gst study and refresher course - ctconline.org · page 4 important terms - barter/ exchange earlier...

GST Study and Refresher Course

1 November 2017

Contents►Concept and scope of supply

►Composite Supply and Mixed Supply

►Composition Levy

Concept of Supply

Meaning and scope of supply

Meaning of supply Specified supplies Other matters

All forms of supply of goods and/ or service, - for a consideration - in the course or furtherance of businesssuch as:- sale- transfer- barter- exchange- license - rental- lease or - disposal

Importation of service, - for a consideration - whether or not in the course or furtherance of business

Supplies specified*- To be treated as supplies made without a consideration

*Schedule I:1. Permanent transfer/ disposal of business assets for which ITC availed2. Supplies between related persons/ distinct persons in the course or furtherance of business3. Supply of goods by principal (or agent) to agent (or principal) 4. Importation of service from a related person or from any of his other establishments outside India, in the course or furtherance of business.

•Composite Supply

•Mixed Supply

Important terms - Barter/ Exchange

► Earlier VAT was generally not leviable in case of barter transaction

► VAT is applicable on sale of goods for cash, deferred payment or other

valuable consideration

► Largely courts have held that other valuable consideration does not include

barter transaction

► There are few contradictory judgements as well

► Gujarat - Barter is specifically included in the definition of sale

► Service tax was leviable on barter transactions

► GST - Definition of supply specifically include barter / exchange

► Exchange offer etc – GST is payable on the gross amount

Important terms - Transfer

► Stock transfer are taxable

► Transfer between two registered person – Stock transfer within the same state is not

taxable if single registration

► Services provided between branches of same legal entity is also taxable

► Schedule I – Deemed supply of goods between principal and agent even without

consideration

► Different treatment for consignment agent and commission agent

► For eg – Arrangement between Owner of Brand/ product (Principal) and Multibrand

outlets

► Schedule I is specifically covering only goods for deemed P2P. Whether service

can also be considered for deemed P2P?

► For eg – Travel agents, advertising agencies etc

Important terms - Disposal

► Earlier VAT was generally not applicable on sale of fixed assets by unregistered

person even crossing threshold exemption (in certain states)

► However, VAT was leviable in few states like Karnataka as such activities were

considered in the course of business and occasional transactions are covered

under the definition

► Definition of supply under GST is very exhaustive and it covers disposal as well

► Transfer of business on as going concern was not leviable to VAT similar to GST

Parameters to qualify ‘Supply’

► Six parameters of supply:

► Supply of goods or services. Supply of anything other than goods or services

does not attract GST

► Supply should be made for a consideration

► Activity done without any consideration is not supply (free sample distribution,

free event tickets etc)

► Amount paid without any activity by receiver as reciprocity is not supply such as

donation etc

► Supply should be made in the course or furtherance of business

► Supply should be made by a taxable person

► Supply should be a taxable supply

► Supply should be made within the taxable territory

Goods and services under GST

Goods means every kind of movable property and:

Includes actionable claimExcludes money and securities

NO specific exclusion for intangible property

Services means anything other than goods :

Includes transactions in money – in relation to use / conversionExcludes money and securities

In the course or furtherance of business

“business” includes –(a) any trade, commerce, manufacture, profession, vocation, adventure, wager orany other similar activity, whether or not it is for a pecuniary benefit;(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);(c) any activity or transaction in the nature of sub-clause (a), whether or not thereis volume, frequency, continuity or regularity of such transaction;(d) supply or acquisition of goods including capital goods and services inconnection with commencement or closure of business;(e) provision by a club, association, society, or any such body (for a subscription orany other consideration) of the facilities or benefits to its members;(f) admission, for a consideration, of persons to any premises;(g) services supplied by a person as the holder of an office which has beenaccepted by him in the course or furtherance of his trade, profession or vocation;(h) services provided by a race club by way of totalisator or a licence to book makerin such club; and(i) any activity or transaction undertaken by the Central Government, a StateGovernment or any local authority in which they are engaged as public authorities;

In the course or furtherance of business

► GST is essentially a tax only on commercial transactions

► Any supplies made by an individual in his personal capacity do not come under the

ambit of GST unless they fall within the definition of business

► Sale of goods or service even as a vocation is a supply under GST

► There is one exception to this - import of services for a consideration

► For example - Downloading of a song for consideration for personal use would be a

service, even though the same are not in the course or furtherance of business

► Import of service by individual for personal use is also taxable under GST

► Registration may not be required until in business as proprietor – section 23

► Under service tax reverse charge provision was not applicable on if service

imported by a individual otherwise than for the purpose of use in any business or

commerce (Proviso to Section 66A of Finance Act, 1994)

Import of service

► Entry 4 of Schedule I (Activities to be treated as Supply even if made without consideration) –

► 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

► Taxability of Import of service can be summarized as below:

Import of service from

Whether in the courseor furtherance of

business

Whether forConsideration

Whether transaction is Supply

Related person or from any of his other establishments

Yes Not relevant (Yes/ No)

Yes, as per entry 4 of Schedule I

No Yes Yes, as per section 7(1)(b)of CGST Act

No No Not a supply

Other than above Not relevant (Yes/ No) Yes Yes, as per section 7(1)(b)of CGST Act

Not relevant (Yes/ No) No Not a supply

M&A

Acquisitions

Business Transfer

Slump SaleItemized

Sale

Share Purchase

Combinations

Mergers Demergers

Transfer of business on a going concern basis

– Transfer of business (represented by unit / branch etc.) along with ‘all its constituents’ on going concern basis for lump-sum consideration

– Results change in ownership of business

– Examples: Slump Sale, Amalgamation/Merger, Demerger

Transfer of assets of the business

– Transfer of assets as ‘constituents of business’ and not ‘business as a whole’

– Results change in ownership of individual assets

– Examples: Itemized sale

Sale of shares of the company

– Transfer of shares of the company

– Results change in ownership of business

– Examples: Share Purchase

Common business reorganization transaction

Permanent transfer or disposal of business assets even without consideration► Permanent transfer or disposal of business assets where ITC has been availed

on such assets

► What will be the valuation for levy GST on such transaction?

► Section 18(6) of CGST Act read with Rule 40(2) of CGST Rules provides

formula to determine the amount payable for such supply

► Input tax credit availed less 5% points for every quarter or part thereof

from the date of the issue of the invoice for such goods; or

► Tax on the transaction value (as per Section 15) – whichever is higher

Supply between related or distinct person

► Supply between related persons or between distinct persons when made in the

course or furtherance of business is supply even without consideration

► Important to identify all transactions with related parties (between group

companies) done without consideration

► For eg –Use of intellectual property, support services, stock transfers etc

► Valuation is key for transactions between related or distinct person

Gifts to employees

► Gifts not exceeding INR 50,000 in value in a financial year by an employer to an

employee shall not be treated as supply of goods or services or both

► Employer employee deemed to be related persons

► Cash rewards / gifts (including multiple purpose vouchers) may not counted for Rs

50,000

► Need to review the existing employment agreement to make sure none of the

transactions trigger tax

► Need to examine and carry out suitable amendments in the HR policies / employment

agreements to ring fence the risks

► Impacted elements:

► Notice pay, recoveries for loss/ damage to assets, personal expenses, Gifts > 50,000

► Car schemes, asset acquisition arrangements, need to be reviewed

Activities to be treated as Supply of Goods or Supply of Services

► Largely declared service list in service tax replicated

► Any transfer of the title in goods is a supply of goods

► Perpetual transfer of Intellectual Property Rights (IPR) - Goods vs Service

► It can be argued to be goods as per Schedule II

► It is classified under Service rate schedule

► Could trigger litigation specifically wrt to place of supply (20th Century judgment)

► Transfer of right in goods (without the transfer of title) as well as transfer of right

to use any goods for any purpose (whether or not for a specified period) is supply

of service

► Hire Purchase transaction is supply of goods

► Operating and financial lease is supply of services

GST on under-construction property

► Supply of Service - Construction of a complex, building, civil structure or a part

thereof, including a complex or building intended for sale to a buyer, wholly or

partly, except where the entire consideration has been received:

► after issuance of completion certificate, where required, by the competent authority

or

► after its first occupation - whichever is earlier

► If contract is entered into and payment terms are agreed in agreement that

payment will be made only after completion certificate – Whether GST is levied or

not?

► If under-construction property is sold, then whether GST would be levied on such

supply

Job work is service

► Job work - Any treatment or process which is applied to another person's goods

is a supply of services

► Paradigm shift: Job worker not allowed to pay GST

► Section 143 - the only ‘option’?

► Accumulated credit with job worker during transition credit

► Whether duty free clearance of processed goods during transition could be

challenged?

Job work is service

► Change is position in case of printing jobwork where only content is provided by

principal – goods or services?

► Printing of news paper, books etc (job work) on the paper supplied by principal –

Supply of service

► However, all printing work where only content supplied by principal (irrespective of

material supplied by principal or not) is also treated as service under rate notification

and as per clarification provided

► Under earlier law, where material is not supplied by principal, it was treated as sale of

goods - Industry was not paying service tax on the same

► Only exception made under GST - Printing envelopes, letter card, printed box, tissues,

napkinswall paper etc printed with design, logo etc supplied by the recipient of goods

but made using physical inputs including paper belonging to the printer

Work contract

► Works contract [Section 2(119)] is composite supply and it is considered as

supply of service

► “works contract” means a contract for building, construction, fabrication, completion,

erection, installation, fitting out, improvement, modification, repair, maintenance,

renovation, alteration or commissioning of any immovable property wherein transfer

of property in goods (whether as goods or in some other form) is involved in the

execution of such contract

► In service tax, works contract included movable property also but works contract

under GST includes only immovable property

► Comprehensive maintenance contract for movable goods is not works contract

► EPC contracts – Whether complete contract will quality as service as works contract

► Implication of interdependency and cross fall breach clause between contracts for

goods and services

Supply of food

► GST Regime

► 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 – Supply of Service

► Service Tax Regime

► Service portion in an activity wherein goods, being food or any other article of

human consumption or any drink (whether or not intoxicating) is supplied in any

manner as a part of the activity, at a restaurant

► Definition under GST is very exhaustive and could cover supply of food items for

departmental stores as service

► Implication on take home etc

Actionable claims

► Actionable claims are included in the definition of goods

► Schedule III - Actionable claims, other than lottery, betting and gambling, shall

neither be considered as Supply of Goods nor Supply of Services

► Game of skill vs Game of Chance

► Courts held that fantasy games are game of skill and not game of chance

Reverse Charge Mechanism

► Section 9(3) vs Section 9(4) of CGST Act

► Section 9(4) levies tax on purchase by registered person from unregistered person

► Below are some press note clarification provided in this regard:

► Second hand goods dealers operating under Margin scheme need not to pay under

RCM on URD purchase

► Even though the sale of old gold by an individual is for a consideration, it cannot be

said to be in the course or furtherance of his business (as selling old gold jewellery is

not the business of the said individual), and hence does not qualify to be a supply per

se. Accordingly, the sale of old jewellery by an individual to a jeweller will not attract

the provisions of Section 9(4) and jeweller will not be liable to pay tax under reverse

charge mechanism on such purchases

► For reverse charge, supplier should supply in the course or furtherance of business

► Section 9(4) RCM tax is exempted with effect from 13 October 2017 till 31 March 2018

Principles to determine a supply as an intra-state or inter-State Supply

Determination of supply of goods and/ or services as Inter-State supply

• CRITICAL factors: Where the below 2 are in DIFFERENT STATES

a) Location of the supplier andb) Place of supply

Specific INCLUSIONS for inter-state supplies:

• Supply of goods in the course of import, till they cross the customsfrontiers of India

• Supply of services in the course of import• Supply when place of supply is outside India but supplier is in India• Supply to or by a SEZ developer or an SEZ unit• Residuary supply: Any supply in the taxable territory and which is not an

intra-State supply (E.g.: Supply of goods from within a Union Territory(“UT”) without Legislature)

GST on import of goods

► Proviso to section 5(1) of IGST Act

► Tax on import of goods shall be leviable under levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975)

► On the value as determined under the said Act

► At the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962)

► GST on imports of intangibles on media – Double taxation

► Valuation for media (as import of goods) to include value of royalty as condition of same as per Custom Valuation

► GST is also applicable on such royalties as supply of service (licensing of IPR is considered as service)

► Specific exemption upto 30 June 2017 from custom duty on import of motion pictures, music, gaming software on recorded media, except imported in a pre-packaged form for retail sale (notification 27/2010) – Exemption not extended under GST

High sea sale / drop shipment under GST

► CIF export transaction between two Indian parties

► Supply by Indian Vendor (say A) directly to CIF Singapore (Say C) , bill to Indian

Customer (Say B) – Whether Export?

► Possible to take a view that Indian Vendor can export without payment of tax in

case of CIF transactions

► Receipt of consideration in INR may not make a difference

► Indian Customer B in turn will raise invoice to Overseas Customer C – GST

implications?

► May not be a GST transaction, as supply from outside India to Outside India

► Merchant trading - What if Indian Vendor A is sourcing goods from outside India from

Vendor P and directly shipped to Customer C outside India


► Drop Shipment - What if Indian Vendor A is sourcing goods from outside India from Vendor P

and directly shipped to Customer C outside India

► Section 5 of IGST Act inter alia provides that IGST on goods imported into India

► Section 2(10) of IGST Act provides that import of goods means bringing goods into India

from a place outside India

► Hence, possible to argue that there is no import of goods

► However, section 7(5)(a) ibid provides that where supplier is located in India and PoS is

outside India shall be treated to be a supply in the course of inter-state trade or commerce

► Place reading of section 10 indicate that PoS is outside India

► On the combined reading of Section 5 and Section 7(5)(a) ibid, a doubt may arise that such a

supply will be taxable under the provisions of the IGST Act

► Provisions of Section 10 are applicable to the exclusion of Section 11 and it can be argued

that Section 10 is applicable only for determining the Indian state or Indian Union Territory


► High Sea Sale before crossing the Customs Frontier of India

► Circular No. 33/2017- Cus dated 1.08.2017 has clarified that IGST on high sea

sale (s) transactions of imported goods, whether one or multiple, shall be levied

and collected only at the time of importation i.e. when the import declarations are

filed before the Customs authorities for the customs clearance purposes for the

first time

► Reversal of credit under Section 17(2) of the CGST Act

► Whether turnover of high sea sale would be qualify as non-taxable supply and

would trigger credit reversal

► Could be implications on common credits

`

Composite Supply and Mixed Supply

Composite Supply

► It means 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

► E-fliers clarification - Such normal and frequent practices adopted in a business can

be ascertained from several indicators some of which are listed below:

► The perception of the consumer or the service receiver

► Majority of service providers in a particular area of business provide similar

bundle of services

► If the nature of services is such that one of the services is the main service and

the other services combined with such service are in the nature of incidental or

ancillary services which help in better enjoyment of a main service

Composite Supply

► Other illustrative indicators, not determinative but indicative of bundling of

services in the ordinary course of business are:

► There is a single price or the customer pays the same amount, no matter how

much package they actually receive or use

► The elements are normally advertised as a package

► The different elements are not available separately

► The different elements are integral to one overall supply. If one or more is

removed, the nature of the supply would be affected

Mixed Supply

► It means two or more individual supplies of goods or services, or any combination

thereof, made in conjunction with each other by a taxable person for a single

price where such supply does not constitute a composite supply

► Taxability of Mixed Supply

► A mixed supply comprising two or more supplies shall be treated as a supply

of that particular supply which attracts the highest rate of tax

► E-fliers clarification –

► Once the amenability of the transaction as a composite supply is ruled out, it

would be a mixed supply, classified in terms of supply of goods or services

attracting highest rate of tax

Principles laid down in EU Judgements

► A single supply should be considered to have been given for a single price unless

the exempt elements are clearly distinguishable in the price

► There is a single supply in particular in cases where one or more elements are to

be regarded as constituting the principal supply, whilst one or more elements are

to be regarded, by contrast, as ancillary supplies which share the tax treatment

of the principal supply

► Where two or more elements or acts supplied by a taxable person to a customer,

being a typical consumer, are so closely linked that they form objectively, from an

economic point of view, a whole transaction, which it would be artificial to split,

all those elements or acts constitute a single supply

Principles laid down in EU Judgements

► VAT must be interpreted as meaning that activities carried out in circumstances

such as those at issue in the main proceedings, consisting in students of a higher

education establishment supplying, for consideration and as part of their

education, restaurant and entertainment services to third parties, may be

regarded as supplies ‘closely related’ to the principal supply of education and

accordingly be exempt from VAT, provided that those services are essential to the

students’ education and that their basic purpose is not to obtain additional

income for that establishment by carrying out transactions which are in direct

competition with those of commercial enterprises liable for VAT

`

Composition Levy

Composition Levy

• Optional Scheme

• Pay an amount in lieu of tax; minimum rate to be:

• 2% of the turnover in case of manufacturers;

• 5% in case of restaurant services

• 1% of the turnover in other cases like traders

• No tax to be collected; No Input Tax Credit available

• Who can avail this scheme:

• Registered persons having Aggregate Turnover upto 1 crore in the

preceding FY (all-India basis for taxable persons having same PAN – who

shall also opt for composition)

• Aggregate turnover = Value of all supplies (taxable + non-taxable + exempt

+ exports) – Value of (RCM supplies* + inward supplies) – taxes under GST

* RCM supplies refers to value of supplies on which tax is levied on reverse charge basis

Composition Levy – Key Conditions

• He is neither a casual taxable person nor a non-resident taxable person;

• The goods held in stock by him on the appointed day have not been purchased

in the course of inter-State trade or commerce;

• 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;

• Shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward

supply of goods or services or both;

• Not engaged in the supply of services other than Restaurant service;

• Not engaged in making any supply of goods which are not leviable to tax

under this Act

Composition Levy – Removal of difficulties

• It is hereby clarified that if a person supplies goods and/or services referred to

in clause (b) of paragraph 6 of Schedule II of the said Act and also supplies any

exempt services including services by way of extending deposits, loans or

advances in so far as the consideration is represented by way of interest or

discount, the said person shall not be ineligible for the composition scheme

under section 10 subject to the fulfilment of all other conditions specified

therein

• It is further clarified that in computing his aggregate turnover in order to

determine his eligibility for composition scheme, value of supply of any exempt

services including services by way of extending deposits, loans or advances in

so far as the consideration is represented by way of interest or discount, shall

not be taken into account

Thank You

“This Presentation provides certain general information existing as at the time of production. This Presentation does not purport to identify all the issues or developments pursuant to the transaction. Accordingly, this presentation should neither be regarded as comprehensive nor sufficient for the purposes of decision-making. Ernst & Young does not undertake any legal liability for any of the contents in this presentation. The information provided is not, nor is it intended to be an advice on any matter and should not be relied on as such. Professional advice should be sought before taking action on any of the information contained in it. Without prior permission of Ernst & Young, this document may not be quoted in whole or in part or otherwise referred to in any documents.”

gst study and refresher course - ctconline.org · page 4 important terms - barter/ exchange earlier...

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