Data Management in Tally

One Year of GST: the Workings of the Technology-First Tax System

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1-year-of-GST

I am writing as one of the people who have been in the ‘middle’ of this enormous tax reform – since we provide software solutions to businesses who need to comply with GST. This has given us a view on both sides of the bridge – the Government/GSTN side, and the Business/Practitioner side. The first who needs compliance, and the second, who need to comply.

 Getting a country which is the size of India to do a complete transformation has been extraordinary in itself. Despite all criticism – including mine – on how it could have been better, it remains something that everyone should pat themselves and each other on the back for.

Personally, the most important take-away was the continued expression of good intent by the Government to learn and correct. And not just expression of intent, it was also executive action. Whether it was responding to pains by changing/removing rules and processes, or changing tax rates, or even specific clauses of law – they have stood by the resolve to ‘make it happen’.

Yet, the original promise of GST is expected to come alive only in the months ahead – and their remains a growing urgency for actualizing the latest decisions on this subject taken in the first few months of this year. This relates to the ‘simplification of GST’, and its cascading impact on both rules and law, so that compliance becomes easier, and evasion, more difficult.

The past year has shown that a semi-complete technical process (GSTR-1 but no GSTR-2 – for example), creates not just problems for the Government, but also the taxpayer – since there is no simple way to complete compliance. It leads to confusions of information, conflicts of information, and increases suspicion and mistrust. It penalizes the honest and rewards the dishonest.

 

The past year has also shown, that being a technology-first tax system, it is far easier to detect the anomalies early rather than late, and therefore, is a strong pointer to the benefits of ‘simplification with completeness’. All the decisions have been taken for what can be called GST 2.0. What we await is the announcements for its actualization. What we await, is the realization of the core promises of GST. What we await, is the economic acceleration that it is capable of.

Bharat Goenka
Managing Director, Tally Solutions Pvt. Ltd.

 

Recent AAR Rulings – Food, Beverages & Catering Services

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AAR-Rulings

AAR Rulings – Canteen Services provided by outside vendors in offices and factories

Rashmi Hospitality Services, based out of Gujarat had filed an application, seeking an advance ruling on whether, the GST rate on supplies made to non-air conditioned canteens of offices and factories, needed to be taxed at 12% GST or 18% GST. In response to this application, the Gujarat bench of the Authority of Advance Rulings stated, that the catering service provided by Rashmi Hospitality Services to recipients who have in-house canteens, where meals, snacks, tea etc., are ultimately consumed by employees or workers, and thus, do not alter the nature of service provided. Thus, the GST rate for such a service will be considered as 18%.

Thus it was a given, that such a move would imply a higher compliance burden for companies, which would translated into higher cost for food. Thus most companies would, understandably, tend to recover the food expenses from employees. To attain further clarity on the same, Caltech Polymers, based out of Kerala had filed an application, seeking an advance ruling on whether, the recovery of food expenses from employees or canteen services would come under the definition of outward supplies, and whether it will attract GST or not.

In response to this application, the AAR Kerala bench stated, that recovery of food expenses from the employees, for the canteen services provided by the company, would indeed come under the definition of “outward supply”, and therefore be considered taxable as a supply of service under GST. However, the authority of advance ruling Kerala, did not clarified, whether the GST rate to be levied was 5% (without ITC), or 18%, treating the same as an outdoor catering service. Irrespective of the rate, such a move is bound to push up the cost of food for employees and factory workers, and also could lead to possible disputes on valuation, which will then need to get solved.

AAR Rulings – Canteen Services provided by outside vendors in educational institutions

Similar to the above scenario, quite a few applications were filed, asking for an advance ruling on the GST rate to be levied on services provided by canteens in educational institutions. In response to the same, the AAR as well as the Ministry of Finance clarified, that food and drinks, served in a mess or a canteen of an educational institution would attract 5% GST, without ITC. However, if schools (only up to higher secondary level) supplied food directly to students, then the same will be exempt from GST.

AAR Rulings – Supply of food and beverages in trains

Deepak & Co, based out of Delhi had filed an application, asking for an advance ruling on the GST rate to be levied on the supply of food and beverages in trains. Deepak & Co, had entered an agreement with the Indian Railways for the supply of food and beverages, packaged, cooked or at MRP, on mail and express trains, and thus needed immediate clarity on the same. The application had come in the aftermath of a circular from the Central Board of Indirect Taxes and Customs (CBIC) in January 2018, which had announced a lower GST rate of 5% for foods and drinks served on trains, platforms or stations by Indian Railways or IRCTC. However, there were a faction of businesses who felt that serving food and drinks on train, was to be treated equivalent to outdoor catering, the rate for which was specified already at 18% GST.

In response to this application, the AAR Delhi bench clarified, that the train is after all, a medium of transport, and thus could not be treated equivalent of a restaurant, eating joint or canteen. Thus, the supply of food and beverages directly to passengers at a fixed rate on platforms or trains, did not have any element of services, and therefore, GST should ideally be charged on the individual items as per their respective applicable rates. The authority of advance ruling Delhi also noted that the mere heating and cooling of beverages were incidental and not eligible for any tax benefit. Thus, in a final AAR ruling, it was stated, that supply of food and beverages in trains will face GST as per the respective items being served and not at the concessional rate of 5% specified by the government earlier.

Intra State E-way Bill : Things to watch out for

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Intra-State-E-way-Bill-and-inter-state-e-way-bill

It has been almost two months since the inter state e-way bill for movement of goods was rolled out across the nation on the 1st of April, 2018. In parallel, it was decided that intra state e-way bill too shall be rolled out in a phased manner from April 15th, once the system had sufficiently stabilised, with roughly four to five states coming on board every week. Karnataka was the first to join the bandwagon, as it adopted the intra-state e-way bill system from 1st April itself. As of now, a total of 22 states have now gone live – Andhra Pradesh, Arunachal Pradesh, Bihar, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Meghalaya, Nagaland, Sikkim, Telengana, Tripura, Uttarakhand, Uttar Pradesh, Puducherry, Assam, Rajasthan – with Lakshwadeep and Chandigarh being the latest entrants, adopting the intrastate EWB on May 25th.

If official records are to be considered, the entire implementation of the system and the generation of inter-state e-way bills nationwide has been largely successful. Till the 13th of May, i.e. in a period of almost 45 days, more than 4.15 crore e-way bills have been successfully generated, which included more than 1 crore intra state e-way bills for movement of goods. The path thus looks smooth for rest of India to become part of the system as well – Maharashtra is looking to take the leap for intra-state e-way bill on May 31st and Punjab and Goa from June 1st. In any case, both interstate EWB as well as intra state e-way bills for movement of goods will become mandatory from June 3rd, 2018 – which implies that businesses across the country will need to factor in the same, while planning for their respective consignments.

Here’s listing 7 things you can keep in mind, as you prepare your business for the intra state e-way bill:

  • You can generate the intra state e-way bill using your GSTIN by logging on to http://ewaybillgst.gov.in. The e-way bill registration process can be completed in a matter of minutes
  • E-way bill generation will be done when the value of the taxable consignment, along with the tax value, is more than INR 50000
  • If you have sent material for Job Work then either you or the Job Worker can generate the e-way bill
  • As a supplier, you can authorize the transporter, e-commerce operator or the courier agency to fill Part A of the e-way bill
  • If the distance between your primary place of business and that of the transporter is less than 50 KMs, only Part A of the e-way bill is required to be filled, and Part B is not required to be filled
  • Once the e-way bill is generated, the recipient of goods can confirm or deny the receipt of goods before the actual delivery or 72 hours, whichever is earlier
  • In cases where the goods are being transported by railways, aeroplane or ship, the e-way bill can only be generated by the supplier or a recipient, and not by the transporter. However, in such cases, an e-way bill can be generated even after the goods shipment has started

It can be safely said that with businesses adhering to these intra state e-way bill guidelines, and with the tax authorities working in tandem to ensure the right compliances for the inter state e-way bill, the nation-wide single e-way bill will soon be a successful reality. Coupled with the obvious advantages of robust technology that businesses will look to use, this will surely ensure seamless commerce across state borders, something which is bound to give both businesses as well as the government authorities a lot of relief in the time to come.

Prosecution and Compounding under GST

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Prosecution-and-Compounding-under-GST

Prosecution under GST

Prosecution, is defined as the act of conducting legal proceedings against someone, in respect of a criminal charge. Under GST, any taxable person who commits an offence amounting to deliberate intention of fraud, becomes liable for prosecution, or in other words, criminal charges.

Offenses liable to attract Prosecution under GST

The following are the offences, for which a taxable person can become liable for prosecution under GST:

  • Supply of any goods and / or services without an invoice, in order to evade taxes
  • Issue of any invoice without the supply of any goods and / or services, thus taking ITC or refund by fraud
  • Collection of GST (even if it is done against the provisions), but failure to submit the same to the government, within the specified time limit of 3 months
  • Obtaining of refund of CGST / SGST by fraud
  • Submission of fake records or documents or filing of fake returns to evade taxes
  • Obstruction of the proper officer during his duty, for instance, while conducting audit
  • Acquisition or receipt of any goods and / or services with full knowledge that it is in violation of the GST rules, and is liable for confiscation
  • Destruction of evidence
  • Not providing information or providing false information during proceedings
  • Helping any taxable person to commit fraud

Punishment for Prosecutable Offences

As per the provisions of prosecution in GST, the taxable person committing any of the above listed offences i.e. prosecutable offences shall be punished as follows:

Amount of Tax Involved in Offence Bail Applicability Term of Jail
INR 100 to 200 Lakhs Bail-able Up to 1 year
INR 200 to 500 Lakhs Bail-able Up to 3 years
Above INR 500 Lakhs Bail-able* Up to 5 years

*Note: However, if a taxable person commits the following offences and the amount of tax involved in the offence exceeds INR 500 Lakhs, then the offences will be deemed as non-bail-able:

  • Supply of any goods and / or services without an invoice, in order to evade taxes
  • Issue of any invoice without the supply of any goods and / or services, thus taking ITC or refund by fraud
  • Collection of GST (even if it is done against the provisions), but failure to submit the same to the government, within the specified time limit of 3 months

Other specified punishments for Prosecutable Offences

  • For obstruction of the proper officer during his duty, destruction of evidence, falsifying information during proceedings & helping another taxable person to commit fraud – Up to 6 months imprisonment with fine
  • Repeat Offences – Up to 5 years imprisonment with fine

Compounding under GST

Compounding of offences under GST is a method, wherein litigation time, and time of judicial procedures can be cut down. Generally, in the case of prosecution for an offence in a criminal court, the accused has to appear before the Magistrate at every hearing by using the services of an advocate. Given, that court proceedings are both expensive and time-consuming, the accused taxable person may make use of the compounding provisions under GST, wherein, he will not be required to appear in Court personally. Also, under the same provisions, he may be discharged on the payment of a compounding fee, which will not be more than the maximum fine which can be levied under the relevant provisions of prosecution and compounding under GST.

However, compounding under GST will not be available to the following entities:

  • Any taxable person who has already committed any of the offences mentioned under prosecution, detailed above i.e. repeat offenders
  • Any taxable person who has committed an offence involving supplies above INR 1 Crore and has been allowed to compound before
  • Any taxable person who is also being tried under other acts such as Narcotic Drugs Act, FEMA etc.
  • Any taxable person convicted by a court under GST
  • Any taxable person guilty of destruction of evidence, falsifying information during proceedings or preventing an officer from doing his duty

Amount Payable for Compounding under GST

Compounding in GST will be allowed only after the full payment of all taxes, interests and penalties which are due. As per the provisions of prosecution and compounding under GST, the amount payable for compounding under GST is defined as follows:

  • Minimum Limit – 50% of the tax or INR 10,000 whichever is less
  • Maximum Limit – 150% of the tax or INR 30,000 whichever is more

On payment of the compounding amount, no further proceedings shall be initiated against the accused taxable person for the same offence and all criminal proceedings, if already initiated, will be abated immediately. In conclusion, to avoid any kind of loss, businesses should be aware of the functioning of prosecution and compounding under GST.

Offence under GST

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Offence-under-GST

Offence under GST

An offence is defined as a breach of a law or rule, i.e. an illegal act. Similarly an offence under GST is a breach of the provisions of the GST Act. There are 21 offences under GST, which we have classified under the following sections, for your easy reference:

Fake or Incorrect Invoices / Bills

A taxable person indulges in the following GST offences:

  • Supplies any goods / services without any invoice or issues a false invoice
  • Issues any invoice or bill without supply of goods and / or services in violation of the provisions of GST
  • Issues invoices using the identification number i.e. GSTIN of another bona-fide taxable person

Fraud

A taxable person indulges in the following offence under GST:

  • Submits false information while registering under GST
  • Submits fake financial records or documents or files fake returns to evade taxes
  • Does not provide information or provides false information during proceedings

Tax Evasion

A taxable person indulges in the following offences under GST:

  • Collects GST, but does not submit it to the government within 3 months
  • Collects GST by breaking the provisions, but fails to deposit it to the government within 3 months, which will still be treated as an offence under GST
  • Obtains refund of any CGST / SGST by fraud
  • Takes and / or utilizes ITC without actual receipt of goods and / or services
  • Deliberately suppresses his sales to evade taxes

Supply or Transport of Goods

A taxable person indulges in the following offences in GST:

  • Transports goods without proper documents
  • Supplies or transports goods, which he knows will be confiscated
  • Destroys or tampers goods which have been seized

Other offences under GST

A taxable person:

  • Has not registered under GST although he is required to register under the law
  • Does not deduct TDS or deducts less amount than what is applicable
  • Does not collect TCS or collects less amount than what is applicable
  • Takes or distributes input tax credit in violation of the rules, being an Input Service Distributor
  • Obstructs the proper officer during his duty, for instance, during audit
  • Does not maintain all the books that he is required to maintain under the law
  • Destroys any kind of evidence

For all the 21 offences in GST listed above, penalty will be a minimum of INR 10,000, with variations in place, depending of the nature of the offence under GST.

Arrest under GST

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Arrests-under-GST

Arrest under GST

The term ‘Arrest’ has not been defined in the CGST / SGST Act. However, as per the law, it basically implies the taking into custody of a person under some lawful command or authority. In other words, a person is said to be arrested when he is taken and restrained of his liberty by power or colour of lawful warrant.

If the Commissioner of CGST / SGST believes that a person has committed an offence, he can be arrested by any authorised CGST / SGST officer. The arrested person will be informed about the grounds of his GST arrest motion, and he will appear before the magistrate within a period of 24 hours, in case the offence is of a cognizable nature.

As per the arrest provisions under GST, the following officers have been empowered and are required to assist the CGST / SGST officers in the execution of an arrest under GST:

  • Police
  • Railways
  • Customs
  • Officers of State / UT / Central Government engaged in collection of GST
  • Officers of State / UT / Central Government engaged in collection of land revenue
  • All village officers
  • Any other class of officers as may be notified by the Central/State Government

Note: Here, it is important to note the difference between a cognizable and a non-cognizable offense. Cognizable offenses are those where the police can arrest a person without any arrest warrant, i.e. the offense is clear enough. Examples could be murder, robbery, counterfeiting etc. Non-cognizable offenses are those, where a police officer cannot arrest a person without a warrant issued by a competent authority. They are relatively less serious crimes like public nuisance, assault etc.

Offenses which warrant Arrest under GST

The following are the offenses, for which the arrest provisions under GST become applicable:

  • When a taxable person supplies any goods or services without any invoice or issues a false invoice
  • When a taxable person issues any invoice or bill without supply of goods / services in violation of the provisions of GST
  • When a taxable person collects GST, but does not submit it to the government within 3 months
  • When a taxable person has already been convicted earlier under the same provisions i.e. this is his 2nd offense

To sum up the offences which warrant arrests, broadly it may be said, that if tax evasion is more than INR 100 lakhs i.e. INR 1 Crore, or when a person has committed his 2nd offense (i.e. first arrest under GST has occured already), an arrest will be made.

Procedures related to Arrest under GST – Points to Note

The following are certain key procedures that you should note with regards to arrest provisions in GST:

  • Cognizance of Offense – A court cannot take cognizance of any offense punishable without the prior permission of the designated authority. Only a Magistrate of the First Class (and above) can conduct the trial for such an offense.
  • Availability of Bail – Bail is available only for non-cognizable and specified bail-able offenses.
  • Summons – A proper officer can summon any person to provide evidence or to produce a document. Any person summoned, has to either attend the summon himself, or send an authorized representative. Both entities will appear under oath.

Taking a holistic view of inspection, search, seizure and arrest under GST, it can be concluded that the government as well as the GST body have well defined arrest provisions in GST, to restrict tax evasion activities across the nation. Given the stringent nature of these offenses, which attract sizeable penalty, taxpayers would hopefully be discouraged from engaging in any illegal business practices.

Seizure under GST

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Seizure-under-GST

Seizure under GST

The term “Seizure” has not been specifically defined under GST. In legal terms, seizure under GST implies the act of taking over something or someone by force through a legal process, such as, the seizure of evidence found at the scene of a crime. It generally means – taking possession forcibly against the wishes of the owner.

Difference between Detention and Seizure under GST

In this context, most taxable persons may be confused about the difference between detention and seizure under GST. Detention is basically the act of not allowing the owner any access to the seized goods under GST, by means of a legal order or notice. In case of a detention, the ownership and possession of goods still lie with the owner, and it is issued, only when it is suspected that the goods are liable for confiscation.

However, seizure is actually taking over or possessing the goods by the department, although the ownership stays with the owner. A seizure under GST can be made only after inquiry or investigation that the goods are liable to confiscation.

Procedure for Seizure under GST

The following are the provisions pertaining to seizure of goods under GST:

  • The proper officer will give an order of seizure of goods under GST in Form GST INS-02
  • The officer authorized to search will have the power to seal the door of the premises. He can also break open the door of any premises, in case access is denied. He can also break open any cupboard or box in which goods, books, documents etc. are suspected to be concealed
  • However, if it is not practical to seize the goods, the proper officer will order the owner not to remove these goods without the prior permission of the officer. The officer will issue an order of prohibition in Form GST INS-03
  • The officer will keep the books and documents as long as it is necessary for examination and inquiry
  • Other books which are not relevant to the issue of notice will be returned within 30 days from the date of the notice
  • The seized goods under GST can be released on a provisional basis against a bond, for the value of the goods in Form GST INS-04. The owner must also furnish a security in the form of a bank guarantee for the amount due i.e. the applicable tax, interest and penalty payable
  • If the owner fails to produce the provisionally released goods at the appointed date and place, then the security will be encashed and adjusted against the amount due
  • Provisions of the Code of Criminal Procedure will apply to search and seizure of goods in GST

Post-Seizure Procedures

  • Goods – Post the seizure in GST, all the goods which have been taken into custody will be properly listed by an officer. The goods will then be divided into hazardous and non-hazardous, and also into perishable and non-perishable. The government can issue a list of hazardous or perishable goods which can be disposed as soon as they are seized. Also, post the seizure in GST, a notice is to be issued by the department. If the notice is not issued within 6 months, from the date of seizure of goods in GST, they will need to be returned. This time limit is extendable by 6 more months.
  • Documents – In case the person who is the owner of the documents, wants to make copies, he can do so in presence of the officer.

Post inspection, search and seizure under GST, if the Commissioner believes that a person has committed an offence under the requisite section of the GST Act, the concerned person can be arrested. In our next blog, we will understand the specific provisions laid down for Arrest under GST.

Inspection and Search under GST

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Inspection-and-Search-under-GST

Inspection and Search under GST are conducted as per the provisions laid down in the GST law. Let us understand them one by one.

Inspection under GST

A Joint Commissioner (or any officer of a higher rank), may conduct an inspection under GST, only via written authorization, if they have reasons to believe that a taxable person has done any of the following, in order to evade tax:

  • Suppressed any transaction of supply
  • Suppressed stock in hand
  • Claimed input tax credit in excess
  • Violated any of the provisions
  • Kept goods which have escaped payment of tax
  • Kept accounts and / or goods in such a way as to evade tax

Now, if you read the section above, you will come across a phrase “reasons to believe”. What do we mean by “reasons to believe” under the GST provisions? As per the GST rules, “reason to believe” means, having knowledge of facts, that would make any reasonable person, knowing the same facts, to reasonably conclude the same thing. As per the Indian Penal Code, a person is said to have “reason to believe” a thing, if he has sufficient cause to believe that thing but not otherwise. This will be something that will be based on examination and evaluation, and not on something which is an opinion. In short, “reasons to believe” will be based on facts rather than interpretation of facts. Also, this should be something, which should not be mentioned in writing at any stage. In fact, as per the GST rules, “reasons to believe” shall not be disclosed to any person or any authority or the Appellate Tribunal.

In any case, once the Joint Commissioner (or any officer of a higher rank) is clear that action has to be taken, he can then authorize any officer via Form GST INS-01 to inspect places of businesses, belonging to the following entities:

  • Taxable person
  • Transporter
  • Owner or Operator of the Warehouse
  • Any other place, as deemed fit

Search under GST

On the face of it, “Search” and “Inspection” may sound like the same activity. Hence, before understanding the provisions for Search under GST, it is important to understand the difference between Inspection and Search in GST.

Search under GST Inspection under GST
Involves an attempt to find something. Search is an action of a government official (a tax officer or a police officer, depending on the case) to go and look through or carefully examine a place, person, object etc. in order to find something concealed or to discover evidence of a crime. The search of a person, or vehicle or premises, can only be done under the proper and valid authority of law. Is the act of examining something, often closely. Inspection under GST is a softer provision than search. It enables officers to access any place of business of a taxable person and also any place of business of a person engaged in transporting goods or who is an owner or operator of a warehouse or godown.

On the basis of results emerging from inspection or any other reason, the Joint Commissioner (or any officer of a higher rank) can order for a search, via written authorization, if he has reasons to believe that the following exist:

  • Goods which are liable for confiscation
  • Documents or Books or other things which will be useful during proceedings and are hidden somewhere

Based on his conclusions, the Joint Commissioner (or any officer of a higher rank) can, either on his own or through an authorized officer, follow the provisions of inspection and search under GST and seize the goods and documents. However care should be taken to record materials and relevant information, before the issue of the search warrant or before conducting the search.

Appellate Authority for Advance Ruling under GST

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Appellate-Authority-for-Advance-Ruling-under-GST

In our previous blog, we went through the provisions of advance ruling under GST. We also understood that the first level of appeal for advance ruling is to be made to the Authority for Advance Ruling (AAR). However, a taxable person who is not satisfied by the advance ruling of the AAR can approach the second level i.e. the Appellate Authority for Advance Ruling i.e. the AAAR.

It is a good time to note, that appealing against the advance ruling is a new provision in GST. The previous tax regime did not have any scope for appeal against Advance Ruling at all, and the only way to contest the ruling was by going through the Division Bench of the High Court. However, this process has been made easy by the introduction of an appeal mechanism to the Appellate Authority for Advance Ruling under GST – which we will understand in this blog.

Appellate Authority for Advance Ruling Process

The following are the various provisions laid down pertaining to the procedure for advance ruling by the Appellate Authority for Advance Ruling, under GST:

Initiation of Advance Ruling Procedure by AAAR

  • The initiation of the appeal to Appellate Authority for Advance Ruling can be made by the applicant or the officer who is aggrieved by any advance ruling
  • Appeal against the advance ruling of the AAR, must be made within 30 days from the date of the advance ruling issued by the AAR. However, this limit is extendable by 30 days.

Advance Ruling Forms by AAAR

  • The application for appealing against the advance ruling of the AAR, has to be made in Form GST ARA-02, along with the payment of fees of INR 10,000
  • If the appeal is made by a GST tax officer, then Form GST ARA-03 needs to be filed. However, no fees will be applicable in this case.

Advance Ruling Purview by AAAR

The AAAR can, by order, either confirm or modify the advance ruling issued by the AAR, which is appealed against. However, if the members of the AAAR, differ in opinion on any point, then an advance ruling cannot be issued.

Post the decision of the AAAR, a copy of the advance ruling signed by the members will be sent to the applicant, the prescribed or the jurisdictional CGST / SGST officer and to the initial authority that passed the Advance Ruling i.e. the AAR.

Advance Ruling Time Limit by AAAR

An advance ruling decision by the AAAR will be given within 90 days from the date of the application.

Rectification of the Advance Ruling by AAAR

The AAAR can amend its own order to rectify any apparent mistake, if the same is noticed within 6 months from the date of the original order. The rectification of the order can be done by:

  • AAAR on its own
  • Prescribed or the Jurisdictional CGST / SGCT officer
  • Applicant

However, it is to be noted that any rectification which may result in increase in tax liability or decrease in input tax credit, will be allowed only after giving a notice and an opportunity to be heard to the applicant.

Scope of the Advance Ruling by AAAR

The advance ruling decision by the Appellate Authority for Advance Ruling will be binding only on the following entities:

  • Applicant
  • Jurisdictional Tax Authorities in respect of the Applicant

However, if the law or the facts of the original advance ruling change, then the advance ruling issued by the AAAR will not apply.

Nullification of the Advance Ruling by AAAR

If it is discovered, that the appellant has obtained the advance ruling by fraud or suppression of material facts, then the Authority for Advance Ruling (AAR) or the Appellate Authority for Advance Ruling (AAAR) will declare the ruling to be void ab initio (from the beginning). All the provisions of GST, will then be applicable to the applicant as normal without any advance ruling – however, an opportunity of being heard will be given to the applicant, in such as case, post which advance ruling nullification may take place.

In conclusion, it can be said that the provisions of advance ruling under GST are bound to make life simpler for a taxable person who wants to gain clarity on the tax arrangements to be made for a particular transaction. However, the only area where currently a clarity is not available is – that there is no defined level of appeal beyond the 2nd level i.e. the Appellate Authority for Advance ruling. However, it may be expected that the process to appeal further should be similar to that in the previous tax system, and a taxable person who is not satisfied with the decision of the AAAR, may appeal against it, via a special dispensation to the Division Bench of the High Court.

27th GST Council Meeting Updates – Returns Simplified

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Recommendations-made-by-27-GST-Council

On the 4th of May, 2018, the 27th GST Council meeting got underway, giving shape to the new returns filing model, which was awaited for the past several months. The new model was decided, based on the recommendations of the Group of Ministers, which had been constituted for the purpose of making the process a simplified one on the 17th of April, 2018. In addition the GST Council also did announce a few rate changes, and some structural changes in the shareholding pattern of the GSTN.Let’s go through all the major 27th GST Council meeting highlights:

27th GST Council meeting – Simplified returns

The 27th GST Council meeting introduced a simplified return filing process, major features of which are as follows:

One monthly return

All taxpayers, with a few exceptions, will have the facility to file one monthly returns, and the return filing dates will be determined in a staggered order, based on the turnover of the registered person. This has been primarily done to manage the load on the GST portal. Composition dealers and dealers with nil transactions will continue to file quarterly returns, as per the 27th GST Council meeting highlights.

Unidirectional flow of bills

There shall be a unidirectional flow of bills, i.e. bills may be uploaded by the seller anytime during the month, which will serve as valid documents to avail input tax credit for the buyer. The buyer too, will be able to see the uploaded invoices on a continuous basis, during a particular month. There will be no need to upload any purchase invoices as per the model suggested initially. Also, for all B2B transactions, HSN codes of 4 digits or more will need to be specified to achieve uniformity in the reporting system, as per the 27th GST Council highlights.

Simpler returns design

B2B dealers will need to fill invoice wise details of all outward supplies made by them, based on which the system will automatically calculate their tax liability. Similarly, their input tax credit will be calculated automatically by the system based on the invoices uploaded by their sellers. All this will be supported by a user-friendly interface coupled with an offline tool to upload invoices. Another major aspect of simplifying the returns process introduced by the 27th GST Council meeting was, the reduction in the content or the information required to be filled in the return forms. The details of the design of the return form, business processes and legal changes will be worked out by the appointed law committee based on these principles, as per the 27th GST Council updates.

No automatic reversal of ITC

There shall not be any automatic reversal of input tax credit from the buyer, in case the seller does not pay the tax, as was the case earlier. In case the seller defaults on the payment of tax, the recovery shall be made from the seller itself. However, as per the 27thGST Council recommendations, the option of reversal of ITC from the buyer shall also be an option available to the GST authorities, to address exceptional scenarios, such as, missing dealers, closure of business by the supplier, supplier not having adequate assets etc.

Online process for recovery and reversal

The recovery of tax or reversal of ITC shall be done through an online and automated process to reduce the human interface. The process will continue to follow the due course of issuing a notice and order, as per the updates from 27th GST Council meeting.

Supplier side control

In case a supplier has defaulted in payment of tax above a threshold amount, such a supplier will not be allowed to upload invoices and thus will not be allowed to avail any ITC. This has been introduced to avoid and to control misuse of the ITC facility. Similar safeguarding provisions have now been built in for newly registered dealers as well as per the 27th GST Council meeting updates. The GST Council has proposed setting up analytical tools to identify such transactions at the earliest, so that loss in revenue may be prevented.

Three stage transition

The following 3 stage transition to the new returns filing system was decided upon at the 27th GST Council meet:

  • Stage 1 – Present system of filing GSTR 3B and GSTR 1 returns. GSTR 2 and GSTR 3 will remain suspended. This will continue for a maximum of 6 months, by which the new return filing software will be ready.
  • Stage 2 – New return system will go live, with the facility for invoice – wise data upload and also facility for claiming ITC on a self-declaration basis, similar to the role of GSTR 3B currently. During this stage, the dealer will be constantly fed with information about the existing gap between ITC available, and provisional ITC being claimed.
  • Stage 3 – Provisional credit will get withdrawn totally, and ITC will be limited only to the invoices uploaded by the sellers from whom the dealer has purchased goods.

GST Rates discussed at the 27th GST Council meeting

While there were no GST rate changes announced as such at the 27th GST Council meeting, there was a good deal of discussion on the following two aspects:

  • Reduction of GST rates for digital transactions – Keeping in mind the need to move towards a less cash economy, the GST Council discussed a proposal to have a concession of 2% in the GST rate i.e. 1% each for CGST and SGST, for all B2C supplies in which payments are done via cheque or via digital mode. This was proposed in all cases where the overall GST rate is more than 3%, with a ceiling of INR 100 per transaction. The GST Council has recommended to set up a Group of Ministers from the State Governments to look into the proposal and make recommendations, before the next GST Council meeting, as suggested by the 27th GST Council meeting news.
  • Sugar Cess over and above 5% GST and reduction in GST rates of ethanol – Keeping in mind, the record production of sugar in the current sugar season, and the consequent reduction in sugar prices, the GST Council discussed imposing a sugar cess over and above the stipulated 5% GST rate and also considered reducing the GST rate on ethanol. The proposal has come from the food ministry, which has been mulling cutting down the GST rates on ethanol to help sugar mills clear dues worth INR 19,000 crore to sugarcane farmers. However, a conclusion could not be reached, and the GST Council finally recommended to set up a Group of Ministers from the State Governments to look into the proposal and make recommendations, within a period of 2 weeks, as per the 27th GST Council news.

GSTN changes finalised at the 27th GST Council meeting

The GSTN, as one may be aware, was created as a private limited, non-profit company, with an objective to provide shared IT infrastructure and services to Centre and State governments, tax payers and other stakeholders for the implementation of GST. Currently, the Central government and State governments are holding 24.5% equity shares respectively and the remaining 51% are held by 5 non-governmental institutions namely – HDFC, HDFC Bank, ICICI Bank, NSE Strategic Investment Co and LIC Housing Finance Ltd. Majority of the GST processes including registration, return filing, tax payment, refunds processing are largely IT driven, and thus it was a given that the GSTN was handling large scale invoice level data of lakhs of business entities.

Considering the nature of the functions handled by GSTN, the GST Council felt that the GSTN should be converted into a fully owned government company.

Keeping this in mind, it was decided at the 27th GST Council meeting, that the 51% held by the non-governmental institutions, worth INR 5.1 Crore, was decided to be distributed equally among the Centre and the State governments, thus taking the respective share of both bodies to 50% each. It was also decided that the GSTN board will be allowed to retain the existing staff at the existing terms and conditions for a period of up to 5 years, and shall also have the flexibility to hire people through contract on the terms and conditions similar to those used by GSTN till now, while hiring regular employees. Nevertheless, the existing financial commitments given by the Centre and the States to GSTN to share the capital costs and O&M costs of the IT systems will continue as before.

In short, the 27th GST Council meeting was a major game changer, as far as the simplified return filing process is concerned. Given the various initiatives discussed, proposed and finalised at the meeting, life for the business is surely bound to become simpler as far as GST compliance is concerned.