GST issues

Now that GST is two months old, some thoughts from practical experience. Basically three issues.

One is payment of GST to govt within one month of raising invoice is draconian. Nobody in India pays us within one month of raising of bill save in exceptional cases. Mostly payments are received on average between 3 to 6 months. Earlier we used to pay to the govt. on quarterly basis and that too on receipt basis. Now if we have to pay the tax in advance even before we receive our money, that means our cash flow has gone out of the window. The SME sector is badly hit. It should be minimum 3 months from date of invoice.

Second is the ridiculous concept of reverse charge mechanism wherein we have to pay tax on our purchases from unregistered dealers. That means we have to pay the GST and will receive input credit on that the next month. But our cash flow is again gone.

Third is the micro management here which means we have to report every single invoice of purchases and sales to the govt. As far as i recall in all these years of tax administration, whether direct or indirect, govt. has never asked for details of every single invoice and then match it in the system. There is a trust issue here which was prevalent all along but is sorely lacking in the GST system. Self assessment has a different meaning here. Compliance never became so onerous.

These are my observations from practical experience, unless i have understood it wrongly. 

Service tax exemptions

The Service Tax department has vide its notification no. 9/2016 dated 1st March, 2016 extended further exemptions from the service tax as following. What they have done is amended a mega notification no. 25/2012 dated 20th June, 2012 and all amendments in the nature of exemption notifications are made to this notification. Defeats me why they keep on amending the notifications instead of having a separate chapter itself for exemptions in the Service Tax Act. Some bureacracies fail common sense. 

Anyways, the following services are exempt from service tax (it is a detailed list, which I have copied from the portal directly)

1. In the said notification,-

(a) in the first paragraph,- (i) in entry 6, for clause (b) and clause (c), the following clauses shall be substituted, namely,-

“(b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to- (i) an advocate or partnership firm of advocates providing legal services; (ii) any person other than a business entity; or (iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or

(c) a senior advocate by way of legal services to a person other than a person ordinarily carrying out any activity relating to industry, commerce or any other business or profession;”;

(ii) after entry 9A, the following entry shall be inserted with effect from 1st March, 2016, namely,-

“9B. Services provided by the Indian Institutes of Management, as per the guidelines of the Central Government, to their students, by way of the following educational programmes, except Executive Development Programme, -

(a) two year full time residential Post Graduate Programmes in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management;

(b) fellow programme in Management;

(c) five year integrated programme in Management.”;

(iii) after entry 9B as so inserted, the following entries shall be inserted, namely:-

“9C. services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship by way of assessments under Skill Development Initiative (SDI) Scheme;

9D. services provided by training providers (Project implementation agencies) under Deen Dayal Upadhyaya Grameen Kaushalya Yojana under the Ministry of Rural Development by way of offering skill or vocational training courses certified by National Council For Vocational Training.”;

(iv) after entry 12, with effect from the 1st March, 2016, the following entry shall be inserted, namely-

“12A. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of - (a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or (c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause (44) of section 65 B of the said Act; under a contract which had been entered into prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date: provided that nothing contained in this entry shall apply on or after the 1st April, 2020;”;

(v) in entry 13, after item (b), the following items shall be inserted with effect from 1st March, 2016, namely – “(ba) a civil structure or any other original works pertaining to the „In-situ rehabilitation of existing slum dwellers using land as a resource through private participation‟under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers. (bb) a civil structure or any other original works pertaining to the „Beneficiaryled individual house construction / enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;”;

(vi) in entry 14, with effect from 1st March, 2016, A. for item (a), the following shall be substituted, namely:-

“(a) railways, excluding monorail and metro; Explanation.-The services by way of construction, erection, commissioning or installation of original works pertaining to monorail or metro, where contracts were entered into before 1st March, 2016, on which appropriate stamp duty, was paid, shall remain exempt.”. B.

after item (c), the following item shall be inserted, namely –

“(ca) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under: (i) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (ii) any housing scheme of a State Government.”.

(vii) after entry 14, with effect from the 1st March, 2016, the following entry shall be inserted, namely-

“14A. Services by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port provided under a contract which had been entered into prior to 1 st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date: provided that Ministry of Civil Aviation or the Ministry of Shipping in the Government of India, as the case may be, certifies that the contract had been entered into before the 1st March, 2015: provided further that nothing contained in this entry shall apply on or after the 1st April, 2020;”;

(viii) in entry 16, for the words “one lakh rupees”, the words “one lakh and fifty thousand rupees” shall be substituted;

(ix) in entry 23,- (A) after clause (b), the following clause shall be inserted with effect from 1 st June 2016, namely,- “(bb) stage carriage other than air-conditioned stage carriage;”; (B) clause (c) shall be omitted;

(x) in entry 26, after clause (p), the following clause shall be inserted, namely,- “(q) Niramaya‟ Health Insurance Scheme implemented by Trust constituted under the provisions of the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999).”;

(xi) after entry 26B, the following entry shall be inserted, namely,-

“26C. Services of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority of India (PFRDA) under the Pension Fund Regulatory And Development Authority Act, 2013 (23 of 2013);”;

(xii) after entry 48, the following entries shall be inserted, namely,-

“49. Services provided by Employees‟ Provident Fund Organisation (EPFO) to persons governed under the Employees‟ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952);

50. Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India Act, 1999 (41 of 1999);

51. Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 (15 of 1992) by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market;

52. Services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmer‟s Welfare by way of cold chain knowledge dissemination;”;

(xiii) after entry 52 as so inserted, the following entries shall be inserted with effect from 1 st June 2016, namely:-

“53. Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India.”;

(b) in paragraph 2, - (i) after clause (b), the following clause shall be inserted with effect from such date on which the Finance Bill, 2016 receives assent of the President of India, namely: - „

(ba) “approved vocational education course” means, - (i) a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961); or (ii) a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship;‟;

(ii) for clause (oa), the following shall be substituted with effect from such date on which the Finance Bill, 2016, receives assent of the President of India, namely : - „

(oa) “educational institution” means an institution providing services by way of: (i) pre-school education and education up to higher secondary school or equivalent; (ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force; (iii) education as a part of an approved vocational education course;”;

(iii) after clause (zd), the following clause shall be inserted, namely:- „(zdd) “senior advocate‟ has the meaning assigned to it in section 16 of the Advocates Act, 1961 (25 of 1961);‟

Save as otherwise provided in this notification, this notification shall come into force on the 1st of April, 2016.

Indirect Tax Ombudsman Guidelines

Came across the Indirect Tax Ombudsman Guidelines 2011 which office has been set up primarily to deal with public grievances against the offices of customs, central excise and service tax department and to facilitate satisfaction and settlement of such complaints.

The offices of the Indirect Tax Ombudsman will be set up at 7 cities i.e. Delhi, Mumbai, Chennai, Kolkata, Lucknow, Bangalore and Ahmedabad.

The matters that can be complained against are :

(a) delay in the issue of refunds or rebate beyond time limits
prescribed by law or under the relevant instructions issued from
time to time by the Central Board of Excise and Customs;
(b) delay in adjudication;
(c) delay in registration of tax payers;
(d) delay in giving effect to Appellate orders;
(e) non adherence to the principle of “ First Come First Served” in sending refunds;
(f) non adherence to the rules prescribed for disbursement of drawback;
(g) non acknowledgement of letters or documents sent to the department;
(h) delay in release of seized books of account and assets, after the proceedings under the Customs, Central Excise and Service Tax statutes in respect of the years for which the books of account or other documents are relevant are completed;
(i) non adherence to prescribed working hours by Customs, Central Excise and Service Tax officials;
(j) unwarranted rude behaviour of Customs, Central Excise and Service Tax officials with assessees;
(k) any other matter relating to violation of the administrative instructions and circulars issued by the Central Board of Excise and Customs in relation to Customs, Central Excise and Service Tax administration.
The procedure for filing the complaint is as follows:

I. Any person, who has a grievance against the Customs, Central Excise & Service Tax Department under the Government of India‟s Department of Revenue, may, himself or through his authorized
representative, if any, make a complaint against the concerned Customs, Central Excise and Service Tax official in writing to the Ombudsman having jurisdiction over that office.

II.
a. The complaint shall be duly signed by the complainant or his authorized representative, if any, and shall clearly state the complainant‟s name and address, the name of the office and official
of the Customs, Central Excise and Service Tax office against whom the complaint is made, the facts giving rise to the complaint supported by documents, if any, relied on by the complainant and the
relief sought from the Ombudsman;
b. A complaint made through electronic means shall also be accepted by the Ombudsman and a print out of such complaint shall be taken on the record of the Ombudsman;

III No complaint to the Ombudsman shall lie unless:-
(a) the complainant had, before making a complaint to the Ombudsman, made a written representation to the Grievance Cell of the concerned Customs, Central Excise and Service Tax office and did not receive any reply within one month from the date of its receipt by the Grievance Cell.
(b) where the complainant had made a complaint in writing to the Grievance Cell of the concerned indirect tax office and he is not satisfied with the reply given to him.
(c) where the complainant had before making a complaint to the Ombudsman, made a written representation to the Customs, Central Excise and Service Tax authority superior to the one complained against and either such authority had rejected the complaint or the complainant had not received any reply within a period of one month after such authority had received his representation or the complainant is not satisfied with the reply given to him by such authority;
(d) the complaint is made not later than one year after the complainant has received the reply of the concerned Customs, Central Excise and Service Tax office to his representation or, in case, where no reply is received, not later than one year and one month after the representation to the Customs, Central Excise and Service Tax Authority;
(e) the complaint is not in respect of the same subject matter which was settled through the Office of the Ombudsman in any previous proceedings whether or not received from the same complainant or
any one or more of the parties concerned with the subject matter; and
(f) the complaint is not frivolous or vexatious in nature.

IV. No Complainant shall be made to the Indirect tax Ombudsman on an issue which has been or is the subject matter of any proceeding in an appeal, revision, reference or writ before any Customs, Central Excise and Service Tax Authority or Appellate Authority or Court.


The proceedings by the Ombudsman shall be summary in nature and the Ombudsman shall not be bound to follow any legal rules of evidence

The Ombudsman shall cause a settlement to be arrived at between the complainant and the official by conciliation or mediation

If the complaint is not settled between the parties by conciliation or mediation within one month of the receipt of the complaint, then the Ombudsman shall pass an award after giving both parties a reasonable opportunity of being heard. The award shall be binding on both the parties but the complainant is required to accept the award within 15 days of passing thereof. It shall be a speaking award. The Ombudsman is authorised to grant a token compensation not exceeding Rs.5,000/- to the complainant.

The department shall within one month from the date of the award comply with the award and intimate compliance with the ombudsman.



 

ST on services provided by director

Ministry of Finance has vide notification no. 9/2014 dated 11th July 2014 amended Service Tax Rules, 1994 to provide that in respect of services provided or agreed to be provided by a director of a company or a body corporate to the said company or body corporate, the service tax is payable by the recipient of such service. Here the amendment has been that "body corporate" has been added to the clause which hitherto included only company The definition of "body corporate" is the same as is given in the Companies Act, 1956 which is now the Companies Act, 2013. As per the Companies Act, 2013, the definition of "body corporate" includes company incorporated outside India but does not include co-operative society or any other body as may be specified by the Central Government.

online payment of service tax

The Ministry of Finance has vide notification no. 9/2014 dated 11th July 2014 stipulated that with effect from 1st October, 2014, every assessee shall pay the service tax through internet banking. Only the Assistant Commissioner or Deputy Commissioner, shall have the power to allow payment through any other means for reasons to be recorded in writing.

Previously the service tax was payable only where the total service tax paid by the assessee in a financial year exceeded Rs.1 lakh. In such cases payment of service tax was required to be done by online transfer.

Now with effect from 1st October, 2014 all assessees have to make the payment of service tax by internet banking

Interest payable on delayed payment of service tax

The Ministry of Finance has notified vide notification no. 12/2014 dated 11th July 2014 the rates of interest payable on delayed payment of service tax to the government. Accordingly,


1. Delay Up to six months                                              

18 per cent. per annum

2. Delay More than six months and upto one year

18 % for the first 6 months of delay and 24 % for the delay beyond six months and up to one year

3. Delay More than one year                                      

     18 per cent. for the first six months of delay; 24 per cent. for the period beyond six months up to                  one year and 30 per cent. for any delay beyond one year.

This revised penal interest will be applicable from 1st October, 2014. 

Service tax on remittances

Ministry of Finance, Central Board of Excise and Customs has clarified that no service tax is appliable on remittances from abroad in foreign currency. The "service" as defined in section 65B(44) of the Finance Act, 1994 excludes transaction in money. Since remittance amounts to transaction in money, the service tax becomes not applicable. Any fee or conversion charges levied by the foreign banks or by their Indian counterparts to the foreign banks are also out of the ambit of the service tax because the place of rendering the service is outside India and therefore the Place of Provision of Services Rules 2012 does not apply to that service. A welcome clarification from the CBEC, but I wonder why it is issued as a circular by the CBEC and not as a notification by the service tax department.

I would also wonder if the CBEC would clarify how "acting" becomes a service and actors have to pay service tax on their acting!! Bizarre!!

A copy of the CBEC circular can be found here

service tax on railways

Service tax on travel by Railways in first class or air-conditioned coaches as well as transport of goods by railways exempted upto 30th September 2012. So expect increase in train fares from 1st October 2012 for those travelling by first class or air-conditioned coaches, of which latter is usually the norm even for middle class passengers looking to travel in some comfort. Also with service tax on transport of goods kicking in from October 2012 do not expect inflation to abate. I think looking at the government inability to curb the monster called "inflation" of which the supply side constraints is baffling the government the most, it would have been wiser to leave transport of goods from the service tax ambit. But don't expect the revenue mandarins to think in the same way as the economists or the politicians who of course do not think at all of the common man!! The copy of the service tax circular can be found here