GST (Goods & Services tax) is a big leap in the tax reforms that is proposed to be initiated by the central government. It is aimed to remove all the tax barriers between states and create a unified market by merging all the existing taxes into a single system of taxation.
Most facilitation services the IT and ITeS sector offers at the back end, especially with respect to business process outsourcing, may attract an 18 per cent goods and services tax (GST) because the government has said those will not qualify as export.
Clearing the confusion related to exports of IT and ITeS services, the government said the services facilitating the supply of goods or services would not qualify as export and would be recognised as intermediaries, attracting an 18 per cent GST.
The move will have consequences for service providers in back-end services and post-sales support, among others.
Acting as facilitators between overseas parent companies and Indian customers by doing general marketing, answering basic enquiries, or providing post-sales support was, thus far, generally not being intermediaries, said Harpreet Singh, partner in KPMG.
“Unless the scope was substantive and involved concluding contracts, negotiating price, etc., tax was not paid, treating such services as export. This position needs to be re-visited now,” he said.
However, if service is given on one’s own account, it will be considered export.
Export is considered a zero-rated supply under the GST and a refund can be claimed.
The circular, issued by the Central Board of Indirect Taxes and Customs (CBIC), is aimed at putting to rest litigation and disputes related to export-related refunds.
However, experts have other views.
Atul Gupta, senior director, Deloitte India, said the CBIC circular mystified the issues and left open scope for litigation.
“It is going to be a detriment for the export of services because exporters no longer can claim input tax refunds on them,” he said.
Gupta said the circular was faulty and needed another look before it resulted in demand notices from GST field formations on outsourcing services.
Bipin Sapra, partner, EY, said certain grey areas continued but this would bring relief to a large section of IT and ITES exporters facing frivolous demands and denial of export benefits.
“The clarification will help in settling most objections regarding exports of services and the exporters will get refunds.”
The issue is important because strong representations were made by industry bodies such as Nasscom and Amcham for clarity on the subject.
Nasscom said it was studying the impact of the latest development.
The government has examined three broad scenarios, wherein a supplier of ITeS located in India supplies services for and on behalf of a client abroad, to clarify its treatment under the GST.
Abhishek Jain, tax partner, EY, said though the circular addressed customary back-office operations, matters that involved back-end and facilitation remained a matter of concern.
In situations where a back end services provider uses his own account as well as arranges or facilitates supplying support services related to pre- or post-delivery on behalf of overseas clients, taxability will be ascertained case by case.
The GST Council, chaired by FM Nirmala Sitharaman, will meet on July 25 and decide on lowering tax rates for electric vehicles, officials said. The 36th meeting of the Council, which will happen through video conferencing, is also likely to decide the valuation of goods and services in solar power generating systems and wind turbineprojects for the purposes of levying GST.
The Council, which has state finance ministers as members, in its meeting last month, had referred the issue relating to Goods and Services Tax (GST) concessions on electric vehicle (EV), electric chargers and hiring of electric vehicles, to an officers committee.
The recommendations of the officers committee is likely to be placed before the Council on July 25, officials said.
To push domestic manufacturing of e-vehicles, the Centre proposed to the Council to slash GST rates to 5 per cent from 12 per cent.
GST rate for petrol and diesel cars and hybrid vehicles is already at the highest bracket of 28 per cent plus cess.
The Council will also consider tax structure for solar power projects.
The Delhi High Court had in May asked the GST council to take a relook at the taxation structure following industry petition.
The government had earlier this year said that for the purpose of taxing solar power projects, 70 per cent of contract value would be treated as goods — taxable at 5 per cent, and balance 30 per cent as services — taxable at 18 per cent.
The solar industry has been pitching for a different ratio for splitting goods and services for levying GST.
Further, the Council may also look at taxation of lotteries. In the previous meeting, the Council had decided to seek legal opinion of the Attorney General for levying GST.
Currently, a state-organised lottery attracts 12 per cent GST, while a state-authorised lottery attracts 28 per cent tax.
Finance Minister Nirmala Sitharaman Thursday said seven legislations under indirect taxation are being amended to ensure greater simplicity, as she moved the Finance Bill in the Lok Sabha. She told the Lower House that amendments to laws are being made through the Finance Bill in five major categories, including in the Goods and Services Tax (GST).
Apart from seven Acts related to indirect taxation being amended, the government would also be bringing changes to seven laws related to direct taxation. The changes would ensure that indirect taxation-related matter would have greater simplicity and be effective, she said. About proposed amendments to direct taxation-related laws, Sitharaman said those are being done for furthering the agenda of Make in India, adding the country needs a lot more manufacturing activities.
The GST alone has five different amendments that would also make compliance easier for the MSME (Micro, Small and Medium Enterprises) sector, she added. According to her, eight Acts pertaining to financial markets, including Sebi Act, are being amended. RSP member N K Premachandran objected to the Finance Bill having the provisions to amend a number of laws, including Benami Act, Sebi Act and PMLA Act, and urged Speaker Om Birla to disallow it.
A Finance Bill can only have taxation proposals, Premachandran said, soon after the finance minister stood up to move the bill for consideration and passage.
He also accused the government of bypassing Parliament to avoid discussion and scrutiny for amending existing laws by including them in the bill.
Sitharaman said rules and constitutional provisions cited by Premchandran do not rule out non-taxation proposals for inclusion in the Finance Bill but only say that it should be done only when imperative.
“The government considers it very imperative,” she asserted.
Birla, in his ruling, disallowed Premachandran’s objections and said there have been occasions earlier as well when non-taxation proposals were included in the Finance Bill.
The Central Board of Indirect Taxes and Customs ( CBIC ) has notified the extension for filing returns by the composition dealers in Form CMP-08.
According to the Notification, “Provided that the due date for furnishing the statement containing the details of payment of self-assessed tax in said FORM GST CMP-08, for the quarter April, 2019 to June, 2019, or part thereof, shall be the 31st day of July, 2019.”
The composition taxpayers shall furnish a statement, every quarter or, as the case may be, part thereof containing the details of payment of self-assessed tax in FORM GST CMP-08 of the Central Goods and Services Tax Rules, 2017, till the 18th day of the month succeeding such quarter.
“The said persons shall furnish a return for every financial year or, as the case may be, part thereof in FORM GSTR-4 of the Central Goods and Services Tax Rules, 2017, on or before the 30th day of April following the end of such financial year,”.
Under the GST regime rolled out from 1st July 2017, the composition scheme is an alternative method of tax levy under GST designed to simplify compliance and reduce compliance costs for small taxpayers. The main feature of this scheme is that the business or person who has opted to pay tax under this scheme can pay tax at a flat percentage of turnover every quarter, instead of paying tax at a normal rate every month.
The Belapur Central GST Commissionerate arrested two traders for allegedly floating over 50 shell companies to fraudulently to avail IGST refunds after GST council recently issued guidelines to curb refund related frauds, people in the know told ET.
Sources said Ajay Gopinath Mishra and Ramesh Chandra Bhatt availed IGST refund by showing export of textile goods over Rs 350 crore and collected IGST refund of over Rs 50 crore between January and May. The said amount was refunded by the customs to these exporters at the port of export.
“The IGST was paid using input tax credit (ITC) which has been found to be fraudulent,” said one of the officials.
An official explained that non-existent suppliers issued invoices for passing of the ITC utilised for payment of IGST on exported goods and IGST refund is claimed. These companies were created by using the PAN and Aadhar Cards of various un-suspecting persons through whom GST refunds were being claimed.
“In this case too, the Belapur Commissionerate officials unearthed a syndicate of more than 50 companies such as H.A. Creation, A.S. Fashion, Ritiesh Creations, R.D. Creation, Bamane Enterprises were floated to fraudulently avail benefits of IGST refunds,” revealed the official. “No one has actually paid the IGST on which ITC was availed by the exporter.”
During investigation, a source said, the bank accounts declared to the department at the time of obtaining GST registration certificate were allegedly different from the bank account declared to the Customs authorities for the purpose of IGST refund. The probe also revealed that while most of the suppliers and CHAs are located at Delhi, the premises of dummy exporters are registered in Mumbai.
Furthermore, documents such as purchase documents, export documents, cheque books, signed blank cheques, ATM debit cards and PIN of about 50 proprietorship firms were recovered from the office premises of the mastermind.
“Both the persons in their statement have admitted that they were the custodian of the bank documents of all the proprietorship firms,” the official further added.
“The investigations has revealed that fictitious suppliers issued invoices for passing of the ITC which was utilized for payment of IGST on exported goods and claiming IGST refund of the same. This fact was further corroborated by the findings that none of the suppliers down the line have generated mandatory E-way Bills for the purported supplies made to the exporters. Thus entire ITC availed by the exporters was found fraudulent,” said Shrawan Kumar, Commissioner, CGST.
Earlier in June the Central Board of Indirect Taxes and Customs (CBIC) asked director-general (systems) to identify a list of “risky exporters” and share it with customs and GST officers. Thereafter CBIC issued a circular dated June 17, 2019 providing a time bound mechanism to verify the IGST payments for goods exported out before sanctioning IGST refund in suspicious and risky cases.
“The new mechanism would ensure that such frauds are curbed while facilitating genuine exporters,” added Kumar.
To impart the knowledge about Goods and Service Tax (GST) and procedures for implementation, GST cell in association with ni-msme has proposed to conduct training program on GST to have a better understanding about the new tax regime.
The three days certification program will start from July 29 here, and will end on July 31, 2019.
The objective of the program is to impart the knowledge about Model GST law and to provide valuable insights on impact of GST on Industry/Trade/ Services.
In addition, it will give practical knowledge of the different procedures required under GST Act and Rules such as Registration, tax invoices, Filing of Returns, availing Input Tax Credit, compliance, Refunds and other documentation requirements.
The target participants for the program are Entrepreneurs of Industry and trade, Key managerial personnel, Professionals, Tax consultants, Academicians and students.
On the successful completion of program, the participant will be able to understand the transitional issues relating to migration from Current indirect tax structure to GST regime.
GST is a game changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services. GST has a large ramification on business processes and there is a grave necessity for the industry members, entrepreneurs of Industry/Trade, Managerial personnel, Finance managers and professionals to ensure compliance with the Act, and for benefitting from the seamless pass through of Tax to the final consumer.
The combined tax arrears of over 48,000 industrial units in Gujarat stood at Rs 30,000 crore as on June 30, 2019. Official sources in the state finance department said the taxes that remained unpaid include sales tax and value added tax (VAT) for the period before the introduction of the goods and services tax (GST) in 2017. Of these units, there are nearly 6,400 units with tax bills of more than Rs 10 lakh.
The figure includes long-pending dues, says PD Vaghela, commissioner of commercial tax, adding that over 50% of these units have gone for appeal mostly in sales tax and VAT related cases.
“We have formed teams to speed up the recovery process of these bills. Some of the units have not even paid taxes over the period of 15 years and more. Some units have closed down, but the authorities are in the process of slapping notices to owners of these industrial units,” said a senior official. Interestingly, many units failed to pay even GST, despite the fact that there are strict provisions including that of jail terms.
Vadodara tops the list of defaulting industrial units with unpaid taxes over Rs 10 lakh, with Rs 6,431 crore due from nearly 700 such units in the city. Some of the other districts with high amount of due taxes are Kutch (Rs 4,569 crore), Surat (Rs 4,250 crore), Morbi (Rs 2,766 crore) and Bhavnagar (Rs 1,722 crore).
The Gujarat government is estimating GST income to the tune of Rs 48,000 crore in the recently presented budget for 2019-20. In such a scenario, such a huge amount of unpaid taxes would hamper various development-related schemes. Sources in the GST department said that not only recovery, but strict actions were being taken to curb GST theft as in June 2019, and over 280 raids were conducted and GST theft of more than Rs 6,000 crore caught.
A total of 9385 cases of tax fraud involving amount of Rs 45,682.83 crore has been detected by the tax authorities under the Goods and Services Tax (GST) regime since its rollout from July 1, 2017, government data showed. Out of this, 1,593 tax fraud cases involving an amount of Rs 6520.40 crore have been detected in April-June, the first three months of this financial year.
In a response to a question regarding tax frauds under GST, Minister of State for Finance Anurag Thakur said tax fraud worth Rs 37,946.41 crore was detected in 7368 cases in 2018-19.
Also, in 2018-19, Rs 11,251 crore worth of cases of tax credit availment by issue of fake invoices were detected by the tax authorities and Rs 2,805 crore in April-June of the current fiscal, Thakur said in his written reply.
Just five cases of tax credit availment by fake invoicing were detected by Central GST formations in the first year of the GST implementation (July 2017 to March 2018) involving an amount of Rs 12.67 crore and two persons were arrested.
The government said it has taken various measures to curtail these types of fraud. “Field formation(s) of CBIC, are sensitized to keep check on these kinds of activities and take necessary action.
A specialised Directorate within the Central Board of Indirect Taxes and Customs (CBIC) engaged in Data Analytics & Risk Management disseminates analytical reports and intelligence inputs to field formations of CBIC for the purpose of scrutiny, audit and enforcement, to check GST evasion in general and fraudulent credit availment in particular,” Thakur said in his reply.
In 2018-19, 1,620 cases of fake invoicing were detected involving Rs 11,251.23 crore, and 154 persons were arrested. Between April-June of 2019-20, 666 cases of fake invoicing were detected and the amount involved stood at Rs 2,804.98 crore. A total of 41 persons were arrested.
To a query on tax fraud cases after the GST rollout, Thakur said 424 cases involving Rs 1,216 crore were detected between July-March period of 2017-18. Another 7,368 cases involving Rs 37,946.41 crore were detected in 2018-19 and 1,593 cases of Rs 6,520.40 crore were detected in April-June of 2019-20.
The Indian cement industry is the second largest cement producer in the world. The Government of India is focussing on developing affordable housing. However, due to high GST rate of 28%, the cementindustry is not being able to work on low economies of scale resulting in a higher cost for the affordable housing sector. The government should take serious note of reducing the GST rate from 28% to 18% to boost the cement industry which would provide an ultimate boost to the infrastructure and housing sectors.
In the pre GST era, the rate of tax on steel was around 19.5% (Excise rate 12.5%, VAT 5%, CST 2%). After the implementation of GST, with effect from July 1, 2017, the rate of GST for steel is 18% and for some of the input used by the steel industry like iron, coal & transportation services, the GST rate is as low as 5%. As a result of the low tax rate, the overall cost of steel will decrease. This will have a positive impact on the housing sector.
Most of the pipes used for the construction of buildings were earlier taxed at 28% and later the rate was reduced to 18%. But still the rates are higher, and the government should reduce the rate to 12%. This will give a boost to the housing sector.
Roofing sheet is one of the most useful items for the construction of buildings. The GST rate for roofing sheets is 18%.
GST rate for bricks is in the range of 5% to 28% depending upon the nature of the bricks. Building bricks and bricks of fossil meals attract 5% GST. On the other hand, multicellular or foam glass in blocks, panels, plates, shells or similar forms attract a 28% GST.
Tiles like bricks attract GST rate in the range of 5% to 28%. Roofing and earthen tiles attract 5% GST whereas glazed ceramic flags, paving, hearth or wall tiles attract 28% GST. In the case of bamboo flooring tiles, the GST rate is 18%.
For other items like bathroom fittings GST rate is mainly 28% except for pipe fittings for which, as mentioned above, it is 18%. GST for wallpapers is 28%. Interior products GST rate is between 18% and 28%. In the case of painting and other similar items, the GST rate is 28%.
A person should keep in mind the varied GST rate applicable on inputs and accordingly make a suitable decision. For example, the GST rate varies from 5% to 28% on bricks, marbles & tiles. Also, a person can take benefit of the reduced GST rate on steel. Apart from that, a mix of materials like cement, steel, roofing sheets and others can be used to minimise higher GST input cost on the housing sector.
GST collection of states and union territories increased to Rs 5.18 lakh crore in the financial year 2018-19, a significant rise from Rs 2.91 lakh crore in 2017-18, Union Finance Minister Nirmala Sitharaman said in Parliament on Monday. In a written reply to a question in the Lok Sabha, the Finance Minister said the Centre government released Rs 81,177 crore compensation to the states during the fiscal year 2018-19 against Rs 48,178 crore released in FY18.
Saying the high-powered GST Council had made several efforts to improve tax compliance in the country, Sitharaman said: “The GST collection of the states/UTs has been showing steady improvement over the period of time. In addition, they have also assured the growth of 14 per cent for a period of five years through the payment of compensation by the central government.”
She said efforts like extensive automation of business processes, application of e-way bill mechanism, targeted action on compliance verification, enforcement based on risk assessment and proposed introduction of electronic invoice system had improved the GST revenue collection.
The GST collection figure dipped below the Rs 1 lakh crore mark for the first time in the current fiscal in June (Rs 99,939 crore). The indirect tax revenue for March was Rs 1,06,577 crore, Rs 1,13,865 crore in April, and Rs 1,00,289 crore in May. Goods and Services Tax (GST) was rolled out on July 1, 2017, after subsuming 17 local taxes.
Last month, the GST Council, chaired by Finance Minister Nirmala Sitharaman, met for the first time after the Modi government returned to power. The council extended the tenure of the National Anti-Profiteering Authority by two years till November 2021 and allowed the use of Aadhaar as proof for obtaining GST registration. The matter of tax cut on electric vehicles and their chargers was also sent to the fitment committee for further consideration.