association of multimodal transport operators of...

Association of Multimodal Transport Operators of India

Goods & Services Tax: The Model GST Law

24 August 2016

Demystifying the Model GST Law

Contents

► GST: The Story So Far!

► Model GST Law

► Business impact and Approach

Presentation title 20 August 2016

GST: The Story So Far!


Improved productivity of factors of production

Capital deepening and better ROI

Higher GDP

Eliminate

Cascade Create a

Common

Market

Achieve

Neutralities Broaden

Tax Base Simplify

Tax

Framework

Improved

Compliance

Easy to

Administer

& enforce

India needs GST to improve productivity and eliminate cascade of taxes


GST – Snapshot

Broad base of taxation

Dual rate tax

Taxing principle

► Subsumed - Central Excise, Service Tax,

VAT/ CST, Entry tax, components of

Customs duty, etc.

► Tax on supply of both goods and services

► Dual GST - CGST & SGST levied on

common base

► IGST on inter-state supplies and import

► Decentralized registration and

compliances

► Shift to destination based tax - Place of

Supply Rules

► Flow of input tax credit

GST Progress

Consensus between Centre & State

State Compensation Framework

Agreement on the CAB*

Agreement on taxing framework

GSTN – Design & System Structure

CAB* voting and approval

GST Council & draft regulations

GST rollout & implementation

* Constitution Amendment Bill

Constitution Amendment Bill passed in Rajya Sabha in August 2016 Draft law released in June 2016

GST likely by 1 April 2017


Current regime:

Centralized registration

& compliance (except

J&K)

GST regime:

Registration &

compliance for each

State

► Central billing v local (and combinations!)

► Common credits at Head Office

► Multiple offices supporting a transaction

► Vendors billing centrally

Multi-state operations: ‘Taxable person’ in each state


GST Rate – Recommendations

Particulars Revenue Neutral

Rate

Rate on precious

metals

Low rate goods

Standard Rate (goods

and services)

High/Demerit rate or Non-

GST excise (goods)

Preferred 15% 2%-6% 12% 16.9%-17.7%

40%

Alternative 15.5% 2%-6% 12% 18% to 18.9%

40%

Goods and services covered

General RNR

Bullion Merit goods Standard Rate for

services and goods

Demerit/ Luxury goods

Consistency in classification of Goods & Services across the States


Model GST Law


TAXABLE SUPPLY Goods/

Services

Deemed Supply of Goods/

Services

In the course or

furtherance of business

PLACE OF SUPPLY

India Outside India

Intra-State Inter-State

► Liable to State GST = CGST + SGST

► Registration in relevant State

► Liable to IGST

► Registration in the origin State

Not liable to Indian GST?

The Charge: Levy of tax

Taxable person

B2B (registered customer) –

Location of the customer

B2C (unregistered customer) –

Location of handing over of goods for

delivery


Input tax credit (ITC)

CGST Output

SGST Output

IGST Output

CGST Input

IGST Input

SGST Input

IGST Input

SGST Input

CGST Input

IGST Input

Order of availment

GST credit ► ITC available to registered taxable person on supplies used for

providing taxable/ or zero-rated supplies. ITC not admissible on non-

taxable supplies

► State level maintenance of input tax credits

► Electronic matching critical for credit eligibility, coupled with condition

that payment of tax has been made by the supplier

Credit Availability

Matrix

Output

CGST IGST SGST - State A SGST - State B

I

n

p

u

t

CGST a a r r

IGST a a a a

SGST - State A r a a r

SGST - State B r a r a


Intra state transactions Inter state transactions

Proposed taxes

Current taxes

► Service tax

► C.Excise + VAT +

LBT/ Octroi etc.

► Maharashtra

SGST + CGST

Proposed taxes

Current taxes

► Service tax

► C.Excise + CST +

Entry tax etc.

► IGST (state in

which POS)

Inter-state or Intra-state supplies

POS

POS

POS = Place of Supply


Activity Current POS Proposed POS (B2B)

Ocean Freight Destination of goods Location of service

recipient

Air Freight

(exempt)

Destination of goods Location of service

recipient

Goods Transport services Destination of goods Location of service

recipient

Warehousing services Location of performance Location of service

recipient

Warehouse rental/ leasing Location of warehouse Location of

warehouse

Logistics Management/

Contract Logistics

Location of service recipient Location of service

recipient

Value Added Services (VAS) Location of performance of

VAS

Location of service

recipient

Place of Supply principles

Present place of supply rules to be read sequentially: (i) Destination of goods; (ii) If location of service provider and service receiver in India – India; (iii) Performance of services; (iv) Location of service receiver


Place of supply – Typical Scenario 1

International freight (IF)

Air Customs clearance

Ocean Port handling

Warehouses

Outside India Customs Station / DTA (State A)

Outbound Inbound

Particulars POPS - Current Regime POS - GST Regime

IF - Inbound – sale of cargo space Destination of goods i.e., in India Customer is registered or its address

is available on record then:

Yes - Location of customer - State B

No- Location of pick up of goods –

Inbound (outside India), Outbound

(State A)

IF - Outbound – sale of cargo space Destination of goods i.e., outside

India

IF - Inbound – purchase of cargo space Destination of goods i.e., in India Location of the freight forwarder -

State A IF - Outbound – purchase of cargo space Destination of goods i.e., outside

India

Customs clearance and port activities Place of performance/ Location of

recipient

Location of customer - State B

Warehousing, CFS, ICD Location of warehouse i.e., in India Location of warehouse - State A

State B

Customer



Warehousing Port

Packing, labeling etc.

Handling

State B State A

GTA- Road Transportation

Transportation

State C

Contract Logistics


GTA – Road transportation Destination of goods Customer is registered or its address

is available on record then:

Yes - Location of customer - State C

No- Location of pickup of goods -

State A

Hire of vehicle by GTA Location of GTA <Exempt> Location of GTA - State B

End to end contract logistics Location of customer Location of customer - State C

Warehousing Location of warehouse Location of warehouse - State B

State D Hiring of vehicle for output GTA services

Outbound Inbound

Customer



Cargo rail terminal

State C State A


State D

Warehousing


GTA – Road transportation from port to

cargo rail terminal

Destination of goods Customer is registered or its address is

available on record then:

Yes - Location of customer - State D

No- Location of pickup of goods - State A

Transportation in containers by rail As above

Location of customer - State D

Location of pickup of goods - State B

GTA – Road transportation from cargo

rail terminal to warehouse/ customer

As above

Location of customer - State D

Location of pickup of goods - State C

Warehousing Location of warehouse Location of warehouse - State D

Port Cargo rail terminal


Transportation in containers

by rail

State B

Outbound Inbound



State B State A State C

Warehousing


Transportation by inland waterways Destination of goods Customer is registered or its address is

available on record then:

Yes - Location of customer - State C

No- Location of pickup of goods - State A

GTA – Road transportation from inland

port to warehouse

As above

Location of customer - State C

Location of pickup of goods - State B

Contract Logistics Location of customer Location of customer - State D

Warehouse rental costs Location of warehouse Location of warehouse - State C

Port Inland port GTA- Road Transportation

Transportation by inland waterways

Outbound Inbound

Warehouse rental cost

State D

Customer


Value of supply

Supplier and recipient are

not related

Price is the sole

consideration

Transaction Value

Valuation Rules

Transaction at arm’s

length price

Key points

► Introduction of Transfer

Pricing in GST

► Implications on Incentives

► Implications of group

company transactions,

profit share, cost

recharge, preferred carrier

commission etc.

► Pure agent of service

recipient – Consistent with

service tax legislation

► Clarity required on

bundled supply – If supply

consists of both taxable

and non-taxable

components, then the

value to be deemed as

such part as is attributable

► Rules provide for rejection

of declared value by the

authorities

Comparative Value – Goods/ services of like kind and quality

supplied at same time to other customer

Adjusted for difference in date of supply, quality, quantity and

freight/ insurance depending on place of supply

Computed value method – Cost + charges for design or brand +

profit and general expenses

Residual method – Value determined using reasonable means


► Registration number (GSTIN) to 15 digit PAN based number

► Existing registrants registered with either States or with the Centre will be auto migrated to GSTIN

► For service providers, migration process to be as below –

► For central excise and VAT registrants, State VAT databases would be taken as the source. Similar procedure

would be adopted for additional generating GSTIN and obtaining additional data through state tax authorities

State Code PAN Entity

Code Blank Check

Digit

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Option to be available on ACES portal to intimate the state/s where service provider would like to get registered

Data already available in the existing databases would be cleaned, verified and migrated to GST portal

ACES would auto check GSTIN created for different states

GSTIN created would be communicated to the service provider along with request for additional data

GST - Registration


► Return for CSGT, SGST, IGST

► However, separate returns to be filed for each state in which the entity is registered

► All revenue, cost and related transactions to be reported at invoice level

► Revenue and procurements reported would be matched by GSTIN one to one with

corresponding information reported by customers and vendors respectively

Sr.

No

Return Nature of the return Due date of the return Draft return

1

GSTR

1

Details of outward

supplies made

10th of the succeeding month

2

GSTR

2

Details of inward

supplies made

15th of the succeeding month

3

GSTR

3

Monthly return 20th of the succeeding month

4

GSTR

8

Annual return 31st December of the next

financial year

GST returns


Provisional registration valid for 6 months

issued to all persons registered under the previous

law

Every person to

furnish prescribed information for grant of registration

Carry forward of CENVAT

credit/ input tax credit as disclosed in the last

return furnished

CENVAT would

have to be eligible

ITC under the earlier law as well as the new GST law

Unavailed CENVAT on capital goods not

carried forward in a return to be allowed in certain situations

CENVAT in respect of inputs held

in stock allowed in

certain situations

Pending proceeding of appeal,

etc. initiated before to

be disposed of as per

earlier law

Transitional provisions


► Special Purpose Vehicle (SPV) set-up by GOI and all State Governments for enabling the IT

Infrastructure for GST

► To have a self-sustaining revenue model, GSTN would be able to levy user charges on the

taxpayers and the tax authorities availing services

► Exclusive national agency responsible for delivering integrated GST related services involving

multiple tax authorities

► Provide common registration, return filing and e-payment services to the taxpayers

► Ensure integration of the GST Common Portal with existing tax administration systems of Central /

State Governments and other stakeholders

► Provide Analytics and Business Intelligence to tax authorities

► Carry out research, study best practices and provide training to the stakeholders

Goods and Services Tax Network (‘GSTN’)


Current regime versus GST regime

Current regime

Single pan-India tax on services - service tax

Input tax credits (ITC) restricted to service tax

Common pool of input tax credits

Centralised registration and assessments

Place of supply for international deliveries not favorable

Compliances for entry tax/ octroi/ local body taxes

GST

State level taxes

Larger pool of ITC on goods and services

Potential blockage of credits

State level registrations & assessments

Place of supply rules aligned to international tax jurisdictions

Entry tax, octroi, local body tax subsumed into GST


► Centralised registration under GST

► Treatment of International freight (both inbound and outbound) as

a zero rated supply

► Alignment of ocean freight with air freight?

► Classification of freight forwarding services as P2P or P2A

► Corresponding tax treatment as that of airlines/ shipping lines with regard t

international freight

► Clarity needed under the GST law to avoid similar litigation as under service tax law

► Grandfathering of abatements?

► Presently abatement available for GTA, ocean freight (inland and international),

transport through railway containers

► Removal of check posts and universal compliance across states

Key Issues


Industry issues & Approach


Key business impact areas

Cash Flows Profit & Loss Accounting

Pricing Customer /

Vendor Master Inventory

Management

Contract Management

Business Process IT Systems


GST Touch Points and Challenges

Restructure operations and distribution model

Efficient Credit Management

Inter-dependencies between project streams

IT transformation & Integrating multiple applications

New asks and effective change management

Getting ready for POS – the new big change!

Challenges in GST

implementation

Program manage

ment

Compliance

Technology refresh

Accounting and

reporting

Supply chain

Indirect tax

impact assessment

Advocacy

Change management and training


Approach and Timelines

► The 4-Phase work approach applies an all-encompassing methodology, ensuring that the following key

areas are considered from the perspective of GST:

► The 4-Phase work approach will provide an effective transition programme for the implementation of

GST to review the relevant areas of the business that would be impacted and identify issues for

resolution

Legal & transitional

issues

Tax & regulatory compliance

Documentation & systems impact

Education & training

Vendors & customers

communication

Impact study

Implement & Testing Post –

implementation

Phase I Phase II Phase IV

Constant Communication

Knowledge Sharing

Project

Team

Change Assess–

ment

Phase III

Timeline 2 Months 7 Months 2 Months

August2016

October2016

April 2017

June 2017


Your Critical Success Factors

Protect customer experience 1

Reduce disruptions to day-to-day business operations 2

Maximize input tax credit 3

Minimize cash flow impact 4

Utilize technology platform to automate GST 5

Ensure compliance to GST regulations 7

Be GST enabled on-time 8

Produce timely GST reporting 6


Scope Limitations

► The said presentation only seeks to summarise some of the relevant provisions of the Model GST Law

issued by the Ministry of Finance in June 2016. Please note that the same should not be considered to

be a complete summary of all provisions

► The present presentation should not be considered as an advice of any manner

► The comments are based on the draft model law issued by the Ministry of Finance in June 2016. All

comments are preliminary and not binding on any regulators or Indian Revenue authorities and there

can be no assurance that the regulators or Indian Revenue authorities will not take a position contrary

to our comments

► Our comments are based on the Model GST Law released in June 2016. We do not have responsibility

to update the same unless specifically asked and agreed to do so

► Our comments are for internal purposes of AMTOI only and are not binding on any tax or regulatory

authorities. In case the same is shared with any internal parties, Ernst and Young Is not liable in case

any breach occasions with respect to the same

Demystifying the Model GST Law For discussion purpose only

Ernst & Young LLP

© 2016 Ernst & Young. All Rights Reserved.

Ernst & Young is a registered trademark.

www.ey.com/india

Thank you

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