In a move that may have a retrospective fallout, the amendments propose to clarify that transitional credit cannot be claimed for cesses levied in a pre-GST era.
On July 1st, the government celebrated GST Day, yes GST Day. The centre claimed GST has helped in significant growth and that it will be able to streamline GST to make it an easier indirect taxation system.
Now comes news that the centre is looking to make amendments to GST in as many as 46 categories. A government panel has proposed compliance-related changes – in Central GST, State GST, Integrated GST and the Compensation of Sales Act – with the aims of simplifying the indirect tax system and bringing more entities under the tax net. In a move that may have a retrospective fallout, the amendments propose to clarify that transitional credit cannot be claimed for cesses levied in a pre-GST era.
The panel has proposed amendments like the omission of liability to pay tax on the reverse charge; enabling new return filing procedures and allowing more service providers to opt for composition scheme. The government has invited stakeholder comments on draft proposals for amending GST by July 15. Meaning they are open for public comments until the 15th of this month. These proposals will then have to be cleared by the GST council, the union cabinet, state legislatures and Parliament.
So what are these amendments that will apparently ‘simplify the GST regime’?
According to a report filed by PTI, if these draft changes are passed, employers will be able to claim input tax credit on multiple facilities like food, beverages, health services, life insurance, travel benefits, renting or hiring of motor vehicles that made available to employees as an obligation under any law. It appears that through these amendments, the government wants to clarify that, other than specific exemptions, ITC, input tax credit , will not be available on the supply of food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, renting or hiring of motor vehicles, vessels and aircraft, life insurance and health insurance. ITC will also not apply in cases of membership of a club, health and fitness centre, and travel benefits extended to employees on vacation such as leave or home travel concession. ITC will be available on motor vehicles with a capacity of over 13 passengers. A change has also been proposed such that tax credit will not be denied if motor vehicles are used for transportation of money for or by a banking company or a financial institution.
The amendment draft clarifies – “Provided that the input tax credit in respect of such goods or services or both shall be available, where the provision of such goods or services or both is obligatory for an employer to provide to its employees under any law for the time being in force.”
Deloitte India Partner M S Mani told PTI that “The proposal to permit ITC on services to employees that are mandated by any law in force is an excellent move and would put an end to the controversies arising from recent Advance Rulings and align the GST legislation with other employee welfare legislation”.
According to reports, under the proposed amendments, e-commerce companies are not required to seek registration under GST if their annual turnover is less than Rs 20 lakh. They are also not required to collect tax at source as per Section 52. The administration claims this is a taxpayer-friendly measure because small e-commerce operators who are not required to collect tax at source can now avail the threshold exemption limit benefit for registration purposes.
The government panel has also recommended deleting sub-section (4) of section 9 of CGST) Act, which states that all registered persons must pay tax on reverse charge-basis on purchases made from unregistered entities. Reverse charge is a mechanism where the recipient of the goods and/or services is liable to pay GST instead of the supplier or vendor. For instance, if a vendor who is not registered under GST supplies goods to a person who is registered under GST, then Reverse Charge is applied. This means that the GST will have to be paid directly to the Government by the receiver instead of the supplier. And for e-commerce companies – if an e-commerce company supplies services then reverse charge will be applicable to the e-commerce operator. It will be liable to pay GST. For example, if any online platform provides services of plumbers, electricians, music teachers, beauticians etc, the platform is liable to pay GST and collect it from the customers instead of the registered service providers.
The liability to pay tax on reverse charge currently stands suspended until September 30th. But the panel has proposed ‘enabling power’ to the GST Council. This proposed change will allow the council to notify a class of registered persons who are liable to pay tax on reverse charge basis in case of receipt of goods from an unregistered supplier, at a later point of time or as and when it is required.
Abhishek Jain, Partner with Ernst & Young, remarked that amendments like deletion of general reverse charge provisions on procurements from unregistered dealers, enabling provisions for new GST return filing process, allowing single debit/credit note for multiple invoices, etc would aid in bringing quite an ease to businesses from a GST perspective. But he also cautioned that “…transactions like denial of credit on repair and maintenance, general insurance, etc for motor vehicles, transition of cess credits, and some more may need a revisiting of tax position adopted by some businesses. Also specific denial of transition of credit of cesses like education cess etc would be against the tax position that some taxpayers had taken.”
M S Mani of Deloitte India said now that the reverse charge provisions etc are almost scrapped, it would significantly assist businesses in GST compliance. Pratik Jain of PwC welcomed the amendments with respect to definition of supply, widening of credits on vehicles and restricting reverse charge liability. On the other hand, Jain, speaking of disappointments in the proposed changes, said, “…industry will be disappointed on provisions relating to restriction on transfer of credit balance of education cess etc. The proposed amendments do not cover some of the amendments which were already highlighted to the GST council such as the tax liability on services deemed to be provided by the branch offices to foreign offices/parents.”
Some tweaks on the composition scheme were also suggested. The GST Council decided earlier this year that dealers with an annual turnover of up to Rs 1.5 crore can opt for composition scheme. This scheme is a simpler plan for small taxpayers that eases compliance burden via a quarterly return filing system and a single-digit low tax rate. However, dealers under the scheme cannot claim input tax credit. Currently, only restaurant services can opt for the composition scheme.
The government has now recommended an addition of more service providers under the scheme. A new provision is under consideration which will enable taxpayers to avail the benefit of the composition scheme if they ‘supply services of value not exceeding 10 percent of the turnover in the preceding financial year in a State/Union territory or Rs 5 lakh, whichever is higher’.
The denial of transitional credit for cesses, mentioned earlier, could affect industry negatively. This matter is already under litigation with many companies challenging such a move. It remains to be seen if the government inserts the clarification retrospectively as it is applicable for credit claimed for the period before 1 July 2017-the date of GST implementation.
The government is looking at bringing in these amendments in the monsoon session of Parliament that starts 18th July.
