ELP GST Update

Rate Changes proposed
There are various rate changes/exemptions for goods as well as services which have been approved in the GST council meeting held on 21.07.2018. The Notifications giving effect to the same are awaited. Some of the proposed changes in rate are tabulated below:

Goods

Services

There are various exemptions which have been proposed for services. Some of the exemptions are in respect of sectors of (i) Agriculture, farming and food processing industry; (ii) Education, training and skill development; (iii) Pension, social security and old age support. The GST rate in case of hotel accommodation is proposed to be based on actual transaction value and not the declared tariff.

Changes proposed in ‘Schedule III’ of CGST Act

• Schedule III provides for transactions which are neither treated as goods nor services. The scope of this Schedule is proposed to be widened to include (a) supply of goods from a place in the non-taxable territory to another place in non-taxable territory without the goods entering into India; (b) Supply of warehoused goods to any person before clearance for home consumption; (c) supply of goods in case of high seas sale;
• The proposed amendment is a welcome move for the industry. If approved, the above three transactions would be outside the scope of the term ‘Supply’ and hence not taxable.

Scope of the term ‘Input tax Credit’

• It is proposed that Input Tax Credit (ITC) would also be available in respect of the following transactions:
• Most of activities / transactions specified in Schedule III;
• Motor Vehicles for transportation of passengers (with capacity of more than 13 people), Vessels and Aircraft;
• Motor vehicles for transportation of money by ‘Banking Company’ or ‘Financial Institution’;
• Services of General Insurance, repair and maintenance of Motor Vehicles in respect of (b) and (c) above;
• Goods / Services provided by an Employer to an Employee which are obligatory under any law time being in force;
• The above proposal will provide clarity as to eligibility of ITC and will reduce future litigation on these issues.

Other Miscellaneous Proposals

• Increase of Turnover limit from INR 1 Crore to INR 1.5 Crores for Composition dealers. Further, Composition scheme benefit will not be denied in case the dealers supply services to the extent of 10% of Turnover of preceding year or INR 5 lacs whichever is higher;
• Reverse Charge Mechanism (RCM) in case of procurement from unregistered dealers, to be applicable only in case of notified goods. In the interim, it is proposed to defer the RCM applicability on procurement from unregistered dealers till 30.09.2019. The Notification to this effect is awaited.
• Threshold limit for registration for the States of Assam, Arunachal Pradesh, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand to be increased from INR 10 Lacs to INR 20 Lacs.
• No levy of interest in case of ITC reversal on non-payment of amount to supplier within 180 days of date of Invoice.
• Consolidated issuance of debit/credit notes against multiple invoices by registered persons.
• In case of job work transactions, Commissioner would be empowered to increase the time limit for return of inputs and capital goods of one year and two years respectively.
• Supply of services to be considered as exports even in case where amount is not received in foreign currency, where permitted by RBI.
• Amount of pre-deposit payable for filing an Appeal before Appellate Authority to be capped at INR 25 Crores and for Appellate Tribunal at INR 50 Crores.
• Place of supply to be outside India in case of job work or any treatment or process done on goods temporarily imported into India and then exported without putting them to other use in India;

Simplification of Returns  

• GST Council in its meeting has approved simplified format of Returns. All the taxpayers (excluding taxpayers having an annual turnover of less than INR 5 Crore) will now be required to file a single monthly Return having two tables (i) for Outward supplies (ii) Availing input tax credit based on invoices uploaded by suppliers.
• Quarterly Return has been approved for taxpayers having turnover less than INR 5 Crores (‘Small taxpayers’). The Return shall be similar to the main Return having monthly payment facilities. For such taxpayers, two Returns are designed namely (i) Sahaj – Small taxpayers making only B2C supplies; and (ii) Sugam –  Small taxpayers making both B2B as well as B2C supplies;
• The new Return format also provides for amendment in Invoice and other details filled in the Return, which shall be carried out by filing of ‘Amendment Return’. Payment facility would also be allowed in the Amendment Return;

Espirit India Pvt. Ltd. [TS-318-AAR-2018-NT] 

Classification of services – Applicant, in the present case, provides various ‘sourcing support’ services to its associate concern in Hong Kong such as market research, identification of suppliers, inspection and quality control, and logistics. The AAR held that the services of market research provided by the Applicant wherein it advises on best available combination in terms of price, quality and delivery would be taxable under forward charge at 18% under SAC 998371 i.e. Market Research Services.

Further, it held that services of (a) purchases of goods as a sub-sourcing contractor; (b) evaluation of vendors; (c) communication of terms and conditions would be classified under SAC 998599 i.e. Other Support Services n.e.c. and taxable under forward charge at 18%. On the other hand, the quality inspection services and logistics arrangement services would be classifiable under SAC 998311 i.e. Management Consulting and Management Services and taxable at 18% under forward charge.

It may be important to note that AAR refused to delve into the question of whether said services would be considered as ‘Export of Service’ or not since, the examination of ‘Place of Supply’ is outside the jurisdiction of ‘Advance Ruling’. Further, the Ruling does not analyse whether the transaction constitutes a ‘Composite Supply’ or not. 

Roulunds Braking India Pvt. Ltd.  [TS-316-AAR-2018-NT]

Classification – The question under consideration was whether ‘Brake Pads’ manufactured for motor vehicles by mounting frictional material on the metal sheet would be classified under ITC HSN 6803 or 8708. The Haryana AAR held that the Heading 6803 specifically excludes mounted friction material and articles thereof for brakes and accordingly, the ‘Brake Pads’ would be classified under ITC HSN 87083000 i.e. ‘Brakes and Servo Brakes; Parts thereof’.

Further, the AAR held that in view of Notification 1/2017-Central Tax (Rate) dated 28.06.2017 and corresponding State Tax Notification, ‘Brake Pads’ used for brake assembly and its parts thereof for tractors would be taxed at 18% whereas the ‘Brake Pads’ manufactured as parts and accessories of Motor Vehicles of heading 8701 to 8705 would be taxed at 28%.

Action Construction Equipment Limited.  [TS-317-AAR-2018-NT]

Classification – The Applicant is inter alia engaged in the manufacture of Truck Mounted Cranes (TMC). For the said purpose, the Applicant purchases ready-made trucks and manufacture cranes on these trucks. The question raised before the Advance Ruling Authority is classification of the TMC manufactured by the Applicant.

The Haryana AAR held that the product manufactured/supplied by the Applicant is a result of mounting of cranes on ready-made trucks bought by the Applicant and would be classifiable under 8705 (Special Purpose Vehicles) and not under 8426 (Works Truck Fitted with Crane). Since, the Trucks used by the Applicant are not Works truck but are normal ready-made transportation trucks, the same would not be covered under ITC HSN 8426.