28 March 2017

EY GST News Alert

Highlights of the GST Bills, 2017 introduced in Lok Sabha

Executive summary
This News Alert provides highlights of the Goods and Services Tax (GST) Bills, 2017
This Alert provides an introduced in the Lok Sabha on 27 March 2017.
insightful coverage of
news related to GST The Union Finance Minister, Mr. Arun Jaitley, tabled four GST Bills in the ongoing
and recent Budget session of the Parliament. The Bills introduced in the Lok Sabha include
developments that are Central GST (CGST), Integrated GST (IGST), Union Territory GST (UTGST) and the Bill
likely to impact trade. for Compensation to States.
It will act as a
summary to keep you The Bills were earlier cleared by the GST Council, followed by Union Cabinet
on top of the latest approval. According to media report, the GST Bills, although introduced as Money
GST news. For more Bills, shall be taken up for discussion in both the houses of the Parliament before
information, please their passage in the current session. The Business Advisory Committee of Lok Sabha
contact your EY will meet to decide on the duration of discussion on the Bills, which is likely to
advisor. commence on 29 March 2017.

The revised draft of the Model GST law, which was released in the public domain in
November 2016, has been split into CGST, SGST and UTGST Bills apart from IGST
Bill. The draft of the Model GST Law underwent further changes before being
introduced in the Parliament.

Some of the significant changes are contained in the definitions, levy of tax, input tax
credit, transitional provisions, zero rated supply etc. The list of exemption,
classification of goods and services, and machinery provisions including valuation
and other rules are yet to be notified.

Subsequent to the passage of Central GST Bills in the Parliament, states will take up
State GST Bills for clearance in the respective state legislative assemblies.
GST update The term drawback has been defined
and is same as under the current
Drawback Rules.
The Union Finance Minister, Mr. Arun
Jaitley, tabled four Central Goods and
The definition of the term government
Services Tax (GST) Bills, 2017 in the
has been restricted to mean only the
ongoing Budget session of Parliament.
Central Government under CGST.
The bills introduced in Lok Sabha include
Central GST (CGST), Integrated GST
Installations, structures and vessels in the
(IGST), Union Territory GST (UTGST) and
continental shelf of India and EEZ of India
the Bill for Compensation to States.
for the purpose of prospecting, extraction
or production and supply of mineral oil
The Bills were earlier cleared by the GST
and natural gas have been removed from
Council, followed by Union Cabinet
the definition of India.
approval. According to media report, the
GST Bills, although introduced as Money
State has been defined to include Union
Bills, shall be taken up for discussion in
Territories with legislature, i.e., Delhi and
both the houses of the Parliament before
Puducherry.
their passage in the current session. The
Business Advisory Committee of the Lok
Union Territory means:
Sabha will decide on the duration of
(a) Andaman and Nicobar Islands
discussion on the Bills, which is likely to
(b) Lakshadweep
commence on 29 March 2017.
(c) Dadra and Nagar Haveli
(d) Daman and Diu
The revised draft of the Model GST Law,
(e) Chandigarh
which was released in the public domain
(f) Other territory
in November 2016, has been split into
CGST, SGST and UTGST Bills apart from
The term state has been defined to
IGST Bill. The draft of the Model GST Law
include Union Territories with legislature,
underwent further changes before being
i.e., Delhi and Puducherry.
introduced in the Parliament.
The term voucher referred to in the
The changes contained in the definitions,
levy of tax, input tax credit, transitional time of supply has been defined as under:
provisions, zero rated supply and other
provisions are highlighted below. Voucher means an instrument where
there is an obligation to accept it as a
consideration or part consideration for a
Key changes in CGST Bill, 2017
supply of goods or services or both and
where the goods or services or both to be
CGST Law shall apply to the whole of
supplied or the identities of their potential
India except the State of Jammu and
suppliers are either indicated on the
Kashmir.
instrument itself or in related
documentation, including the terms and
Definitions conditions of use of such instrument.

Definition of Agriculturist has been In a bid to remove ambiguity, the

amended to cover an individual or any
Hindu Undivided Family cultivating land
either through own labor or hired labor
under individual or family supervision.
Earlier, agriculturist referred any
person cultivating land.
The proviso dealing with deposit under
the definition of consideration has been
amended to exclude the words whether
refundable or not for the treatment of
deposit given in the course of supply.
definition of works contract has been
amended. It appears that only contracts
related to immovable property are to be
considered as works contract.
Apart from the aforesaid definitions,
there are several other new definitions,
which include appellate authority,
authorised representative, competent
authority, family, manufacture and
registered person.
Supply
As per Schedule I (dealing with supply
made without consideration) read with
section 7, gifts not exceeding INR50,000
in value in a financial year by an employer
to an employee (considered as related
parties) shall not be treated as supply of
goods or services.
Schedule III (dealing with activities not
treated as goods or services) has
undergone the following changes:
Actionable claims other than
lottery, betting and gambling shall
not be treated as supply of goods or
services.
Services by foreign diplomatic
mission located in India shall not be
treated as supply of service.
Constructed building (where entire
consideration is received after
issuance of completion certificate)
and sale of land are not to be
treated as supply of goods or
services.
CGST is applicable on intra-state supplies
goods or services except on supply of
alcoholic liquor for human consumption.
The CGST rate cap has been increased
from 14% to 20%.
Central tax (i.e., CGST) will be levied on
supply of petroleum crude, high-speed
diesel (HSD), petrol, natural gas and
aviation turbine fuel (ATF) from such date
as may be notified by the Government on
recommendation of the Council.
A registered person procuring taxable
goods or services from an unregistered
person will be required to pay tax under
reverse charge basis. This amendment is
likely to have a massive impact on the
compliance complexity for taxpayers as
also on the competitiveness of
unregistered entities.
Composition levy
The Government may by notification
increase the threshold limit for composite
dealers from INR50 lakh to INR1 crore on
the recommendation of the Council.
Tax rates for composite dealers are
prescribed as follows:
For manufacturers 1% of turnover
in state or turnover in Union
Territory,
In case of composite supply involving
food (restaurant services etc.) 2.5%
of turnover
In case of other suppliers 0.5% of
turnover
Time of supply
Time of supply of services shall be the
earliest of the following:
When invoice is issued within the
prescribed period date of issue of
invoice or date of receipt of payment,
whichever is earlier
When invoice is not issued within the
prescribed period date of provision
of service or date of receipt of
payment, whichever is earlier
In cases not covered above date on
which the recipient shows the receipt
of services in the books of account.
Time of supply in case of addition in the
value of supply by way of interest, late fee
or penalty for delayed payment of any
consideration shall be the date on which
supplier receives such addition in value.
Input tax credit
Where the recipient fails to make payment
to the supplier of goods/services within
180 days (this was earlier 3 months and
only for services) from the date of issue
of invoice, an amount equal to input tax
credit (ITC) availed by the recipient shall
be added to his output tax liability, along
with interest.
The recipient shall be entitled to re-avail
the ITC on subsequent payment to
supplier. There is no provision for
claiming back the interest.
 In addition to taxable supplies on which
reverse charge is applicable, the value of
exempt supply also includes transaction
in securities, sale of land and constructed
building for non-eligibility of ITC.
The said provision would adversely impact
credit availment.
In case of a banking company or financial
institution, including a non-banking
financial institution, the restriction of 50%
of ITC shall not apply in case of supplies
made between different registered units
within the same legal entity.
In case of rent a cab, life insurance and
health insurance services, ITC can be
availed in case the person makes an
outward taxable supply of the same
category of goods or services.
ITC will not be available on goods and
services procured locally by non-resident
taxable person.
Plant and machinery for the purpose of
ITC now excludes telecommunication
towers and pipelines laid outside the
factory premises. Consequentially, the
provisions allowing credit on telecom
towers and pipelines over a period of
three years have been deleted.
Registration
Provisions earlier contained in Schedule V
have been merged with the provisions of
Registration under Chapter VI.
A person who makes a supply from the
territorial waters of India shall obtain
registration in the coastal state or Union
Territory where the nearest point of the
appropriate base line is located.
Tax invoice
Specific categories of services in respect
of which tax invoice may not be issued
shall be notified by the Government on
the recommendation of the Council. This
is in addition to any other document
being treated as tax invoice.
There is no need to issue a tax invoice/bill
of supply if the value of supply is less
than INR200, subject to prescribed
conditions. Earlier, the said limit was
INR100 in case of bill of supply.
If a receipt voucher has been issued on
receipt of advance payment for goods or
services but subsequently no supply is
made, the supplier is required to issue a
refund voucher against such advance
payment.
A person liable to pay tax under reverse
charge has to issue a payment voucher at
the time of making payment to the
supplier.
Accounts and records
Transporter, irrespective of whether he is
registered or not, is required to maintain
records of consignor, consignee and other
relevant details of goods as prescribed.
Books of account and records shall be
required to be retained for 72 months
from the due date of furnishing of annual
return instead of 60 months as per earlier
draft.
Returns
Furnishing details of outward supplies will
not be allowed from days 11 to 15 of the
month succeeding the relevant tax period.
While furnishing the details of inward
supplies, details of imported goods on
which IGST is payable under section 3 of
the Customs Tariff Act, 1975 are also to
be furnished.
Return for a tax period will not be allowed
to be furnished if return for any previous
tax period is not furnished.
Payments
Union Territory GST (UT tax) shall be first
utilized toward the payment of UT tax and
remaining amount may be utilized toward
the payment of IGST (integrated tax).
Central tax cannot be utilized toward the
payment of UT tax.
Interest rate for delayed payment of tax is
capped at 18%.
 Rate of interest in case of undue or excess
claim of input tax credit or undue or
excess reduction in output tax liability is
capped at 24%.
TDS
The limit relating to applicability of TDS
has been reduced from INR500,000 to
INR250,000.
TDS provisions will not be applicable if the
location of supplier and place of supply is
in a state or UT that is different from the
state or UT in which recipient is
registered.
TCS
E-commerce operators liable to collect tax
at source are required to furnish an
annual statement containing details of
outward supplies effected through them
prior to 31 December following the end of
the financial year.
Refund
The Government, on the recommendation
of the Council, may notify supplies
pertaining to inverted duty structure
where the refund of unutilized ITC will not
be available.
Suppliers availing duty drawback of the
Central tax cannot claim refund of ITC.
The limit for claiming refund without
documentary evidence is reduced from
INR500,000 to INR200,000.
Refund of tax paid on all zero rated
supplies or on inputs or input services
used in making zero rated supplies will be
paid to the applicant and not credited to
the fund. Earlier, this provision was
available only for exports and not all zero
rated supplies.
The rate of interest in case of refunds in
specified cases is capped at 6%.
However, if a refund claim arising from an
order passed by the adjudicating
authority or the Appellate
Authority/Tribunal or court, which has
attained finality, is not paid within 60
days from date of receipt of application,
the rate of interest is capped at 9%.
Transitional provisions
Additional conditions are prescribed for
carry forward of CENVAT credit as
follows:
The person should have furnished
returns for a period of 6 consecutive
months immediately preceding the
appointed date.
Credit should not relate to goods
covered under any exemption
notification.
For transition of credit in respect of goods
held in stock, the condition of passing the
benefit of such credit in the form of
reduced prices to the recipient has been
removed. This condition has been made
applicable only in case of person other
than the manufacturer or supplier of
services (i.e., a trader of goods) who is
availing credit without the possession of
an invoice evidencing payment of duty.
The earlier provision specifying the 6
months validity of provisional registration
certificate has been removed.
Key changes in IGST Bill, 2017
IGST law shall extend to the whole of India
except the State of Jammu and Kashmir.
IGST rate cap has been increased from
28% to 40%. Further, IGST shall not be
levied on alcoholic liquor on human
consumption.
IGST shall be levied on supply of
petroleum crude, HSD, petrol, natural gas
and ATF from a date to be notified based
on recommendation of the Council.
IGST shall be payable by the registered
recipient of goods or services under the
reverse charge mechanism on taxable
purchases made from the unregistered
supplier.
Supply of goods/services shall be treated
as supply in the course of inter-state
 trade, where the location of the supplier
and the place of supply are in:
Two different states
Two different Union Territories
A state and a Union Territory
As per Explanation 1 to section 8(2) of
IGST law, an establishment in a state or
Union Territory and any other
establishment being a business vertical
registered within that the state or Union
Territory shall be treated as
establishments of distinct persons.
Where the location of the supplier is in
the territorial waters or the place of
supply is in territorial waters, then the
location of such supplier/place of supply
shall be deemed to be in the coastal state
or Union Territory where the nearest
point of the appropriate baseline is
located.
There are no significant changes made in
provisions relating to place of supply of
goods and services.
Registered supplier to SEZ unit/developer
(such supplies being treated as zero rated
supplies) shall be eligible to claim refund
under the following two options:
Upfront exemption of IGST on
supplies under bond or Letter of
Undertaking and claiming refund of
unutilized ITC, or
Pay IGST on supplies and claim refund
of the tax paid
The above options were available only to
the exporter and has now been extended
to supplies to SEZ unit/developer.
UTGST Bill, 2017
Union Territory GST law has been newly
introduced.
It shall extend to the whole of India except
the state of Jammu and Kashmir.
Provisions of CGST in so far as they relate
to supply, composition levy, composite
and mixed supply, time and value of
supply, ITC, transitional provisions
relating to interest and penalty, and
administrative and other provisions also
apply to UTGST.
Transitional provisions are in line
with the provisions of the revised
draft model GST law as pertaining to
SGST.
Key changes in Bill for Compensation to
States
The base year revenue of states will
include any cess or surcharge or fee
levied by states.
States will receive provisional
compensation bi-monthly instead of
quarterly from the Center for loss of
revenue from GST implementation.
After the end of 5 years from the
implementation of GST, the residual
amount lying in the compensation fund
will be shared equally between the Center
and states.
The rate of cess on demerit goods for
providing compensation to states has
been specified in the Bill.
Way forward
The list of exemption, classification of
goods and service, and machinery
provisions including valuation and other
rules are yet to be notified.
Subsequent to the passage of Central GST
Bills in the Parliament, states will take up
State GST Bills for clearance in the
respective state legislative assemblies.
As per the office order issued by the
Central Board of Excise and Customs, the
Government has set up 10 working
groups to iron out sectoral issues faced by
trade and industry to ensure smooth
transition to GST. Sectors include
banking, telecom, IT/ITES, financial,
textile, oil and gas, gems and jewelry,
transport and logistics, and MSMEs.
Comments
The tabling of the bills in the Parliament
is an important milestone in the process
of implementation of GST.

The GST bills address several issues

arising from the revised draft of the
Model GST Law released in November
2016, as highlighted by the industry.

However, it cannot be denied that the

GST framework continues to be fairly
complex and the Government would need
to mitigate genuine concerns of the
industry. Therefore, a continuous,
sympathetic and transparent
engagement with trade and industry is
imperative.

There are several additional challenges

that the taxpayer would need to handle,
the key ones being tax treatment on
transactions related to the state of
Jammu and Kashmir, and compliances in
relation to identification of procurements
from unregistered persons.

The proposed implementation date of 1

July 2017 now appears to be achievable
and it is important that businesses get
ready to embrace GST.
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