GST BASIC CONCEPTS SUPPLY Levy & Composition PRESENTED BY CA VIRENDRA PARWAL

Services no longer required WHY GST : BENEFITS To Trade Reduction in multiplicity of taxes Mitigation of cascading/ double taxation More efficient neutralization of taxes especially for exports Development of common national market Simpler tax regime Fewer rates and exemptions Distinction between Goods & Services no longer required To Consumers Simpler Tax system Reduction in prices of goods & services due to elimination of cascading Uniform prices throughout the country Transparency in taxation system Increase in employment opportunities

EXISTING INDIRECT TAX STRUCTURE Entry Tax & Octroi Customs Duty Excise Duty Entertainment Tax Electricity Duty Central Levies Luxury Tax Sales Tax Service Tax VAT State Levies

CONSTITUTION AMENDMENT CAB passed by Rajya Sabha on 03.08.2016 & Lok Sabha on 08.08.2016 Notified as Constitution (101st 2016 on 08.09.2016 Key Features: Amendment ) Act, Concurrent jurisdiction for levy & collection of GST by the Centre & the States – Article 246A Centre to levy & collect IGST on supplies in the course of inter-State trade or commerce including imports – Article 269A

GST COUNCIL GST Council constituted w.e.f. 12.09.2016 FOURTEEN meetings held so far Decisions: Threshold limit for exemption to be Rs. 20 lakh (Rs. 10 lakh for special category States) Compounding threshold limit to be Rs. 50 lakh – not available to inter-State suppliers, service providers (except restaurant service) & specified category of manufacturers Government may convert existing area based exemption schemes into reimbursement based scheme

….GST COUNCIL…. Decisions: To ensure single interface – all administrative control over 90% of taxpayers having turnover below Rs. 1.5 cr. would vest with State tax administration 10% of taxpayers having turnover below of Rs. 1.5 cr. would vest with Central tax administration taxpayers having turnover above Rs. 1.5 cr. would be divided equally between Central and State tax administration Same arrangement would be applicable for IGST Act with few exceptions

GSTN Incorporated on 28.03.2013 as Section 25 private limited company with authorized equity of Rs. 10 crore Strategic control to remain with Government Equity Holders Central Government - 24.5% EC and all States together - 24.5% Financial Institutions – 51%

…GSTN…. To function as a Common Pass-through portal for taxpayers- submit registration application file returns make tax payments To develop back end modules for 27 States (MODEL –II) Infosys appointed as Managed Service Provider (MSP) Appointed 34 GST Suvidha Providers (GSPs) to develop simple applications to be used by taxpayers for interacting with GSTN

ROLE OF CBEC Prominent role as custodian of Centre’s fiscal destiny in relation to indirect taxes Role in Policy making: Drafting of GST Law, Rules & Procedures CGST, UTGST & IGST Law Assessment, Audit, Anti-evasion & enforcement under CGST & IGST Law Levy & collection of Central Excise duty on products outside GST Five specified Petroleum Products & Tobacco Levy & collection of Customs duties Developing linkages of CBEC - GST System with GSTN Training of officials of both Centre & States

Central & State Taxes to be subsumed in GST VAT / Sales Tax Central Excise duty Entertainment Tax (not levied by local bodies) Surcharges & Cesses Additional duties of excise Surcharge & Cesses State Taxes Central Sales Tax Central Taxes Purchase Tax Excise duty levied under Medicinal & Toiletries Preparation Act Service Tax Taxes on lottery, betting & gambling Entry Tax Additional duties of customs (CVD & SAD) Luxury Tax

Major Taxes to be retained Post-GST Local Body Taxes Central Taxes State Taxes Central Excise on: Tobacco products Petroleum Products Basic Custom Duty State Excise on Alcohol liquor State VAT on: Alcohol liquor Petroleum Products Stamp Duty Electricity Duty Profession tax Road tax Taxes on Mineral Rights Property Tax Entertainment Duty Gram Panchayat Tax

GST- FEATURES…. Destination-based consumption tax. Applies to all supplies of goods/services (as against manufacture, sale or provision of service) made for a consideration except: Exempted goods / services – common list for CGST & SGST Goods / services outside the purview of GST Transactions below threshold limits Dual GST having two concurrent components- Central GST (CGST) levied & collected by Centre State GST (SGST) levied & collected by States [including Union territories with legislature] Union territory GST (UTGST) levied and collected by Union territories without legislature CGST, SGST and UTGST on intra-State supplies of goods / services in India

GST- FEATURES…. IGST levied and collected by the Centre applicable to: Inter-State supplies of goods / services in India Inter-state stock transfers of goods Import of goods / services Export of goods / services Export of goods/services- Zero rated Tobacco Products – under GST + Central Excise GST would apply to all goods and services except Alcohol for human consumption. GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural gas) would be applicable from a date to be recommended by the GSTC.

Whom to pay (Jurisdiction) What compliance to be done Broad Framework of GST Taxable Event - Supply When to pay - Time of Supply Whom to pay (Jurisdiction) - Place of Supply How much to pay - Valuation - Rate of tax - Input Tax Credit What compliance to be done - Registration - Payment - Returns

Person [Section 2(84) of CGST Act] “Person” includes - Individual HUF Company Firm LLP AOP or BOI, whether incorporated or not, in India or outside India Corporation established by or under Central, State or Provincial Act Government company Local Authority body corporate incorporated by or under the laws of a country outside India co-operative society registered under any law relating to cooperative societies society as defined under the Societies Registration Act, 1860 (21 of 1860) Trust Central or state government every artificial juridical person, not falling within any of the preceding sub-clauses

Taxable Person and Registered Person Taxable person means [Section 2(107) of CGST Act]: a person who is registered; or liable to be registered under section 22 or section 24; Registered person means [Section 2(94) of CGST Act]: a person who is registered u/s 25 of CGST Act; but does not include a person having a Unique Identity Number

Distinct Person Distinct person u/s 25(4) and (5) of CGST Act: A person having registration in more than one state or union territory to be treated as distinct person in respect of each such registration Different establishments of same person in more than one state or union territory to be treated as establishments of distinct persons Distinct person means [explanation 1 to section to section 8 of IGST Act]: An establishment in India and any other establishment outside India An establishment in a State or Union territory and any other establishment outside that State An establishment in a State or Union territory and business vertical registered within that state or union territory

Definition of ‘Goods’ Goods means [section 2(52) of CGST Act]: Every kind of movable property Other than: Money [Sec. 2(75)] Securities [Sec. 2(101)] But includes Actionable claim [sec 2(1)]; Growing crops, grass and things attached to or forming part of land which are agreed to be severed before supply or under contract of supply In addition to above, Schedule II deems certain supply to be that of goods Whether electricity is liable to GST? Clause 6 of Schedule III: Actionable claims other than lottery, betting and gambling are neither to be treated as supply of goods or nor supply of service

Definition of ‘Service’ Services means anything other than[section 2(102) of CGST Act]: Includes: activities relating to the use of money; or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged Goods Money Security In addition to above, Schedule II deems certain supply to be that of services

Aggregate Turnover [Section 2(6) of CGST Act] Means Excludes Aggregate value of: Taxable supplies Exempt supplies u/s 11 Nil rated supplies Non-taxable supplies Export supplies Inter-state supplies computed on all India basis of person having same PAN Value of inward supply on which tax is payable under RCM CGST, SGST, UTGST, IGST and cess Exempt Supplies u/s 2(47)

Supply – Broad Concept Concept of a supply is broader than a sale : Transfer of title in goods is required for Sales Supply doesn’t require transfer of title in goods Presence of two persons for “taxable supply”: Pre-requisite for VAT and Service tax Not pre-requisite for Excise Will not be a pre-requisite for GST Even self-supplies may be a taxable supply in GST Presence of Consideration for “taxable supply”:

Definition of Supply Section 7 defines “Supply” to Include…………………. Definition of “Supply” is inclusive definition and hence one has to understand normal meaning of Supply Apart from what is provided in the section 3, the transactions covered under the general meaning of supply can also be covered Dictionary meanings of “Supply”: “Make(something needed or wanted) available to someone; provide”- Oxford Dictionary “To provide materials, goods and services- an act of providing something” – Cambridge Dictionary “To make (something) available to be used : to provide someone or something with : To make available”- Merriam- Webster Dictionary

Relevant extracts of definition of “Supply” under foreign laws Australia GST Act u/s 9 and 10 defines “Supply” to mean: A supply is any form of supply whatsoever Without limiting subsection (1), supply includes any of these……………………. United Kingdom u/s 5(2) of VAT Act, 1994: Subject to any provisions made by that Schedule and to Treasury orders under sub-sections (3) to (6) below- “supply” in this Act includes all forms of supply. Malaysian GST Act u/s 4 defines “Supply” to mean: All forms of supply, including supply of imported services, done for a consideration and anything which is not a supply of goods but is done for a consideration is a supply of services

SCOPE OF SUPPLY -SECTION 7 All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business Import of services for a consideration whether or not in the course or furtherance of business The activities specified in Schedule I, made or agreed to be made without a consideration The activities to be treated as supply of goods or supply of services as referred to in Schedule II.

TAX LIABILITY OF COMPOSITE & MIXED SUPPLIES -SECTION 8 A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply. A mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax. Composite or Mixed Supply

RELEVANT DEFINITIONS 2(30) Composite Supply: means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. Example: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply. 2(66) Mixed Supply: means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Example: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

SCHEDULE – I : SUPPLY WITHOUT CONSIDERATION Permanent transfer/disposal of business assets where ITC has been availed – E.g. Permanent transfer of Air conditioner by a dealer of air conditioner from his stock in trade to personal use at residence. Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business. E.g. Electronic appliance dealer transferring such appliances to his other establishment in another state will constitute a supply.. Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. 3. Supply of goods: by a principal to his agent where the agent undertakes to supply such goods on behalf of his principal and vice versa. E.g. Principal provided goods to agent and agent supply such goods on behalf of his principal will be supply. 4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business. E.g. Any sponsorship services taken from related person outside India will be supply.

SCHEDULE-II Supply of Goods Supply of Services Transfer of Title in goods. Transfer of goods or right in goods without transfer of title thereof . Eg. Transfer of computer to be used by a customer without transfer of ownership . Any transfer of title where property in goods will pass at a future date. Eg.Transfer of Computer after paying all 10 installments in June 2018. Lease, tenancy, easement, licence to occupy land . Transfer or disposal of business assets whether or not for a consideration. Lease or letting out of the building for business or commerce, either whole or partly

SCHEDULE-II Supply of Goods Supply of Services Any supply of goods by any unincorporated association or Body of Person to member for consideration. Ex. Sale of T. Shirt to member by any club Treatment or process which is applied to another person’s goods . Ex. Repair of Computer of customer Where any person ceases to be a taxable person his business assets are deemed to be supply of goods unless business is transferred as a going concern or business is carried on by a personal representative who is deemed to be a taxable person Goods of the business are put to any private use or made available other than business purpose , whether or not for a consideration . Ex. Mobile given to employees who can use the same for personal calls .

DEEMED SUPPLY OF SERVICES Renting of immovable property Construction of complex except where entire consideration received after issuance of completion certificate or first occupation. Temporary transfer or permitting the use of any IPR . Eg. Transfer of right to use of Know How . Development, design, programming, upgradation of IT Software. Agreeing to the obligation to refrain from an act , tolerate an act or to do an act . Works contract. Transfer of the right to use any goods for any purpose . Supply of food or any other article for human consumption by way of or as a part of any service . Eg. Restaurant, Outdoor catering.

SCHEDULE -III ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES Services by an employee to the employer in the course of or in relation to his employment. Services by any Court or Tribunal established under any law for the time being in force. (a) The functions performed by the MP, MLA etc.; (b) The duties performed by any person who holds any post in pursuance of the provisions of the Constitution; or (c) The duties performed by the C.G. or a S.G. or local authority. Services of funeral, burial, crematorium or mortuary including transportation of the deceased. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. Actionable claims, other than lottery, betting and gambling.

ILLUSTRATIONS 1. An individual buys a car for personal use and after a year sells it to a car dealer. Will this transaction is supply under GST? No. Supply is not made in the course or furtherance of business. 2. Whether GST payable on disallowance of expenses for personal use. Yes. Deemed supply of service 3. Whether GST payable on tea/ snacks consumed by the employees in company/partner in firm during working? If yes, which supply

LEVY AND COLLECTION OF TAX (SECTION 9 of CGST ACT) CGST levied on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption at such rates, not exceeding 20%. Specified categories of supply of goods or services or both would be under reverse charge. Supply of taxable goods or services or both by an un-registered person to a registered person shall be under reverse charge basis on the recipient. E-Commerce operator is liable to pay GST on specified categories of services, supplied through it.

LEVY AND COLLECTION OF TAX (SECTION 9 of CGST ACT) Where an E-commerce operator does not have a physical presence in the taxable territory, person representing such E-commerce operator for any purpose in the taxable territory shall be liable to pay tax. Where an E-commerce operator does not have a physical presence in the taxable territory and also he does not have a representative, E-commerce operator to appoint a person in the taxable territory for the purpose of paying tax.

COMPOSITION LEVY (SECTION 10) Category of Registered Persons A Registered person whose aggregate turnover in the preceding FY did not exceed Rs. 50 Lakhs. All the registered taxable person under the same PAN should be under composition . Cannot collect tax from the recipient on supplies made. No credit of input tax . Rates under Composition: Category of Registered Persons Rate of Tax Manufacturers, other than as notified by Government. 1% Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II, i.e. restaurant supplies. 2.5% Any other supplier. 0.5%

COMPOSITION LEVY (SECTION 10) CONDITIONS TO OPT FOR COMPOSITION LEVY Not a supplier of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II (restaurant); Not engaged in making supply of exempted goods under GST; Not making any inter-State outward supplies of goods; Not making any supply of goods through an electronic commerce operator; Not a manufacturer of goods as may be notified.

Composition Rules Conditions and restrictions for Composition Levy: Neither a casual taxable person nor a non-resident taxable person. Goods held in stock on the appointed day, should not be purchased in the course of inter-state trade or imported. Goods held in stock not purchased from un-registered supplier, and if purchased then tax paid under RCM. Shall pay tax on RCM basis in case of inward supplies. Not a manufacturer as notified by Government to be ineligible. Mention “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply; and Mention “composition taxable person” on every notice or signboard displayed at all places of business.

THANK YOU CA VIRENDRA PARWAL vparwal@kalanico.com 9829888807