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Nikunj J. Parekh & Co. Chartered Accountants
2
3
GST – An Overview
Time and Place of Supply
Contents
Background 1
4 Advances received
Input Tax Credit 5
Returns 6
Transitional provisions
Impact of GST on Manufacturing industry
Conclusion
7
8
9
Background
Concept of Value Added Tax
Retailer
Mfg. Cost
100 Purchase Cost 110 Purchase Cost 130 Purchase Cost 165
Profit
10 Profit 20 Profit 20
Sale Price
110 Selling Price 130 Selling Price 150
VAT
11 VAT 13 VAT 15
Invoice Value
121 Invoice Value 143 Invoice Value 165
Nikunj J. Parekh & Co. Page 3
Wholesaler Consumer Manufacturers
Approx 12% - 15%
Background
Approx 6% - 8%
Approx 5% - 12.5%
Cost of Tax = Basic
Customs Duty, cess on
customs duty, services
consumed beyond point of
removal, SBC. KKC
Maze of Taxes resulting in “COST OF TAX”
Cost of Tax = Excise Duty
paid, Service Tax Paid,
SBC, KKC
Cost of Tax = Octroi duty /
LBT, Service Tax Paid,
SBC, KKC
Cost of Tax = VAT charged
by Retailer
Approx 6% - 8%
Uses Imported raw
material, locally procured
goods and various services
in the factory of
manufacture
Buys the goods in bulk from
Manufacturer, uses various
services like transport,
warehousing etc.
Makes the goods available
to the place of customer,
ancillary services including
rent of shop are used
Buys Products for
consumption
Manufacturer
Distributor
Retailer
Consumer
Nikunj J. Parekh & Co. Page 4
Background
Pitfalls of present indirect tax system
► Multiple regime of taxes such as Central or State Excise, Service Tax, Value Added Tax, Entry
Tax, Luxury Tax, Entertainment Tax, Octroi, etc.
► Lack of uniformity on rates and structure
► Cascading effect – VAT on excise / CVD – Tax on tax
► Disharmonious VAT rate across the States
► Stock transfer cumbersome and cost
► Entry tax barriers to free movement of goods
► Lack of seamless credit
► CST – No credit for manufacturer / trader / service provider
► Trader does not get credit of Service Tax / Excise Duty / CVD
Nikunj J. Parekh & Co. Page 5
GST – An overview
► GST is a destination based tax on
consumption of goods and services. It
is levied at all stages right from
manufacture up to final consumption
with credit of taxes paid at previous
stages available as setoff. In a nutshell,
only value addition will be taxed and
burden of tax is to be borne by the final
consumer.
► Taxable goods and services are not
distinguished from one another and are
taxed at a single rate in a supply chain
till the goods or services reach the
consumer.
► Exports would be considered as zero-
rated supply and imports would be
levied the same taxes as domestic
goods and services adhering to the
destination principle in addition to the
Customs Duty which will not be
subsumed in the GST.
One Nation
Two Authorities
Three Taxes
Four Rates
GST – “Goods and Services Tax”
Page 6 Nikunj J. Parekh & Co.
GST – An overview
What will be taxed?
All goods and Services (subject to
exclusions)
Imports
Exports are taxed at Zero rate
When will be taxed?
Destination based – final
consumer bears the tax
Seller / service provider pays tax
only on the value addition; gets full
input tax credit.
What will be the tax rates?
Four rate tax structure (5%, 12%,
18% and 28%) – lowest rate for
precious metals, stones etc.,
reduced rate for necessary items;
standard rate for other products.
Who will be taxed?
All manufacturers, traders /
dealers, importers / exporters and
service providers.
Small business / traders below a
limit are exempted.
Nikunj J. Parekh & Co. Page 7
In India there is a Federal Structure of the
Economy and there being inability of either
the States or Centre to forego autonomy,
revenue, etc., Dual GST is the only way
forward:
Central GST (“CGST”) – To be
administered and collected by Central
Government
State GST (“SGST”) – To be
administered and collected by
Respective State Government
Integrated GST (“IGST”) (For inter-state
transactions) – To be administered and
collected by Central Government.
However, the proceeds to be distributed
between Centre and the States
GST : Indian Perspective
Page 8 Nikunj J. Parekh & Co.
GST – An overview
GST : “Dual” Model : Example
Transaction A – B B – C C – D Net
Effect
Sale Price 100 200 300 300
CGST Collected 10 20 30 30
SGST Collected 10 20 30 30
Output CGST 10 20 30 60
Input CGST 0 (-) 10 (-) 20 (-) 30
CGST to Pay 10 10 10 30
Output SGST 10 20 30 60
Input SGST 0 (-) 10 (-) 20 (-) 30
SGST to Pay 10 10 10 30
• Essential food grains, vegetables, fresh fruits, etc, - no input tax credit
• Export of goods or services outside India – refund for input tax 0%
• Merit goods (essential goods, which are currently exempted under Central excise Regime) 5 %
• Standard GST: Majority of goods currently under the 5% VAT schedule
• Services (Services currently having Abatement in Value) 12 %
• Standard GST
• Services 18 %
• Other (Remaining) Goods 28 %
• Demerit goods (Tobacco products, luxury cars, aerated drinks)
• Tax rate expected to be total 40% or higher. 28 % + Cess
GST – An overview
Nikunj J. Parekh & Co. Page 9
GST Rates
GST – An overview
Taxes subsumed under SGST
SGST
Value Added Tax / Central Sales Tax
Luxury Tax
Entry Tax / LBT / Octroi
Taxes on Lottery, Betting and Gambling
Entertainment Tax
State Surcharge & Cess
Nikunj J. Parekh & Co. Page 10
Surcharges
SAD
Service
Tax
Excise
Duty CVD
Medicinal
Excise
Cesses CGST
GST – An overview
Taxes subsumed under CGST
Nikunj J. Parekh & Co. Page 11
GST – An overview
Taxes not subsumed under GST
Basic Customs Duty
Central Excise Duty on Petroleum
Products
Central Excise Duty on Tobacco &
Tobacco Products
Clean energy cess
Value Added Tax
Petroleum Products
Alcoholic liquor
State Excise duty on Alcoholic Liquor
Stamp duty
Electricity duty
Taxes on profession, trades callings and
employments
Tolls
Property Tax
Central level taxes State level taxes
Nikunj J. Parekh & Co. Page 12
GST – An overview
Current Tax Structure
Current tax structure v/s GST framework
GST framework Activity
Excise Service Tax Entry Tax VAT Customs Duty CST IGST SGST CGST BCD
Import of goods P P P P
Manufacture P Tax to be charged on supply
Inter-state sale / purchase
(supply) of goods P P P P
Intra-state sale / purchase
(supply) of goods P P P P
Inter-state stock transfer of goods P P
Import of Service P P
Inter-state sale / purchase
(supply) of service P P
Intra-state sale / purchase
(supply) of service P P P
Exports Zero rating – exemption or refunds Effective Zero rating - refund
Nikunj J. Parekh & Co. Page 13
GST – An overview
Supply - meaning
Supply is by a taxable person
Supply is in the taxable
territory
Supply is for a
consideration
Supply is in
the course or
furtherance of
business
Supply* = Goods and/or Services
*Supply includes
Sale, Transfer, Barter, Exchange, Lease, Disposal
Nikunj J. Parekh & Co. Page 14
GST – An overview
Types of Supply
Location
of
supplier
Location of
Supplier
Place of
Supply
SGST
+
CGST
Same States
Intra-state supply
Place of
Supply IGST
Location of
Supplier
Inter-state supply
Different States
Page 15 Nikunj J. Parekh & Co.
Time of supply
Particulars Goods Services
Forward charge Earliest of Earliest of
Within prescribed time from
supply/removal/delivery/
making available(if invoice not
issued timely)
Within prescribed time from
service completion date (if
invoice not issued timely)
Invoice Date Invoice date
Payment date Payment date
Reverse charge Earliest of Earliest of
Receipt date Payment date
30 days from invoice date 60 days from Invoice date
Payment date If not above 2, then entry date
in recipient books
If not above 3, then entry date
in recipient books
Page 16 Nikunj J. Parekh & Co.
Place of Supply - Goods G
oo
ds
When movement of goods is involved Place where movement terminates for
delivery
When movement of goods is not involved
Location of goods at the time of delivery to recipient
Delivery of goods on direction of third person
Principle place of business* of third person
On-site assembly/installation Place of assembly/installation
Supply of goods on board a conveyance
Location at which goods are taken on board
For Goods (Other than Import/Export)
Nikunj J. Parekh & Co. Page 17
*Principal place of business = place of business specified as the principal place of business in the
certificate of registration
Goods with movement – location where movement terminates
3 party arrangement – principal place of business of person directing the goods
Supply without movement – location of such goods
Place of Supply - Goods
General Rule
Nikunj J. Parekh & Co. Page 18
Service Description If supplied to a
registered person
If supplied to any other person
Event related
service or training
service
Training and performance
appraisal service
Organisation of cultural, scientific,
sporting, educational,
entertainment event or any
ancillary event
Insurance Service
The location of such
registered person
Location where the services are
actually performed
Location where the event is
actually held
Location of the recipient of the
insurance service
Transportation
Service
Transportation of goods, including
by way of mail or courier
Passenger transportation service
The location of such
registered person
Location at which the goods are
handed over for their
transportation
Location where the person
embarks on a conveyance for a
continuous journey
On board
services
Service on board a conveyance
including vessel, aircraft, train or
motor vehicle
First scheduled point of departure of the conveyance
Event based
service
Organisation of cultural, scientific,
sporting, educational, entertainment
event or any ancillary event
Location where the event is actually held
Financial Service Banking and financial services
including stock broking services
Location of the recipient on the records of the supplier
Location of the supplier if the location of the recipient is
not available
Place of Supply - Service
Nikunj J. Parekh & Co. Page 19
Service Description Place of supply
Performance based
services
Restaurant and catering services,
personal grooming, fitness, beauty
treatment, health services
Location where the services are actually
performed
Telecommunication
Service
Service by way of fixed
telecommunication line, leased circuits,
internet leased circuit, antenna services
Location where the antenna, line, cable or
circuit is installed for supply of service
Mobile connection and internet services
provided on post paid basis
Billing address of the recipient of service
Prepaid telecom, internet or DTH
service
Through a selling agent, re-seller, distributor of
SIM cards – address of the selling agent,
distributor or re-seller
Directly to final customer – where such pre-
payment is received
Any other case Address of the recipient as per the records of
the supplier
Place of Supply - Service
Page 20 Nikunj J. Parekh & Co.
When provided to registered person – location of such person.
When service provided to unregistered person – address of recipient on record of provider (if such record exist)
Location of service provider in all other cases
Place of Supply - Service
General Rule
Nikunj J. Parekh & Co. Page 21
Month 1 – advance received
Advance received for services to be
supplied
Receipt voucher or other specified document to be
issued
Time of supply of service – receipt of
payment – tax liability triggered
Invoice wise and SAC wise reporting in GSTR -1 (Part 11)
Transaction ID would be generated on payment of tax
for each transaction
Impact / Challenges
Bifurcation of advance
against each HSN/ SAC in
case of common invoice for
multiple services required
State Code to be provided -
advances would need to be
specifically aligned to a State
Transaction ID would be auto
generated by system on
payment of tax and needs to
be captured in IT system
Nikunj J. Parekh & Co. Page 22
Advance received
Invoice raised – preferably should have details of
advance document number
Invoice details (for which advance received) to be
reported in part 12 of GSTR 1
Tax to be paid on balance invoice value after
adjustment of tax paid on advance
Month 2 – invoice raised
Impact/ Challenges
How to show tax adjustment for GST of advance on actual invoice?
System to be configured to link document for advance to actual invoice and auto reporting for return
In case of partial adjustment of invoice against advance - Invoice to be reported twice - in outward
supply as well as in part 12 of GSTR 1
Transaction ID may be used multiple times till advance adjusted
Advance received
Nikunj J. Parekh & Co. Page 23
Input Tax Credit
• Timeline:
• up to the following dates, whichever is earlier:
• Date of filing of return for the month of September following the financial year to which such invoice pertains; or
• Date of filing of relevant annual return for that financial year.
• Other conditions for availment:
• possession of the tax invoice or other tax
paying document issued by the supplier of goods and/ or services;
• goods and/ or services have been received;
• return has been furnished under Section 34;
• tax charged in respect of such supplies has been actually paid to the credit of government;
• goods against an invoice are received in lots or installments, upon receipt of last lot or installment
• motor vehicles (unless they are used in usual course of business or are used for providing taxable services viz, transportation of passengers, or transportation of goods, or imparting training on motor driving skills);
• goods and/or services used for private or personal consumption;
• supplies used in the construction of an immovable property (other than plant and machinery):
• Except where it is input services for works contract
• goods and/ or services on which tax has been paid under the composition levy
• Goods lost, destroyed, written off, samples
Conditions Restrictions
Conditions/ Restrictions for availment of ITC
Nikunj J. Parekh & Co. Page 24
Order of utilization of ITC
Nature of
liability
Order of
utilization
ITC to be
utilized
IGST
I IGST
II CGST
III SGST
CGST I CGST
II IGST
SGST I SGST
II IGST
GST credit mechanism
Credit
Availability
Matrix
Output
CGST IGST SGST -
State A
SGST -
State
B
Input
CGST a a r r
IGST a a a a
SGST -
State A r a a r
SGST -
State B r a r a
GST to trigger tax obligations in every state –
Credit accumulations and compliances would also be at the State level
Input Tax Credit
Utilisation of Input Tax Credit („ITC‟)
Nikunj J. Parekh & Co. Page 25
Matching by GSTN
Matched Unmatched
ITC Finalized in
Purchaser's ITC Ledger
Reconciled Non-Reconciled
ITC finalized in
Purchaser's ITC
ledger
ITC Reversed to be
paid
along with Interest by
Purchaser
Returns
Nikunj J. Parekh & Co. Page 26
Two months period for
reconciliation
GSTR - 1
GSTR - 2
GSTR - 3
Details of Sales
10th of the next month
15th of the next month
Details of Purchase
Monthly return
20th of the next month
10
15
20
Returns
Nikunj J. Parekh & Co. Page 27
GSTR - 4
GSTR - 6
GSTR - 9
Quarterly return
(For composition dealers only)
18th of the next month following the quarter
13th of the next month
Input Service Distributor (ISD)
Annual return
31st December of next year
18
13
31
Returns
Nikunj J. Parekh & Co. Page 28
Sr. No. Return Nature of the return Due date of the return
1 GSTR 1 Details of outward supplies made 10th
of the succeeding month
2 GSTR 2 Details of inward supplies made 15th
of the succeeding month
3 GSTR 3 Monthly return 20th
of the succeeding month
4 GSTR 4 Quarterly return for composition dealer 18th
of the succeeding month to the quarter
5 GSTR 5 Periodic return for non resident foreign tax payer Within 7 days after the expiry of registration
6 GSTR 6 Return for Input service distributor(ISD) 13th
of the succeeding month
7 GSTR 7 Return for tax deducted at source(TDS) 10th
of the succeeding month
8 GSTR 8 Return for E-Commerce Operator 10th
of the succeeding month
9 GSTR 9 Annual return (9B for auditing of Accounts for turnover above 1 Crore) 31st December of the next financial year
10 GSTR 10 Final Return Upon cancellation of registration
Returns
Filing of late return - Penalty of Rs. 100 per day (Maximum Rs. 5000)
Nikunj J. Parekh & Co. Page 29
► Existing taxpayers to be issued Provisional Registration valid for 6 months (extendible)
► Upon furnishing of prescribed information, final RC to be granted
► Cenvat credit/VAT carried forward in return allowed as ITC under GST
► Un-availed Cenvat/VAT credit on capital goods, not carried forward in return, shall also be
allowed as ITC under GST
► Eligible duties and taxes in respect of inputs held in stock permissible as credit to registered
persons
► Eligible duties and taxes in respect of inputs held in stock available as credit to taxable
person switching over from compounding
► Transitional credit available generally only if both laws permit and invoice is not more than 12
months old
► No tax payable on goods removed/despatched earlier but returned within 6 months after the
introduction of GST
► Proceedings under earlier law to be conducted under old law
Transitional Provisions
Nikunj J. Parekh & Co. Page 30
► No Excise Duty at the time of Manufacture & GST will be applicable on “SUPPLY”. Will be
great relief to all the Manufacturers. Cenvat credit / VAT carried forward in return allowed as
ITC under GST
► Reduction in cascading effect ( Like earlier VAT was charged on Value + Excise amount)
► Hassle Free Supply of Goods _ because on no Entry Tax/ Octroi
► Increased Working Capital Requirements (Because Branch Transfer will be treated as supply)
► Free Supplies & After Sale discount will be burden on supplier
► Valuation of Self Supplies required clarity
► Pre packaged products for retail consumption valued on MRP leading higher cost price which
is unlikely in GST
► Reduction of classification disputes
Impact of GST on Manufacturing Sector
Nikunj J. Parekh & Co. Page 31
► Reduction in Cost because of cross input tax credit available
► No cascading effect will reduce cost & ultimate benefit to customer
► No need to open multiple branches in different states as claim of interstate purchase &
interstate is available now
► GST compliance will be burden for small traders & retailers, Considering higher no. of returns
and monthly credit matching concept
► Filling of monthly returns with purchase & Sales monthly cross examination helps to curb
circulations of dummy purchase and sales invoices in the market
Impact of GST on Traders & Resellers
Nikunj J. Parekh & Co. Page 32
► Services will be costlier but free flow of ITC may curtail the cost to some extent
Example : -
“Services provided by beauty parlour in which goods are used to provide the service to the client,
however its providing output service and not trading in goods can not claim input credit on VAT
paid on that products”
► Number of filing return will increase as against only two half yearly returns in current indirect
tax regime
► Centralized Registration will become Decentralized Registration in GST ( Will be tough for few
industries like Telecommunication Industry)
► Services are often delivered through third party vendors and hence, determining point and
time of supply is ambiguous.
► Reverse and partial charge mechanism likely to continue under GST
Impact of GST on Service Sector
Nikunj J. Parekh & Co. Page 33
► With Constitutional Amendments, both CGST and SGST will be levied on import of goods and
services into the country.
► The incidence of tax will follow the destination principle(Place of supply rules).
► Tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed.
► Full and complete set-off will be available on the GST paid on import on goods and services.
► Thus, import of goods will attract BCD and IGST. It may be noted that import of
services, as against service tax at present, in GST regime, will attract IGST.
► Basic Custom Duty will continue to there under GST system. However, the additional custom
duty in lieu of CVD /Excise and the Special Additional Duty (SAD) in lieu of sales tax/VAT will
be subsumed in the import GST.
► The import of services will be subject to Central GST and State GST on a reverse charge
mechanism. In other words, the GST will be payable by the Importer on a self declaration
basis.
GST Impact on import of Goods & Services
Nikunj J. Parekh & Co. Page 34
► Export of Goods & Services= Zero rated (Tax-Free/Exempted)
► Lower Logistic cost by subsuming Octroi / Entry Tax
► Free flow of goods makes Exports faster
► Refund of GST paid on Input is also available.
► Overall Indian Products will be more competitive
Duty Drawback : -
Earlier there was no provision for duty drawback in GST, but after public & experts opinions,
provision of duty drawback has been made in GST which will be a big relief to the exporters.
GST Impact on export of Goods & Services
Nikunj J. Parekh & Co. Page 35
Nikunj J. Parekh & Co. Page 36
Nikunj J. Parekh & Co. Page 37
Other key issues
Key issues Under Current Law Under GST
Advances received Advances received from
customers not taxable
Advances received from
customers liable to GST
Sales return No such time limit under excise. To be returned before - 30th
September of the next financial
year or
To be returned within 6 months
under VAT to reduce the liability.
Filing of annual return (31st
December)
(whichever is earlier)
Stock transfers Stock transfer is currently
exempt from tax on submission
of Form F
Supply includes stock transfer
and will be taxable. This can
create cash flow problems
Transfer of Plant & Machinery CENVAT credit to be reversed
under Excise Law
Transfer of plant & machinery is
„Supply‟ and GST is applicable
Nikunj J. Parekh & Co. Page 38
Other key issues
How to (Re) Structure your business to get maximum benefit from GST
► Accounting will be the “KEY” for compliance
► Restructure your branches _ Now Inter state Sale & Purchase set off is available
► Restructure your warehousing Logistic & Supply chain management (Entry Tax & Octroi
removed)
► File your returns on time _ Profit will not be yours but yes loss is yours ( For Ex. You cant
forget to carry forward available credit)
► Track Credit mismatch data closely_ Reconciled it every month_ you will not get the credit if
your seller don‟t pay it
Nikunj J. Parekh & Co. Page 39
Conclusion
► Ensure that all the eligible credits available under Excise / VAT are filed in the last return
► The books of accounts reconcile with the returns filed
► All invoices / supporting documents are properly maintained
► Reconciliation of stocks lying at all locations along with the job worker
► Ensure that all invoices are received and payments are made before the cut-off date to avail
credit
► Assess the impact of GST on business and make necessary adjustments
► For industry, this is the time to kick start various activities such as impact analysis and transition
issues
► Getting ready with the compliance requirements will reduce the burden on the industry
► Industry also needs to gear up their IT systems
Be GST enabled on time
Nikunj J. Parekh & Co. Page 40
Contact us
Nikunj J. Parekh & Co.
Nikunj J. Parekh & Co. 116, Platinum Mall, Jawahar Road,
Opp. Railway Station,
Ghatkopar (East),
Mumbai 400 077, India
O: +91 22 4002 0019
M: +91 98198 16542
+91 98207 37225
E: nikunj.parekh@njpc.co.in
tejal.parekh@njpc.co.in
W: www.njpc.co.in
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