with’. So, supplier’s liability be restricted within the scope of the contract or
agreement.

32. Inclusion of Interest, penalty etc. in Value of Supply

Section 15(2)(d) of CGST Act provides that the value of supply shall include interest or late
fee or penalty for delayed payment of any consideration for any supply.

Issue

In most of the cases the amount of interest or penalty is not known at the time of supply. To
be required to be included in the valuation at the time of supply is a cumbersome task.

Suggestions

• It is suggested that clause d of section 15(2) be omitted.
• Alternatively, if it needs to be essentially included, it might be considered to shift this
clause to section 31 as one of the circumstances requiring the issuance of debit note

33. Reversal of Credit on non-payment of taxes

Second proviso to the Section 16(2) of the CGST Act provides that where a recipient fails
to pay to the supplier of services, the amount towards the value of supply of services along
with tax payable thereon within a period of 180 days from the date of issue of invoice by
the supplier, an amount equal to the input tax credit availed by the recipient shall be added
to his output tax liability, along with interest thereon, in such manner as may be prescribed.

Suggestion

The need to collect interest may be omitted as a supplier does not compensated.

34. Exempt Supplies to include reverse charge supplies for credit apportionment

Explanation to Section 17(2) of CGST Act provides that for the purposes of this sub-
section, exempt supplies shall include supplies on which recipient is liable to pay tax on

reverse charge basis under subsection (3) of section 9.

Issue

Supplies on which reverse charge is applicable is an input service & cannot be used in pro-
rata formula for determining pro-rata credit between taxable & exempt supplies. Inclusion

of supplies (covered under RCM) into value of exempt supplies for the above purposes will
have effect of same supply being taxed two times. Such supplies being considered as
exempt seems to be illogical as such supplies are taxed, though tax has been paid by the
recipient instead supplier.

Suggestion

It is therefore suggested that supplies covered under reverse charge mechanism be kept
outside the ambit of exempt supplies for the purpose of proportionate credits.

35. Blocking of Input Tax Credit for certain set of Services

Section 17(5)(b) of CGST Act, 2017 provides that no input tax credit is available on supply
of goods or services or both: —
i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and
plastic surgery except where an inward supply of goods or services or both of a
particular category is used by a registered person for making an outward taxable
supply of the same category of goods or services or both or as an element of a taxable
composite or mixed supply

ii) membership of a club, health and fitness centre;
iii) rent-a-cab, life insurance and health insurance with provided exceptions
iv) travel benefits extended to employees on vacation such as leave or home travel
concession.

Issue
Certain expenditure of the given nature can also be required to be made under the
requirements of any law and not necessarily for making taxable outward supplies of the same
category. Say, for example, food and beverages used in the canteen of a factory.

Suggestion
It is suggested that the facility of availing input tax credit not be blocked when goods and/or
services are used or intended to be used in the course or furtherance of business in lines with
the provisions of Section 17(1).

36. Ensuring free flow of credit

There is no requirement to create such a degree of suspicion about business and personal
expenses. If the business needs justify the expense, then subject to the safeguard in section
17(1), credit should not be restricted. Provisions under Section 17 (5) relating to the Input
Tax Credit needs to be simplified and brought at par with the simple concept that if outward
supplies of a person are taxable then the inward supplies of the goods or services or both
should be allowed as credit.

Suggestion
It is suggested to delete the sub-section (5) and may include cross-link to any income-tax
disallowance of expenses being personal in nature

37. Disallowance of Credit in respect of works contract services

Clause c Section 17(5) of CGST Act provides that works contract services when supplied
for construction of immovable property, other than plant and machinery, except where it is
an input service for further supply of works contract service.
Clause d provides that goods or services received by a taxable person for construction of an
immovable property on his own account, other than plant and machinery, even when used in
course or furtherance of business.

Explanation 1.- For the purpose of this clause, the word “construction” includes re-
construction, renovation, additions or alterations or repairs, to the extent of capitalization, to

the said immovable property.

Issue(s)
• Works contract is already limited to immovable property; hence the current language is
redundant.

• Further, suppose that a person constructs a Factory Building, Hotel Building or a
building which he wants to or has let out on rent, as per provisions of Section 17(4) (c)
and (d) of the CGST Act, credit of any taxes paid on construction of Immovable property
would not be allowed. This is a differential treatment being laid out that firstly where
being a tenant of a building, a person would be getting the credit of the taxes paid on the
rent to the owner of the Immoveable property but if a person has constructed building
himself, then he would not be getting any credit of the taxes paid. This would be a huge
negative for the Hotel Industry or the Manufacturing Industry wherein large investment
is required in Building for the rendering of the supplies. Immovable Property in case of
Hotel Industry, Industries and used in Letting out on rent forms an important part of the
supply chain and cannot be treated as being used for self-consumption.

• It leads to cascading of taxes which is not the spirit of GST Law, as to provide seamless
credit.

Suggestions
• It is suggested that clause c be rephrased as “works contract and goods or services used
in a works contract except where it is an input for further supply as works contract”.
• It is suggested that the provisions under Section 17 relating to the Input Tax Credit be
rationalized and brought at par with the simple concept that if outward supplies of a
person are taxable then the inward supplies of the goods or services or both may be
allowed as credit.
• Further, it is suggested that renovation works, repairs etc. be eligible for credit if they
are in course / furtherance of business.
• The restriction of ITC in respect of all works contracts resulting in immoveable property
at large be removed since in large number of contracts which qualify as works contracts,
the end result would be immovable property’.

38. Denial of Credit on Goods Confiscated or detained

Clause i of Section 17(5) of CGST Act provides that input tax credit shall not be available
in respect of the any tax paid in terms of section 74, section 129 or Section 130 dealing with confiscation and detainment of goods.

Issue
When the Confiscated Goods are released and sold it will be subject to tax and hence to
deny the credit thereon is not appropriate subject to tax, interest & penalty.

Suggestion
It is suggested that there be no denial of ITC on goods confiscated or detained. Interest &
penalty may be charged but denial of credit lead to cascading and multipoint tax
philosophy.

39. Exempt Supply becoming Taxable Supply

Section 18(1) of CGST Act provides that a person who has applied for registration under
this Act within 30 days from the date on which he becomes liable to registration and has
been granted such registration shall be entitled to take credit of input tax in respect of
inputs held in stock and inputs contained in semi-finished or finished goods held in stock
on the day immediately preceding the date from which he becomes liable to pay tax under
the provisions of this Act;

Section 18(1)(d) of CGST Act provides that where an exempt supply of goods or services
or both by a registered person becomes a taxable supply, such person shall be entitled to

take credit of input tax in respect of inputs held in stock and inputs contained in semi-
finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date
from which such supply becomes taxable:

Provided that the credit on capital goods shall be reduced by such percentage points as may
be prescribed.

Issue
• Though the credit of input tax in respect of inputs held in stock and inputs contained in
semi-finished or finished goods held in stock on the day immediately preceding the
date from which he becomes liable to pay tax under the provisions of this Act is
allowed, no clarification is provided as to credit of Capital Goods lying on the day
immediately preceding the date from which he becomes liable to pay tax under the
provisions of this Act.

• Law only allows the Input Tax Credit for registered persons applying for registration
within thirty days from the date on which he becomes liable for registration and does
not provides for registered person applying for registration beyond the period of thirty
days. The law is trying to penalize the registered person on wrong front. It is agreed
that the registered person has not taken registration within the prescribed time limit. He
should be penalized for that with stringent penalty provisions.

• Bona fide view entertained about non-eligibility to tax cannot become such a burden
that industry will be forced to look for ways to escape from such consequences.

Suggestion
• It is suggested that suitable credit be allowed after deducting appropriate depreciation
as the person earlier has some exemption but under come the taxable chain. Article 14
of the Constitution of India provides right of equality and if credit to such person is not
allowed then it will lead to non-equality among the equal.

• It is suggested that as a principle of Natural Justice, dealers obtaining delayed
registrations be allowed to set off the tax paid on the material on which output liability
is being created as Output Tax would be collected from the dealer from the date when
he became liable for registration.

• Following explanations be added to Section 18(1)(d)
“Explanation 1 – exempt supply becomes a taxable supply includes when a bone fide
view is overturned by law or decision of a Court or Tribunal and such bona fides
declared in the law so laid down.
Explanation 2 –notwithstanding anything to the contrary in this Act, entitlement to take
credit on input tax shall refer to input tax related to input, input service and capital
goods, computed as aforesaid, used in relation to such supply.

40. Time Limit of 1 year for taking Input Tax Credit for Capital Goods

Section 18(1) of CGST Act, 2017 provides that subject to such conditions and restrictions as
may be prescribed—

(a) a person who has applied for registration under this Act within thirty days from the date
on which he becomes liable to registration and has been granted such registration shall be
entitled to take credit of input tax in respect of inputs held in stock and inputs contained in
semi-finished or finished goods held in stock on the day immediately preceding the date from
which he becomes liable to pay tax under the provisions of this Act;

(b) a person who takes registration under sub-section (3) of section 25 shall be entitled to
take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished
or finished goods held in stock on the day immediately preceding the date of grant of
registration;

(c) where any registered person ceases to pay tax under section 10, he shall be entitled to
take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished
or finished goods held in stock and on capital goods on the day immediately preceding the
date from which he becomes liable to pay tax under section 9:

Provided that the credit on capital goods shall be reduced by such percentage points as may
be prescribed;

(d) where an exempt supply of goods or services or both by a registered person becomes a
taxable supply, such person shall be entitled to take credit of input tax in respect of inputs
held in stock and inputs contained in semi-finished or finished goods held in stock relatable
to such exempt supply and on capital goods exclusively used for such exempt supply on the
day immediately preceding the date from which such supply becomes taxable:

Provided that the credit on capital goods shall be reduced by such percentage points as may
be prescribed

Further, Section 18(2) of CGST Act, 2017 provides that registered person shall not be
entitled to take input tax credit under sub-section (1) in respect of any supply of goods or
services or both to him after the expiry of one year from the date of issue of tax invoice
relating to such supply.

Issue
The provision seems beneficial but restricting the period of one year for availing Input Tax
Credit on Capital Goods is very less. For a dealer purchase of Capital Goods is a rare activity
where a huge investment is involved. The dealer will transit to GST with such high tax paid
capital goods and is expected to use them for further supply in GST regime.

Further, as per clause (c) and (d) of Section 18(1) a percentage point method shall be
prescribed for taking input tax credit in case of capital goods. Thus, there seems a gap
between the provisions of section 18(1) and Sec 18(2) since percentage point method is used
for a longer period.

Suggestion
It is suggested that period of 1 year for availing input tax credit be restricted only to inputs
and in case of capital goods a longer period be prescribed.

41. Supply of Input Tax Credit paid Capital Goods

Section 18(6) of CGST Act provides that in case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher:
Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15.

Issue

The provision deals with reversal of input tax credit in case of removal of capital goods but
the current wordings “In case of supply of capital goods or plant and machinery” have a
far-reaching impact. First it uses the term supply which includes even renting of that capital
goods i.e. to say in case the capital goods are rented out, Sec 18(6) triggers and there would
be reversal of ITC which is not the intention and secondly the use of word plant and
machinery is not required as they are already covered under the meaning of capital goods.
It will help give the provision intended scope and not hit those transactions which are not
intended.

Suggestion
It is suggested that the in place of words “in case of supply of capital goods or plant and
machinery” the words “In case of supply of capital goods, on which input tax credit….” be
used.

42. Registration for Assessees with Aggregate Turnover Over Rs. 20 Lakhs

Section 22 on the CGST Act, 2017 provides that every supplier shall be liable to be registered
under this Act in the State or Union territory, other than special category States, from where
he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial
year exceeds Rs. 20 lakhs.

Section 7(1) of the CGST Act provides that “supply” includes all forms of supply of goods
or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal
made or agreed to be made for a consideration by a person in the course or furtherance of
business.

Further section 2(6) of CGST Act, 2017 provides that (6) “aggregate turnover” means the
aggregate value of all taxable supplies (excluding the value of inward supplies on which tax
is payable by a person on reverse charge basis), exempt supplies, exports of goods or
services or both and inter-State supplies of persons having the same Permanent Account
Number, to be computed on all India basis but excludes central tax, State tax, Union territory
tax, integrated tax and cess;

Issue
In case a person is earning interest income from Fixed Deposit Receipts of Rs. 15 Lakhs and
a Rental income from renting of immovable property of Rs. 6 Lakh, he would need to take
registration and collect GST on rented property (as it covered under definition of supply).
However, interest income on FDR is not liable to GST. On inclusion of interest income in
aggregate turnover unnecessary burden is imposed on various assessees including senior
citizens who are at present not involved in carrying business and for that person complying
the law is very difficult.

Suggestion
It is suggested that for computing the aggregate turnover limit of Rs. 20 lakhs for mandatory
registration the income earned without any business motive not be considered.

43. Registration in case of a person required to deduct tax under section 51

Section 25(6) of the CGST Act provides that every person shall have a Permanent Account Number issued under the Income Tax Act, 1961 in order to be eligible for grant of registration under sub-section (1), (2) or (3):
PROVIDED that a person required to deduct tax under section 51 shall have, in lieu of a Permanent Account Number, a Tax Deduction and Collection Account Number (TAN) issued under the said Act in order to be eligible for grant of registration.

Issue
• It might be possible that the supplier is required to deduct TDS under GST law but is not
required to deduct TDS under income tax act but mandating him to obtain tan under  income tax act will add compliance burden.
• The entire issue boils down to the fact that, it an agreed and acceptable argument that PAN would be the bedrock for GST. Since PAN is not mandatory for every citizen of India, it would be a long-drawn process, and if for any reason allotment of PAN is delayed then the person would be suffering from loss of Input credit and penalty for delay in filing of application would also be levied on him. Loss of Input Tax Credit on the Capital Goods would be an even bigger loss.

Suggestion
• It is suggested that the supplier who is required to deduct TDS under GST not be required to obtain TAN mandatorily under Income Tax Act and may obtain registration by using PAN.
• It is suggested that as was provided in the draft report to allot temporary registration in case of enforcement cases and then converting the temporary registration to PAN based registration. A temporary registration may also be allotted in normal cases till PAN is allotted with a maximum time of 15 days to update PAN and subsequently converting the temporary registration to PAN based.

44. Time limit to fix effective date of Registration

Section 25(11) of the CGST Act provides that a certificate of registration shall be issued in
the prescribed form, with effective date as may be prescribed.

Suggestion

It is suggested that time limit be relaxed due to lack of awareness for a period of 1 year i.e.
delayed registered be provided credit from the date of liability itself not from the date of
grant of registration.

45. Special provisions relating to casual taxable person and non-resident taxable person

Section 27(2) of the CGST Act provides that: A casual taxable person or a non-residenttaxable person shall, at the time of submission of application for registration under sub- section (1) of section 25, make an advance deposit of tax in an amount equivalent to the estimated tax liability of such person for the period for which the registration is sought:

Suggestions
• It is suggested to replace the word with estimated tax liability with “estimated output net tax liability” and it would be allowed to be paid with input tax credit if any transfer of goods being made by causal dealer in the course of such transaction.
• It is also suggested to clarify that who would make the estimate of tax liability. Since, it is possible that authorities may intervene and reject estimate made by the dealer.

46. Cancellation of Registration

Section 29(2) of the CGST Act provides that the proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where, –

(a) a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or
(b) a person paying tax under section 10 has not furnished returns for three consecutive tax periods; or
(c) any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
(d) any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts:
Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard.

Issue
• If cancellation of registration is permitted from anterior (earlier) date, it would lead to disruption of whole credit chain and difficulties will be faced by persons who have already availed credit.
• Dealers may not be able to file periodical returns on time due to financial hardship in paying tax. Hence, stringent times for non-filing of returns would lead to cancellation of registration, which may not be required.

Suggestion
• It is suggested that clause (d) be deleted
• Also, it is suggested that not to permit cancellation of registration from earlier date.

47. Treatment of tax paid on units cancelled

Under CGST Act, Section 34(2)provides that any registered person who issues a credit note
in relation to a supply of goods or services or both shall declare the details of such credit
note in the return for the month during which such credit note has been issued but not later
than September following the end of the financial year in which such supply was made, or
the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability
shall be adjusted in such manner as may be prescribed.

Issue

A Builder has issued demand note in the month of March. Buyer has cancelled the unit in
December i.e. after filing of GSTR for the month of September. Now, how builder can avail
credit/benefit of GST paid earlier at the time of demand note or builder has the option to
go for refund.

 

Suggestion

Suitable clarification be provided.

49. Furnishing details of outward and inward supplies by the casual taxable person

Section 37(1) of the CGST Act provides that every registered person, other than an Input
Service Distributor, a non-resident taxable person and a person paying tax under the
provisions of section 10 or section 51 or section 52, shall furnish, electronically, in such form
and manner as may be prescribed, the details of outward supplies of goods or services or
both effected during a tax period on or before the tenth day of the month succeeding the said
tax period and such details shall be communicated to the recipient of the said supplies within
such time and in such manner as may be prescribed.
Further, Section 38(1) of the CGST Act provides that every registered person, other than an
Input Service Distributor or a non-resident taxable person or a person paying tax under the
provisions of section 10 or section 51 or section 52, shall verify, validate, modify or delete,
if required, the details relating to outward supplies and credit or debit notes communicated
under sub-section (1) of section 37 to prepare the details of his inward supplies and credit or
debit notes and may include therein, the details of inward supplies and credit or debit notes received by him in respect of such supplies that have not been declared by the supplier under sub-section (1) of section 37.

Issue
The given provisions are silent in case of the casual taxable person since the provisions
related to non-resident and casual taxable persons are almost similar under the CGST Acts.

Suggestion
• It is therefore suggested that the casual taxable person be excluded from the scope of
Section37(1) & Section 38(1).
• Also, a casual trader may be asked to furnish quarterly return under section 39.

50. Matching, reversal and reclaim of input tax credit

Section 42(1) of the CGST Act provides that the details of every inward supply furnished by
a registered taxable person (hereinafter referred to in this section as the ‘recipient’) for a tax
period shall, in the manner and within the time prescribed, be matched-
(a) with the corresponding details of outward supply furnished by the corresponding taxable
person (hereinafter referred to in this section as the ‘supplier’) in his valid return for the
same tax period or any preceding tax period,
(b) with the integrated goods and services tax paid under section 3 of the Customs Tariff
Act, 1975 in respect of goods imported by him; and
(c) for duplication of claims of input tax credit.

Issue
There is no provision to cover situations where recipient pays tax on reverse charge which is
not disclosed by the supplier. Where a recipient of Goods or Services pays the taxes on
reverse Charge basis he should not be denied ITC of the same merely on the grounds that it
is not disclosed by a Supplier.
Suggestion
• It is therefore suggested that a specific provision be added to cover this aspect for the
purpose of better compliance by supplier.
• Also exclude from the operation of this section in cases covered by section 18(4) – bona
fide exemption reversed.

51. No interest recovery on the credit reversal on date of completion of building

Section 50 of the CGST Act provides that every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding 18%, as may be notified by the Government on the recommendations of the Council.

Issue
There may be bona fide cases where the CENVAT credit was rightly availed at the time of
availment but some external event (like grant of Original Certificate for building) can result
in GST not being applicable. In such cases, demanding the interest recovery on the GST
amount would be inequitable.

Suggestion
It is suggested to insert a proviso in the section as under: –
“Provided that no interest would be payable in case of reversal of credit due to grant of
permission or certificate in respect of building referred in Schedule II para 5(b)“.

52. Extension of time limit to furnish information by the Electronic Commerce Operator

Section 52(12) of the CGST Act provides that any authority not below the rank of Deputy
Commissioner may serve a notice, either before or during the course of any proceeding under
this Act, requiring the operator to furnish such details relating to—
(a) Supplies of goods or services effected through such operator during any period, or
(b) stock of goods held by the suppliers making supplies through such operator in the godown
or warehouses, by whatever name called, managed by such operators and declared as
additional places of business by such suppliers –
Also, Section 52(13) of the CGST Acts provides that every operator on whom a notice has
been served under sub-section (12) shall furnish the required information within fifteen
working days of the date of service of such notice.

Issue
Every operator on whom a notice has been served under sub-section (12) shall furnish the
required information within fifteen working days of the date of service of such notice. There
is no provision for extension of this time period which may lead to difficulties.
Suggestion
• It is therefore suggested to relax the given provision by providing extension of the time
limit for furnishing of details by the Electronic Commerce Operator.
• Further, e-commerce operators covered by section 9(4) not be required to comply with
the provisions of this section

Read Complete Suggestions on GST Implementation Issues 28.09.2017 by ICAI Indirect Tax Committee in PDF

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6 thoughts on “Suggestions on GST Implementation Issues 28.09.2017 by ICAI Indirect Tax Committee

  1. anil N Laad.

    Sir,
    First of all. your videos are nice and informative.

    A question:

    Still the cancellation of the migrated small business units, below 20 Lakh turnover, not on the portal.

    These businesses have not taken voluntary registration. the migration was much before the GST Act, came into implementations, on 01.07.2017.

    What is solution ?

    Thanks and Regards.

    A.N.Laad.

    Reply
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