Special Problems & Situations in GST exceeding expectations since 1985 Special Problems & Situations in GST Mr. L. Badrinarayanan 5 November 2017

Agenda Permanent Transfer of Intellectual Property Rights Issues in various sectors Agency Service Sector Insurance Sector Impact on Trade Promotion Schemes Cross Charge v/s ISD

Permanent Transfer of Intellectual Property Rights

Goods or Services? Permanent Transfer of IPR Article 366(29A) in The Constitution Of India (29A) tax on the sale or purchase of goods includes (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; V/s Notification No. 11/2017-Central Tax (Rate), dated 28th June, 2017 Under Sl. No. 17, Heading 9973- Chapter, Section or Heading Description of Service Rate (per cent.) 9973 (Leasing or rental services, with or without operator) (iii) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Same rate of central tax as on supply of like goods involving transfer of title in goods -

Issues in Agency Service Sector

G.T.A.- Location of Supplier of Service Truck Company Mumbai (Registered H.O.) Sale Transferred Service Receiver Jaipur (Unregistered Branch)

G.T.A.- Location of Supplier of Service (71) “location of the supplier of services” means,— where a supply is made from a place of business for which the registration has been obtained, the location of such place of business; where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment; where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provisions of the supply; and in absence of such places, the location of the usual place of residence of the supplier; What is the location of Service Provider? Who will avail the ITC of Truck? Accumulation of ITC

Agent as a Service Provider Airlines Agent Passenger Whether sale of air tickets by agent to Passenger be treated as Supply of services? Schedule I does not covers transactions between Principal & Agent in case of services Can Agent as per IATA be treated as Service Provider?

Issues in Insurance Sector

Garage Repair Services Insurance Company (Maharashtra) Tax Invoice Garage (Gujarat) Supply of parts Insured Agreement for repairing in Gujarat What will be place of supply for parts? Location of goods when movement of goods terminates for delivery to recipient [Section 10(1)(a) – CGST + SGST] Principal place of business of recipient [Section 10(1)(b) – IGST]

WHA Model Crystal - Gibraltar Insurance Co. - UK Customer - UK (exempt service) Crystal - Gibraltar Reinsurance Insurance Co. - UK Customer - UK 8 5% Reinsurance Group Companies Service to Service Invoice to Viscount - Gibraltar WHA Ltd - UK Garage - UK Insurance Company, Customer, Garage and WHA Ltd located in UK Crystal and Viscount of Gibraltar and WHA Ltd of UK are group companies WHA Ltd claiming refund of input tax credit for export service to Viscount Economic reality - WHA Ltd only making payment to cover garage costs. ITC not available

Trade Promotion Schemes

Types of Promotion Schemes Gifts Samples Buy One – Get One (Linked Goods/Multiple goods) Money Off Coupons/Vouchers Discounts Joint marketing Schemes

GST Implications - Gifts Section 17(5)(h) - Non availability of input tax credit “goods lost, stolen, destroyed, written off or disposed by way of gift or free samples” Under UK VAT law, free business gifts – Taxable + Available input tax credit Above 50 pounds VAT due on the price of identical products Also applicable on series of gifts to a single person Below 50 Pounds No VAT due, input tax credit available

Free Samples also to qualify as supply without consideration ? Samples / Gifts “Specimen of a product which intends to promote the sales of that product and which allows the characteristics and qualities of that product to be assessed without resulting in final consumption, other than where final consumption is inherent in such promotional transactions” In UK – No VAT payable In Australia – Free Samples are GST-free Under GST Act, No distinction between free samples and gifts made in course or furtherance of business Promotion of a new product Free Samples also to qualify as supply without consideration ?

Mixed Supply / Linked Goods Promotion of Goods/Services for a single Price Considered to be a ‘multiple supply’ of goods/services under both UK VAT and Australia GST laws. In case combination of goods/services with differential rates of VAT or taxable and non taxable supplies – Rules of apportionment provided. Apportionment Rules in UK Apportionment Rules in Australia VAT Notice 700: The VAT Guide Linked Supplies Concession Section 9-75 – 10/11 of the consideration Section 9-80 – value of actual supply = price of actual supply*10/ 10+ Taxable proportion

Vouchers – Goods or Service? “goods’’ means every kind of movable property other than actionable claim and money but includes securities, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply; Explanation.– For the purpose of this clause, the term ‘moveable property’ shall not include any intangible property. “services’’ means anything other than goods; Explanation: Services include intangible property and actionable claim but does not include money. Vouchers – Goods or Services? Supply of Sodexo Coupons – Sodexo SVC India Private Limited v. State of Maharashtra & Ors. Civil Appeal Nos. 4385-4386- SC

Point of Taxation of Vouchers – Issuance or Redemption? Face Value Vouchers Vouchers ,tokens or stamps that represents a right to receive goods or services to the value of an amount stated on it or recorded in it. Single Purpose Vouchers - Redeemable against specific goods/service of a specific VAT rate – VAT payable on the issue Multi Purpose Vouchers – Redeemable against different goods/services - VAT payable if consideration exceeds face value Credit Vouchers Retail Vouchers Point of Taxation of Vouchers – Issuance or Redemption?

Joint Marketing Schemes A single supply of services versus A simultaneous supply of services Barter Transaction – How to determine the valuation for the purposes of GST? Elida Gibbs (European Court of Justice) Loyalty Management UK (House of Lords & European Court of Justice) Baxi Group (House of Lords)

Sales linked gifts Supply of Main Product Supply of Free Product Manufacturer Retailer Customer Supply of Free Product Supply Manufacturer Customer Customer receives 1 point on purchase of every product by Retailer. Customer can purchase 1 product for free from Manufacturer by using 5 such points. Is there any consideration involved in Second Transaction?

Gifting used car to employee Car Company Company Employee Company cannot avail ITC of GST paid on purchase of car? [Section 17(5)] Company has to charge GST from employee on transfer of car? [ Schedule I]

Cross charge v/s ISD

Cross Charge v/s ISD Support Services Common Services Which is the ideal method? Which services shall be received in HO / ISD GSTIN? Any loss of credit – implications? Support Services Common Services Cross charging only Input service Distributor Can cross charge method be adopted? What will be the basis to cross charge?

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