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GST refunds denied to MNC back offices

GST refunds denied to MNC back offices

A host of back offices of multinational companies in the financial sector face a tax whammy, with Goods and Services Tax authorities denying them refunds of amounts paid on inputs, saying the work done for parent companies can’t be considered as exports and will be counted as a service for the same entity.

GST authorities have rejected refunds on these grounds across states, including Haryana, Maharashtra, Tamil Nadu and Karnataka. The denial of refunds running into hundreds of crores of rupees to these outfits can derail their business model and may impact India’s attractiveness as the world’s back-office hub, especially with the emergence of low-cost sites in the Philippines and East Europe.

“Rejection orders are based on the premise that the services are provided by the local entity to its overseas affiliate company, which is the ‘same entity’ and therefore, the said services do not qualify as exports,” said an industry official privy to the development. Industry has approached the government for expeditious resolution of the issue. Individual companies will approach appellate bodies to seek relief.

Typically, tax paid on inputs that are used for exports is refunded. According to a clarification provided by the Central Board of Indirect Taxes and Customs in the form of frequently asked questions, where the Indian arm is set up as a liaison office or a branch, they would be treated as establishments of the same entity and hence, supplies between them will not qualify as export of services. “However, if the Indian arm is set up as a wholly owned subsidiary company incorporated under the Indian laws, the foreign company and the Indian subsidiary would not be governed by the provisions of distinct person or related person as both are separate legal entities,” it said.

Experts said the law is very clear on this aspect and this principle was followed even under the previous service tax regime. “It is essential to clarify without any ambiguity that global delivery centres operating in India for foreign customers are not liable for GST on services provided by them and are fully entitled to claim input tax refunds,” said MS Mani, a partner at Deloitte India. “From the law, it’s very clear that services provided to a separate legal entity would qualify as export of services.

Only services by one office to another of the same legal entity doesn’t qualify as export. It’s unfortunate that such fundamental issues are still being raised even after more than two years of GST implementation,” said Pratik Jain, national leader, indirect taxes, at PwC. Bipin Sapra, a partner at EY, agreed. “There is no ambiguity in law that a subsidiary of an overseas company can supply services to their overseas parent and qualify as export. Any challenge to this will be increasing the cost of delivery of such services from India,” he said.

The issue appears to have been raised largely by state tax authorities. “Hope the government takes urgent notice of this and comes up with a clarification so that the issue can be put to rest. This also means that state authorities need comprehensive training on taxation of service sectors, which was earlier administered by central government authorities,” Jain added.

Source: Economic-Times

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Indirect tax board removes circular on GST, but confusion remains.

Indirect tax board removes circular on GST, but confusion remains.

The indirect tax board had removed a “controversial” circular that imposed goods and services tax (GST) on post-sale discounts by dealers, but it has done little to clear the confusion around the many issues that arose with the circular.

In June, the Central Board of Indirect Taxes and Customs (CBIC) had issued a circular which said that dealers will have to pay 18 per cent GST on the post-sale discount that they get from the suppliers of goods, if the supplier asks them to pass on the concessions to the end consumer.

The circular came out with different situations where GST should be paid and where it should not.

For instance, imagine that a company sells a car to a dealer for Rs 10 lakh and later gives a discount of Rs 50,000. In doing so, the firm did not put any obligation on the dealer to pass on the benefit. So, the dealer need not pay any GST on Rs 50,000. However, if the company asks the dealer to pass on the benefit to the customer, then the dealer has to pay GST on the entire amount, including Rs 50,000.

The Confederation of Indian Industry (CII) had said This had irked industry, particularly the auto sector, which has already been reeling under the pressure of subdued demand.

this circular violated the cardinal principle of GST that the tax cost is to be borne by the ultimate consumer.

“This principle means that the supply of goods or service should suffer the tax only to the extent of consideration paid by the ultimate consumer,” the CII had said, demanding that this provision in the circular be changed.

It said additional discounts are generally given to liquidate the old inventories or push products under weak market conditions.

Following the hue and cry, the CBIC recently said: “Numerous representations were received expressing apprehensions on the implementation of the said circular. In view of these apprehensions… the Board… hereby withdraws, ab initio, the circular.”

But even after the withdrawal of the circular, the controversy over it has not ended. Experts demanded that a clarification be issued that there would be no GST on post-sale discounts as field officers continue to harass dealers.

Abhishek Jain, partner at EY, said industry expects that with the withdrawal of the circular, the government has accepted the industry’s position and this would put an end to the investigations and litigation at the field level.

Also, there is the issue of input tax credit.

ClearTax chief executive officer Archit Gupta said now there is confusion over how the situation of post-sale discounts should be dealt with.

The tax on the original invoice could have still been claimed as input tax credit and be adjusted using the credit note. This is now not perceived so by the withdrawal of the circular, he said.

“The festive season is here, and hence, there is a dire need for the CBIC to come back with a clear message for the businesses and the dealers in the supply chain to deal with the circular,” he said.

Source: Business-Standard.

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E-way bills for gold under consideration

E-way bills for gold under consideration

The government is considering a proposal to make e-way bills necessary for transportation of precious metals like gold to stop malpractices and check revenue leakage, two officials said requesting anonymity. Under the GST’s e-way bill system, the movement of goods requires registration from pickup to drop points.

The GST Council, an apex federal body for matters related to indirect taxes, is expected to consider the proposal at its meeting in Goa on September 20. The Union finance minister chairs the GST Council and it has state finance ministers as its members.

The officials said Kerala has mooted the proposal of making e-way bills mandatory for movement of precious stones and metals even as the Law Committee rejected an idea for doing so citing “security and law and order” in June. In July, the matter was again sent for the reconsideration of the committee, which is an advisory body of the GST Council. The panel has about two dozen members, mainly tax officials. Email queries sent to the Central Board of Indirect Taxes and Customs and the Union finance ministry about the proposal went unanswered.

The officials cited above said Kerala has repeatedly flagged the issue and is unconvinced that e-way bills for gold and other precious items will pose security threats and create law and order problems. Kerala has sought e-way bills to check revenue leakages.

According to the officials, the Law Committee has put up two options before the GST Council. The first option is to make e-way bills mandatory through encrypted mode. Under this option, data related to the movement of such goods will be stored in a server and only authorised officials could have access to it. This will address the security concern.

The other option is to continue with the existing exemption from the requirement of e-way bills as these goods are often transported personally or privately through the traditional couriers called ‘angadia’. It has been underlined that insistence on e-way bills for these items will increase the compliance burden for workers, the officials said.

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Source: Hindustan-Times
Seven indirect taxation-related laws being amended: FM Nirmala Sitharaman 

Seven indirect taxation-related laws being amended: FM Nirmala Sitharaman 

Finance Minister Nirmala Sitharaman Thursday said seven legislations under indirect taxation are being amended to ensure greater simplicity, as she moved the Finance Bill in the Lok Sabha. She told the Lower House that amendments to laws are being made through the Finance Bill in five major categories, including in the Goods and Services Tax (GST).

Apart from seven Acts related to indirect taxation being amended, the government would also be bringing changes to seven laws related to direct taxation. The changes would ensure that indirect taxation-related matter would have greater simplicity and be effective, she said. About proposed amendments to direct taxation-related laws, Sitharaman said those are being done for furthering the agenda of Make in India, adding the country needs a lot more manufacturing activities.

The GST alone has five different amendments that would also make compliance easier for the MSME (Micro, Small and Medium Enterprises) sector, she added. According to her, eight Acts pertaining to financial markets, including Sebi Act, are being amended. RSP member N K Premachandran objected to the Finance Bill having the provisions to amend a number of laws, including Benami Act, Sebi Act and PMLA Act, and urged Speaker Om Birla to disallow it.

A Finance Bill can only have taxation proposals, Premachandran said, soon after the finance minister stood up to move the bill for consideration and passage.

He also accused the government of bypassing Parliament to avoid discussion and scrutiny for amending existing laws by including them in the bill.

Sitharaman said rules and constitutional provisions cited by Premchandran do not rule out non-taxation proposals for inclusion in the Finance Bill but only say that it should be done only when imperative.

“The government considers it very imperative,” she asserted.

Birla, in his ruling, disallowed Premachandran’s objections and said there have been occasions earlier as well when non-taxation proposals were included in the Finance Bill.

Source: Economic-Times.

Budget 2019: Amnesty scheme to resolve legacy tax issues

Budget 2019: Amnesty scheme to resolve legacy tax issues

The government has unveiled an amnesty scheme to resolve excise and service tax disputes pertaining to the period before the introduction of the goods and services tax to clear the backlog of cases and improve the ease of doing business. Even two years after the indirect tax regime was replaced by GST, the litigation doesn’t seem to die down and there is a huge pendency, tax experts said.

“The announcement relates to the legacy dispute resolution scheme, which intends to reduce the pending service tax and excise litigation of the pre-GST regime. It is expected that the scheme will support businesses where there are various ambiguous issues pending before the tribunals,” said Abhishek A Rastogi, a partner at Khaitan & Co.

All parties can settle the disputes, save those who face conviction and those who have moved the Settlement Commission. Relief under the scheme varies from 40% to 70% of the tax dues for cases other than voluntary disclosure cases, depending on the amount of tax dues involved.

“More than Rs 3.75 lakh crore is blocked in litigations in service tax and excise. There is a need to unload this baggage and allow business to move on,” finance minister Nirmala Sitharaman said.

Source: Economic- Times.

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What government is doing to improve GST compliance

What government is doing to improve GST compliance

1) What’s the direction of GST in the near term?

Central and state tax officials have until recently taken a lenient approach in administering the technology-driven tax, allowing businesses and traders time to adapt to the new regime. This is quickly making way for a tough new approach to check evasion. Implementing a new, simpler tax return filing form that will make tax evasion harder and stabilizing revenue collection top the agenda of the GST Council. Its medium-term agenda includes converging the two standard tax rates—12% and 18%—applicable on a large number of items somewhere in the middle as revenue collection improves.

2) What’s the plan to check tax evasion?

The GST Council plans to curb tax evasion by using technology and data gathered from various sources to their full extent. One of the proposals is to ask large firms to generate invoices for business-to-business transactions on a designated portal. This will help prevent instances of the buyer taking credits for taxes that the seller has never paid to the government. Identifying and plugging revenue leakage would be a priority for the GST Council, said EY tax partner Abhishek Jain. “The proposed new return form will restrict tax credit utilization to the extent the invoices uploaded by the seller will allow,” he added.

3) What about evasion at the retail level?

Selling without invoices, often with the connivance of the buyer, and the retailer pocketing the tax amount collected from the buyer instead of remitting it to the government are two ways tax evasion takes place at the retail level. Sale without invoice will require inventory more than what is shown in the records. This is often done by using the same e-way bill (electronic permit for transportation of goods) multiple times. Officials believe the plan to validate e-way bills with the data collected at toll plazas of movement of radio frequency identification-enabled vehicles will help check this problem.

4) In what way will close coordination between the direct and indirect tax administration help?

Experts say that globally, indirect tax reforms have helped improve income tax and corporate tax collections as the transparency in sales achieved by GST makes it harder to hide income. Close coordination between the two streams of taxation helps officials to connect the dots and profile assessees better.

5) How serious is the revenue shortfall?

The combined monthly target of central and state governments for this fiscal is about ₹1.14 trillion. They collected just over ₹1 trillion in May, up 6.7% from the same month a year ago but below the monthly target. Revenue shortfall implies the centre has to compensate states for their losses. The sluggish pace of revenue growth means there is not much legroom for the GST Council to cut tax rates in the near future unless revenue receipts soar.

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Source: Live-Mint.
GST revenue shortfall drags down tax revenue estimates

GST revenue shortfall drags down tax revenue estimates

Shortfall in GST revenue of an estimated Rs 1 lakh crore has forced the government to revise downwards its gross tax revenue target by over Rs 23,066 crore in the revised estimates of the current fiscal despite a better-than-expected collection on the direct tax side.

As per the Interim Budget tabled in Parliament on Friday, the government revised the Goods and Services Tax (GST) target from Rs 7.44 lakh crore to Rs 6.44 lakh crore — a gap of Rs 1 lakh crore — due to a shortfall in collections.

However, an upward revision of Rs 50,000 crore in estimates for direct taxes to Rs 12 lakh crore has made up for a significant portion of the shortfall. Total indirect taxes, including Customs and other duties, are estimated to be Rs 10.45 lakh crore, down from Rs 11.18 lakh crore.

For Financial Year 2019-20, the government has set a direct tax collection target of Rs 13.8 lakh crore (up 15 per cent from this year’s revised estimates) and indirect tax collection target of Rs 11.7 lakh crore (up 11.9 per cent).

Last week, the IANS had reported that the government may miss the GST collection target set in the Budget estimates by as much as Rs 1.5 lakh crore based on collection trends till December.

While GST collection showed a marked improvement in January, it may not be enough to restrict the deficit to Rs 1 lakh crore. However, the government is confident of meeting this year’s as well as next years’ targets.

CBIC Chairman Pranab Kumar Das, who assumed charge last month, said with compliance going up and tax net widening, it won’t be difficult to meet the revenue targets.

“The very first month after assuming charge on January 1, I have already achieved the target of Rs 1 lakh crore that I promised before taking over… I have shown this is possible,” he said.

“And with compliance going up, and a number of taxpayers going up, it is not difficult for us to get this revenue,” he added.

Das added that transparency was the key to improve compliance which would play a key role in achieving targets.

“People are interested to take advantage of this compliance level, this transparent system because they benefit if they become a part of the supply chain. So even though they are below the threshold, many of these entities are registering themselves,” he said.

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Source: Economic Times
Rs 29,088 cr indirect tax evasion detected during April-Oct.

Rs 29,088 cr indirect tax evasion detected during April-Oct.

The investigation arm of the Finance Ministry has detected tax evasion worth Rs 29,088 crore in 1,835 cases during April-October period of the current financial year, a senior official said Wednesday.

Of this, the Directorate General of GST Intelligence (DGGI), which is enforcement agency for checking indirect tax evasion, has detected evasion of goods and services tax (GST) worth Rs 4,562 crore in 571 cases.

However, the bulk of the evasion was detected in case of service tax. The total number of cases where service tax was evaded stood at 1,145 involving Rs 22,973 crore.

In the case of central excise duty, the DGGI detected 119 cases where tax evaded was worth Rs 1,553 crore.

“DGGI officers have detected total indirect tax evasion of Rs 29,088 crore during April-October,” the official told PTI.

He further said that the total amount of detection was likely to be more as the data does not include detection by field offices of the Central Board of Indirect Taxes and Customs (CBIC)

On recovery of evaded taxes, the official said that a total amount of Rs 5,427 crore was realised during the seven-month period till October.

These, he added, includes recovery from previous cases and those detected during the current financial year.

Of the total recovery, Rs 3,124 crore was from GST evaders, followed by Rs 2,174 crore in case of service tax, and Rs 128 crore from those who had evaded central excise.

The larger chunk of recovery during April-October in GST, the official said, can be attributed to the decision of the CBIC to tighten on evaders.

With a view to focus on checking evasion, the apex indirect tax body had in September set up the Office of Commissioner GST (Investigation), headed by Neeraj Prasad.

Last month, the Finance Ministry had extended the informant reward scheme of central excise and service tax to GST. The scheme was modified to include officers of other government agencies like police, BSF, CISF and coast guard.

As per the reward scheme, informers and government servants were eligible for reward up to 20 per cent of the net sale proceeds of the contraband goods seized and/or amount of duty/ service tax evaded plus amount of penalty levied and recovered.

With respect to cases of detection of drawback frauds or abuse of duty exemption schemes under various Export Promotion Schemes, the informers are eligible for reward up to 20 per cent of recovery of drawback claimed fraudulently and/or recovery of duties evaded.

GST, which subsumed 17 local taxes like excise and service tax, was rolled out on July 1, 2017. In the run up to launch of the new indirect tax regime GST, the ministry had renamed the Directorate General of Central Excise Intelligence (DGCEI), mandated to check service tax and central excise duty evasion, as DGGGI.


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Sources: Economic Times.India Times


Spike In Detection Of Indirect Tax Evasion As Scrutiny Resumes After GST Breather

Spike In Detection Of Indirect Tax Evasion As Scrutiny Resumes After GST Breather

Indirect tax evasion detected in the first five months of the financial year more than doubled over the year-ago period, according to official documents reviewed by Sources, as the taxman resumed scrutiny after going slow during the transition to the goods and services tax.

In the previous financial year, the focus was more on the preparation and stability of the new indirect tax regime, said a senior official on the condition of anonymity.

The Directorate General of Goods and Services Tax Intelligence detected indirect tax evasion worth Rs 18,656 crore in April-August 2018 compared with Rs 7,031 crore in the year-ago period.

Generally, tax detection is an ongoing process, but in the last financial year the taxman couldn’t do it as the department transitioned to the GST and efforts were made to stabilise the new process, the official cited earlier said.
Krishan Arora, an indirect tax partner at Grant Thornton India LLP, agreed. The service tax audits initiated by the tax authorities couldn’t possibly be completed before GST implementation in 2017 as the department’s focus was on rolling out the new indirect tax regime, he said. These audits resumed after the GST regime settled and the high detection in service tax could be due to the conclusion of these audits in 2018, according to Arora.
“Parallelly, tax authorities initiated many new audits in the last financial year to check GST evasion as well, which could have resulted in the significant rise in the overall number,” Arora said.

Total evasion detected by the directorate stood at Rs 21,869 crore as on Sept. 14, 2018, according to the documents. Nearly Rs 3,000 crore of that was attributed to GST cases. The comparative year-ago numbers were not available. The detection in the first half ended September also reflects scrutiny made in the previous financial year ended March 2018.For the full financial year 2017-18, the taxman detected an indirect tax evasion of Rs 25,677 crore compared with Rs 15,048 crore in 2016-17, according to the documents.

Tax Recoveries Jump

Recoveries from those evading indirect taxes in India has jumped over fivefold to Rs 4,015 crore in April-September 2018 as compared with about Rs 700 crore in the corresponding period last year, a government official told Sources citing official data. Recovery figures for the years ended March 2018 and March 2017 were not available.

Although recoveries in the first half of the year may seem to have increased significantly due to increased detection, the gap between detection and actual recoveries could be due to taxpayers disputing demands raised by the taxman by approaching higher appellate fora, said Arora.

Abhishek Jain, an indirect tax partner at EY India, said: “With the introduction of e-way bills and concerted efforts by the government in data analytics, more cases of GST evasion are getting detected and corresponding recoveries are also going up.”

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GST likely to get centralised AAR for uniform rulings

GST likely to get centralised AAR for uniform rulings

India is looking at creating a centralised Authority for Advance Rulings (AAR) for the goods and services tax (GST) after divergent rulings on identical issues fuelled confusion over applicability and the rate of tax. A recent case in point being the divergent rulings by Karnataka and Maharashtra AARs on the issue of solar projects.

“We are looking at an issuebased central authority with officials from states and the Centre,” a top government official told ET. “If more than one appeal is filed on the same issue in different jurisdictions it can be taken up by this body.”

The AAR is a quasi-judicial body that allows assessees to get guidance on their potential tax liabilities relating to any transaction beforehand. The rulings by the AAR are case-specific, but they have a persuasive impact on tax assessment in cases of other firms under similar circumstances.

This is the key reason behind the government contemplating such a move. “AAR decisions are specific to the case, but they do have some precedence value,” the official said. The previous indirect tax regime had a centralised body ensuring consistency in orders.

Government Wary of Variations 

Maharashtra AAR ruled in a recent case that solar project contracts are “works contracts”, taxable at 18% as a deemed supply of service, instead of a “composite supply” that would have attracted 5%.

Karnataka AAR, on the other hand, reaffirmed in a case that engineering and procurement contracts are composite contracts and taxable at a concessional rate of 5%.

GST: Government Wary of Variations - AAR

The government is wary of such variation in rulings that could sow further confusion.

The structure of the proposed centralised authority will be decided once a decision is taken to set it up, the official said.

It may require a change in the GST laws and all the states would need to come on board.

Experts said the initial experience of the AAR mechanism in the case of GST has not been very encouraging for businesses and backed a centralised body for consistency. “On aspects like taxability of solar power plants, liquidated damages, exemption on sale by dutyfree shops at airports, etc, the authorities have taken a view which is not in line with the industry practice, globally accepted principles or government’s own intention while framing the laws,” said Pratik Jain, indirect taxes leader, PwC. “Further, there is likelihood of different states taking a divergent view on the same issue.”

Jain said there is an immediate need to have a centralised mechanism, either by changing the structure itself and bringing it at par with earlier central taxes or by building a control system under the GST Council’s aegis to ensure consistency and quality.

“Given that each AAR can potentially decide differently on an issue, it makes sense to create a central AAR which will take up issues where more than one AAR has been approached on a similar issue,” said Bipin Sapra, partner, EY.

“In such a scenario, a mechanism needs to be created where all AARs should be listed on the GST portal and in case of similar applications, the state AAR should refer it to the central AAR.”

India implemented GST on July 1 last year as to turn the country into a common market and erase interstate barriers.

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Source :  The Economic Times
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