India: GST Trends - May 2018

Last Updated: 4 June 2018
Article by SKP  

The GST Council has been proactively taking up representations made by various industry stakeholders to remove hardships and increase compliance. Rulings by Authority for Advance Rulings (AAR) have also begun providing clarity and direction on various ambiguous provisions. With this, the GST regime could stabilize in the coming months. Furthermore, the decision to simplify compliances in the last GST Council meeting should also hasten this process.

Top Trends

  • E-Way Bill on the intra-state movement of goods to be implemented across all remaining states by 3 June 2018.
  • A centralized depository of rulings passed by AARs across all states to be created on the GST Council's website.
  • Few key points that businesses should ensure while finalizing their balance sheets: Reconcile sales according to books of accounts with GSTR-1 and GSTR-3B.

    • Input tax credit according to books match with electronic credit ledger on the GST portal.
    • Input tax credit claimed matches with GSTR-2A.
  • Certain functionalities have been added to the GST portal:

    • Taxpayers can make Input Tax Credit (ITC) reversal under one head without affecting the other head, e.g., reverse only CGST/SGST without affecting the other.
    • Exporters claiming a refund of accumulated ITC would now be required to provide invoice-wise details of shipping bill, Export General Manifest (EGM), Bank Realisation Certificate (BRC) /Foreign Inward Remittance Certificate (FIRC), etc. while filing the refund application. A template has been provided for this purpose.

Judicial Pronouncements

Issue Ruling SKP Comments
Whether hotel accommodation and restaurant services provided to the employees and guests of SEZ units, be treated as a supply of goods and services to such SEZ units, and therefore, zero-rated?
[AAR, Karnataka]
  • Under Section 12(3)(b) of the IGST Act, 2017, the place of supply of services by way of lodging accommodation by a hotel, should be the location at which the immovable property (hotel) is located, i.e., outside SEZ in this case.
  • Furthermore, under Section 12(4) of the IGST Act, 2017, the place of supply of restaurant and catering services should be the location where the services are actually performed, i.e., outside SEZ in this case.
  • The services are not part of authorized operations of SEZ, as required under CGST Rules, 2017.
  • Under Section 16(1) of the IGST Act, 2017 supply of services to an SEZ unit is to be treated as 'zero-rated supply.'
  • Furthermore, 'accommodation services' are covered in uniform list of services as default authorized services for an SEZ unit, as conveyed by the Ministry of Commerce & Industry dated 2 January 2018.
  • It is a well-settled principle of law that a specific provision shall prevail over a general provision.
  • In view of the above, there is a possibility that the decision of the AAR could be subject to reconsideration at higher appellate courts.
Whether a supply of UPS along with battery can be treated as composite supply?
[AAR, West Bengal]
  • A standalone UPS and a battery can be separately supplied in retail set up.
  • The contract for the supply of a combination of UPS and battery, if not built as a composite machine, is not indivisible.
  • The said goods are not naturally bundled and cannot be treated as a composite supply.
  • The said supply should be considered as mixed supply as they are supplied under a single contract at a combined single price.
  • The AAR has placed importance on whether the products are 'naturally bundled.'
  • The applicant admitted that UPS and the battery were being sold separately as well. The AAR pointed out that the products are capable of being supplied as part of separate contracts and hence cannot be considered as composite supply.
  • Businesses involved in supplying more than one product bundled together should carefully evaluate whether their supply constitutes a mixed or composite supply.
Whether supply of turnkey Engineering, Procurement and Construction (EPC) contract in case of a solar power plant, wherein both goods and services are supplied, should be construed as a composite supply or a works contract?
[AAR, Maharashtra]
  • In a turnkey contract, the contractor is expected to perform all activities from engineering to commissioning.
  • Furthermore, on examining the various clauses of the agreement, it can be seen that the liability of the contractor doesn't end with the procurement of materials but extends till successful commissioning of the system, like in a 'works contract.'
  • Viewing the principles laid down by the Supreme Court in various cases in light of the facts of the present case makes it clear that there is an inherent element of permanency to the solar power plant, and hence it is classifiable as immovable property.
  • Consequently, the said contract would be classified as a 'works contract' under Section 2(119) of the CGST Act, 2017, as it results in the creation of immovable property.
  • The AAR examined the substance of the contract entered into by the parties as opposed to the drafting of the contract as constituting a separate supply of goods and services. The AAR ruled that the invoicing pattern, the language of the agreement, etc. is secondary to the substance of the transaction being undertaken.
  • In view of this ruling, the question whether a transaction qualifies as a works contract/results in the creation of immovable property has acquired further importance under GST regime.
Whether liquidation damages should be subjected to GST?
[AAR, Maharashtra]
  • Liquidated damages would be subject to GST as the same are towards the tolerance of the delay caused by the contractor which will be covered as a 'supply of services' under clause (e) of Para 5 of the Schedule II to the CGST Act, 2017.
  • Even though such liquidated damages are presented in the form of a deduction from the payments to be made to the contractor, they are the income of the applicant/contractee towards the supply of service.
  • The revenue authorities have considered liquidated damages as consideration towards the supply of service of 'tolerance' of non-performance/delayed performance under the erstwhile service tax law as well.
  • However, whether a clause for liquidated damages is for tolerance of an act or actually inserted to act as a deterrence for non-performance/delayed performance is open to interpretation.
  • In view of the above, this ruling by the AAR is bound to open a Pandora's Box in terms of taxability under GST of similar transactions.

It is to be noted that an Advance Ruling is binding only on the applicant who had sought it and the concerned jurisdictional authority, i.e., an Advance Ruling is specific to an applicant and shall not be applicable to other taxpayers facing similar issues.

However, the above mentioned Advance Rulings provides clarity about the issues being faced and provide persuasive value in matters before the tax authorities.

Upcoming GST Due Dates

Form Applicable to Period Due Date
GSTR-1 (monthly) Taxpayers with annual aggregate turnover more than INR 15 million May 2018 10 June 2018
GSTR-3B All registered taxpayers May 2018 20 June 2018
GSTR-5 Non-resident taxable persons May 2018 20 June 2018
GSTR 5A Online Information and Database Access or Retrieval (OIDAR) May 2018 20 June 2018
GST TRAN-2 Taxpayers not registered under pre-GST regime willing to claim transitional credit Six tax periods for which the scheme is applicable 30 June 2018

OTHER KEY ASPECTS

GST from a Macro Perspective

Return filing process

The GST Council in its 27th meeting held on 4 May 2018 has approved the simplified returns filing system which is bound to be implemented in a phased manner as follows:

Revenue collections

The GST revenue exceeded the INR 1 trillion threshold for the first time in April 2018 with gross GST collections standing at INR 1.03 trillion. The gross GST revenue for the month of May 2018 has dropped to INR 0.94 trillion. However, this is more than t e average gross GST revenue for the period of July 2017 to March 2018 which stood at INR 0.89 trillion.

e-Way Bill

Post the smooth rollout of the e-Way Bill system for inter-state movement of goods, the government is gradually implementing the system for intra-state movement of goods in the following manner:

e-Way Bill – A snapshot

  • More than 22.6 million e-Way Bills generated in May 2018 (up to 21 May 2018).
  • More than 50 million e-Way Bills generated till date.
  • On an average 2 million e-Way Bills are being generated every day.
  • State-wise GST officers have been appointed to resolve e-Way Bill related grievances.

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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