GST Updates 14th Oct 2016

Parliament’s winter session to begin on November 16 to expedite GST rollout

October 14, 2016
Winter session of Parliament will start on November 16. It will be a month-long session that will end on December 16, the cabinet committee on parliamentary affairs decided on Thursday.

The winter session usually starts in the third or fourth week of November, but was advanced to achieve the government’s ambitious target of rolling out the goods and services tax — a uniform indirect tax regime that will subsume all central and local levies such as excise, octroi and value added tax — from April 1 next year.

It’s also in keeping with the government’s plan to advance the presentation of the general budget by about a month. The budget is usually presented on the last working day of February, but the government has decided to advance it to start the process of revenue mobilisation and capital expenditures from April 1, the first day of the financial year.

Parliament passed the Constitution (122nd) Amendment Bill for GST in August, but it has to clear the Central GST and Integrated GST bills before its rollout from April 1, 2017, as envisaged by the NDA government.

These two enabling laws, while empowering the Centre to levy the GST on goods and services and collect it on inter-state trade and commerce, are expected to specify the range of GST rates, exempted items and compensation, among others. These issues are being deliberated upon by the GST Council headed by finance minister Arun Jaitley.

The government is likely to give a renewed push to its labour reforms agenda in the winter session of Parliament as well. High on the priority list is the Labour Code on Wages that seeks to empower the Centre to fix minimum wages across all sectors. The code amalgamates four existing laws relating to wages.

The labour ministry also hopes to build political consensus to get parliamentary approval to the Code on Industrial Relations, which aims to make retrenchment easier for firms employing up to 300 workers.

The last monsoon session was relatively smooth and productive — compared to previous sessions that were marred by government-opposition face-offs — but the winter session could witness a fractious debate on India’s September 29 surgical strikes across the de facto border in Pakistan-occupied Kashmir. Opposition parties have accused the BJP of politicising and “profiteering” from the military action, while the ruling party has accused them of “belittling” the sacrifice of the armed forces.

Ahead of elections in Uttar Pradesh, Punjab and three other states in February-March next year, these allegations and counter-allegations could cast a shadow on the legislative agenda of the government in the coming session of Parliament. Source – [14-10-2016]

Centre warns against criticism of GST network

October 14, 2016
The Centre has warned its employees that they could invite penal action if it is found that they are indulging in criticism of its policies and actions. T his presage came from the Union Finance Ministry amid a sustained campaign by the Indian Revenue Service (Customs and Central Excise) and All India Association of Central Excise Gazetted Executive for changes in the Goods and Services Tax Network (GSTN)-a private company tasked with the creation of Information Technology (IT ) infrastructure and composition of a GST council secretariat for the new tax regime.

“Of late, it has been noticed that some associations or federations have commented adversely about the government and its policies. It may be brought to the notice of all associations or federations that if anyone indulges in criticism of the government and its policies, appropriate action (including disciplinary action) shall be taken,” a memo issued by recently by the Finance Ministry said.

It cited the service rules tinkered in June, covering the social media as well, that bar a government servant from making any adverse criticism of any policy or action of the government.

The Ministry said the primary objective of the service associations is to promote common service interest of its members. T he service rules were amended in June making it clear that disapproval of government policies on social media also amounted to violation of conduct rules. And the threat of disciplinary action extends to caricatures that are uncharitable to the government.

Earlier rule book spoke about criticism made in a radio broadcast, public media (such as television) or documents. It will be applicable to anonymous and pseudonymous posts by officials too.

The recent memo of the Finance Ministry capped weeks of unrest among officers and cadre of the Excise and Revenue Department officials over a number of issues related to roll out of the General Sales Tax regime.

The central government holds 24.5 per cent stake in GSTN while state governments together hold another 24.5 per cent. T he balance 51 per cent equity is with non-government financial institutions, like HDFC Bank, ICICI Bank and LIC Housing Finance.

“Management of GSTN be entrusted to Directorate General, Systems of Central Board of Excise and Customs, as GSTN is a newly created Special Purpose Vehicle, which does not have any experience in implementing any IT project or domain knowledge in Indirect T ax laws,” the IRS association had said in a statement.

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister, Narendra Modi, had recently approved ‘Project Saksham’ — a new indirect tax network (systems integration) of the Central Board of Excise and Customs (CBEC). T he total project cost involved is Rs 2,256 crore which will be incurred over a period of seven years.

Three days later in a letter to the Union Finance Minister Arun Jaitley Steering Committee of Associations in the Central Board of Excise and Customs representing the IRS and seven other bodies wrote on the subject of GST .

It said their main concern was that `unity of purpose’ is being compromised at the expense of the growth of tax base and revenue. T he Committee said a resolution on the GST at their meeting believes that service Tax (services above threshold level falling within GST ) Administration should be in the exclusive domain of Centre and dual Control of the Centre and the States (for Goods) across the spectrum.

“Sir, we feel that the benefits of pan-India foot prints of the central indirect taxes would be lost if the tax payer base is handed over to the states without proper evaluation, and we expect that our understanding would get due recognition and initiate a positive response”, it said. Source – [14-10-2016]

GST Impact on E-commerce sector

October 14, 2016[2016] 74 3 (Article)
1. E-commerce, an unheard of term a few years back has now become people’s “gharkidukaan”and the most desired shopping platform where articles from a sewing needle to one’s dream home are available for sale. On one side it is one-click shopping platform for consumers and on the other side its business model as well as tax structure are very complex. E-commerce operators (hereinafter referred as e-com’s) which are ordinarily newspaper headlines as regards levy of entry tax have also gathered attraction in GST.
Business models in E-Commerce sector & its impact on GST
2. There are two models of e-commerce, transactions i.e., aggregator model and e-commerce operator model.
A summarised understanding of these models and its GST impact have been drafted below:-
(1)   Under aggregator model three persons are involved, i.e., aggregator (Brand owner- Uber), service provider (cab driver) and end user (say Anil). Here aggregator is neither the service provider nor a service receiver, but only an intermediary entity, whose mobile application (app) is used by Anil, the end user to get connected to cab driver.
  In present taxation regime, aggregator is responsible to get itself registered under Service tax department for payment of service tax under reverse charge.
  In GST the definition of aggregator has been kept same as in Service tax. But in GST, as per supply definition, the supply of branded service by the cab driver shall be deemed to be supply of service by the aggregator, i.e., Uber. Therefore, the aggregator is liable to register and pay GST as a ‘supplier of service’ as against payment under reverse charge under pre-GST regime, irrespective of the threshold limit of Rs. 9 Lakhs in Model GST Law.
(2)   Under e-commerce operator’s model also three persons are involved, i.e., Marketplace (like amazon, flipkart), logistic company and the ultimate consumer. This model has further three sub-models, i.e., Drop-shipping, fulfilment centre and inventory-led model.
Following is the brief understanding and its impact on GST of these sub-models:-
(i)   Drop-shipping a.k.a marketplace model is a model where e-com’s provide an electronic platform to different vendors all over the country to sell their products. Here the responsibility of warehousing and delivering the goods lies on the vendor. E-com’s only provide the order details to the vendor. Hence, such e-com’s define themselves not as retailers but as a provider of IT services (Information Technology services).
  In current scenario such e-com’s require central registration with service tax department for providing IT services and other associated services and pay service tax on the commission they charge from the vendors.
  But in GST as per para 5(ix) of Schedule III of Model GST Law, e-com’s are compulsorily required to be registered irrespective of threshold limit of Rs. 9 lakhs. As e-com’s operate its business on an electronic platform, it would be interesting to know that in which State such e-commerce operators would require to register. Since nowhere, no else provisions or information is provided in Model GST Law in regard to their registration, for determining the State where registration is required in GST shall be based on type of ‘person’. If such e-com’s are registered as company, partnership firm under the respective Acts, then GST registration shall be taken in the State where it is registered under various Acts (Partnership Act, Companies Act). If it is not registered under such acts (Companies Act, Partnership Act) and want to conduct business as an individual (sole proprietor), then GST registration shall be taken in the State where he opens a bank account for transaction purpose .
(ii)   Fulfilment Centre model is a model where the e-com’s in addition to facilitating electronic portal to the vendor also provides the services of storing and delivery of goods to vendors. Here, the e-com’s fulfil the orders of buyers by making delivery to them from the stock of goods of various vendors stored by them in their warehouses or godowns. This model is more customer- focused and is followed so as to save logistics cost and to provide timely delivery to the buyers.
  In current scenario, the e-com’s are paying Service tax on the commission charges, storage and delivery services and are not paying VAT because they are not in any way covered in the definition of ‘dealer’. This matter of coverage in the definition of ‘dealer’ is under litigation in the Karnataka HC. In this case department took the view that since the e-com’s store the goods procured from various suppliers in their facilitation centre (warehouse) before dispatching it to the customers, hence these companies appear to be involved in supplying and distributing goods, therefore, e-com’s would be covered under the definition of ‘dealers’ of in the Karnataka Value Added Tax Act and are liable to discharge VAT.
  Now in GST this VAT dispute has been resolved by specifically covering warehouses or godowns under the definition of ‘place of business’, therefore these companies are required to take registration in all the States where their warehouses orgodowns are situated.
(iii)   Inventory-led model is a model where the e-commerce companies buy goods from different vendors and stock it and then sell to the ultimate customer. Since the e-com’s are buying and selling goods, they define themselves as ‘dealers’ and are liable to get themselves registered under VAT. This model is less in existence now-a -days, because of huge capital involvement. In GST also such type of companies shall have to take registration in the State in which they are operating.
Now, in GST the reframing of business models could be done based on various relevant business factors instead of tax structure.
Entry tax subsumed in GST
3. Many State governments (Uttarakhand, Bihar, Assam, Odisha, Gujarat, Jharkhand and Himachal Pradesh) have already levied entry tax on the goods entering the States through e-commerce portals for safeguarding the interest of local dealers. Many representations have been made by the traders challenging validity of entry tax on such inter-State e-commerce transactions, contending that entry tax is levied on the goods acquired in the course of businessand not on the goods purchased for personal use.
Since GST involves free flow of goods, services and Input tax credit, all the taxable persons become nation-wide players for supplying their goods and services all over India without any barriers. Therefore, the very intent (to safeguard local dealer’s interest) behind levying entry tax by various States has no more relevance in GST. From State government’s revenue viewpoint, since GST is a destination based consumption tax where the consuming State would get the tax revenue, the State governments which have levied entry tax on these e-commerce transactions would promote such inter-State supplies, so as to enhance their State’s revenue.
Tax rate impact on GST
4. In GST, such e-com’s have to pay higher rate of tax, i.e., 18% (proposed) as against 15% (Service Tax or VAT), but an uninterrupted credit-flow would be helpful in paying such extra output liability.
GST Dealer: a nation-wide player
5. GST will open new markets for online commerce, because in pre-GST regime the customers in some States cannot order everything from online shopping destinations due to entry tax and other process complexities.
Introduction of TCS concept for E-Commerce sector in GST
6. Inspite of various positive aspects of GST for e-commerce companies, the introduction of TCS for e-commerce operators only has put unnecessary compliance burden on them. As per section 43C of the Model GST Law, the e-commerce operator shall collect an amount (….%) at the time of credit of any amount in vendor’s account or payment in cash, whichever is earlier.
Such companies have thousands of vendors listed with them. Now they have to maintain the data of all such vendor’s account and payment in detail so as to collect tax. The amount collected shall have to be deposited by 10th of next month to the credit of appropriate government.
While GST undeniably comes as a relief to the e-commerce sector, it is also expected to pose challenges in respect of TCS, which the industry is hopeful would not be finally introduced.
(Article: N.K. Gupta Executive Director, S.S. Kothari Mehta & Co.)

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