TLC Legal

TRANSITORY ISSUES &WAY FORWARD

Bombay CharteredAccountants’ Society

Jayraj S. ShethPartner, TLC legal

3 SEPTEMBER 2016

1GST

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Contents

Transitional Provisions in Draft Model GST Law Key challenges before GST Council GST Network (GSTN) Way forward for

Government Businesses Catalysts

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Transitional ProvisionsIn Draft Model GST Law

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Grandfathering 4

Administrative/Procedural

Transaction Specific

Twenty seven sections – 141 to 162ETreatment of area based exemptions ?

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Administrative/Procedural

Transitional Provisions

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Matters provided for► All existing officers dealing with taxes subsumed in GST deemed to be

appointed as GST officers/ Competent Authorities► For smooth transition to GST, Government empowered to issue

orders/make rules on residuary matters not in conflict with GST laws► Provisional automatic registration of existing tax payers under ‘earlier

laws’► Migration of unutilised CENVAT & Input tax credits► Credit distribution by ISD (CGST Law)► Disposal of pending refund claims► Disposal of proceedings► Treatment of amounts recovered/ refunded

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Passing the baton (Sec. 141)

Law Department*

Central Excise & Service Tax CBEC - Ministry of Finance,Government of India

CST/ VAT/ PurchaseTax/Entry Tax/Entertainment Tax/ LuxuryTax/ Taxes on lottery,betting and gambling

Commercial Taxes Department/ OtherDepartments - State Governments

* Other than those administering taxes not subsumed in GST e.g. Customs, ProfessionalTax, Stamp Duty

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Deemed appointment as GST Officers/ Competent Authorities

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Migration of existing taxpayers (Sec. 142)…

Provisional certificate to be issued to persons registered under earlier laws

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Registered under Based on

Excise only Excise Data

VAT/ Both VAT & Excise VAT Data

Service Tax Service Tax Data

In response to email from Service Tax Dept.,taxpayer to intimate list of States where registrationrequired

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…Migration of existing taxpayers (Sec. 142)

Valid for 6 months (may be extended for notifiedperiod)

Within validity period of provisional certificate,taxpayer to submit prescribed information(manually or digitally ?)

Grant of final registration upon submission ofprescribed information

Provisional registration deemed not to be issued, ifapplication filed (to which Govt.?) by a person whois not liable to registration under GST

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Disposal of pending refund claims(Sec. 154)

Claim of refund of duty/tax/interest under earlier lawpending on AD

To be disposed of under earlier laws If and when claim accepted :

Central duty/tax – to be ‘paid in cash’ [subject to Sec. 11B(2) ofCEA e.g. unjust enrichment]

State tax – to be ‘refunded’ as per earlier law

Claim rejected (partly or wholly) under earlier law to lapse

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Right of appeal against rejection of claim?

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Transaction SpecificTransitional Provisions

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Types of transactions…

► Allowing/surrendering credit on goods held in stock by:► Self► Agent

► Taxability of goods returned by:► Customer► Job worker► Other third party

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…Types of transactions

► Post sale / post removal price revisions► Goods / services supplied for long term construction / works contracts► Progressive / periodic supply of tax paid goods / services► Treatment of branch transfers (SGST Law)► Payments retained for supplies under earlier laws► TDS (SGST Law)

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Credits of goods lying with agent (SGST)(Sec. 162A & 162B)

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PRINCIPAL AGENT

Stock at premises on AD(Goods/ Capital Goods)

Agent entitled to take credit if:► Agent is RTP► Both Principal and Agent

declare details of suchstock (prescribed- time,manner & form)

► Invoice issued not earlierthan 12 months from AD

► Principal has reversed/not availed input taxcredit

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Goods returned post AD…15

When originally sent not earlier than six months prior to AD any time before AD

When returned/transferred returned within six months of AD returned after six months of AD ‘not returned within six months of AD’ – not returned at all and/or returned

after six months? ‘transferred’ any time after AD

Sections 148-152 and 162D

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… Goods returned post AD16

Five types of goods Exempt/duty or tax paid goods under earlier laws removed/sold Goods sent on approval basis (SGST) Inputs sent for job work Semi-finished goods sent for certain processes Excisable/ taxable finished goods removed for testing/other processes

(not amounting to manufacture)

Three outcomes No GST payable GST payable by person returning GST payable by manufacturer/ person despatching initially

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…Taxability of goods returned(Sec. 148 & 149)…

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► Exempt/Duty or tax paid goodsunder earlier laws

► Removed/sold ≤ 6 months priorto AD

► Returned on or after AD

► To any ‘place of business’ (ofanyone ?)

Returned within 6 months from AD

Returned after 6 months from AD

No GST, if goods are identifiable to thesatisfaction of ‘proper officer’ (?)

(Receiver entitled to credit of duty/taxpaid under earlier law)

GST payable (if taxable under GST Laws)by person returning

Will goods returned within 6 months not liable to GST be considered as‘exempt supply’ with consequences of partial credit reversal?

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…Goods sent on approval basis (SGST)(Sec. 162D)

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► Goods on approval basis► Sent not earlier than 6 months

from AD► Rejected and returned on or

after AD

A. Returned within 6 months from AD(extension up to 2 months)

B. Returned after 6 months/extendedperiod from AD

C. Not Returned within 6months/extended period from AD

No GST

GST payable (if taxable) by personreturning

GST payable (if taxable) by person whoinitially sent

Overlap between situation B and C (2nd and 3rd proviso)

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Long term construction / works contract(Sec. 159) 19

On / after AD

Before AD

Liable to GST

Supply

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Progressive / Periodic supply (Sec. 160) 20

On / after ADBefore AD

Under earlier law

XXTIME OF SUPPLY (?)

Supply*

Not Liable to GST

* Deliver/Make available/Provide (?)

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Retention payments released post GST(Sec. 161)

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Part consideration(retention amount)

received -on /after AD

Before AD

Under earlier law

XXTIME OF SUPPLY

Not Liable to GST

Supply

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GST COUNCIL

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Key challenges identified for GSTC Calculation of Revenue Base of Centre and States,

along with compensation requirements of Centre Cross empowerment to mitigate ill-effects of Dual

Control Threshold limits Compounding limits List of Exemptions Rate structure Consensus on Model GST Bills (more than 40,000

suggestions received)

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Legislative mechanism should be put in place to ensure no States deviate fromthe Model SGST Law post implementation – unlike VAT Laws

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Goods and Service Tax NetworkCPU of GST Ecosystem

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Why GSTN?

GSTN

Simplicity fortaxpayers

Respect forautonomy of

States

Uniformity inpolicy

administration

Clear strategyfor migration to

GST

Enabledigitization ofentire value

chain

Reduceleakages

Harmonizationof business

processes andForms

Sharedinfrastructure

for Centre andStates

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GST Ecosystem

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GSTN Project Phases

- Data Warehousing- Dynamic/ ad-hoc

reporting- Business Intelligence- Fraud analytics

PHASE IIIOther Components

- Assessment- Audit & Investigation- Refund- Adjudication & Appeal- Recovery- Workflow based

application for Statesavailing full service

(17 States – on GSTN14 States – on their own)

PHASE IIBack-end Modules

- Registration- Payments- Returns (Filing &

Processing)- ITC- Matching (ITC &

Payments)- Dealer Dashboard &

Ledgers- IGST Settlement

PHASE ICore GST System

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TLC LegalGSTN Go-Live – Phase I & II- Feb. 2017

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Challenges in implementing GSTN28

Capacity of the System to cater to: VAT payers – 65 lakhs Service Tax payers – 20 lakhs Central Excise payers – 4 lakhs Plus new tax payers - due to lower threshold

Successful testing through flawless functioning of GSTN for millions oftransactions

Seamless pan India data connectivity for SMEs with GSTN platform Data privacy and secrecy Minimum down time of GSTN platform

GSTN will be the life line of Revenue Departments of Governments

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WAY FORWARDPrepare & Prevent

Don’t Repair & Repent

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Way forward … 30 One India, one market, one tax – ‘Made in India’ GST Lack of identical international comparable model - ushering into unknown

territory Gap of 15 years between last significant GST implementation - Malaysia

(2015) and Australia (2000) Age of exponential transformation / disruption and 7+% growth of GDP Level playing field for organized players by engulfing unorganized sector in

main stream economy Common yardstick for measuring ‘Ease of Doing Business’ ranking of States “What Got You Here, Won’t Get You There” (Marshall Goldsmith)

Opportunity for India to improve its rating for ‘Ease of Doing Business’

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…Way forward 31

New era of ‘co-operative and competitive federalism’ by ‘poolingsovereignty’

Opportunity to ‘re-imagine’ everything for everyone – people, processes,technology, businesses

Doing Important things when they are Not Urgent Familiarization and capacity building of Tax Officials and Taxpayers with:

New Law IT systems

Businesses will focus on ‘business planning’ - rather than ‘tax planning’ Process driven E-age tax system will create ‘managed services’ opportunity

for tax professionals / techniciansParadigm shift in ways of doing business

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Time to Reform, Perform and Transform 32

Government Businesses Catalysts of GST

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1. Software Vendors2. Banks & Financial Institutions3. CAs, Lawyers & Consultants

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Governments

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Plan of Action 60,000 officials of Centre and State Governments to be trained:

Phase I : Source Trainer’s Workshop (25 officers) – completed Phase II : Master Trainer Sessions (350 officers) – till Mid Aug 16 Phase III : Trainer Sessions (1000 officers)– till Oct 16 Phase IV: Last leg Training Sessions (60,000 officers) - Dec 16

Dec 16 – Mar 17 - Training on GST IT systems - to be held in similar pyramidalstructure by GSTN

Completion by Mar 17 - Outreach and sensitization for trade and industry -Stakeholder consultation and outreach workshops to be organised acrossthe country –already started with Hyderabad and Jaipur

(Source: Revenue Secretary Hasmukh Adhia at Press Conference on 04th Aug, 2016)

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Businesses

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36RECORD KEEPINGBUSINESS MODEL

IT SYSTEMS

CONTRACTS

PERVASIVE EFFECTAffects everyone from

the Bottom of thePyramid to the Top

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Preparations by Businesses 37Advocacy

Rate of TaxTime & Place ofSupplyTreatment ofCurrentIncentivesValuations

ImpactAssessment

On RevenueOn CostsOn Cash Flow

BusinessOperations

Supply ChainDecisions:- Domestic V. Import- Inter-state V. Local

StrategicDecisions:- Make or Buy- Centralised V.Decentralised

- Contracting Terms

Working Capital

TransitionalChanges

Crystal gazesituations & theirtaxability

GST Registration& OtherCompliances

Credit Migration

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Preparations by Businesses 38

ChangeManagement

Identifyopportunities

Renew/ReviseContractsPricing Decision

Appointing newconsultants

Org StructureKPIs

TechnologyRevamp

ERP SystemChanges

Compliancewith GSTNrequirementsAutomation insystemCloud space

Accounting &Reporting

PaymentProcessReturn ProcessRefund ProcessBilling

CreditAvailment

Training

UnderstandingGST Law

Understandingnew System

Facilitatesmoothtransition

Businessreadiness

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Awareness & Education External Teams

Vendors- esp. SMEs Customers - B2B & B2C

Internal Teams Procurement Sales & Distribution Warehousing & Logistics Finance, Accounts & Tax IT HR

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Accounting & Reporting 40

Change in: Billing Valuation Reporting Presentation &

Disclosure Credit Entitlements

Chart of Accounts: To create:

CGST IGST SGST - Statewise

To block: VAT, CST, Entry Tax, etc. Excise Service Tax CENVAT

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Record keeping & Audit Records at principal place of business (if more than one,

then relating to each place are to be kept at that place): production or manufacture of goods inward/ outward supply of goods and/or services stock of goods input tax credit availed output tax payable and paid as may be prescribed

Preserve for a period of 60 months from 31st December ofthe next FY. (e.g. for FY 17-18, till 31st December, 2023)

Compulsory CA Audit like VAT Laws mandated for RTPscrossing prescribed threshold of ‘turnover’(?) in aFinancial Year

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Roadmap to Change… 42

Sr.No.

Steps to be taken Sept 16 Oct 16 Nov 16 Dec 16 Jan -Mar17

1. Form in-house GST Task Force / SteeringCommittee

2. Track GST developments

3. Identify advocacy issues and makerepresentations

4. Map various ‘As Is’ business scenarios

5. GST Impact Analysis (quantitative &qualitative) based on Model GST Law

6. Revalidate GST Impact analysis onnotification of Final GST Laws

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Roadmap to Change… 43

Sr.No.

Steps to be taken Sept 16 Oct 16 Nov 16 Dec 16 Jan -Mar17

7. Conduct GST Training Sessions for allstakeholders (internal & external)

8. Identify and discuss business modelchanges and tax optimisationopportunities

9. Identify IT reconfiguration areas anddesign & test them

10. Prepare SOPs for GST compliances11. Redefine processes, roles, responsibilities

and accountabilities of IDT organization12. Post implementation monitoring Post

April 17

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Catalysts

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Software Vendors Create full fledged GST Modules

compliant with GSTN fulfilling requirements of GST Acts & Rules compliant with procedural requirements

concerning records and documents Gradually phase out current Indirect Taxes

Module remove/block redundant accounts ensure non-disruption in data of previous years

Seamless integration of existing ERP with newly developed GST Modules

GST Apps development

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Banks & Financial Institutions

Low thresholds and capturing of all invoices anddata in GSTN, will result in entry of unorganizedplayers into main stream economy

Opportunities: Increase in depositors Increase in borrowers Increased transactions – B2B and B2G

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CAs, Lawyers & Consultants

Unlearn existing Laws and Rules Understand and learn new Laws and Rules Access and digest International Jurisprudence One time opportunity for

hand holding clients in transition validation of new IT systems from GST

compliance perspective educating clients and professional colleagues

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TIME TO START CRSYTALGAZING….

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On your marks,

Get set

Go …

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THANK YOU..

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