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AAR: An ice-cream scoop is a supply of ‘goods’, with 18% GST, but tax credit reduces the sting

April 25, 2019 admin Comments 1 comment

In this sweltering heat, who can resist a scoop of ice-cream? Interestingly, the issue of whether serving a scoop of ice-cream would be a supply of services or goods or whether it would be a composite supply was recently examined by the Authority of Advance Ruling (AAR), Maharashtra bench.

Based on the facts of the case, the AAR agreed that even serving scoops of ice-cream did not contain any service element and was a supply of goods. It would attract GST at 18% and the applicant would be able to avail input tax credit (in simple terms it refers to credit that is available for taxes paid on its own purchases or expenditure).

Arihant Enterprises, under a franchise model, sold ice-creams in retail packs (party packs or tubs, typically of 500 grams) and also by way of ice-cream scoops. Sale of retail packs contributed 75% to the company’s turnover.

The company explained that even when it served scoops of ice-cream, the only activity was the transfer of goods (ice-cream) to a cone or a cup. The service element involved was minimal. Only some of its outlets provided a few seats, but this was to benefit senior citizens and mothers accompanied by toddlers. Customers were free to eat the scoops outside the outlets.
On the other hand, a restaurant, canteen or eating joint, refers to an establishment where people meet to eat and drink at the same place. There is a larger element of service involved, it added.

The AAR agreed that the company was a mere re-seller of ice-cream and was engaged in the supply of goods (ice-cream, whether by way of retail packs or scoops).

Sunil Gabhawalla, a chartered accountant and indirect tax expert, states, “For a stand-alone restaurant the GST rate is 5% without any input tax credit. For entities which are part of large franchisee chains or are in a prime area having a huge rent outflow, the loss of input tax credit is a significant blow. For them, a higher rate of tax with input tax credit could be more beneficial. On the other hand, for the mom-and-pop type of outlets with self-owned property and brands, 5% GST without input tax credit could be more beneficial.”

At first glance, it would appear that stepping into an ice-cream parlor would then be more beneficial from the customer point of view. After all, GST is passed on to the customer. However, an industry watcher explained when the input tax credit is not available, the burden is passed on to the customer by jacking the prices.

“Denial of input tax credit distorts the concept of GST and therefore such disputes arise,” admits Gabhawalla. As things stand, it may be tough for an ice-cream connoisseur to glean what the applicable GST rate is as it is dependent on many factors and as explained a lower rate without input tax credit to the seller, may not always work out in favour of the buyer.

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Source: Times of India

GST Council recalls rule that raised tax outgo of large companies

April 24, 2019 admin Comments 1 comment

The Goods and Services Tax (GST) Council has recalled the limits placed on companies from February this year on settling their tax liability with credits for taxes paid previously on raw materials and services. The move comes after businesses said the restrictions had led to an increase in their tax outgo.

In a clarification issued to field officers on Tuesday, the Central Board of Indirect Taxes and Customs (CBIC) has granted full flexibility to businesses in using the credits for taxes paid on inter-state transactions (integrated GST or IGST) in settling the liability towards GST payable to the Union or state governments. The limitations introduced from February had forced companies to use IGST credits in a certain order that limited their ability to manage their final tax outgo with the tax credits available on the ledger. This, companies have said, led to increased cash outgo in certain scenarios to meet their tax liability while unused tax credits remained on their books.

The CBEC clarification explained that credits from paying taxes on interstate transactions (for raw materials and services) can be used for setting off the GST liability to the central or state governments in any order or in any proportion. The only rider is that if finished goods move across state borders, the IGST credit should first be utilized for settling that liability and the surplus could be used for meeting the tax liability towards central or state GST.

The GST Council introduced the restrictions in February as IGST credit remaining on records was going up, which the tax authorities wanted companies to use up. Experts said the latest clarification offered relief to companies. “This was a much-needed clarification, as this should help bring to rest the varied interpretation apprehended by industry experts on the utilization of IGST credit,” said Abhishek Jain, tax partner, EY.

The restrictions on use of tax credits was affecting big companies as they have large value chain across states and have large amounts of input tax credits on their ledger on account of transactions across state borders. The flexibility to use credits from inter-state transactions is a relief for businesses as it is more fungible and can be utilized for meeting tax liability. On the other hand, credits from CGST and SGST payment cannot be cross-utilised.

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Source: Live Mint.

Finance ministry notifies annual return forms under GST for 2017-18

September 5, 2018 admin Comments 6 comments

The finance ministry has notified annual tax return forms for businesses registered under the GST, in which details of sales, purchases and input tax credit (ITC) benefits accrued to them during 2017-18 fiscal have to be provided in a consolidated manner.

The ministry has notified annual return form for normal taxpayers (GSTR-9) and for composition taxpayers (GSTR-9A). The last date for filing the annual return forms is December 31.

The Goods and Services Tax (GST), which subsumed 17 different indirect taxes, was rolled out on July 1, 2017.

The annual return form for normal taxpayers has been divided into 6 parts with 19 tables which includes detailed information related to outward supplies, inward supplies, ITC availed, ITC reversed, ineligible ITC, particulars of demand and refund, HSN summary of outward supplies and HSN summary of inward supplies of the transactions declared in returns filed during the financial year ending March 2018.

Also information with regard to transactions related to financial year ending March 31, 2018 declared in return of April to September are to be declared in the annual return.

“Today government has accepted the long pending demand of industry and has notified annual return form for normal taxpayers(GSTR 9) and annual return form for composition taxpayers(GSTR 9A) in which detailed information has to be provided by businesses,” AMRG & Associates Partner Rajat Mohan said.

Also Read: Simple Guide of GSTR 9 with Easy Online Return Filing Process Eligibility & Rules

Also information with regard to transactions related to financial year ending March 31, 2018 declared in return of April to September are to be declared in the annual return, he added.

“This Annual return formats refers to computation of reconciliation of Tax credit claimed in GSTR 3B against credit available in GSTR 2A and IGST paid on import of supplies with the aim that Tax credit not availed till filing of return for September 2018 would lapse forever,” Mohan said.

While Part I of the form deals with basic information of the business, the details of all the supplies declared by the taxpayer in the returns filed during the financial year has to be filled in Part II of the return form in a consolidated manner.

Part III consists of the details of all input tax credit availed and reversed in the financial year for which the annual return is filed.

Part IV is the actual tax paid during the financial year.

Part V consists of particulars of transactions for the previous financial year but declared in the returns of April to September of current FY or date of filing of Annual Return for previous financial year (for example in the annual return for the FY 2017-18, the transactions declared in April to September 2018 for the FY 2017-18 shall be declared), whichever is earlier.

“This was quite an awaited Return format by the industry especially given the limited time frame for filing ie December 31st. While this development was awaited, the format of GSTR-9C, which is expected to include reconciliation with financials, attestation by auditor and other details is now being looked foward to by the industry, EY Tax Partner Abhishek Jain said.

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Source: Business Standard

Here’s how a missing column in GST return form is creating trouble for India Inc

August 17, 2017 admin Comments 0 Comment

GST Return

A top conglomerate may have to shell out a bit extra in advance tax this quarter due to an unusual glitch in the tax returns form. Another Delhi-based firm, which does not want to bear any extra tax, may simply deduct the dues before the GST kicked in on July 1 and pay a smaller net amount.

The absence of a column in the new GST form for claiming credit on sales made before July 1 this year is causing a lot of worries for India Inc as the filing deadline for the first month of tax returns under GST comes up this week.

Many companies don’t know whether the government will rectify this problem by Friday, the deadline for filing returns, and are following different options for resolving the quandary.

Multinationals and some of India’s biggest companies are not taking into account past input credit while paying GST while smaller companies that can’t afford to let their working capital rise are paying the tax after deducting the input tax credit.

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“A procedural lapse by the government doesn’t take away companies’ right to what’s prescribed in the law. GST law prescribes that companies can adjust past credits with July and August liabilities,” said the CFO of a Delhi-based company.

Industry trackers, however, say that doing so may be “technically incorrect.” “Certain businesses may prefer being cautious and pay the tax for July and August without considering the opening credit balance, while other businesses would adjust the credit and pay the tax, leading to disparities in tax treat ment from the first GST return,” said MS Mani, partner, Deloitte Haskins & Sells.

The deadline for filing the GST Transition Credit Form, titled GSTTran 1, is September 28, while that of making payments for July and August is much earlier. There is no column in GSTR 3B form where companies can mention the advance taxes paid before July 1. The government had said last week that it would sort out the issue, but with just four days left for filing the GSTR 3B form companies are not waiting for clarification.

“Companies are puzzled by what they should be doing and why they could be required to fork out large sums as GST in July and August and the apparent inability of the government to simply permit the utilisation of the opening credit while computing the tax liability for July and August,” said a tax expert advising four of the biggest Indian companies.

Back of envelope calculations by two tax consultants show Indian companies may end up paying anywhere around Rs 13,000 crore more to government for July and August. If this happens, working capital costs are likely to rise across the board.

“There would be a significant impact on the working capital of several companies if they are not permitted to use the opening balance of credits. It does appear that the legislative intent of permitting carrying forward of credit from the earlier regime without any timing intervals has not been appropriately reflected in the GST returns for July and August,” said Mani.

The government may just see a windfall gain for July and August GST in advance tax collection thanks to this procedural lapse.

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Source :  http://economictimes.indiatimes.com/news/economy/policy/heres-how-a-missing-column-in-gst-return-form-is-creating-trouble-for-india-inc/articleshow/60093630.cms