JULY 23, 2018

By Pritam Mahure, CA

IN the 28th GST Council meeting held on 21st July 2018, the following critical decisions were taken.

The impact on the GST payers is jotted below.

1. Supply to canteen liable for GST @ 5%

Recently, the Authority for Advance Ruling, in the case of Rashmi Hospitality - 2018-TIOL-39-AAR-GST held that services of supply of food to canteen will be considered as 'outdoor catering' services and thus, liable for GST @ 18%.

Now, the GST Council has clarified that GST @ 5% will be applicable in respect of supply of food and drinks in restaurant, mess, canteen, eating joints and such supplies to institutions (educational, office, factory, hospital) on contractual basis. This clarification makes it clear that the scope of 'outdoor catering' is restricted to supplies in case of outdoor/indoor functions that are event based and occasional in nature. Thus, the intent of the legislators appears to have differential tax rates based on continuous supplies of catering services (say at office / factory) versus occasional supplies (say at marriage/birthday functions).

2. One Nation, One Tax, One Return!

Multiplicity and complex returns is one of the biggest reason for aggravation of pains of GST payers in India. Now, the GST council appears to address this concern by removing the multiple returns with one return per month for large taxpayers (having turnover of more than INR 5 crore). This one return is expected be a compilation of supply and procurement details (based on details uploaded by supplier).

Further, small taxpayers, in near future, may opt to file quarterly GST returns (monthly GST payments). This concession may benefit approx. 93% of the taxpayers who have a turnover of less than Rs 5 Cr.

Additionally, supplier can now upload invoice details on continuous basis. These invoices can be viewed and locked by buyer for availing input tax credit (referred as 'Upload-Lock-Pay' in Press Note). This process will entail that large taxpayers will have to continuously monitor and 'lock' invoices on real time basis. How a large taxpayer, say having more than 1,000 vendors and more than 5,000 invoices per month, will be able to 'lock' thousands of invoices on real time basis, every month, is a big question! Also, this process may send shivers down the spine of large GST payers who have already experienced sleepless nights due to non-responsive GST network portal.

3. Declared tariff concept declared dead!

At present, the GST rate slabs (say 18% or 28%) depends on the declared tariff of the room (than actual amount charged to customer). With most of the hotel accommodation being booked through apps and websites, the age-old concept of 'declared tariff' was anyways redundant. This fact seems to be recognized by the GST Council as it has announced that the GST rate will now depend on transaction value instead of declared tariff.

4. Rate rationalization continues!

GST Council has exempted few goods (such as sanitary napkins) and services (such as artificial insemination of livestock other than horses). Also, GST Council has rationalized the rates of many goods (such as washing machine, TV, paints etc.) and services (such as composite supply of multimodal transportation).

It may be noted that reduction in GST rates could mean substantial compliance for few GST payers as they may need to revise the prices of their goods (to ensure that the benefit is passed on to the consumers else the anti-profiteering provisions may come into play ).

Also, with continuous pruning of tax rates, the GST payers will certainly be left wondering about the earlier rational to put numerous goods/services in the highest rate slab of 28%!

5. Input Tax credit

Seamless availability of input tax credit is heart of the GST system,however, the multiple denial of credits were hurting the GST payers!

Now, credit of GST is expected to be available in respect of motor vehicle for transportation of persons having seating capacity of more than thirteen (including driver), vessels and aircraft. Input tax credit will also be available in respect of motor vehicles, if they are used for transportation of money for or by a banking company or a financial institution. Additionally, in cases where input tax credit of procured motor vehicles, vessels and aircraft is available then input tax credit will also be available in respect of general insurance, servicing, repair and maintenance of them.

Further, credit will be available in respect of goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force. Practically, this will mean that the credit of GST charged by outdoor caterer can be availed by factory owner (as it could be mandatory under Factories Act to maintain canteen) whereas it will not be available for say an IT service provider.

Further, in case of non-payment to vendor within 180 days, credit needs to be reversed, however, interest will not be applicable.

6. Reverse Charge Mechanism (RCM)

Now, RCM will be applicable in respect of procurement from un-registered vendors supplying specified goods to specified buyers.

Further, in the Press Conference, after the GST Council meet, it was specifically mentioned that the RCM in respect of procurement from un-registered vendors is being postponed till 30 September 2019 (elections in mind!).

7. High Sea sale (HSS) is not 'supply'

HSS as well as supply of goods from outside India to outside India will not be considered as 'supply' itself. This move of GST Council will relieve the taxpayers from the requirement of reversal of credit.

8. Consolidated CN/DN is permissible

Now, consolidated credit notes (CN)/debit notes (DN) will be permissible in respect of multiple invoices issued in a Financial Year. Thus, it appears that DN/CN can only be issued in respect of invoices issued in one particular Financial Year.

Way forward

GST Council is expected to meet again on 4th August 2018(after just two weeks!) to discuss specifically about challenges of micro, small and medium enterprises as well as RFID tags for transporters. Also, rationalization of penalty for e-way bill (one nation, one tax, one penalty!)is expected to be discussed (thanks to the recent case of heavy penalty on transporter and on-going transporter strike - see Gati Kintetsu Express Pvt Ltd Vs CCT - 2018-TIOL-2809-HC-MP-GST. It is pertinent to note that that the aforesaid GST Council decisions are subject to appropriate amendment in the Act and through notifications and, therefore, the same should be carefully studied, once made available. Looking at the pace of changes, new return mechanism, RFID tag system etc., now, the GST payers are expected to track GST changes in proactive manner than reactive manner!

(The Author is a Chartered Accountant and has authored books on GST and Gulf VAT. The views expressed are strictly personal.)