The GST Council in its 28th meeting held on 21st July 2018, has recommended certain amendments in the CGST Act, IGST Act, UTGST Act and the GST (Compensation to States) Act. The proposed amendments intend to clear the air on some matters and rationalises certain provision. The proposed amendments, once approved by the parliament and state legislatures will become the new law.
Here is a gist of those amendments, with our comments on major recommendations:
Levy of GST on reverse charge basis on receipt of supplies from unregistered suppliers shall be applicable only on specified goods in case of certain notified classes of registered persons (i.e. only in case of specified class of registered buyers), on the recommendations of the GST Council.
BCL Comments: Since the introduction of GST law, payment of tax on reverse charge for purchases made from unregistered dealers was an added burden. This had also adversely impacted small unregistered businesses whose supplies to registered dealers were no longer competitive. Until 13 October 2017, reverse charge was applicable for all inward supplies of value more than Rs. 5,000. Post that date, the Government had exempted all supplies from unregistered dealers from applicability of reverse charge.
Now, the law maker has gone a step ahead by removing this ‘by-default’ application of reverse charge on all supplies. Tax shall now be payable on reverse charge only on specified goods purchased by specified registered dealers. It is expected that this would be made applicable only for large businesses
Scope of input tax credit expanded.
Scope of input tax credit is being widened, and it would now be made available in respect of the following
- Most of the activities or transactions specified in Schedule III;
- Motor vehicles for transportation of persons having seating capacity of more than thirteen (including driver), vessels and aircraft;
- Motor vehicles for transportation of money for or by a banking company or financial institution;
- Services of general insurance, repair and maintenance in respect of motor vehicles, vessels and aircraft on which credit is available; and
- Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force
BCL comments: This step to widen ITC scope is welcome and clears some of the anomalies in existing restrictions.
Consolidation of debit / credit notes.
Registered persons may issue consolidated credit/debit notes in respect of multiple invoices issued in a Financial Year.
BCL comments: This is a huge procedural relief especially for manufacturers and dealers in distribution chain of FMCG sector. Varied practices are being followed currently to pass on discounts and incentives. This move, to an extent resolves post sale discounts where terms were agreed prior to sale
Bar on supply of services by Composition Dealers relaxed
Composition dealers to be allowed to supply services (other than restaurant services), for upto a value not exceeding 10% of turnover in the preceding financial year, or Rs. 5 lakhs, whichever is higher
BCL comments: Due to the existing bar on composition dealers to supply services (even though they may be incidental to main business of goods), many small businesses are not able to avail benefit of this simplified turnover tax scheme. This change helps such businesses having turnover up to 1.5 crore to supply services upto the said limit.
Mandatory registration of certain types of e-commerce companies
Mandatory registration is required for only those e-commerce operators who are required to collect tax at source
BCL comments: Provisions in the existing law indicate that even those businesses supplying through their own website would qualify as ‘e-commerce operators’ and would be required to mandatorily register irrespective of turnover achieved. Given that these businesses cannot collect tax from themselves, laws around TCS are irrelevant to them. The amendment clears this anomaly requiring only those e-commerce operators to register that need to collect taxes.
Please stay tuned for Part 2 of the same series.