Let’s understand the amendments made in the CGST and IGST Act by way of CGST & IGST Amendment Act 2018 assented to by the President on 30.08.2018. A conversation between CFO and Indirect Tax Manager to discuss the amendments.
Mr. Vinit, CFO of M/s Classic Care Limited a pharmaceutical company asked Mr. Vivek working as Indirect Tax Manager to throw some light on the rationalization of Input Tax Credit (ITC) provisions which may lead to savings of ITC loss to the company?
Reply by Vivek- Sir, we are availing the services of M/s Star Travels who is providing bus facility with a driver for the purpose of commutation of employees to/from residence to manufacturing plant. Prior to the amendment there was restriction on availing ITC on motor vehicle hiring services except for the companies using the same in passenger transportation business or companies engaged in imparting vehicle driving training.
However, as a result of the amendment, Classic Care will be entitled to claim ITC in respect of hiring a motor vehicle provided the seating capacity of the same is more than 13 persons (including driver). Buses plying for commutation of our employees are having more than persons 30 seating capacity. Amendment made in Sec 17(5)(a) of the CGST Act, 2017 suitably rewording the negative entry pertaining to motor vehicles transportation.
Vivek, further added, however, Star Travels also providing us cabs on rental basis for the purpose of commutation of our employees to Dug control offices, customers & vendors locations and other govt. offices in the city. Since, the seating capacity of these cabs is lesser than 13 persons, cab hiring services would continue to be ineligible.
One query Vivek, what if we buy our own buses and hire driver and use the same for the purpose of commutation of our employees?
Replied Vivek- Sir, that’s a good idea! Even when we purchase buses in our own name and capitalize in books of account, the same will be capital goods. Further, ITC of the same will be eligible as amended sec 17(5)(a) excludes from negative list of ITC both motor vehicle purchased or hired as long as the seating capacity of the same exceeds more than 13 persons.
Vivek, further added that, a proviso has been added to Sec 17(5)(b) which provides that “Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”. This implies that ITC of goods or services used in making available any arrangement or facility which the law mandates shall be eligible even if the same is otherwise ineligible.
Vinit interrupted, yeah prior to this amendment also we were availing ITC of workmen insurance which was required as per industrial laws but we were not availing ITC in respect of meals provided to employees. Vivek replied, Yes, prior to amendment, ITC only in respect of health and life insurance which an employer is statutorily required to secure for its employees was allowed. However, after this amendment, any goods or services purchased for meeting the statutory obligations as casted upon by the laws being in force will be available.
We are having an arrangement with M/s Swaad Foods, a catering company arranging food & its serving at the company’s premises. Since, food supply and outdoor catering are in negative list of ITC as per Sec 17(5)(b)(i), prima facie we are not eligible to avail ITC of outdoor catering arrangement. However, post this amendment , we would be eligible to avail in respect of outdoor catering services availed in order to provide meals to employees which is statutory requirement for manufacturing companies employing more than 250 employees. But it is pertinent to note that, outdoor catering services for all other purposes will continue to be ineligible.
Vivek, Are there any amendments to save our ITC reversal attributable to exempt supplies?
Replied Vivek- Yes Sir, there are. To clarify the same, let us have a look at the definition of exempt supply. Exempt supply as defined in Sec 2(47) of the CGST Act means any supply of goods or services which is chargeable to NIL rate of tax or wholly exempt u/s 11 of the CGST Act or u/s 6 of the IGST Act and includes non –taxable supply. Here is the catch, the word non-taxable supply has wide coverage in as much it covers those cases also which are not treated as supplies by virtue of Schedule III of the CGST Act.
Schedule III includes supplies like services provided to employer by employee, sale of land & sale of building (if no consideration received by developer before obtaining certificate of completion) etc. Further, as a part of these amendments, 2 more transactions viz. i) supply of warehoused goods in customs bonded warehouse before clearance for home consumption and ii) supply of goods in case of high seas sales, also falling in Schedule III not to be treated as supply.
Sec 17 (2) of the CGST Act require reversal of ITC attributable to exempt supplies. As per the amendment made in Sec 17(2), now for the purpose of ITC reversal supplies stated in Schedule III of CGST Act (except sale of land/building) not to be treated as exempt supplies. This implies that requirement of ITC reversal would not be there on High seas sales and sale of warehoused goods before clearing for home consumption. This way we would be saving ITC reversal on High seas sales and sale of warehoused goods before clearing them for consumption.
Vinit - I want to understand pre and post-tax implications on sale of warehoused goods
Replied Vivek- See, prior to amendment, sale of imported warehoused goods from customs bonded warehouse before its clearance for home consumption was subject to IGST as the same is covered by Sec 7(2) of the IGST Act which states that any supply of imported goods taking place before the goods cross customs frontiers of India shall be treated as an 'inter-State supply' and such transaction of sale/ transfer will be subject to IGST. This was the first levy of IGST on such warehouse goods.
Further, when the goods are cleared by the buyer (who purchases from the original importer) is liable to pay customs & IGST while filling bill of entry for clearing for home consumption.
Post amendment:
The sale of the goods by the importer to third party before clearing for home consumption would not attract IGST as the supply of warehouse goods before clearing for home consumption has been kept in schedule III as non-supply items. IGST and customs duty will be payable only by the buyer (who purchases from the original importer) files a bill of entry to clear the warehoused goods by paying customs duty and IGST)
Therefore, post-amendment, dual levy of IGST has been avoided, now, IGST will be payable only by the buyer who clears the warehoused goods for home consumption.
Vivek, further added that, second proviso to sec 16(2)(d) of the CGST Act has been suitably amended to remove the interest liability in case of ITC reversal for non-payment of value of supplies along with the tax payable thereon to supplier within a period of 180 days from the invoice date. This will save our interest cost even when we could not pay to supplier within 180 days from the invoice date.
Vivek, I have heard that some relaxations has been provided in respect of transportation of goods services, could you please help me to understand the same?
Replied Vivek- Yeah, now when the destination of goods transported is outside India, then the same shall not be taxable rather would be treated as export of service subject to satisfaction of other conditions.
Okay, but even before amendment the same was not taxable, as I have seen that the Aircargo service providers like Air India and other airlines were not charging tax on the transportation of the exported goods outside India.
Right Sir, to clarify your doubt we need to understand the provisions of place of supply of service here.
Sec 12(8) of the IGST Act, 2017 provides that the place of supply of services by way of transportation of goods including by way of mail or courier if provided to a registered person shall be the location of such person. In case provided to an unregistered person then place of supply shall be the place where goods are handed over for their transportation. Further, vide Notification No. 2/2018- Central Tax (Rate), the services provided by way of transportation of goods by an aircraft or vessel from Indian customs clearance station to a place outside India has been exempted.
Now, coming to your point, see before the amendment, if the goods are transported outside India, the same shall be taxable as the place of supply is the location of service receiver (exporter which is India). However, this was specifically made exempt by virtue of the aforesaid notification. Though the notification exempts such services, but still there is a liability to reverse ITC as the service is exempt service and not a zero-rated supply (exports).
The amendment has solved this issue too. The amendment has been made to Sec 12(8) by inserting a proviso which reads as "Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.”
This implies that now the moment destination of transported goods fall outside India, it place of supply will go outside India and the same shall become export of service provide the other 5 conditions specified in Sec 2(6) of the IGST Act gets satisfied. Further, this relief unlike the exemption notification as stated above does not differentiate transporting goods by air/vessel/road/train.
Fair enough Vivek!!
Vivek, what are the amendments made to narrow or expand the tax net?
A few sir-
- Govt empowered to increase the existing limit of turnover of INR 1 crores to 1.5 crores for opting composition scheme of taxation. (Amendment made in Sec of the CGST Act),
- Composition scheme extended to service providers whose turnover of services doesn’t exceed 10% of total turnover in the preceding financial year. Prior to amendment composition scheme only for the supplier of goods and for restaurant service providers not serving alcohol. (Amendment made in Sec of the CGST Act).
- Import of service by any person in the course of furtherance of business will be a taxable supply. Prior to amendment, only taxable (registered) persons were liable to pay tax on import of services in the course of furtherance of business. However, post this amendment even when the person is not registered because of under threshold limit of turnover, will also be liable to pay IGST on services imported in the course of furtherance of business under reverse charge mechanism. For discharging such liability, registration has to be sought by such persons as there is no threshold limit of turnover for the purpose of liability arising due to reverse charge mechanism. (Amendment made in Schedule I para 4 of the CGST Act.)
Thanks a lot Vivek, we had a good discussion, please see that tax conditions in SAP system suitably modified in line with these amendments. Already done Sir, Vivek replied (smiling).
Thanks for reading!!
The author can also be reached at saurabhchokhra92@gmail.com.
Disclaimer: The people, places and companies mentioned in the article are fictitious and have no connection with anything existing in reality. The views expressed in the article are the personal views of the author and should not be taken as legal opinion.
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