GSTZen

Chapter 3

Input Tax Credit

‘Bill to Ship to’ – Extended to Service

  • ITC on Bill to Ship to
  • Currently in case of “Bill to Ship to” model it is assumed that goods are deemed to be received by the recipient even though received by a third person. Such deemed received has now been extended to services. It is enabling service providers to claim credit. [Section 16(2)
  • Example
  • Services provided by “A” to “C” on direction of “B”. B can take the credit of A’s invoice inspite of not having received the service due to the proposed deeming fiction.
  • Effect of the Amendment
  • To avail ITC the registered person must be in receipt of goods or services

  • In Bill-to-ship-to model, it is deemed that goods are received when the supplier delivers the goods to any other person on direction of the recipient

  • This deemed assumption shall now be applicable in case of services as well.

  • So, ITC will be allowed to a person on whose direction and account, the third person receives the services.

ITC on Payment of Tax

  • subject to the provisions of section 41 or 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
  • Impact

1) One of the conditions for availing input tax credit is that the payment of tax should have been made by the supplier

2) The new return filing mechanism may allow taking of input tax credit to the recipient in certain situations and subject to certain conditions even if the payment of tax is not made by the supplier

3) So, this condition of requirement of payment of tax by the supplier has been made subject to the procedure in the new return filing mechanism

ITC on SCH III Supplies

……………………….. but shall not include the value of activities or transactions (other than sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building) specified in Schedule III.

  • Impact

1) The new provision has been inserted so as to allow ITC on activities mentioned in Schedule III (other than sale of land and subject to clause(b) of paragraph 5 of Schedule II, sale of building) by removing it from the ambit of exempt supplies. Hence, these clauses will not entail any reversal of credit.

2) Excluding of supplies covered under Schedule III from the scope of exempt supplies under Section 17(3) will result in lower reversal of credit particularly in case of high sea sales, merchant trade transactions and supply of warehoused goods before clearance for home consumption

Expansion of Scope of ITC on motor vehicles

  • New
  • (a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver) except when they are used–……..A,B,C
  • Impact
  • Further, the words ‘other conveyances’ have been removed.

  • The amendment is sought to make it clear that input tax credit would now be available in respect of dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles.

  • ITC shall not be available in respect of motor vehicles having capacity of not more than 13 persons (including the drivers), vessels and aircrafts if they are used for personal purpose.

Expansion of Scope of ITC on motor vehicles

  • Impact
  • A new provision has been inserted allowing ITC on motor vehicles if they are used for transportation of money for or by banking company and financial institutions.

  • ITC in respect of services of general insurance, servicing, repair and maintenance in respect of those motor vehicles, vessels and aircraft on which ITC is not available under clause (a) or (aa)

  • In respect of vessels and aircrafts, ITC will be blocked except if it is used for certain specified purposes

  • When used for an insurance company for supply of insurance services, Input tax credit will be available in respect of motor vehicles, vessels or aircraft insured by him.

  • For all other conveyances, Input tax credit will be freely available (eg. motor vehicles for transportation of persons > 13 persons)

17(5)(b) Food, Health, Travel etc

  • Now,
  • in accordance with the provisions of Section 17(5)(b), ITC is not available in respect of food and beverages, health services, travel benefits to employees etc..
  • Proposed,
  • it is proposed that ITC in respect of food and beverages, health services, renting or hiring of motor vehicles, vessels and aircraft, travel benefits to employees etc.., can be availed where the provision of such goods or services is obligatory for an employer to provide to its employees under any law for time being in force.

  • Renting or hiring of motor vehicles, vessels and aircraft are blocked only if the purchase of such motor vehicles, vehicles and aircrafts are blocked as per clause (a) of (aa)

Registration Provisions

  • Multiple Verticals:
  • The amendment in Section 25(2) of the CGST Act allows multiple places of business of the taxpayers in addition to the different business verticals within the state to be registered separately. This provides a major relief to certain industries like transporters, PSU etc.. by increasing the ease of doing business.
  • Threshold Limit increased to 20 lacs for :
  • State of Assam, Arunachal Pradesh, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand be removed from special category States along with J&K in explanation (iii) to Section 22 of the CGST Act

eCom Regsitration

  • Mandatory Registration only if TCS is applicable:
  • Clause (x) of Section 24 is being amended to provide that only those e-commerce operators who are required to collect tax at source under Section 52 of the CGST Act would be required to take compulsory registration.

  • Other e-commerce operators who are not required to collect tax at source under Section 52 would henceforth not be required to take registration if their aggregate turnover in a financial year did not exceed Rs. 20 lakhs.

  • SEZ registration as disctinct person for DTA unit
  • Provision inserted for separate registration of a person having a unit(s) in a SEZ or being a SEZ developer as a business vertical distinct from his other units located outside the SEZ. This provision is already contained in Rule 8 of the CGST Rules, 2017.

Section 29 “Cancellation or Suspension of registration.”

  • Inserted
  • Sec 29(1) … Provided that during pendency of the proceedings relating to cancellation of registration filed by the registered person, the registration may be suspended for such period and in such manner as may be prescribed.

  • Sec 29(2) … Provided further that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.

  • Effect

1) The new proviso ensures that once the registration has been sought to be cancelled, the proper officer may suspend the registration till the procedural formalities have been completed

2) The suspension will only be for the period and the manner as may be prescribed in the rules

3) The registration suspended will not be required to file returns till the suspension is in effect

4) This can be a double edged sword because a person who applied for cancellation and stopped collection and payment of taxes may face extreme hardships if the application for cancellation is rejected. He may not have any recourse as to collect the tax and paying the taxes out of his own pocket may be a huge burden for him.

Issue of consolidated credit note in a financial year

  • New Provision
  • 34(1). Where one or more tax invoice have been issued for supply of any goods or services or both and the taxable value or tax charged in that invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.

  • Same for Debit note also

  • Impact
  • The suppliers are now not required to link Credit / Debit notes with individual invoices.

  • The supplier may now issue a consolidated Credit/ Debit note in respect of multiple invoices issued in the financial year.