10 Common Mistakes made by a Taxpayer in GST

 10 Common Mistakes made by a Taxpayer in GST

10 Common Mistakes made by a Taxpayer in GST

1. Forgetting Filing of GST Returns in case of NO BUSINESS.

Many times, it had been seen that taxpayers take GST registration to start a business idea or simply to open a current account in a nationalized bank. But to save the money in fees of GST Consultant Services they avoid filing of GST Returns, if they do not have any transaction in the business. So, this is to tell you that even NIL GST returns attracts late

fees if not filed on due time.

2. Update contact information of taxpayers and not of tax professionals.

In the view of saving some time in filing of GST Returns most of the tax practitioners update Phone Number and Email ID of themselves and not of taxpayers. This may create problem as sometimes it has been seen that department of GST was not able to communicate the taxpayer due to non-availability of contact info and ultimately may result to harsh provisions for taxpayers and even for tax practitioners.

3. Booking ITC (Input Tax Credit) without following rules properly.

In GST it is clearly stated that for booking and availing ITC one has to adhere some rules and conditions, one of the important rule is that taxpayer should have possessed the Tax Invoice for the purchases on which he is booking ITC, second main rule is the invoice for which ITC is going to be booked should be visible in GSTR-2A/2B but in many cases this is found that taxpayers takes ITC on the basis of invoices only which may result in dis-allowance of credit so booked.

4. Non-Payment of GST in Reverse Charge Mechanism.

Reverse charge was imposed by GST as same as it was in VAT or Service Tax previously. There are certain supplies in GST which attracts GST on reverse charge manner, which means GST on those supplies have to be paid by the receiver or buyer of the supply and not by the supplier or seller of the supply.

Most common supply in RCM is supply of services by goods transport agencies, hence one should take care for the payment of GST under reverse charge mechanism. On the other hand, supplier of such services has to be cautious that he needs not to pay GST on his supplies otherwise it will be counted as double payment of tax.

5. Non-Filing of Final Return GSTR-10.

Person takes GST registration in view of starting a business but not everyone gets successful in having a good business. So, they finally decide to surrender the GST number they have taken but, in this case, they don’t know, or they forget to file Final Return, i.e., GSTR-10.

GSTR-10 has to be filed within stipulated time after cancellation of GST number otherwise it will attract late fees at rate of Rs.100 per day in CGST and Rs.100 per day in SGST (maximum to Rs.10000). So be careful that you need to file Final Return GSTR- 10 if you get your GST number cancelled.

6. Wrong understanding of LUT.

LUT (Letter of Undertaking) is a document which is required to be filed by the exporters if they are opting for the export of goods or services without payment of tax. On many websites and many blogs, we can read that LUT is valid for 1 year, but that’s not completely true. As per the rules LUT filed during the year is valid till the end of the particular Financial Year. For Ex- LUT filed on 01st April 2019 will be valid till 31st march 2020 and LUT filed on 01st January 2020 will also be valid till 31st March 2020. So please update your LUTs on time.

7. Non Updation of Additional Place of Business (APOB).

Taxpayers may have more than one business premise in the same state, but they show only their main office in the GST Registration. Although non updation of additional place of business does not affect GST revenue nor taxabilities but still this is a violation of GST law which can ultimately result in impose of penalties on the taxpayer.

8. Not mentioning Exempted Turnover in GST Returns.

Exempted supplies or zero-rated supplies does not have any effect on the GST liability to be paid, this fact makes taxpayers lenient for the reporting rules for this sale.

Every business has to show its exempted or nil rated or zero-rated sales in its GST returns 3B and GST Return 1. Otherwise, it will be considered as concealment of facts.

9. Enjoying benefits of Composition Scheme without being eligible.

Composition Scheme was launched to provide benefits or relaxations to the small taxpayers of the industry, but all benefits have its own conditions. For taking benefits of Composition Scheme, one has to adhere with some conditions otherwise he will be considered as ineligible and may result in unplanned GST liability.

10. Not mentioning HSN summary in GSTR-1.

Yes, it is important to mention HSN wise summary in the GST Return-1, though it’s not mandatory for all but everyone seems to take this condition as an option which is not good and will take you on the wrong side at the end.

Pure Agent under GST

 Pure Agent under GST

Pure agent

• Agent works as a mediator. 

• Takes supply of goods or services on behalf of principal.

• Incurs and receives expenditure on behalf of principal.  

CGST Rule 33 says that a “Pure agent” means: - 

• A person who enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both 

• Neither intends to hold or holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply.

• Does not use for his own interest such goods or services so procured as pure agent. 

• Receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. 

Conditions 

• The supplier acts as a pure agent of the recipient of the supply when he makes the payment to the third party on authorization by such recipient. 

• The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service and 

• The supplies in the form of goods or services procured by the pure agent from the third party are in addition to the services he supplies on his own account. 

Interest under GST

 Interest Under GST

Section 50(1) 

i) where tax is liable to be paid and 

ii) such person has failed to pay either full or part thereof. 

iii) Interest shall be paid for the default period i.e for the period for which the tax or any part thereof remains unpaid.

Notification no. 13/2017 CT dated 28.06.2017

APPLICABILITY OF NORMAL RATE OF INTEREST

Section 50(1) and 50(2) – Normal rate – 18%

APPLICABILITY OF HIGHER RATE OF INTEREST

It emanates from the foregoing provision that section 50(3) is applicable only in following two situations namely:

(a) undue or excess claim of ITC u/s 42 (10), or

(b) undue or excess reduction in output tax liability u/s 43 (10)

Therefore, since the mechanism as required for the applicability of interest under the enabling provision section 42 has not been implemented till date, there cannot be applicability of interest section 50(3) read with section 42.

Taxability of any transaction there are two provisions, 

one is charging provisions which provides the conditions for taxability of any event and 

other is machinery provision which takes care of computation of tax. 

It is now a settled legal position that in the absence of machinery provision, charging provisions cannot be applied on isolation. Reliance is place on the decision of Hon’ble Supreme Court in the case of Govind Saran Ganga Saran Vs. CST AIR reported at 1985 SC 1041.

INTEREST ON GROSS OR NET TAX LIABILITY

GST Council in its 39th meeting held on 14.03.2020 had decided that interest shall be payable on net tax liability after adjusting ITC and the provisions to be made retrospective effect from 01.07.2017.

LIABILITY TO PAY INTEREST – WHETHER AUTOMATIC?

Hon’ble Madras HC in the case of AC CGT Vrs Daejung Moparts P Ltd WA 2127 of 2019 in Para 29 of the order has held as below:

i) Liability fastened on the assessee to pay Interest is an automatic liability.

ii) The term Automatic does not mean or to be construed as excluding ‘the arithmetic exercise’

iii) In other words though liability is automatic, quantification of such liability shall have to be made by doing arithmetical exercise

CAN INTEREST BE DEMANDED WITHOUT ADJUDICATION?

Hon’ble Jharkhand HC in the case of Mahadeo Construction Co. WP 3571 of 2019, after considering the judgment of Hon’ble Madras HC in the case of AC CGT Vrs Daejung Moparts P Ltd and its own judgement in the case of Godavari Commodities Ltd WP 1786 of 2019, has held in Para 22 that the department has to mandatorily go through the process of adjudication u/s 73 or 74 in the event assessee disputes the computation of very liveability of interest. Without completing such adjudication process interest amount cannot be termed as ‘amount payable under the Act’.

Mixed Supply

 MIXED SUPPLY

MIXED SUPPLY

• A single price is paid for the whole package. and

• The products or services can be sold individually.

MEANING

• Mixed supply means two or more individual supplies of goods or services,

• made in conjunction with each other 

• by a taxable person for a single price 

• supply of which supply attracts the highest rate of tax

• not constitute a composite supply

EXAMPLES

• supply of stationery pack containing crayons, paints, brushes, drawing book etc. 

• boarding school – Education with residence and food.

• UPS supplied with external storage battery 

TIME OF SUPPLY

• supply of service is taxed at higher rate amongst others 

• accordingly relevant provisions related to time of supply of services shall be considered into account. 

How to break the deadlock

Value of the constituent

Often people want to decide on the basis of the value of each constituent. This, however, could be treading on a slippery surface. Should a vendor say that just because a constituent item has a value of 51 percent, it should be considered a principal supply? Moreover, it is often difficult to find out the value of constituent supplies and may be much more difficult to substantiate to a tax officer.

Intention of the supplier and recipient

This could be a better test as it would reveal what the supplier intended to supply, and what the buyer intended to buy. This would also explain the economic rationale behind the supply. A supply should not be artificially split or combined if the economic rationale does not warrant that.

Description on the invoice

The invoice may throw some light on the nature of the transaction. A mixed supply will always have a single value, while a composite supply may or may not. Segregated supply will always have a separate value for each constituent.

Industry practice

One may also look at different practices followed in the industry to reach a conclusion: One airline may include the cost of food in the price of the ticket (composite supply with air transport as a principal supply). The other may charge separately for the food (segregated supply of air transport and food).

Break open a transaction

It may also make sense to imagine splitting the transaction into separate parts to see if it offers any clues. Let’s take an example of an artisan making jewellery out of gold provided by the jeweller on job-work-charges basis. This is simply a service. However, in the course of making the jewellery, the artisan required some additional gold that he selected from his own inventory. While the principal supply appears to be that of service, the value of gold would always be substantially higher than the value of service. Would this make gold the principal supply? To find an answer, we can split the transaction into two parts: 1. The artisan first sells the additional gold to the jeweller. 2. The artisan then takes that gold back and works on the same so that it then looks like a segregated supply of goods and of service.

Composite Supply

 COMPOSITE SUPPLY

COMPOSITE SUPPLY

Composite supply means 

• consisting of two or more taxable supplies 

• naturally bundled

• in conjunction with each other

• in the ordinary course of business, 

• one of which is a principal supply.

For e.g. Machinery (supply of goods) provided along with warranty and maintenance contract.

Principal supply – as per Section 2(90) of CGST Act means supply of goods or services which constitutes the predominant element of a composite supply 

“Whether services are bundled in the ordinary course of business 

• Perception of the consumer or the service receiver

• Majority of service providers in the in a particular area of business provide similar bundle of services

• The nature of various services

• Advertised as a single package

• Single Price

• different elements aren’t available separately

• different elements are integral to one overall supply

No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business.

Each case has to be individually examined in the backdrop of several factors.

GST Impact on Event Management

 GST Impact on Event Management

GST Impact on Event Management 

• Event planning or management, in other words, means organizing, planning, promoting, hosting, or conducting all kinds of services. 

• It includes conducting services on conferences, festivals, weddings, ceremonies, concerts, formal parties, conventions, etc. it is all handled and taken care of by the Event Manager. 

SAC for Event management. 

The GST rate on the event management -18%, 

• sac – 998596 - events, exhibitions, conventions and trade shows organisation and assistance services 

• sac – 999621 - Performing arts event promotion and organization services GST Rates 

• Non-entertainment events include seminars, conferences, training, workshop, trips, and treks. Access to Indian Classical dance, circus, folk dance, drama, theatrical performance will be taxed at 18%. 

• The ticket price of these events that is less than Rs 500 is exempted from the GST. (2/2018-CT(R)25.01.2018) 

• Access to entertainment events includes amusement parks, cinematograph films, racecourse, sporting events like the IPL, etc would be taxed at a whopping rate of 28%. 

• But to sell online tickets, they must be registered under the GST, even if that means the sale is less than INR 20 Lakh per annum. 

• Therefore, the GST has brought about relief and difficulties at the same time to different sects of people working in the industry. 

• Place of event helps to charge interstate or intra-state billing. 

• ITC needs to be reversed if non-ticketing events are taking place on proportionate basis.

Composition scheme under GST

 Composition scheme under GST

Limit under GST Composition Scheme - 1.5 crores per annum

Manufacturers – 1%

Restaurants – 5%

Traders – 1%

Who is not eligible?

(a) Dealing with goods not leviable to tax.

(b) Making any interstate outward supplies of goods.

(c) Supply of goods through an electronic commerce operator.

(d) Supply of Ice cream and other edible ice.

(b) Pan masala

(c) Tobacco and manufactured tobacco substitutes

(e) One PAN cannot have regular and composition registration.

Conditions

(a) Neither a casual taxable person nor a non-resident taxable person.

(b) Nil stock of goods of interstate purchase on appointed day.

(c) Nil stock of goods of unregistered purchase on appointed day

(d) RCM applicable.

(e) Shall mention the words “composition taxable person, not eligible to collect tax on supplies” in bill of supply

(g) Shall mention the words “composition taxable person” on every notice or signboard displayed.

Returns

a)  CMP-08 quarterly return before 18^th of first month after quarter

b)  GSTR -04 Annual return before 30^th April of succeeding year.

Important

a)  No Input tax credit

b)  No tax invoice.

c)   Not to tax in the invoice

d)  Bill of supply is must.

Service sector – special – 50 lakhs limit – 6% gst