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In continuation to my email below, please find attached the relevant notification extending the facility of furnishing of LUT to all exporters other than those who have been prosecuted for any offence under the Central Goods and Services Tax Act, 2017 (12 of 2017) or the Integrated Goods and Services Tax Act, 2017 (13 of 2017) or any of the existing laws in force in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees. This relaxation has been made applicable in case of zero-rated supplies to SEZ units/ developers as well. 

 

Also attached is a master circular issued by GST authorities in relation to waiver of bank guarantee for exports which reiterates aspects like format, validity, realisation, documents to be enclosed, etc.

 

Hope this is helpful. Do share your feedback if any.

Sharing with you a recent announcements pertaining to exemption of IGST and compensation cess payable on import of  capital goods by EOU/STP units and a subsequent notification issued by DGFT giving effect to the same under the FTP 2015-20.   NASSCOM has been asking for this exemption and had very recently represented this matter with the export committee and the GST council. We are glad that our recommendations are considered.

 

A summary of the Notifications along with our brief comments are as under:

 

  • Notification No 78/ 2017 – Customs dated October 13, 2017 has amended Notification 52/2003-Customs dated March 31, 2017. 

 

To recap, Notification 52/ 2003 which dealt with upfront exemption to EOUs/ STPI units only covered Sections 3(1) Basic customs duty and Countervailing customs duty  3(5) and 3(7) of the Customs Tariff Act, 1975. Therefore, IGST levied on imports on capital goods under Section 3(7) was not covered. Through Notification No 78/ 2017 – Customs dated October 13, 2017, this amendment has been effected and the upfront exemption to EOU/ STPI units has been extended to IGST on import of goods as well.  However, please note that the upfront exemption is only applicable till March 31, 2018. 

 

The relevant extract from the notification is given below for ease of reference:

 

“2. In the said notification, for the words, brackets and figures “from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under subsections (1), (3) and (5) of section 3 of the said Customs Tariff Act, subject to the following conditions, namely:-”, 

the following shall be substituted, namely:-

 

“from -

(A) the whole of the duty of customs leviable thereon under the First-Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under sub-sections (1), (3) and (5) of section 3 of the said Customs Tariff Act; and 

(B) the integrated tax and compensation cess leviable thereon under subsections (7) and (9), respectively of section 3 of the said Customs Tariff Act:

Provided that nothing contained in clause (B) above shall apply on or after the 1st day of April, 2018, subject to the following conditions, namely:-”.

 

NASSCOM comments

 As a result of this Notification, import of capital goods under Notification 52/2003 will not attract any taxes in the hands of the EOU/ STP.  This is a huge relief for EOU/ STPI units as till the issuance of the said notification, imports of capital goods attracted IGST and no refund was eligible of the said duties, thereby increasing the cost of doing business.  Further, while this upfront exemption has been made only up to March 31, 2018, it is hoped that in case of capital goods, EOU/ STPI would at least be extended benefit of refund.  Our efforts on this front shall continue. 

 

  • Notification No 33/2015-2020 dated October 13, 2017 issued by DGFT has incorporated the above exemption from IGST and compensation cess on imports in the Foreign Trade Policy 2015-2020 by way of an amendment. Further it also provides that any domestic supply will not attract any taxes in the hands of the EOU/ STP and the GST is to be paid by the supplier and claimed as refund. 

                                

NASSCOM comments 

Upfront exemption for EOU/ STPI units for domestic procurements comes as a big relief to software exporters and is a welcome move.  However, challenges in claiming refund in the hands of DTA supplier will remain. 

 

Do share your feedback with us.

This is to apprise you of  the recent announcements and changes introduced by the Government on the GST Law. The GST council in its 22nd meeting made few important announcement particularly for the purpose of addressing concerns of the exporters. Please find attached the relevant press releases.

 

Some of the Key proposals from an IT/ ITeS sector perspective

 

  • It has been clarified that the refund mechanism is currently being developed.  However, it was said that refunds would for now be granted by way of cross empowerment, ie both by States as well as Centre.  Proposed dates for sanctioning of refunds for first 2 months are as under:

 

  • For July 2017 – by October 10, 2017
  • For August 2017 – by October 18, 2017

 

Given that the online facility for filing of refund claims is yet to be enabled, it would be need to be seen how the timelines proposed will be met. 

 

  • It has been proposed to introduce an e-wallet for exporters.  The notional amount would be extended as an advance refund by the Government.  Exporters would be allowed to utilise such credit/ amount towards payment of IGST.  The refund would ultimately be offset to the extent of advance refund.  This reduces the working capital impact and addresses the ask of NASSCOM in its recommendations filed to have a system of set-off akin to the one available under the EU VAT laws for GST on imports. 
  • Payment under reverse charge for purchases from unregistered dealers suspended until March 31, 2018.  This comes as a big relief to taxpayers, as it significantly reduced unnecessary compliance burden that was caused by the provision. 
  • EOUs (including STP units) will be allowed to import inputs without payment of IGST, cess, etc.  Further, supply of goods to EOUs by domestic suppliers will be treated as deemed exports under section n147 of CGST/ SGST Act basis which input tax credit relating to such supplies will be refunded . This is much awaited relief for STP units for which upfront exemption was withdrawn.
  • Refunds of IGST paid on supplies to SEZs and of inputs taxes on exports under Bond/LUT shall be processed from 18.10.2017 onwards
  • Introduction of e-wallet facility – Advance refund would be granted.  Such credit can be used to pay IGST, etc.  This is proposed to be made operational from April 1, 2018. While the mechanics of the scheme are awaited, this again would be advantageous for exporters. 
  • Exporters have been exempted from furnishing Bond and Bank Guarantee when they clear goods for export.
  • GST rate on sale of duty scrips has been revised from 5% to 0%.

 

Key proposals from an e-commerce perspective

 

  • E-waybill to be introduced in a staggered manner from January 1, 2018 and rolled out nationwide from April 1, 2018. 
  • TCS deferred to March 31, 2018. 

 

Other proposals

  • Quarterly return as well as quarterly tax payment for small businesses with turnover of Rs 1.5 crore or less proposed.  The switchover to take place from October 1, 2017 (Credit can be availed by customers of such small taxpayers on self-assessment basis in GSTR-2 on a monthly basis)

 

  • First quarterly return to be filed in January 2017
  • No changes in GSTR 3B filing till December 2017
  • No changes in GSTR-1 filing for July 2017
  • August and September GSTRs – timetable to be issued

 

  • Requirement to pay GST on receipt of advances towards supply of goods is dispensed with for taxpayers having turnover of Rs 1.5 crores. 
  • GST rate on leasing of old vehicles (transitional leases)– abatement of 35%

In this blog, we look at a query on whether availability of GST credit in respect of capital goods held by a business concern that has newly obtained registration.

 

Query:

We are a start-up  in the IT-service sector and have purchased certain capital goods such as servers, furniture, etc. over a couple of months prior to and after GST implementation. We have obtained GST registration recently. Will we be entitled to avail credit of the GST paid on such purchases?

 

Response:

A person who has applied for registration within 30 days of becoming liable for registration is entitled to take credit of input tax in respect of inputs held in stock (as such / contained in semi-finished/ finished goods) on the day immediately preceding the date from which he becomes liable.

 

However, in the given case, we understand that the goods purchased are capital goods. There is no provision under the GST Laws that permits availing of credit in respect of capital goods procured before the date of obtaining registration. Therefore, credit in respect of taxes paid on purchase of servers, furniture, and any other goods purchased by you capitalised in the books of account, cannot be availed where the registration under the GST Law was granted after the date of purchase. If any such goods have been purchased after the date of grant of GST registration, and the tax invoice contains the GSTIN of your company, then the credit in respect of such capital goods can also be availed, subject to conditions as applicable to any other goods.

 

 

Legislative reference: Section 18 read with Section 16 and 2(19) of the CGST Act, 2017. 

 

Authors: Meghana Belawadi and NR Badrinath

 

  

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

GST has been implemented in the Indian taxation system, which is considered to be a landmark decision made by the Indian Government. However, long before the announcement of this decision, there were many speculations going on, whether the move will benefit the people or not. A large number of people supported this revolutionary decision while many condemning it, claiming that it would put many businesses to earn a reduced revenue and even force them to shut down. However, on the contrary, the central excise commissioner of Gurgaon, V Sangeeta, termed this move as the biggest reform of the indirect tax system. Read More

In this blog, we look at a query on the code applicable for SaaS (Software as a Service).

 

Query:

What is the HSN / SAC applicable for SaaS services for invoicing?

 

Response:

 

SaaS (Software as a Service) is model that offers a means whereby software may be used by a person without acquiring / purchasing it. Ordinarily, SaaS is understood as a subscription-based model where the software is hosted in the cloud and accessed through the internet. In other words, a SaaS model offers the right to use a software, without acquiring it. Therefore, by virtue of Schedule II of the CGST Act, 2017, the supply would be treated as a supply of services. The relevant entries would fall under the head Licensing services for the right to use intellectual property and similar products, attracting tax at 18%. The 6-digit code may be determined based on the description provided in the scheme of classification of services. 

 

The two most relevant entries are reproduced below:

997331Licensing services for the right to use computer software and databases;
997339Licensing services for the right to use other intellectual property products and other resources nowhere else classified

 

Legislative reference: Schedule II to the CGST Act, 2017 read with the scheme of classification of services provided as an Annexure to Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017. 

 

Authors: Meghana Belawadi and NR Badrinath

 

  

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

In this blog, we look at a query on taxability of import of services where the supplier has no establishment in India.

 

Query:

An STPI unit exports BPO /Software services with clients in Germany, Austria & Italy & receives in Euro (convertible forex). To facilitate after sales service, we have an entity in Germany that works on our instructions, whom we pay almost every month, in Euro. This Entity has NO ESTABLISHMENT in India. Is GST applicable? How much?

 

Response:

An import of service shall be liable to tax on reverse charge basis, payable by the recipient of the service being located in India.

 

For a service to qualify as an import of service, it must satisfy the following 3 conditions cumulatively:

(i ) the supplier of service is located outside India;

(ii) the recipient of service is located in India;
(iii) the place of supply of service is in India;

 

In the instant case, the "place of supply" would be the location of the recipient (i.e., location of the STPI unit in India), in terms of Section 13(2) of the IGST Act.

 

Therefore, regardless of the fact that the German entity (providing the facilitation services to the STPI unit in India) does not have an establishment in India, the supply, being an import of service, would attract IGST @ 18% under the code 9985 (support services).

 

Legislative reference: Sections 7 and 13 read with Section 2(11) of the IGST Act, 2017. 

 

Authors: Meghana Belawadi and NR Badrinath

 

  

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

1. Suppose our project is in west Bengal and we need to raise   invoice from  Maharashtra (from our H.O. Mumbai) , then which tax we can apply because in Maharashtra we are going to apply GST and in west Bengal i donot know the which tax structure is there.  please explain also the percentage of GST or any other tax.

 

Answer

 If the supply is being rendered by a tax payer in Mumbai to a recipient in West Bengal, the tax that would be applicable would ordinarily be IGST West Bengal.  However, if the tax payer is providing such services from an office / establishment in West Bengal, the applicable tax would ordinarily be CGST + SGST West Bengal.  Management of business consultant services would typically fall under the 18% rate. 

 

As you would appreciate, the individual facts would determine the location of the supplier, the location of the recipient, the place of supply and the rate of tax.    

 

2. Please confirm the SAC code for SaaS services for invoicing.

 

Answer

 SaaS (Software as a Service) is model that offers a means whereby software may be used by a person without acquiring / purchasing it. By virtue of Schedule II of the CGST Act, 2017, the supply would be treated as a supply of services. The relevant entries would fall under the head Licensing services for the right to use intellectual property and similar products, attracting tax at 18%. The 6-digit code may be determined based on the description provided in the scheme of classification of services. The most relevant entries are reproduced below:

 

997331: Licensing services for the right to use computer software and databases;

997339: Licensing services for the right to use other intellectual property products and other resources nowhere else classified.

 

3. We are an STPI unit exporting BPO /Software services with clients in Germany, Austria & Italy. All our exports are received in Euro (ie convertible exchange).

To facilitate our after sales service we have an entity in Germany whom we pay almost every month. This entity works on our instructions to facilitate our workings with our clients. We pay this entity from India in Euro. This Entity has NO ESTABLISHMENT in India.

Our question: Do we have to pay GST on a reverse charge basis for this Entity ? If so, how much. Please advise

 

Answer

 The STPI unit exporting BPO /Software services with clients in Germany, Austria & Italy and obtaining the after-sales services from the German entity, would be liable to pay IGST @ 18% on the consideration paid to such entity, as the services would qualify as import of services.

 

Sharing some more insights as below:

 An import of service shall be liable to tax on reverse charge basis, payable by the recipient of the service being located in India.

 

For a service to qualify as an import of service, it must satisfy the following 3 conditions cumulatively:

the supplier of service is located outside India;
(ii) the recipient of service is located in India;
(iii) the place of supply of service is in India;

In the instant case, the "place of supply" would be the location of the recipient (i.e., location of the STPI unit in India), in terms of Section 13(2) of the IGST Act.  Therefore, regardless of the fact that the German entity (providing the facilitation services to the STPI unit in India) does not have an establishment in India, the supply, being an import of service, would attract IGST @ 18% under the code 9985 (support services).

 

4. We Supply software License to the customers online. The same is downloaded and used by the customers using encrypted keys. Is this supply of goods or supply of services?

 

Answer

 The FAQs are leading to divergent views on this.  It is clarified in the FAQs (response to Q1) that “…temporary transfer or permitting the use or enjoyment of any intellectual property right are treated as services”. It is further clarified that pre-developed software made available through encryption keys, typically covering electronic download as qualifying to be “supply of goods”. However, the FAQs further mention that where EULA is executed and depending on the terms of such EULA (response to Q 18), software can qualify to be “temporary transfer or permitting the use or enjoyment of any intellectual property rights” and would be a “supply of service”.   Software licensing involves the execution of an End User License Agreement and by the sheer nature of intangibles and its sale, results in enjoyment of an IP by the customer.  Therefore, ideally, all software licensing ought to be treated as “supply of services”.  However, due to the clarification provided to question 1 that “pre-developed or pre-designed software ………………. made available through the use of encryption keys, the same is treated as supply of goods” there is a confusion. 

 

5. SAAS model - Is it supply of goods or supply of service ? Though it is supply of service on the face of it, since the password is encrypted online, does it mean it would be termed as supply of goods as per the inputs provided in GST FAQ on IT/ITES sector ?

 

Answer

There are no clear guidelines on SaaS model in the FAQs.  We have sought clarification on both these points as part of our representation.

 

6. Will a software company, operating only out of Special economic zone area be liable to pay GST under reverse charge when it procures goods/ services from unregistered dealers?

 

Answer 

The provisions requiring a registered person to discharge taxes on reverse charge basis, on effecting inward supplies from unregistered persons, hold goods across all registrations, including SEZ units/ developers. Therefore, such a software company would be liable to pay GST under RCM basis and would have to generate an invoice on receipt of goods / services from unregistered persons.

 

Additional comments: The GST Law mandates every person effecting taxable inter-State supplies to compulsorily obtain registration, regardless of their turnover – even the threshold of Rs. 20 lacs will not apply. Therefore, prima facie an unregistered person will not be eligible to make a supply to an SEZ – thus, the SEZ unit may have to educate the supplier on the provisions of the law if the supplier is unregistered. However, this does not absolve the company from complying with the aforesaid provisions, if the supplier continues to remain unregistered.

 

7. Sale of goods before the appointed date is returned after the appointed date. Is it mandatory to receive a supply invoice from the customer for the transitional period?

 

Answer

 Prima facie, sales returns will qualify as ‘supply of goods’ and would be liable to GST in the hands of the person returning. It would qualify as ‘outward supplies’ in the hands of the person returning and as ‘inward supplies’ in the person receiving the goods. The payment of GST and claim of input credit would accordingly apply, to the supplier and the recipient, respectively.

 

However, as a transitional provision, an exception has been provided for cases where the goods are sold during the pre-GST regime (sales within 6 months upto introduction of GST) and are returned within a period of 6 months from the date of introduction of GST, in respect of returns from unregistered persons.

 

To illustrate the taxability of sales returns, the date of implementation of GST is reckoned as 01.07.2017 in the following table:

 

1. If the returns are by a registered taxable person (viz., person who is registered under the GST law and is returning the goods to the seller / supplier). It would be taxable in all circumstances.

Date of original sale of goods

Date of return of goods

Taxability

Remarks

01.01.2017 upto 30.06.2017

01.07.2017 upto 31.12.2017

Taxable

Proviso to Section 142 of the Model GST law

On or after 01.01.2018

Taxable

Section 142 would not be applicable. Hence, would qualify as ‘supply’ under GST and would be taxable.

On or after 01.07.2017

On or after 01.07.2017

Taxable

Sales return will be a normal ‘supply’ and would accordingly be taxable.

Note: Sales returns not falling within the above would also be taxable. 

 

 2. If the returns are by a person who is not registered under GST (viz., person returning the goods is not registered under GST). 

Date of original sale of goods

Date of return of goods

Taxability

Remarks

01.01.2017 upto 30.06.2017

01.07.2017 upto 31.12.2017

Not taxable

Specifically excluded under Section 174 of the Model GST law.

Tax / duty paid under the earlier law may be claimed as refund by the supplier (seller) of goods.

On or after 01.01.2018

Taxable

Section 174 would not be applicable. Hence, would qualify as ‘supply’ under GST and would be taxable.

Would be taxable as a receipt of goods from unregistered persons – under reverse charge mechanism.

On or after 01.07.2017

On or after 01.07.2017

Taxable

Sales return will be a normal ‘supply’ and would accordingly be taxable.

Note: Sales returns not falling within the above would also be taxable. 


  1. 8. We want to know that “Software as a Service” (SaaS pronounced) is a software, in which software is licensed/ Provide UID & PWD on a subscription basis and is centrally hosted. It is sometimes referred to as "on-demand software", and was formerly referred to as "software plus services".

 

SaaS is typically accessed by users using a thin client via a web browser. SaaS has become a common delivery model for many business applications, including office and messaging software, payroll processing software, DBMS software, management software, CAD software, development software, gamification, virtualization, accounting, collaboration, customer relationship management (CRM), Management Information Systems (MIS), enterprise resource planning (ERP), invoicing, human resource management (HRM), talent acquisition, content management (CM), and service desk management. SaaS has been incorporated into the strategy of nearly all leading enterprise software companies.

The term "software as a service" (SaaS) is considered to be part of the nomenclature of cloud computing, along with infrastructure as a service (IaaS), platform as a service (PaaS), desktop as a service (DaaS), managed software as a service (MSaaS), mobile backend as a service (MBaaS), and information technology management as a service (ITMaaS).

We are proving Customer relationship management (CRM) software with advanced features to use by retailers and they (users) using this software via a web browser only through Desktop as well as Mobile App. No Database shall provide by us. Respective retailers use their own database prepared/ entered/ maintained by every retailers by their own.

 

Query: What will be our SAC code for our Service?

 

Answer:  The HSN will be 9983, ie, “Other professional, technical and business services”

 

Query: What will be the Place of Supply for our service?

 

Answer: The place of supply in case of SaaS in general would fall under the residual category of determination of place of supply, ie, location of the recipient of services as provided under section 12(2)/ section 13(2) of IGST Act, 2017.

 

Query: Invoicing shall be made and Tax shall be paid accordingly, as per the answer to Q.2 above

All Billing shall be made under SGST & CGST to our Establishment State in UP

OR

(ii) Invoicing shall be made as per the Section 12-2-a/b of IGST Act where the service actually consumed/ utilized and the address of Retailers on bill (from where his/her shop located) and pay IGST for Inter-state address and pay SGST & CGST for Intra-state address from the Business Establishment our Company i.e. UP.

 

Answer: “Bill to” location based on application of principles laid down in the definition of “location of recipient of service” would need to be determined based on detailed analysis of underlying facts.  Further, the place from where the services are provided would also need to be examined basis definition of “location of supplier of service” in order to accurately comment on whether it is an inter-state transaction liable to IGST or intra-state transaction liable to CGST + SGST. 

 

Query: We shall also liable to discharge the liability under reverse charge against purchase/ service received in the above mentioned premises, more than 5,000/- rupees per day either goods or service or both, is it Right?

 

Answer: We concur with your understanding.  All procurements made from unregistered persons exceeding Rs 5,000 in a day will attract GST. 

 

Query: The threshold limit of Rs.5000/- per day for a single company or for each registration under GST?

 

Answer: The threshold of Rs 5,000 is required to be computed qua the registrations obtained state-wise under GST. 

 

Query: We have installed Telephone, Internet, and Computer on Rent at our Sales/ Marketing offices in different states, so we want to take ITC against such services! Therefore, we have to take Registration under ISD, Right? Then prepared Invoice to transfer ITC to our Establishment/ work office at Noida, Right?

 

Answer: Whether registration needs to be obtained for such sales/ marketing offices in order to avail ITC would depend on several underlying facts including nature of input services in question.  Further, once it is determined that registration is required, whether the registration is ISD or a regular registration would depend on the underlying facts of the case in terms of transfer of credit or self-supply of services.  The definition of input service distributor (‘ISD’) as per the CGST Act which is relevant with respect to the same has been extracted below for your reference:

 

means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office”.  

 

Further, the Authorities on various occasions have clarified that ISD is not mandatory. 

 

Query: As per Q.4 we have to discharge the reverse charge liability on Renting of immovable property of Sales/Marketing offices in respective states or from our establishment at Noida, UP?

If we  will take Registration in respective Sales/ Marketing Officers in respective states then how ITC will transfer to our Noida Establishment?

Can we take both Registrations at our Sales/Marketing offices in respective states?

i – for discharge the liability of reverse charge – general registration ( Rent)

ii – for transfer of ITC to Noida Establishment – ISD

 

Answer: Response to this query would first involve understanding of various underlying facts including locations of offices, details with respect to locations from where supplies are made etc. 

 

Summary of the key points relevant for IT/ITeS sector:

 

1. Classcification of software 

 

  • It has been clarified (question 1) that any development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology and temporary transfer or permitting the use or enjoyment of any intellectual property would be treated as supply of services.   However, that pre-developed software or pre-designed software supplied in any medium/ storage or made available through the use of encryption keys would be treated as supply of goods
  • Question 18 clarifies as to what would contitute supply of services “involving temporary transfer or permitting the use or enjoyment of any intellectual property. In providing its clarification on this aspect, the FAQs describe that a End User License Agreement (EULA) as a legal contract between the software application author or publisher and the user of that application which governs the softwares usage.  The FAQs suggests reliance on such EULAs to decide whether or not a supply involves “temporary transfer or permitting the use or enjoyment of any intellectual property rights”. 

 

NASSCOM comments and way forward 

Reliance has been placed on EULA for determination of “service” or “goods” and no principles/ criteria has been laid out towards the same, which again would be subject matter of contention.  NASSCOM would continue to represent the issue before the GST council or Sectoral Working Group officials to seek clarification on the subject of software being “service” or “goods” when supplied on a media and electronically.

 

2.  Place of supply in case of IT/ ITeS services (Question 8, 9 and 23)

 

The FAQs have clarified that the place of supply for IT/ ITeS services would be the location of the recipient in terms with Section 12 (for domestic supplies) and section 13 (for cross border transactions).   Further, in question 23, the tax liability where supplies have been made from multiple locations to a recipient under a single contract has been examined under the following fact pattern:

 

  • Delivery of services from various locations;
  • Integrated pricing for the contract as a whole;
  • Contract or agreement with the recipient entered into by one of the branches (Main branch). 

 

In case of the above fact pattern, it has been clarified that the supply could be visualised as consisting of distinct supplies. 

 

  • First supply – Branches engaged in supply making a supply to the main branch which has entered into the contract or agreement. 
  • Second supply – Main branch making supply to the customer. 

 

NASSCOM comments and way forward

 

FAQs clarifies that a single invoice can be raised although supplies are made from multiple offices.  However, it is not clear what the “main branch” should be and how it would need to be determined, ie whether the main branch needs to be determined based on number of employees engaged from a particular location, based on revenue and/ or cost attribution, based on control or other such factors.  NASSCOM would try and obtain further clarity on this aspect. 

 

In addition of course, given that the clarification is not categorical on this aspect, NASSCOM would continue to represent in the seeking the following clarifications

 

  • That both the “location of provider” and “location of recipient” are determined based contractual locations; and
  • Method of determination of contractual location is reasonable. 

 

3. Valuation of self-supplies (Question 24)

 In question 24 the valuation of supplies made by the branches to the main branch has been evaluated.  It has been clarified that the value delared on the invoice would be deemed to be the open market value of goods and services.  In providing this clarification, reliance has been placed on the second proviso to Rule 28 of the CGST Rules. 

 

NASSCOM comments and way forward

 

FAQs suggest that where multiple offices are involved in a supply, while invoicing could be made from the branch/ office which has executed the contract, a self-supply from the other branches/ offices.  However, relying on the second proviso to Rule 28 of the CGST Rules, the fact that any value declared on such invoices would be deemed the open market value is a welcome clarification. 

 

4. SEZ registrations (Question 14 and 15) - The FAQs have now clarified that all SEZ units in a State can obtain a single registration.  The only requirement is that SEZ units have a separate registration from that of DTA units. 

 

5. Liability under reverse charge in case of OIDAR services from Overseas supplier (Question 17) - The FAQs clarify that in case of OIDAR services provided by an Overseas Supplier, the Overseas Supplier is liable to take registration and pay tax.   This clarification is welcome as it reaffirms the position taken by several players that no reverse charge is required to be discharged in case of OIDAR supplies. 

 

6. ISD registration (Question 26) - The FAQs clarify that ISD registration is not mandatory.   This clarification is welcome and is in line with the clarification provided by the Government on its Twitter handle. 

A month into the roll out of the Goods and Services Tax is rolled out traders, manufacturers and customers alike are slowly learning the ropes of the new tax regime.  The entire Nation has been abuzz with action as companies gear up towards a period of transition.  One such sector that has been grappling with the sea of changes brought about is the start-up sector. 

 

A practical manual to a few changes are as under:

 

Threshold for registration 

Under GST this threshold has been pegged at Rs 20 Lakhs (or Rs 10 Lakh for North East States).  However, registration has been made mandatory inter alia in the following cases:

 

  • Persons making inter-state supplies;
  • Persons required to pay tax under reverse charge (whether imports or domestic); 
  • Persons providing Online information database access or retrieval service from outside India to non-assessee online recipients; 
  • Non-resident taxable persons; and 
  • Input service distributor.

 

Tax structure under GST 

GST operates under a 5 rate structure and all goods and services would fall under one of these slabs:

 

NIL

For essential commodities

5%

Packaged food items, coffee, tea, spices, apparel and footwear below a threshold, insulin, transport services etc

12% / 18%

Median rates under GST

28%

Luxury and sin goods

 

In addition to the above, some luxury and sin goods are also liable to a compensation cess. 

 

Composition scheme under GST 

GST also has a scheme of lower taxes (1% for a manufacturer, 2.5% in case of Restaurant and 0.5% in case of other suppliers) for small businesses with turnover up to Rs 75 Lakhs in the previous financial year.  It is called the composition scheme.  This scheme offers some respite from tax burdens to newly established businesses. 

 

However, the composition scheme has a set of restrictions such as:

 

  • The scheme is not applicable for supplier of services other than restaurant service providers; 
  • The scheme is not applicable where any supplier supplies goods that are not taxable; 
  • The scheme is not applicable where the registered person is engaged in inter-state outward supply of goods; 
  • This scheme is not applicable to any person who is engaged in supply of goods through an Electronic Commerce Operator; 
  • This scheme is not applicable if a manufacturer is supplying such goods that are notified by the board to be not supplied under the composition scheme.

 

In addition, the supplier cannot collect GST from its customers or avail input tax credit with respect to procurements from its vendors.

 

Place of supply

 GST ushers in a significant move away from multiple triggers for taxation (‘Manufacture’ for excise duty, ‘Sale’ for VAT etc) to a single trigger of ‘Supply’

 

The concept of place of supply under GST, as the phrase indicates, is used to determine the place of provision of supply. 

 

GST being a ‘destination based consumption tax’, the place of supply of service will determine not only the nature of tax to be charged but also where the supply is consumed which will in turn determine the State to which the tax accrues. 

 

The general rule for determination of place of supply of services is simply the location of such person.  In case of goods, generally the place of delivery would be the place of supply. 

 

However, the Act has also prescribes specific proxies for determining place of supply for example for services in relation to immovable property – the location of immovable property, service of a restaurant or catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery – location where the services are actually performed etc.

 

Reverse charge mechanism and payment of GST in case of purchases from un-registered dealers 

GST would need to be discharged under the reverse charge mechanism by a recipient of service for specific categories of services.  In addition, in case of suppliers from unregistered dealers GST would need to be remitted on reverse charge basis.  However, an exemption for purchases up to Rs 5,000 per day has been provided. 

 

Such taxes discharged under the reverse charge mechanism is eligible to be availed as credit subject to the supply qualifying as input services or inputs or capital goods.  For instance, rent-a-cab services are covered under the reverse charge mechanism.  However, credit of the taxes discharged is not available as credit since there is a credit restriction on rent-a-cab services. 

 

Further, registration has been made mandatory for persons required to pay tax under reverse charge (whether imports or domestic).

 

Invoicing under GST

Every supply under GST is required to be made under the cover of a tax invoice.  Further, invoices are to be consecutively numbered.  The invoice should capture all information prescribed for it to qualify as a valid tax invoice, with clear mention of taxes. 

 

Invoices should be issued at the correct address (as per place of supply), so as to avoid credit disallowance in the hands of the recipient.  Self- invoice to be issued in case of reverse charge supplies and URD procurements. 

 

HSN codes to be mentioned in the GST invoice

 The HSN codes as per below, needs to be mentioned in the invoices:

 

Annual Turnover in the preceding financial year

Number of digits of HSN code

Up to One crore Fifty Lakhs

Nil

More than One crore Fifty Lakhs and up to five crores

2

More than Five crore

4

 

Filing of returns 

The entire GST process starting from registration to filing returns and payment of GST tax is online.  Startups do not have to run around to tax offices to get various registrations under Excise, VAT, and Service tax.

 

However, 3 returns – for outward supplies - on 10th of the following month, for inward supplies on 15th and a consolidated return on the 20th - for each registration needs to be filed and in addition to this an annual return needs to be filed by December 31 of the next financial year.  Separate returns have been prescribed for input service distributors, suppliers opting for composition supply, supplier of e – commerce, and taxable persons required to deduct tax at source. 

 

Other impact on start – ups

 

Simpler taxation and ease of doing business 

Startups often working on tight budget that have so long had to deal with compliances under Excise, VAT, CST, Service Tax etc will find it much easier to file and pay one GST tax instead of both VAT and service tax.  Approvals, registrations and reporting are all required to be made online which makes the entire compliance process under GST easier to monitor.  An added advantage is that the return formats require invoice level reporting and this ensures that an audit trail is maintained. 

 

Reduction in cascading effect of taxes 

Under the earlier indirect tax regime taxes deposited with the Central and State Governments were not fungible.  This meant that while a taxpayer discharged tax on his input, he could not set-off the same against his output.  For example, traders were eligible to credit of VAT paid on their purchases but were not eligible to credit of service tax paid on indirect costs/ overheads under the earlier regime.  As a result, service tax on rental charges for warehouses, telephone expenses and the like were a cost in the system.  Similarly, service providers were not eligible to claim credit of VAT paid on inputs/ capital goods.  Thus, “cascading effect of taxes” has been done away with and under GST all taxes are creditable subject to fulfillment of eligibility criteria. 

 

Removal of burden of dual levy 

One of the biggest issues under the erstwhile laws was that few transactions were liable to both service tax as well as VAT.  One such example was the electronic supply of software on which authorities demanded taxes under both the service tax laws as well as VAT laws.  Now, with the introduction of the GST regime the issue of dual levy has been done away with and all supplies attract a single tax. 

 

E-commerce and other online startups 

Many startups are technologically innovative meaning they have a huge presence online.  Many startups provide goods and services through the internet. GST is applicable all over India so there is no complication for inter-state movement of goods.  Currently, states have different VAT laws. For example, online websites delivering to Uttar Pradesh, have to file a VAT declaration and the registration number of the delivery truck.  Tax authorities sometimes seize goods when there is a failure to produce documents.  This nightmare would be put to rest with check posts being under away with under GST. 

 

Registration has been made mandatory for persons who are registered as Electronic Commerce Operators.

 

A new provision has been introduced under GST where every electronic commerce operator not being an agent has to collect tax at source at a rate not exceeding one per cent on the net value of taxable supplies made.

 

Tax burden for manufacturing startups  

However, startups in the manufacturing sector will bear the brunt.  Under the existing excise laws, only manufacturing business with a turnover more than Rs 1.50 crore has to pay excise.  However, with the implementation of GST, the turnover limit has been reduced to Rs 20 lakh thus increasing the tax burden for many manufacturing startups with the only respite being composition scheme.

 

 

Disclaimer 

The above blog is based on inputs from our GST knowledge partner, BMR Advisors. The blog is with the intent to provide general guidance and does not render any definitive opinion. Prior professional advice is recommended before implementation of any aspects covered above.

 

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Ministry of Finance has via the attached press release clarified that Gifts up to a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.  The press note further explains the term “gift” and elaborates on conditions for perquisites not to be considered as taxable supply under GST. However, applicability of GST on reimbursement under GST from employer to employee continues to be unaddressed in the press note. 

In this blog, we look at a query on whether separate GST registrations are mandated by law in case of units within the same State having distinguishable operations.

 

Query:

We have two units in the same State – one unit is engaged in sale of packaged software and another unit that is engaged in development of customised software. Are we required to obtain two registrations?

 

Response:

No. A single registration would be required per State, even if the activities undertaken by the two units are different from each other. Where the entity wishes to voluntarily obtain separate registrations for the two units, it may do so, provided that it can be substantiated that the nature of business conducted in the two units can be distinguishable, and each unit can be classified as a separate “business vertical” as defined under the GST law.

 

Additional comments:

  1. Separate registrations are mandatory for the two units (although located in the same State) where one of the units is located in a SEZ/ is a SEZ developer.
  2. Business Vertical” means a distinguishable component of an enterprise that is engaged in the supply of individual goods or services or a group of related goods or services which is subject to risks and returns that are different from those of the other business verticals. For the purposes of this clause, factors that should be considered in determining whether goods or services are related include:
    1. the nature of the goods or services;
    2. the nature of the production processes;
    3. the type or class of customers for the goods or services;
    4. the methods used to distribute the goods or supply of services; and
    5. the nature of regulatory environment (wherever applicable), including banking, insurance, or public utilities;

 

Legislative reference: Section 25 read with Section 2(18) of the CGST Act, 2017. 

 

Authors: Meghana Belawadi and NR Badrinath

 

  

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

In this blog, we look at a query on whether IGST credits can be availed in respect of hotel accommodation, by obtaining an ISD registration.

 

Query:

We have a head office in Mumbai and 3 other branch offices. However, we have several meetings with clients across the country. For this purpose, we have entered into a contract with a Hotel chain having Hotels across various cities in the country. Can we ask such Hotels to issue an IGST invoice to the ISD registration applied for in the location where we have our Head Office?

 

Response:

 

No. The nature of supply would be an intra-State supply and consequently would be liable to CGST and SGST.

 

It is important to note that the nature of tax to be paid on a supply would be an interplay of (a) location of the provider of services and (b) place of supply of services. Where these are within the same State, it would be an intra-State supply; and where they are in different States, it would be an inter-State supply. Applying this rule is mandatory and not the choice of the recipient or the supplier.

 

With specific reference to accommodation in hotels, the place of supply is the State where the hotel is located – accordingly, all such supplies (accommodation) would always be intra-State supplies and hence would be liable to CGST and SGST. Therefore, the Hotelier cannot issue an invoice for IGST.

 

Additional comments: Where the recipient obtains a registration as an ISD in the State where the accommodation was taken; an ISD can distribute the credits accumulated on a monthly basis, by issuing an ISD invoice to the Head Office/ Branch(es) to which the service is attributable, in the proportion of their turnover.

 

Legislative reference: Section 19 of the CGST Act, 2017 read with Section 7, 8 and 12 of the IGST Act, 2017 and Rule 54 of the CGST Rules, 2017. 

 

Authors: Meghana Belawadi and NR Badrinath

 

  

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

Question 1: 

 As per the circular, Any person making zero rated supply (i.e. any exporter) shall be eligible to claim refund under either of the following options, namely: -

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund  un-utilized input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 (Refunds) of the Central Goods and Services Tax Act or the rules made there under (i.e. the Central Goods and Service Tax Rules, 2017).

 

We are seeking more clarity on LUT and Bond part i.e. Option ‘a’ of above.

 

We appreciate if you can furnish further clarity in terms of

  1. Bank guarantee format
  2. Amount of Bank Guarantee
  3. Complete procedure to follow with department to obtain permission for Export without payment of duty.

 

Answer: 

Thanks  for your query.  

Please find below a recent notification and circular issued by CBEC in relation to furnishing of Bond/ letter of undertaking (‘LUT’).  

  • Vide Notification no 16/2017-Central Tax dated July 7, 2017 following category of registered persons have been specified who are eligible to give a LUT instead of a Bond for export of goods or services or both without payment of IGST: 
  • A status holder as specified in paragraph 5 of the Foreign Trade Policy 2015-2020; or
  • Who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year,

 

and he has not been prosecuted for any offence under the Central Goods and Services Tax Act, 2017 (12 of 2017) or under any of the existing laws in case where the amount of tax evaded exceeds Rs 2.5 crores

 

  • Exports may be allowed under existing LUTs/Bonds till July 31, 2017.

 

  • Exporters to submit the LUTs/Bond in the revised format latest by July 31, 2017.

 

Procedure for furnishing Bond

 

  • Procedure for submission and acceptance of bond has already been prescribed vide Circular No. 2/2/2017-GSTdated 4th July, 2017 (bond to be furnished manually to the jurisdictional Deputy / Assistant Commissioner in Form RFD-11 till the module for furnishing same is available on common portal).

 

  • To be furnished on non-judicial stamp paper of the value as applicable in the State in which bond is being furnished.

 

  • Running bond to be furnished on self-assessment basis in GST RFD-11 to cover the tax involved in the export.  Exporter to ensure that the bond amount is sufficient to cover the liability, in case of shortage, fresh bond to be furnished.

 

  • Jurisdictional Commissioner may decide on value of bank guarantee.  If satisfied with track record, bank guarantee may be dispensed with.

 

  • In general, bank guarantee should normally not exceed 15% of bond value.

 

Procedure for furnishing LUT

 

  • The LUT has to be furnished in duplicate in a financial year in form GST RFD-11.  Validity of 12 months.

 

  • To be executed by the working partner, the Managing Director or the Company Secretary or the proprietor or by a person duly authorized by such working partner or Board of Directors of such company or proprietor on the letter head of the registered person.

 

Acceptance of Bond/ LUT

 

  • To be accepted by the jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place of business of the exporter.

 

  • Can be furnished before Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented.

 

  • Commissioner of State Tax can direct, by general instruction to exporter, the Bond/LUT in all cases to be accepted by Central tax officer till such time the said administrative mechanism is implemented.

 

 Question 2:

 We request you to kindly advise tax liability under GST for import of service product (software) into India and re-expert of same without any modification.

 

Answer:

 Import of software services / product would be deemed as inter-state supply and thus shall be subjected to IGST @ 18%.  Exports of services are treated as the zero rated supply and hence are exempted from GST. Hence, the supplier shall be allowed to export the goods/services without charging any tax, provided the place of supply is outside India, and can avail the CGST/SGST and IGST credits/ refund paid on imported software input cost.  However, the procedures prescribed for export without payment of tax would have to be followed.  Please note that fixing the place of supply is dependent on facts and it would be best for you to obtain professional advice on this. 

 

 Question 3:

 I am writing this as a followup to Chetan's email forwarding rates for GST

 My company is a startup and provide Training, Recruitment and Contracting people   to Software Services companies in India.

 

Will you be able to let me know 

 a) is there any concessions for a start up

 b) If no, what are the rates for the above three 

 

I am unable to find details in the doc, may be search does not give out these key words

 

Answer:

 

Please find below our response.

 a) is there any concessions for a start up

There are no concessions specific to start-ups under the GST law.

b) The rates for the 3 categories of services provided by you are as follows:

Training: 18% -- 999293 Other education and training services and educational support services: commercial training and coaching services 

 

Recruitment: 18% -- 99851 Employment services including personnel search, referral service and labour supply service 

(6th digit code may be identified from the Schedule annexed to Notification No. 11 on Central Tax Rates, based on the applicability)

 

Contracting staff: 18% -- 998513 Employment services including personnel search, referral service and labour supply service: Contract staffing services

In this blog, we look at a query on taxation of training and recruitment services provided by a start-up.

 

Query:

We are a startup and provide Training, Recruitment and Contracting people to Software Services companies in India.

  1. Is there any concessions for a start up?
  2. What are the rates for the above three?  

 

Response:

Given that the business is engaged in supply of services:

 

  1. There are no concessions specific to start-ups under the GST law. While the composition scheme is available to persons whose aggregate turnover in a year does not exceed Rs.75 lakhs, the scheme is only restricted to suppliers of goods. 
  2. The rates for the 3 categories of services provided by you are as follows:
    • Training: 18% -- 999293 Other education and training services and educational support services: commercial training and coaching services 
    • Recruitment: 18% -- 99851 Employment services including personnel search, referral service and labour supply service 

      (6th digit code may be identified from the Schedule annexed to Notification No. 11 on Central Tax Rates, based on the applicability)

       

    • Contracting staff: 18% -- 998513 Employment services including personnel search, referral service and labour supply service: Contract staffing services

 

 

Legislative reference: Section 9 and 10 of the CGST Act, 2017 read with Notification 11/2017 - Central Tax Rates  

Authors: Meghana Belawadi and NR Badrinath

 

 

 

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!