New Delhi, March 29, 2017

Procurement of goods and services from unregistered supplier to attract GST at buyer's level

Government services such as issuing of passport, birth certificate and driving licence would attract the goods and services tax (GST), according to a revised draft of the Central GST Bill, introduced in Parliament this week.

This is a departure from the draft Bill introduced in November, which had included these services in Schedule IV, a list of exemptions. The latest version specifically states these would qualify as “business”.

“GST appears to be applicable on passport services, issue of birth certificates etc unless exempted at a later stage through an exemption notification,” said Pune-based chartered accountant and GST trainer Pritam Mahure.

Also, the non-compete amount given by an employer to its outgoing employee is likely to attract the goods and services tax (GST), though clarity on this will emerge only after March 31 when the GST Council meets to frame rules for the new unified tax regime.

Non-compete amount is a sum paid to an outgoing employee — based on an agreement with the employer — to ensure that he/she does not join a rival company for a set period of time. Even now, this amount attracts service tax, said M S Mani of Deloitte. As such, any amount given to an employee, that is not a part of the contract, might attract GST, he added.

Mani, however, cautions that the GST Bills should not be read in isolation of the rules, which are yet to be framed. Which items will attract a tax will be determined by these rules and the GST Bills, he said.

On taxing of office freebies, the Schedule I (dealing with supply made without consideration) of the Central GST Bill has provided for an employer to gift to an employee with stuff valued up to Rs 50,000 in a financial year without attracting GST. However employers will not be able to claim any input tax credit on the item as it is treated as a “gift”. Any other freebies offered to employees, such as food or cab services will attract GST, experts said.

In another departure from the earlier draft, the definition of “agriculturist” has been amended to cover an individual or any Hindu Undivided Family cultivating land, either through own labour or hired labour, under individual or family supervision. Earlier, “agriculturist” referred to “any person” cultivating land.

The latest draft GST Bill puts the onus of paying GST on the buyer if procured from an unregistered supplier. The procurer will be required to pay the tax under reverse charge basis. “There will be an extra burden of compliances on the buyer in relation to identification of procurements from unregistered persons,” said Bipin Sapra, tax partner, EY.

Experts noted that this amendment is likely to have a massive impact on the compliance complexity for taxpayers and on the competitiveness of unregistered entities. A person liable to pay tax under reverse charge has to issue a payment voucher at the time of making payment to the supplier.  The buyer could claim input tax credit if there is no breakage in the value chain.

In another departure from the draft Bill, the latest version allows businesses to avail input tax credit within six months — as against three months earlier — from the date of issue of invoice. In the earlier draft GST Bill, specific provision allowed input tax credit on pipelines and telecom towers under the plant and machinery category. However, this provision is omitted in the latest draft. Under the latest draft Bill companies have to maintain books of account and records for up to 72 month (six years) from the due date of furnishing of annual return, instead of 60 months (five years) as per the earlier draft.

On March 31, the Council will work out rules on composition, valuation, tax collected at source and transitions. It has already approved rules on refunds, invoices, returns, payments and registration. The Council will also take up any changes to the already cleared rules on five issues.

The Council has cleared five Bills — those relating to the Centre, states, union territories and inter-state movement of goods and services, besides compensation. While Parliament is debating four of these, the state GST Bill will have to be cleared by the respective state Assemblies.

[The Business Standard]