India: CBEC Releases Second Edition Of FAQs On GST

Following the passage of Central Goods and Service Tax (CGST) Bill, Integrated Goods and Service Tax (IGST) Bill, Union Territory Goods and Service Tax (UGST) Bill and the Goods and Service Tax (Compensation to the States) Bill in the Lok Sabha, the Central Board of Excise and Customs (CBEC) has released the second edition of the Frequently Asked Questions (FAQs) concerning these central bills. These FAQs would greatly assist in making a smooth transition to the Goods and Services Tax (GST) regime and meeting the proposed deadline of 30 June 2017. Some interesting issues that have been clarified in the FAQs are briefly dealt with below.

Separate Registrations within the State

Single registration shall be given against 1 (one) Permanent Account Number (PAN) and all the other branches within the state can be registered as additional places of business. This would greatly reduce the compliance burden in several scenarios. However, the assessee has an option to register the business verticals separately.

Provisions Relating to Job-Workers

Any processing activity carried out by a person on another person's goods is deemed to be a "service". Accordingly, any job-worker who exceeds the prescribed threshold (in terms of turnover) for exemption shall be required to register. The supply of goods made by the principal manufacturer, directly from the job-worker's premises, shall not be included in the turnover of the job-worker. Such direct supply can only be effected if (i) the job-worker is registered, or (ii) the premise is registered as an additional place of business of the principal manufacturer, or (iii) the permission of the jurisdictional Commissioner has been taken.

Composite Supply v Mixed Supply

A composite supply consists of a principal supply and supplies (of goods and services) which are dependent on such principal supply, and shall be taxed at the rate applicable to such principal supply. A mixed supply consists of various independent supplies which can be isolated and shall be taxed at the highest rate applicable on any of the underlying supplies. These definitions aim to reduce classification disputes.

Import of Service without Consideration

Any import of service without consideration shall not be subject to GST except when such imports are from a related person / related establishment and is in the course of, or in furtherance of business.

Requirements for E-commerce Operators and Suppliers

All e-commerce operators are required to obtain registration irrespective of the threshold exemptions prescribed for turnover. Any supplier which makes a supply through an e-commerce operator will also be required to obtain registration even if the turnover is less than the threshold specified. Separately, the concept of matching returns / statements for the e-commerce operator and the supplier has been introduced.

Unutilised Credit

There is no mechanism of seeking a refund for the credit that remains unutilised at the end of a financial year. The unutilised credit can be carried forward to the next financial year.

Refund of wrongly Paid IGST / CGST / SGST

If an assessee pays CGST & SGST / IGST by wrongly assuming a transaction to be intra‑state / inter-state then the wrongly paid tax cannot be adjusted against the CGST & SGST / IGST liability that arises subsequently. However, a refund can be sought for the wrongly paid tax.

Refunds under the Current Law

Refunds under the pre-GST regime shall be paid as per the current laws and will not be available as credit under the GST regime.

Proof for Non-applicability of Unjust Enrichment

The proof for non-applicability of the principle of unjust enrichment, when the (i) amount sought to be refunded is less than INR 2 lacs, shall be a self-declaration; and (ii) quantum of refund is more than INR 2 lacs, shall be a certificate from a chartered accountant certifying that the incidence of duty has not been passed on to another person.

Binding Value of Advance Rulings

The advance ruling sought shall be binding only on the applicant and the jurisdictional tax authority of the applicant and shall not hold any precedential value. It cannot bind a similarly circumstanced assessee, but the ruling can have persuasive value. The advance ruling shall remain valid when the conditions (law, facts, and circumstances) supporting the ruling do not change. Undoubtedly, the assessee may challenge the advance ruling before the jurisdictional High Courts by invoking its writ jurisdiction.

Mechanism to Tax inter-State Supply

The exporting state will transfer to the Central Government the credit of SGST used in payment of IGST. The importing dealer will claim the credit of IGST paid while discharging the output tax liability in the importing state. The Central Government will transfer to the importing state, the credit of IGST used in payment of SGST. The relevant information is also submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds. The assessees are not to be concerned with such settlements made by the Central Agency.

Transitional Provisions Relating to input Credit

The assessee would be entitled to avail credit in respect of only those items on which credit is admissible under the current regime as well as under the GST regime and will not be entitled to avail credit which was restricted in either of the regimes.

Transitional Provisions Relating to Pending Proceedings

If any recovery to be instituted under the current regime has not been instituted till the date on which GST is made effective (Appointed Date) then recovery shall be made under the GST regime. However, in proceedings which are instituted under the current law after the Appointed Date where refund is payable to the assessee, the refund shall be paid in cash and not as credit, as per the current law. In case of pending refund claims on the date of transition, the claims shall be disposed of, as per the existing law.

Sales Returns

In case of return of goods by the buyer within (i) 6 (six) months of the Appointed Date, or (ii) after an additional 2 (two) months (as per the Commissioner's discretion), such return shall not be treated as a supply. However, if the goods are not returned within the time specified, then GST would be payable on such a transaction.

Khaitan Comment

The second edition of the FAQs has clarified the crucial aspects of the GST law and is a welcome step towards educating the assessees as to the requirements spelt out under the legislation. However, it should be noted that these FAQs are only clarificatory and not of binding value. Nevertheless, it provides valuable insight on substantive and procedural provisions such as exclusion of electricity, securities and actionable claims (with some exceptions) from the purview of GST.

Separately, CBEC has also released the draft rules after the GST Council Meeting on 31  March  2017. Industry comments are invited by 10 April 2017 with regard to the said draft rules.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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