India: Indirect Tax Updates - November 2017

GOODS & SERVICES TAX ("GST")

Notifications

• Reduction in rates for restaurant services: Rate of GST payable on restaurant services have been reduced to 5% from 12%.

(Ref: Notification No. 46/2017-Central Tax (Rate), Notification No. 48/2017-Integrated Tax (Rate) and Notification 46/2017-Union Territory Tax (Rate) dated 14 November 2017)

• Procurements made by specified research institutions to be taxed at concessional rates: Supply of scientific and technical instruments, computer software, accessories, prototypes valued at up to INR 50,000 in a financial year, etc. to public funded research institutions, departments and laboratories of Central and State Government, etc. are exempted from GST.

(Ref.: Notification No. 45/2017-Central Tax (Rate), Notification No. 47/2017-Integrated Tax (Rate) and Notification 45/2017-Union Territory Tax (Rate) dated 14 November 2017)

• Export of services to Nepal / Bhutan: Supply of services to Nepal or Bhutan against Indian Rupees has been exempted from payment of IGST. However, such supply is not zero-rated and attracts reversal of input tax credit.

(Ref.: Notification No. 42/2017-Integrated Tax (Rate) dated 27 October 2017)

• Concessional rate of tax for penultimate supply for export: Concessional rate of 0.1% GST have been provided for supply of goods to merchant exporters subject to certain conditions.

(Ref.: Notification No. 40/2017-Central Tax, Notification No. 41/2017-Integrated Tax and Notification 40/2017-Union Territory Tax dated 23 October 2017)

• Deemed Exports notified: The following supplies have inter alia been notified as deemed exports in terms of Section 147 of the CGST Act
  • Supply of goods by a registered person against Advance Authorisation;
  • Supply of capital goods by a registered person against EPCG Authorisation;
  • Supply of goods by a registered person to an Export Oriented Unit;

(Ref.: Notification No. 48/2017-Central Tax dated 18 October 2017)

• Composition Scheme: The threshold limit for the composition scheme has been increased to INR 10 million (in case of special category states except Jammu and Kashmir and Uttarakhand, the limit is INR 7.5 million). A person providing exempt service will also be eligible for composition scheme.

At the meeting held on 10 November 2017, the GST Council recommended that the turnover for eligibility should be increased to INR 20 million and that the supply of services by a composition taxpayer has been exempted up to INR 0.5 million.

(Ref.: Notification No. 46 / 2017 – Central Tax and Notification No.16 /2017- Union Territory Tax, both dated 13 October 2017)

• Manual filing: The manual filing of documents and forms which were notified for electronic submission has been allowed. Manual format for refund form GST RFD-01 has been notified.

(Ref: Notification No.55 / 2017-Central Tax dated 15 November 2017)

• Registration waived for suppliers of services with turnover below threshold: Service providers with an aggregate turnover below INR 2 million (for special category states except Jammu & Kashmir with turnover below INR 1 million) and making inter-state supply of services or making supplies through e-commerce operators are exempted from mandatory registration requirements. This is not extended to inter-state suppliers of goods.

(Ref.: Notification No. 10/2017-Integrated Tax dated 13 October 2017 and Notification No. 65/2017 -Central Tax dated 15 November 2017)

• Procurement from unregistered suppliers: The GST payable under reverse charge for procurement of goods and services from unregistered persons has been suspended till 31 March 2018.

(Ref.: Notification No. 38 / 2017- Central Tax (Rate) and Notification No. 32/2017-Integrated Tax (Rate), Notification No. 38 / 2017- Union Territory Tax (Rate), all dated 13 October 2017)

• Advance receipt: A supplier of goods who has not opted for a composition scheme is not required to pay GST at the time of receipt of advances but only at the time of issue of invoice

(Ref.: Notification No. 66 / 2017 – Central Tax dated 15 November 2017)

• Leasing of motor vehicles: The rate of GST on leasing of motor vehicles purchased and leased prior to 1 July 2017 has been revised to 65 percent of the rate applicable on supply of like goods involving transfer of title in goods. This was to apply until 1 July 2020.

(Ref.: Notification No. 37 / 2017- Central Tax (Rate) and Notification No. 38 / 2017–Integrated Tax (rate), Notification No. 37 / 2017- Union Territory Tax (Rate), all dated 13 October 2017)

• TDS / TCS: Registration and operationalization of Tax Deducted at Source (TDS)/Tax Collected at Source (TCS) provisions is suspended till 31 March 2018.

(Ref.: GST Council Recommendations released on 6 October 2017)

• LUT / Bond: The Government has allowed all exporters holding an unblemished record to avail facility of LUT in place of a Bond and BG. It must be noted that exporters who have been prosecuted for tax evasion of an amount exceeding INR 25 million are ineligible for this facility. The exporters are required to give a self‑declaration.

(Ref.: Notification No. 37/2017-Central Tax and Circular No. 8/8/2017-GST dated 4  October  2017)

GST Rate Changes:

• GST rates in respect of goods falling under 177 headings have been reduced from 28% to 18%, few goods have been brought down from a 28% rate to 12% and 5% respectively.
• GST rates in respect of goods falling under 17 headings have been brought from 18% to 12%, 20 items have been reduced from 18% to 5%, 2 items from 18% to NIL, four items from 12% to 5% and 10 items have been brought down from 5% to NIL rate under GST.

Clarifications/Public notices/order:

• Clarification on credit of aircraft parts on supply by way of branch transfers: It is hereby clarified that credit of GST paid on aircraft engines, parts & accessories will be available for discharging GST on inter-state branch transfers even if input tax credit is not allowed for supply of service of transport of passengers by air in economy class at GST rate of 5%.

(Ref.: Circular No. 16/16/2017-GST dated 15 November 2017)

• Clarification on printing activity: It has been clarified that whether a printing activity constitutes a supply of goods or services shall be determined by applying the dominant nature test.

(Ref.: Circular No. 11/11/2017-GST dated 20 October 2017)

• Goods sent on approval basis: It is clarified that in respect of goods sent on approval basis, the supplier shall issue delivery challan along with e-way bill wherever applicable for sending goods from one state to another. Further, the person carrying such goods is also required to carry an invoice book to enable him to issue an invoice on approval. In such a scenario, if the goods are sent from one state to another state, the said supply would attract levy of IGST.

(Ref.: Circular No. 10/10/2017-GST dated 18 October 2017)

• Extension of time line for filing of return

(Ref.: Notification No. 54/2017 – Central Tax dated 30 October 2017, Notification No.  56/2017 – Central Tax, Notification No. 57/2017 – Central Tax, Notification No.  58/2017 – Central Tax Notification No. 59/2017 – Central Tax, Notification No.  60/2017 – Central Tax, Notification No. 61/2017 – Central Tax, Notification No.  62/2017 – Central Tax and Notification No. 63/2017 – Central Tax dated 15  November 2017)

Litigious issue

• Unavailability of transitional credit: Section 140 of the Central Goods and Services Tax Act 2017 (CGST Act) provides for carry forward of the unutilised CENVAT credit and credit of taxes and duties in respect of inputs and inputs contained in the work-in-progress and finished goods lying in stock. However, such credit is subject to various conditions which substantially restricts availability of transitional credit even though such inventory has suffered excise duty or countervailing duty in the erstwhile regime:
  • A person is allowed to take transitional credit in respect of stock procured not earlier than one year preceding 1 July 2017. In other words, transitional credit can be availed only if stock is procured/imported between 1 July 2016–30 June 2017.
  • Traders, not possessing duty paying documents, are allowed to take transitional credit of 60% of the CGST paid where CGST rate is 18% or more and in other cases 40% of the CGST paid. Such transitional credit is allowed only for 6 tax periods. In other words, goods procured between 1 July 2016-30 June 2017 and sold on or after 1 January 2018 would not be eligible to transitional credit.
  • A manufacturer paying excise duty at fixed rate can take transitional credit in respect of stock only if he is in possession of duty paying documents.
  • A manufacturer or service provider, and also engaged in trading of bought out items can take transitional credit in respect of such traded items only if he is in possession of duty paying documents.

Above conditions and restrictions have resulted in double taxation and cascading tax effect. A number of persons have challenged these arbitrary conditions curtailing transitional credit before various High Courts.

DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION

Budgetary Support Policy – IGST / CGST refunds

To achieve continuity in benefits given under erstwhile area-based exemption notifications, a scheme has been notified under which refund of duty at the rate of 58 % CGST and 29% IGST shall be granted to eligible units after utilisation of input tax credit.

(Ref.: Notification No.F. No. 10(1)/2017-DBA-II/NER dated 5 October 2017)

CUSTOMS

Notifications

• Imports against Advance Authorisation / EPCG: Exemption from IGST and Compensation Cess granted to all goods being imported under an Advance Authorisation Scheme / EPCG Scheme upto 31 March 2018. The condition prescribed is that the discharge of export obligation should only be through physical exports.

(Ref.: Notification No.79- Customs (Tariff) dated 13 October 2017)

• Supplies to EOUs: Exemption from IGST and Compensation Cess granted to all goods supplied to EOUs upto 31 March 2018.

(Ref.: Notification No.78- Customs (Tariff) dated 13 October 2017)

Anti-Dumping Duty

• Anti-Dumping Investigation: The recent developments in the ongoing Anti-Dumping Investigation are tabulated hereunder:

FOREIGN TRADE POLICY

Extension of EO for EPCG

Following one-time relaxations under the EPCG Scheme have been provided:

• Extension of export obligation period of Advance authorizations issued under Foreign Trade Policy 2002-07, Foreign Trade Policy 2004-2009 and Advance Authorisations issued prior to 5.6.2012 under foreign trade Policy 2009-14;
• Delay in submission of requests for obtaining Block-wise extension in Export Obligation period has been condoned.
• Delay in submission of requests for obtaining extension in Export Obligation period has been condoned; and
• Acceptance of installation certificate by the RAs where the said certificate is submitted beyond 18 months.

(Ref.: Public Notice No. 34/2015-20, 35/2015-20, 36/2015-20 and 37/2015-20 dated 25  October 2017)