The Monsoon Session of the Parliament will stand out in India’s history, as the first GST Amendment Bill was passed in this session. This Bill introduced changes that were proposed to the GST legislations. While no proposals were made in the budget presented on February 1, 2018, the Centre made several amendments to the delegated legislations.
The GST Amendment Bill of 2018 is the first ever revision to the supreme law regulating the GST. The GST Amendment Bill received Presidential assent on August 29, 2018. The Centre seems to be keen on ironing out the ambiguities in the newly introduced GST and have therefore made these amendments.
Procurements made from an unregistered supplier of goods and/or services provided for the discharge of GST by the registered purchaser. This provision was time and again suspended by way of an exemption, thereby reducing substantial effort and tax risks via the registered buyer. Moreover, the unregistered sector experienced some setbacks due to tax obligations vested on their respective GST-registered customers.
The amendment of 2018 revises the enabling provision for the levy of GST on such transactions and empowers the Centre to specify the class of registered persons who will have to pay tax upon procurement of specified goods and/or services from the unregistered sector. This amendment is similar to the law that prevailed during the service tax regime.
The definition of supply, which also happens to be a trigger point for the levy of GST, was elastic enough to cover a host of transactions. However, the definition is somewhat open-ended to capture all possible business transactions that were made for a consideration and in the furtherance of the course of business. Activities that were to be treated as a supply of goods and services were also included in the definition of supply itself and listed under Schedule II of the CGST Act, 2017.
With the amended law, the sole purpose of listing activities in Schedule II seems to determine whether GST will be levied on such activities as a supply of goods or as a supply of services. In other words, Schedule II will no longer decide whether the transaction will be a supply or not.
The role of Schedule II will be limited to determining whether the transaction should be taxed as a supply of goods or a supply of services. This amendment brings the same position that was proposed in the GST Model Law of November 2016. Accordingly, a transaction will first be evaluated based on the amended definition of supply and the recourse to Schedule II will be for the limited purposes of determining the taxability as a supply of goods or as a supply of services. This amendment should operate retrospectively i.e., effective July 1, 2017.
The ambivalence around taxability of transactions in the nature of high sea sales, bonded warehouse sales and merchant exports will cease to exist. There is confusion around taxability of these transactions, since there are contradictory views floating in the industry. With the amendment, such transactions have been put outside the sphere of ‘supply’.
In conjunction, the law has also been amended to provide that no input tax credit reversal will be required upon effecting such transactions. This answers the second worry of the industry for credit reversals upon effecting transactions that are not supply-based according to the GST law.
The provisions around restrictions on the seamless availability of credits have also been rationalised. The credit pool has now been extended to permit increased flow of credits. Credit, in respect of GST paid on motor vehicles with approved seating capacity of more than 13 persons, will be available when the same has been used for transportation of people.
This is a huge relief for the industry, since major players take buses and tempo travellers for transportation of employees. In addition, services of general insurance, servicing, repair and maintenance of such vehicles will also be available. Where such vehicles are taken on rent or lease or hire by business houses, for the purposes of transportation of employees, credit restrictions will not apply. While amendments have been effected to Central level legislations, parallel changes in the State level legislations (the SGST Acts) should be made in conjunction and in consonance to the Central law.
The Author is Partner, indirect tax, PWC India