Sectoral impact of the GST Council’s decisions
The recent decisions will go a long way in simplifying the indirect tax system
The 47th GST Council concluded in line with industry expectations on several issues and has addressed some of the key concerns regarding the correction of the inverted duty rate structure for several products via an increase of the GST rate.
The Council also rationalised several exemptions in the service sector and has suggested an increase in tax rates on specified goods. Additional clarifications on several teething GST rates and compliance issues are also a welcome step. Given below are the sectoral impact of these decisions:
Automobiles: The GST rate on electric vehicles whether fitted with batteries or not shall be 5 per cent. This will bring certainty to GST rates in the case of electric vehicles where the space is evolving in terms of battery swapping technology.
Agriculture: The rate on various machinery used in agriculture operations is rationalised to correct the inverted duty structure. This is likely to improve working capital for an agriculture machinery manufacturer.
Construction: The rate on works contract service provided to government is rationalised to correct inverted duty structure and bring it at par with construction services provided to other than government.
Defence: GST exemption is provided to specified defence items imported by private entities to make products cheaper for defence forces.
E-commerce: Small traders (turnover lower than ₹40 lakh) have been allowed to make an online sale through e-commerce platforms without the need for mandatory registrations. Also, composition dealers have been allowed to make inter-State sales through e-commerce platforms. This would help is the ease of doing business for MSMEs.
FMCG: GST exemption on pre-packaged commodities (curd, lassi, butter milk etc.) is withdrawn making them costlier for the consumer.
Hospitality: The rate on hotel accommodation up to ₹1,000 per day increased to 12 per cent, making it costlier for the consumer.
Healthcare: GST rate on orthopaedic and other appliances is reduced from 12 per cent to 5 per cent. GST exemption on service by the cord blood bank by way of preservation of stem cells is withdrawn. The service of common bio-waste treatment facilities shall be taxed at 12 per cent with ITC. GST rate for room rent (excluding ICU) above ₹5,000 per day per patient is rationalised. This is likely to make healthcare services costlier for certain category of consumers.
Logistics: GST rate on transportation of goods and passengers by ropeways, renting of goods carriage (where the cost of fuel is included) is reduced. GST exemption is withdrawn on the transport of passengers by air to and from North-East States and Bagdogra in business class, transportation by rail or vessel of railway equipment and material. GST exemptions will continue on services associated with transit cargo both to and from Nepal and Bhutan, and the additional fee collected in the form of higher toll charges for a vehicle not having Fastag. The rate on renting motor vehicles and tour operators providing services to foreign residents for a tour partially in India and outside India is clarified, making the services costlier.
Precious metals: GST rate on cut & polished diamonds is increased from 0.25 per cent to 1.5 per cent making cut and polished diamonds costlier. Special provisions for local movement of precious metals (such as Gold) to be introduced.
Crypto-currency: GST levy on virtual digital assets (i.e., cryptocurrency) was not taken up in this meeting.
Casino: Increase in GST rate on casino, racecourse and online gaming is put on hold. The Council directed the Group of Ministers to present a revised report on this subject.
While the Group of Ministers tabled four reports before the GST Council, the deliberation could happen only on a few reports leading to the above mentioned decisions. The industry would need to await a conclusion on key issues regarding GST rate rationalisation and extension of GST compensation to States.
The writer is Tax Partner, EY India. With inputs from Gaurav Narula, Director Tax, EY India. Views expressed are personal
GST to be levied on employees’ share of canteen charges: TNAAR
Tamil Nadu’s Authority for Advance Ruling (TNAAR) has ruled that employee’s share for canteen services will be subjected to Goods & Services Tax (GST). This is contrary to earlier rulings by Gujarat AAR (GAAR) in the matter of two pharmaceutical companies.
“The applicant has established canteen facilities as mandated under Section 46 of of the Factories Act, 1948 and supplies food at a nominal cost either directly or through third-party vendor. The supply of food by the applicant is ‘Supply of Service’ by the applicant to their employees as the same is not a part of the employment contract and the canteen facility is provided under the Factories Act. The nominal cost, which is recovered from the salary as deferred payment is ‘consideration’ for the supply and GST is liable to be paid,” TNAAR said while disposing the application filed by Chennai based Kothari Sugars and Chemaicals Limited.
The applicant said it has engaged a third party vendor for canteen facility as mandated by the Factories Act. The company bears part of the payment made to the vendors while the rest is recovered from employees. It does not retain any profit margin in this activity of collecting employee’s portion of canteen charges.
After going through all the facts and arguments, TNAAR said the recovery of cost from the delayed payments do not alter the fact of the service provided and the person providing the said supply. The third part has entered into agreement with the applicant for running of the canteen in one of units and is paid service charges which is a supply made by the third party vendor to the applicant. “The supply of the food by the employer, i.e., the applicant to their employees is composite supply of food held as ‘Supply of Service’ as per Schedule-II of the GST Act,” AAR said and ruled GST to be paid.
No generalisation
AAR rulings are applicable only on the applicant and related tax jurisdiction, though can be referred in similar matter. Interestingly, the applicant mentioned the GAAR’s decision in the case of Emcure along with others, but TNAAR made it clear that the advance ruling granted to one application could not be applied universally .
GAAR rulling
In the matter of Emcure, GAAR had held that company not required to pay Goods and Services Tax on employees’ share for canteen services and free transportation services. In the similar matter of Cadila, GAAR held the same.
“We are not inclined to accord this canteen service facility provided by Cadila to its employees as an activity made in the course or furtherance of business, deeming it a Supply by Cadila to its employees,” GAAR said and ruled no GST to be levied.
In the matter of Emcure, it said that GST is leviable neither on the employee portion of canteen charges, nor on the free bus transportation facility provided to its employees. ITC will be admissible in the case of GST paid on the hiring of a bus (with capacity of more than 13 persons), but not on GST paid for canteen facility.
Windfall tax on upstream firms to end when super profits stop: Tarun Bajaj
New Delhi, July 03
Revenue Secretary Tarun Bajaj has said that higher import duty on gold is not meant for revenue augmentation. In an interview with BusinessLine, he made it clear that once windfall for upstream companies stops, windfall tax will automatically go away. Excerpts
Post imposition of an export levy on petrol, diesel and ATF and cess on domestic crude, the Government will review the situation every fortnight based on international price movement. Does this mean that new levies have a sunset clause?
We will review the situation every 14 days as international prices also fluctuate for petrol, diesel and ATF on one side and crude on the other. Suppose, if prices come down substantially, then we would like to reduce the taxes. We don’t want these companies to feel they are paying the windfall tax when there is no windfall gain. That is one aspect. We do not want to say how long it would continue, but this is the formula. We will keep watching on a fortnight basis, and if we find there is no windfall profit they are making, then new levies would automatically go away.
Is it correct to say oil marketing companies will not have to pay cess if they import crude?
There is no additional tax on imported crude. This is traded at international prices anyways. The tax is on domestically produced crude. Domestic upstream companies produce crude in the country. Their manufacturing cost is almost the same, exclusive of inflationary impact.
Also, they are getting margins. But the price of crude oil has gone from $70-$80 a barrel to $120 a barrel, meaning they are making $40 more. We ask that out of $40, give a part to the government as taxes. This crude is used to make diesel, petrol and ATF. Prices of these products in the global market have gone up even more.
After sourcing crude, one has to spend some money to refine it and then there is a margin called Cracks (differences between crude oil and the prices of the wholesale petroleum products that derive from it, such as petrol, diesel and ATF). Cracks have even gone up further. So, if Crack was earlier, say 12-14$, and now it is $50, which means refiners are getting 30-40$ more, we are saying share some part with the government as taxes and keep the remaining. And they will get the crude at the same price whether they import it or buy it from domestic producers here. This means, there is no arbitrage and no impact on the end consumers.
Availability of diesel, petrol and ATF may improve in the domestic market as the government also has a quota. So, if you have to export two units, you have to give one unit to oil marketing companies or put it in your own petrol pumps. Because we have imposed an export duty on refiners, suppose, if their margin is $50 a barrel and we have put a duty of $30, they are getting $20 a barrel. When domestic oil marketing companies buy from them, they will be able to get products at a lesser price than international prices because of this duty. Oil marketing companies will thus benefit from this measure.
Do you expect some shorts of price rationalisation of products in the domestic market?
It won’t affect the final consumer price but will not create arbitrage. It won’t distort the market. It might help in a) more availability of diesel, petrol, ATF in the domestic market and b) domestic oil marketing companies will be able to buy these products at a lower price than what they were buying till now. In that case, under-recoveries or losses of oil marketing companies are likely to come down
What kind of revenue do you estimate from the import duty hike on gold?
We are not targeting revenue through a hike in import duty on gold. If the revenue reduces, we will be happy. This measure has not been taken to augment revenue but to reduce the import of gold and ensure India’s Current Account Deficit is brought down. Some items which are imported heavily into the country, out of which some are inelastic such as petroleum and metal products, which we have to import. But there are some products like gold, which we feel, can be controlled. If we can reduce imports , it will help the economy in the present circumstances.
There is apprehension that higher duty may lead to higher smuggling…
Our analysis so far says that smuggling is not directly co-related to a higher duty. In fact, there have been occasions when higher duty has been accompanied by higher imports . Though, this time because of a little higher duty we expect imports to come down. If imports reduce, it will be good.
Now coming to GST, what will be a road map for GST in the next year or so?
47th meeting of the GST Council, which was held last week, took some decisions regarding how to improve GSTN. We will implement, some of them in the next three months, some in 6, some in 9 and some in the next 12 months. Implementation will improve the compliance of players and also hit unscrupulous people. We are also taking steps to make life easier for the taxpayers.
Take the example of a decision regarding small businesses selling their products through e-commerce operators without registering under GST. Thirdly, we would like to see some structural changes which everybody keeps talking about GST suffering from, so that GST in the next one year or two years becomes an absolute stable tax rate regime where people should focus on their business and not bother for a quarterly council meeting, and they can be taken as routine business. Our effort is to make life easy for the taxpayers and improve revenue.
What kind of changes is being brought into the e-invoicing system?
E-invoicing started with those having an annual turnover of ₹500 crore, then brought down to ₹100 crore and now to ₹20 crore. We plan to bring it down first to ₹10 crore and then to ₹5 crore. There is a timeline for lowering the threshold to ₹10 crore, but before that, we want stability in the IT system. The number of assesses between 10 and 20 crore would go up substantially, so we want to be sure that our IT system is good. GSTN is working on the plan, and it should be ready in the next 3-4 months.
What is your plan to keep an eye on high-risk assesses?
We have already been working in this regard. We plan to strengthen our efforts further and use AI and ML. We have a lot of data of our own, and now we are also collaborating with data from Direct Taxes, Corporate Affairs, State data etc and build algorithms to keep an eye on such risky assesses.
A GoM has also been constituted, and in the recent Council meeting, their first set of suggestions have been accepted to use IT systems to ensure that we don’t even let suspect people onboard GST. For example, we will see whether a PAN number suspect/delinquent in one state does not get registration in another state. Also, if an applicant has given an address such as XYZ, South Moti Bagh, New Delhi, we will say this is not the exact address. The applicant is risky and requires physical inspection. These parameters will be set in through the IT platform which will help cull out risky people.
Besides, Aadhaar authentication and geo-mapping will also be done. Once we do such mapping, we also realise whether the said place has 50 registrations or 100. So, the system is being improved with the help of machine learning and AI. Once all these are in place, we will know that a particular assesses is risky and then we will monitor him. We will do his Aadhaar authentication, PAN number, and CA number as mentioned in the electricity bill to see whether the said person is running a factory. Once we do all such things, we will ensure that these people don’t come into GST arena .
E-invoicing ‘soon to be mandated’ for units with over ₹10-cr turnover
Firms not complying with e-invoicing will be considered invalid and not be eligible for ITC
Businesses with an annual turnover of more than ₹10 crore and then for more than ₹5 crore will soon be required to issue e-invoice. As on date, e-invoice is mandatory for businesses with an annual turnover of over ₹20 crore.
E-invoicing prescribes a standardised format of an invoice that can be read by a machine. It is a system in which B2B invoices are authenticated electronically by the Goods & Services Tax Network (GSTN) for further use on the common GST portal.
Under the electronic invoicing system, an identification number will be issued against every invoice by the invoice registration portal (IRP) to be managed by the GSTN. Businesses for which e-invoicing is mandated and if they do not do so then, their invoice will not be valid. In such a situation, input tax credit (ITC) on the same cannot be availed by the recipient, besides attracting applicable penalties
Checking IT systems
Revenue Secretary Tarun Bajaj said e-invoicing started with those having an annual turnover of ₹500 crore, then brought down to ₹100 crore and to ₹20 crore. Now the plan is to bring it down first to ₹10 crore and then to ₹5 crore.
“Timeline for lowering the threshold to ₹10 crore is there, but before that, we want stability in the IT system. The number of assesses between ₹10 crore and ₹20 crore would go up substantially, so we want to be sure that our IT system is good. GSTN is working on the plan and they should be ready in the next 3-4 months,” he told BusinessLine in an interview.
The issue was also highlighted by taxpayers during the five year GST celebration event on July 1. Responding to this, Vivek Johri, Chairman of Central Board of Indirect Taxes & Custom (CBIC) said, “One of the presenters talked about reducing the threshold for e-invoices to ₹5 crore, that is the decision already been taken and it is about to be implemented.”
Introducing in a phased manner
The GST Council, in its 37th meeting on September 20, 2019, recommended the introduction of an electronic invoice (‘e-invoice’) in GST in a phased manner. The government has already made it clear that mandatory conditions will not add a financial burden on businesses as GSTN has empanelled various accounting and billing software products which provide basic accounting and billing systems free of cost to small taxpayers.
Here, small taxpayers mean businesses having a turnover of less than ₹1.5 crore. Those small taxpayers who do not have accounting software today can use one of the empanelled software products, which are available online (cloud-based) as well as offline (installed on the computer system of the user) mode.
Tax officials say businesses use various accounting/billing software, each generating and storing invoices in their own electronic formats. These different formats are neither understood by the GST System nor among the systems of suppliers and receivers. For example, an invoice generated by the SAP system cannot be read by a machine that is using the ‘Tally’ system, unless a connector is used.
With more than 300 accounting/billing software products, there is no way to have connectors for all. In this scenario, ‘e-invoicing’ aims at machine-readability and uniform interpretation. To ensure this complete ‘inter-operability’ of e-invoices across the entire GST eco-system, an invoice standard is a must. By this, e-invoices generated by one software can be read by any other software, thereby eliminating the need for a fresh/manual data entry.
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