Tuesday, June 6, 2017

Suggestions by ICAI on GST for smooth implementation & for Public benefit

ICAI has issued suggestions for achievement of desired results of various provisions & smooth implementation  of GST
1.      Exemption to Import of Services from GST.
Provisions under GST Law:  As per Section 7(1)(b)  of IGST Act ,import of services, for a consideration whether or not in the course or furtherance of business shall  be covered under the definition of supply & hence liable for GST.

Challenges Involved:  
Import of goods even for personal purposes shall also be liable to GST under Reverse Charge Mechanism & leading to increase in compliance costs & efforts  for non business consumers.

ICAI Suggestions: 
ICAI has suggested that import of services for personal purposes should be kept outside the purview of GST.
An exemption limit of Rs. 1 lakhs be prescribed for such transactions. 

2.      Exemption from Reverse Charge on Purchases From Unregistered Dealers.
Provisions under GST Law: As per Section 9(4) of CGST Act, 2017, GST shall be levied under Reverse Charge Mechanism on purchase of goods/services from unregistered dealers.

Challenges Involved:
This will lead to a situation where buyers will not be willing to purchase goods from small  unregistered dealers leading to loss of revenue & customers as well for small businesses.

ICAI Suggestions:
a)      Purchases of goods/ services from unregistered dealers below threshold limit of Rs. 20,000 be exempted based on a declaration.
b)     The provisions of this section be kept in abeyance for 6 months/ 1 year for smooth implementation of GST.

3.      Applicability of Composition scheme to dealers making supply of Services & Goods which are not liable to GST.
Provisions under GST Law : As per Section 10(1) of CGST Act, a registered person shall not be able to claim benefit of Composition scheme under GST only 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.

Challenges Involved
Non-availability of composition scheme to those taxpayers  who are supplying services or making any supply of goods  not leviable to GST seems to be a bit strict  on such small Taxpayers. Such small suppliers, service providers  also shall be required to comply with the normal provisions of GST which will prove to be burdensome for such suppliers.

ICAI Suggestions 
Penalties in respect of cancellation of registration under a composition scheme of a registered taxable person for whatever reason must be limited to recovery of differential taxes after giving adjustment to input tax otherwise available.

4.      Retrospective amendments not to Increase tax liability of taxpayers.
Provisions under GST Law : As per Section 11 of the CGST Act Central/ State Governments have been  empowered to exempt  Goods or Services or both from whole/ part of tax leviable thereon. Further ,  section 6(3)  also empowers the Government to retrospectively make amendments in Exemption Notifications issued u/s 6(1)  or Orders u/s 6(2).

Challenges Involved 
Authority  to  the Central / State government to retrospectively change  the nature of exemption will  lead to possibility of retrospective amendment  as well as the vulnerability to introduce changes with the Council’s concurrence,  this sub section may be detrimental to the interest of the assesses.

ICAI Suggestions
It is suggested that a proviso be added to sub-section 3 to provide that “every such insertion / amendment / modification that has the effect of increasing the tax payable be effective from the date of such insertion”.

5.      Increase in  time period for payment of GST under Reverse Charge Mechanism.
Provisions under GST Law:
(i) Time of supply for Goods under  Reverse Charge Basis  shall be the earliest of the following :
a)      Date of the receipt of goods; or
b)     Date of payment as entered in the books of account or his Bank Account , whichever is earlier; or
c)      Date immediately following thirty days from the date of issue of invoice.

(i) Time of supply of Services under  Reverse Charge Basis  shall be the earliest of the following:
a)      Date of payment as per books of the recipient or date of debit in bank account, whichever is earlier;
b)     Date immediately following thirty days from the date of issue of invoice.

Challenges Involved
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.

ICAI Suggestions
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.

6.      Taxes, Duties, Cesses & Fees not to be included in value of Supply.        
Provisions under GST Law: Section 15(2)(a)  of the CGST Act, Value of Supply includes any taxes, duties, cess, fees and charges levied under any statute, other than SGST  & CGST Act and the Goods and Services Tax (Compensation to the States for Loss of Revenue) Act, 2016, if charged separately by the supplier to the recipient.

Challenges Involved:
a)     Cascading Effect of Taxes: Inclusion of any type of taxes, duties, cesses, fee and charges levied under any other statute i.e. IGST would lead to cascading effect of taxes & may lead to numerous litigations at a later date.

b)     Charges of Airports Authority of India : The charges such as Passenger Service Fee (PSF), User Development Fee (UDF), and other alike charges are levied by Airport Authority of India, under Airport Authority of India Act, 1994, and collected by Airlines on the tickets issued to passengers shall also be covered under definition of charges & GST shall be levied on them.

ICAI Suggestions:

a)     Inclusion of word "IGST"  under GST Laws: It has been suggested by ICAI that in section 15(2)(a ) after the words “other than the (SGST Act/the CGST Act)”, the word “IGST Act” be inserted.
b)     Exclusion of Taxes, Duties, Fees & Charges under GST: Any taxes, duties, cesses, fee and charges levied under any other statute be excluded from the transaction value so as to avoid cascading of taxes.  Charges levied by Airport Authority of India being simply in the nature of statutory levies, never form part of the taxable value. So, it shall be deemed that no supply is rendered by airlines  in respect of such charges.

7.      Reversal of CENVAT Credit Claimed where payment to supplier is not made within 180 days.
Provisions under GST Law : As per Second Proviso to Section 16(2) of CGST Act, where a recipient fails to  make payment to supplier  towards the value of services including tax payable thereon within a period of 180 days from date of issue of invoice by the supplier, the amount of Input Tax Credit availed by the recipient shall be added to his Output Tax Liability, along with interest thereon.

ICAI Suggestions
The need to collect interest on such ITC availed by the recipient may be omitted as a supplier does not compensated.

8.      Supplies under Reverse Charge Mechanism  to form part of Exempt Supplies for pro rata apportionment of Input Tax Credit between Taxable & Exempt supplies. 
Provisions under GST Law : Supplies under Reverse Mechanism  are basically taxable supplies in case of which tax is paid by the recipient of supply. Inclusion of supplies covered under RCM basis shall lead to a situation where ITC in relation to taxable services id being denied to the taxpayer.

Challenges Involved
This situation is just similar to the one where a supply is being taxed  twice  , Firstly under Reverse Charge Mechanism & Secondly when ITC in relation to such supply is denied to the supplier.

ICAI Suggestions
It is therefore suggested that supplies covered under Reverse Charge Mechanism being taxable supplies should be kept outside the purview of exempt supplies for pro rata apportionment of ITC under GST.

9.      Reversal of Input Tax Credit on Renting of Capital Goods.
Provisions under GST Law : As per Section 18(6) of CGST Act, In case of supply of capital goods or plant and machinery, on which ITC has been taken, the registered person shall pay an amount equal to the ITC taken on the said Capital Goods or Plant & Machinery as reduced by such percentage points as may be prescribed.
However, where Capital Goods are sold as scrap, then ITC need not be reversed & Tax can be paid on transaction value of such scrap or actual amount realized.

Challenges Involved
The Section mentioned above uses the term supply which also includes  renting of Capital Goods. So, If capital goods are leased out, then  Sec 18(6) will lead to  reversal of ITC already claimed by the supplier. Further the above section includes the words " Plant & Machinery along with the Capital Goods. However, Capital Goods already includes Plant & Machinery & addition of words "Plant & Machinery"  to the above section is not necessary.
ICAI Suggestions
It is therefore suggested that steps be taken by the government for non reversal of CENVAT on renting of capital goods. Further the words " Plant & Machinery " be omitted in the above section so that the intention of provision is being fulfilled & those transactions which are not intended are not hit.

10. Extension of Time Period for Issuance of Order of Assessment by Proper Officer under GST.
Provisions under GST Law:
Extension of time period in case of Pending  Appeals:  Where an Order has been passed by First Appellate Authority or Appellate Tribunal or High Court on a matter & such decision is prejudicial to the interest of Revenue in proceedings of other cases with it & an appeal has been pending against such prejudicial order in the Appellate Tribunal or High Court , the following periods of time shall be excluded in calculating the time limit for issuance of order by  a proper officer.

a)     between the date of the decision of First Appellate Authority and date of decision of Appellate Tribunal  or ;
b)     Date of decision of Appellate Tribunal and date of the decision of the High Court or as the case may be
c)      Date of the decision of the High Court and the date of the decision of the Supreme Court.
 Challenges Involved
 As per the section enumerated above, If a decision is passed by First Appellate Authority or Appellate Tribunal or High Court in respect to a particular assesse in a particular state , the limit for passing of order by the proper officer shall stand increased for all assesses whether belonging to same state or other.

ICAI Suggestions

ICAI has suggested that  such extension of time limit for passing of order by  proper officer shall  be applied  with reference to particular assessee  & state.