India: Clarity On The Registration, Returns, Refund And Payment Processes In The GST Regime

Last Updated: 7 January 2016
Article by SKP  

The Empowered Committee of State Finance Ministers had formed a Joint Committee to look into the reports on the business processes of registration (including return), refunds and payment for Goods and Services Tax (GST). Later, the Joint Committee constituted three sub-committees to provide recommendations for these fields. These committees submitted their reports as follows:

Joint Committee on

Constituted on

Date of Report

Business processes for GST - Registration process

7 April 2014

July 2015

Business processes for GST - Refund processes

14 November 2014

August 2015

Business processes for GST - Payment process

3 February 2015

April 2015

On 6 October 2015, the aforesaid reports were made available in the public domain1 to engage with stakeholders and invite comments. These three reports are among the many positive steps taken towards the GST regime. Earlier in a press release, it was indicated that the GST model laws are likely to be finalised by the end of September and would then be available for public consultation.

Key takeaways from the recommendations

  • Threshold limits for registration and reverse charge will exist under the GST regime
  • Threshold of gross annual turnover including exports and exempted supplies are to be calculated on an all-India basis
  • For each state, the taxable person must take a separate registration, even though the taxable person may be supplying goods or services or both from more than one state as a single legal entity. Multiple registrations in a state for business verticals would be permitted. However, for the purpose of recovery of dues, all business verticals, though separately registered, will be considered to be a single legal entity.
  • Prior to obtaining a Goods and Services Tax Identification Number (GSTIN), it will be necessary to obtain a Permanent Account Number (PAN)
  • The GSTIN would be a PAN-based, 15-digit, alpha-numeric registration number
  • Specific provisions to be incorporated for the migration of existing registrants to GST regime
  • Voluntary, casual and non-resident dealer registration options have been borrowed from the present State Value Added Tax system
  • Taxpayers would have the option of a compounding scheme where they can opt to pay tax at a specified percentage of the turnover, without entering the credit chain. Such taxpayers will not be allowed to collect tax from their customers or claim any input tax credit.
  • The concept of Input Service Distributor (ISD) being followed presently under the service tax legislation, may continue under the GST regime
  • Facilitation centres could be set-up for the digitisation/uploading of the forms and documents pertaining to registration under the GST regime
  • Taxpayers would be required to make payment of Central GST (CGST), State GST (SGST), Integrated GST (IGST) and additional tax through internet banking. Separate accounting codes would exist for the aforesaid taxes.
  • For making an e-payment of GST, taxpayers would be required to access the Goods and Services Tax Network (GSTN) for generating the challan
  • The challan will have a 14-digit unique Common Portal Identification Number (CPIN)
  • Under ten specified situations, such as exports, excess payment made by mistake, refund of pre-deposit, refund to international tourists, etc., the taxpayers can claim a refund of GST paid
  • Exports would be treated as inter-state supplies and therefore IGST would be required to be paid by the taxpayer in cases where GST is paid at the time of export. Rebate (i.e. refund of IGST) would have to be paid by the Centre.
  • In case of refund of GST paid on inputs (including input services) used for exported goods, the refund of CGST, SGST, or IGST may arise and must be paid by the respective tax administration
  • Option to procure duty-free inputs for exported goods may not be available in the GST regime
  • Deemed exports could be treated at par with exports
  • Up to 90% of the refund claimed by the taxpayer may be sanctioned automatically and the balance amount of the refund may be granted after completion of verification
  • Using input tax credit of GST paid on inputs, input services and capital goods should not be allowed against Customs Export Duty
  • Refund of tax payment on purchases made by Embassies or UN bodies, supplies to Canteen Stores Department (CSD) Canteens, para-military forces, etc. would be available
  • In the case of joint reverse charge mechanism, refunds could be allowed
  • A period of one year from the relevant date may be allowed for filing of refund application - in the case of export of goods, one year from the date on which the proper officer under the Customs Act issues a Let Export Order (LEO); in the case of export of services, one year from the date of invoice or Bank Realisation Certificate (whichever is later).
  • Pre-audit of the refunds sanctioned may be kept at INR 10 million or as may be decided by the respective tax jurisdiction
  • The rate of interest for refund may be around 6% while that for default in payment of interest would be around 18%.

The way forward

It is pertinent to note that five committees have been constituted by the Empowered Committee of State Finance Ministers to deal with the various aspects of work related to the introduction of GST. In the days to come, it is expected that reports of other committees could also be available in the public domain as follows:

Committee formed

Report status

Whether available in public domain for comments

The Committee to examine Business Processes under GST Regime

Submitted

Yes

The Committee on the Problem of Dual Control, Threshold and Exemptions in GST Regime

Submitted

Awaited

The Committee on Revenue Neutral Rates for State GST &
Central GST and Place of Supply Rules

Submitted

Awaited

The Committee on IGST & GST on Imports

Submitted

Awaited

The Committee to draft model GST Law

Submitted

Awaited

The government's heightened activity clearly indicates their determination to introduce GST in India. Also, their spearheaded approach of placing the reports in the public domain for comments prior to the constitutional amendment is in line with the government's aim of 'minimum government, maximum governance'.

With Prime Minister Narendra Modi's recent reassurance of rolling out GST in 2016, its introduction appears to be more certain now than before.

In view of the aforesaid developments and the preparedness of government machinery to implement GST from next year, it is time for business houses to represent their issues to the government and gear up for the new regime. The critical areas for any business in trading, manufacturing or service operations for implementing GST in their organisation on time are as follows:

  • Finance and accounting
  • Procurement and marketing
  • Supply chain
  • Tax
  • Information technology
  • Legal

With the registration, payment of taxes and refund procedures being brought before the public and industry in the days to come, we can hope to see clarifications pertaining to the rate of tax, list of exemptions and the credit eligibility mechanism under the new regime.

Footnotes

1. Stakeholder Consultation on GST, Department of Revenue, Ministry of Finance, http://dor.gov.in/scgst

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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