| To: | XXXXXXX |
| Re: | OPINION ON GST ISSUES AFFECTING THE BUSINESS |
| Client: | XXXXXXX |
| Client Representative: | YYYYYYY |
| Meeting date: | 12.10.2017 |
On the above mentioned date the mentioned person had a meeting with us regarding opinion on various GST issues affecting the Business Transaction of M/s XXXXXX Private Limited.
The letter received by us had an explanation about the business arrangement of M/s Rungta tea Private Limited and also the relevant questions regarding which they needed the opinion.
The views represented are solely my personal views according to my interpretation of law. It may vary person to person and shall not be categorized or used for any legal reference for any proceeding or hearing. We have been asked by our Client to present our opinion as stated in this letter. The opinion is being given question wise as asked by the client. The relevant section and explanation would be part of the answer
Issues related to Siliguri Branch Activity
1. Supply of Raw Material ( Loose Tea and Packing Material ) to NMPL (job worker) place and supply of finished goods directly from the job worker place of business.
Ans: “ According to section 143 of the CGST Act:
“ A registered person (hereafter in this section referred to as the “principal”) may under intimation and subject to such conditions as may be prescribed, send any inputs or capital goods, without payment of tax, to a job worker for job work and from there subsequently send to another job worker and likewise, and shall,–
- (a) bring back inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out, to any of his place of business, without payment of tax;
- (b) supply such inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out from the place of business of a job worker on payment of tax within India, or with or without payment of tax for export, as the case may be:
(1) Provided that the principal shall not supply the goods from the place of business of a job worker in accordance with the provisions of this clause unless the said principal declares the place of business of the job worker as his additional place of business except in a case—
- (i) where the job worker is registered under section 25; or
- (ii) where the principal is engaged in the supply of such goods as may be notified by the Commissioner.
(2) The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.
(3) Where the inputs sent for job work are not received back by the principal after completion of job work or otherwise in accordance with the provisions of clause (a) of sub-section (1) or are not supplied from the place of business of the job worker in accordance with the provisions of clause (b) of sub-section (1) within a period of one year of their being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out.
(4) Where the capital goods, other than moulds and dies, jigs and fixtures, or tools, sent for job work are not received back by the principal in accordance with the provisions of clause (a) of sub-section (1) or are not supplied from the place of business of the job worker in accordance with the provisions of clause (b) of sub-section (1) within a period of three years of their being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out.
(5) Notwithstanding anything contained in sub-sections (1) and (2), any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax, if such job worker is registered, or by the principal, if the job worker is not registered.
Explanation– For the purposes of job work, input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker.”
Therefore if we interpret the Section 143, we find that that if the Principal ( XXXXXX Private Limited) sends some Raw material to Job worker ( NMPL) then we need to satisfy three conditions:
- If NMPL is registered, then the same could be supplied to the NMPL by Delivery Challan specifically mentioning “ sent for Job work” on the delivery challan. The value of the items need not be mentioned on the delivery challan. But if NMPL is not separately registered under GST Act, then same must be added as additional place of business in the Registration of XX TEA
- The input sent must be sold or brought back to the premises of the XX TEA. The section allows the XX TEA to directly sell the finished goods from the premises of NMPL. The invoice shall not contain any mention of the job worker if the job worker is registered.
- All the records have to be maintained by XX TEA regarding the job work transaction. A separate register shall be maintained recording for all in and outs transactions done with Job workers. XX TEA is also required to File ITC 04 quarterly giving details of all the transactions carried on with NMPL and for all the sales carried on directly from the NMPL premises.
2. Supply of Capital Goods to NMPL (job worker) place for the Job work.
Ans: All the provisions mentioned above shall apply for the capital goods except that the capital goods shall be brought back to the principal’s place before completion of three years. The date of sending capital goods to the job worker place shall be mentioned in ITC 04.
3. Supply of Consumer offer Coupon (kept in packet along with tea not shown in invoice but printed on a pouch assured gift coupon inside chance to win Gold and silver prize also.) ( Copy of Coupon attached)
Ans: The issue has been handled in the later part of opinion.
4. Supply of Packet Tea as sample free of cost for sales promotion to prospective customer and for publicity to the public at large.
Ans: The Section 17(5)(h) disallows credit for the goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. If any how the client manages to take the input credit then Schedule I, clause 1 of Section 7 would get automatically triggered. It says that Permanent disposal or Transfer of business assets where input tax credit has been availed on such assets would be treated as supply even if made without consideration. Therefore the client is left with two options:
a) Providing it as a free sample but paying GST on their own
b) Charging a marginal amount in the invoice with GST. This option could only be applied in the case the recipient is not an Related party or Distinct party under section 25(4) and 25(5)
5. Supply of POP items like Pen, Notebook, Handbill, carry bag, brochures etc kept in bags not shown in invoice.
Ans: The supply of POP items is naturally a Supply under section 7 of the act and also the principles laid for question number 4 would get applied here as it is a free supply. But Clause 1 of Schedule III of section 7 also states that “ Activities or transaction shall neither be treated as a supply of goods nor a supply of services: Services by an employee to the employer in the course of or in relation to his employment”
In the case of client, the different registration taken for XX TEA in different states could be termed under employer employee relationship. The functioning of several depot under the same name and PAN explains the Handling of the depot by the main office. Also the Rent and other expenses of the depot would be getting reimbursed from the same office which cleanly marks it is employer employee relationship. Also the exemption notification has exempted Gift upto the value of Rs 50,000 to the employee in the year.
Therefore it is possible for the XX TEA to get transferred its POP items free of cost to its Depot in forms of gift. And further if the need arises the depot could bill it to the consignee/ Buyer at a very low marginal Price.
6. Supply of Free Tea under Quantity Purchase scheme through invoice at zero rate.
Ans: Principal laid under Ques 4 would get applied here also. But as in this case the marginal money could not be charged as already invoices are being issued and Tea are being sold at normal rate to the buyer. Hence the Free Tea shall be shown at full price in the invoice along with the Tea for which value is being charged and later on the free part shall be discounted before levying the GST.
7. Supply of Tea for quality tests to outside agencies free at zero rate.
Ans. Same as Ques no 4
8. Procedure under GST for purchase of Loose Tea & Packing Material remain in transit at the end of the month.
Ans. The accounting shall be done only when the goods have been received. No separate accounting or recording has been prescribed under GST for Goods In transit. But as per Section 16 of the act, the Input credit would only be available when the goods are received.
9. Margin structure of Super stockiest is same for related or unrelated parties i.e. 2.5% in price list but Price of product is different for different states. Supply to related parties and unrelated parties is as per price list. Price list is attached for different states. (Applicability of Valuation rule)
Ans. As per Rule 2 of “ Determination of Value of Supply “ rules, The Value of Supply in case of Related Person would be:
i) The Open Market Value (OMV) of such supply. OMV will be the amount which is fairly available in the open market.
ii) If the open market value is not available, it will be the value of supply of goods or services of like, kind and quantity. Here, the taxable person can use as reference similar goods or services or both for determining the value of supply.
iii) If the value is not determinable in the above two cases it shall be determined by either by the Cost Method or Residual Method.
Provided that If the recipient of goods or services (or both) is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of goods or service.
Therefore in the case of a client the valuation won’t be different for Related or Unrelated persons as open market value for both the persons are same. If anyhow the open value is different then too the proviso will make the invoice value only as value of supply if the recipient avails the whole of the Input credit mentioned in the invoice.
10. Purchase of Consumer offer items by XX TEA Siliguri Branch under Bill to and Ship to Model, i.e. billed to XX TEA but delivered to super stockiest, further XX TEA Siliguri issue tax Invoice of consumer offer at purchase cost only to the Consignee/ buyer. XX TEA Issue credit note of the value of consumer offer showing reference of Consumer offer bill no in credit note. XX TEA Siliguri will take input credit of Consumer offer purchased through Bill to ship to model. The concerned consignee/buyer is not avail input credit of consumer offer bill while accepting Credit note. The Concerned Consignee/ Buyer may issue Consumer offer through either of the three way:-
i)Issue Consumer Offer items through invoice as composite sale along with tea without mentioning HSN Code of Consumer offer items and Nil GST rate
ii)Issue Consumer offer items though Delivery challan free of charge.
iii)Issue Consumer offer items through Invoice on nominal value just like 0.01 paisa and apply applicable GST if GST rate is higher than 5% than may be issued through separate invoice.
What is the impact of these transactions with related parties/ distinct persons/ unrelated parties. Kindly suggest the way or any other way to issue a consumer offer.
Ans: The answer to this ques handled in later part of the opinion
11. Purchase of sales promotion quantity Purchase Scheme items/Target Scheme (for dealers/stockist) by XX TEASiliguri Branch under Bill to and Ship to Model i.e. billed to XX TEA but delivered to super stockiest, further XX TEA Siliguri issued a tax Invoice of sales promotion quantity Purchase Scheme items at purchase cost only to the Consignee/ buyer. XX TEA Issue credit note of the value of sales promotion quantity Purchase Scheme items showing reference of sale promotion quantity Purchase Scheme items bill no in credit note. XX TEA Siliguri will take input credit of sales promotion quantity Purchase Scheme items purchased through Bill to ship to model. The concerned consignee/buyer is not avail input credit of sales promotion quantity Purchase Scheme items bill while accepting Credit note. The Concerned Consignee/ Buyer may issue sales promotion quantity Purchase Scheme items through following way:-
i)Issue sales promotion quantity Purchase Scheme items though Delivery challan free of charge.
What is the impact of these transactions with related parties/ distinct persons/ unrelated parties. Kindly suggest the way or any other way to issue a consumer offer.
Ans: The answer to this ques handled in later part of the opinion
12. Supply of Items under Coupon Scheme
Purchase of items under Coupon Scheme by XX TEA Siliguri Branch under Bill to and Ship to Model i.e. billed to XX TEA but delivered to super stockiest , further XX TEA Siliguri issue tax Invoice of items under Coupon Scheme at purchase cost only to the Consignee/ buyer. XX TEA Issue credit note of the value of items under Coupon Scheme showing reference of items under Coupon Scheme bill no in credit note. XX TEA Siliguri will take input credit of items under Coupon Scheme purchased through Bill to ship to model. The concerned consignee/buyer is not avail input credit of items under Coupon Scheme bill while accepting Credit note. The Concerned Consignee/ Buyer may issue items under Coupon Scheme through following way:-
i)Issue items under Coupon Scheme though Delivery challan free of charge.
What is the impact of these transactions with related parties/ distinct persons/ unrelated parties. Kindly suggest the way or any other way to issue a consumer offer.
Ans: The answer to this ques handled in later part of the opinion
13. Supply of coupon as like scratch coupon, Lucky draw coupon, target based coupon
i) XX TEA Siliguri issued such coupons in bundles (for retailer coupon) in Small bag (for wholesaler), in Bag (for stockist ) not showing in Tax Invoice. These coupons are treated as Quantity Purchase Scheme or under Target scheme. The Items covered under coupon in some cases or Cash in case of Scratch coupon will be reimbursed through credit note by company’s super stockist and further reimburse by company to super stockiest through credit note. In this case some time the company will reimburse service charge for Coupon collection to stockist/retailer. What is the impact of these transactions under GST?
ii) Purchase of items under such Coupon Scheme by XX TEA Siliguri Branch under Bill to and Ship to Model i.e. billed to XX TEA but delivered to super stockiest, further XX TEA Siliguri issue tax Invoice of items under such Coupon Scheme at purchase cost only to the Consignee/ buyer. XX TEA Issue credit note of the value of items under suchCoupon Scheme showing reference of items under such Coupon Scheme bill no in credit note. XX TEA Siliguri will take input credit of items under such Coupon Scheme purchased through Bill to ship to model. The concerned consignee/buyer is not avail input credit of items under Coupon Scheme bill while accepting Credit note. The Concerned Consignee/ Buyer may issue items under such Coupon Scheme through following way:-
i)Issue items under such Coupon Scheme though Delivery challan free of charge.
What is the impact of these transactions with related parties/ distinct persons/ unrelated parties. Kindly suggest the way or any other way to issue a consumer offer.
Ans: The answer to this ques handled in later part of the opinion
14. Treatment of sales return by registered party or unregistered party
Ans: Sales return by registered party or unregistered party has not been differentiated under GST Regime unlike VAT Regime. Both shall be treated at par and alike. In both cases GST is to be reversed and credit note is to be issued linking with the original sale invoice. The same should be reversed and reflected in GSTR 1 only if the credit note is issued before the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such original invoice or invoice relating to such credit note pertains or furnishing of the annual return, whichever is earlier. Hence the bar of sales returns within six months for the purpose of reversal has also been done away with.
15. Issue of Credit note under Different head for reimbursement of Expenses from company’s super stockist and further issue of credit note by company to super stockiest:-
i) Sales Incentive -onward Freight
ii) sales Incentive – S/D Discount
iii) Sales Incentive -Cash Discount
iv) Sales Incentive -Display scheme
v) Sales Incentive -Sales Man Subsidy
vi) Sales Incentive-Coupon Scheme
vii) Sales Incentive-Rate Difference
viii) Sales incentive Launching Scheme
ix) Sales incentive Target Scheme
x) Sales incentive QPS Tea
xi) Sales incentive -Van subsidy
Company does not pay any GST on these expenses. Whether it is eligible for GST and Input Credit.
Ans: As per Section 34 of CGST act, Credit note could only be issued in following conditions:
1. Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.
2. Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed
Therefore issuing of credit notes except for the above mentioned condition is not provided in the GST act.
The expenses reimbursed to the super stockiest could be segregated in two types:
a) Expenses for which the bill issued bears the name of XX TEA and stockiest is getting reimbursed for the actual amount mentioned in the original bill of the expenses.
b) Expenses which are reimbursed on a fixed rate basis irrespective of the expenses actually incurred by the stockist. And the most important, the bill does not bear the name of XX TEA I its recipient.
For the first type of Expenses, the Criteria of “ Pure Agent” is totally satisfied as per Rule 7 of determination of value of Supply rule of Central GST act. Pure Agent means a person who:
(a) enters into a contractual agreement with the recipient of supply to act on their behalf and incur expenditure or costs in the course of supply of goods or services or both;
(b) neither intends to hold nor holds any title to the goods or services (or both) procured on behalf of or provided to the recipient of supply;
(c) does not use the goods or services so procured for his own interest; and
(d) receives only the actual amount incurred to procure such goods or services.
According to the valuation rule, the expenditure or costs incurred by the supplier as a pure agent (contracted to the recipient of the supply of services) shall be excluded from the value of supply. In this type of reimbursement the original invoice of expenses contains the name of XX TEA as recipient and only stockiest is paying it on behalf of XX TEA and later on getting reimbursed on the basis of actual payment. If none of the expenses are like this then too the XX TEA can carry out the expenses in this way if possible. The expenses satisfying these criteria will make XX TEA eligible for the Input credit contained in the bill and XX TEA would not be required to pay GST at the time of reimbursement to the stockist.
For the second type of expenses, it will clearly satisfy the definition of supply and hence the stockiest is very much liable to levy GST on those expenses reimbursed through XX TEA. However the GST charged by stockiest would be available to the XX TEA as input credit. And also Stockist would be eligible to take benefit of Input credit for the original expenses incurred.
Issues related to Muzaffarpur Branch/depot Activity
16. Expense reimbursement of Godown Rent, Electricity, Telephone, Printing & Stationery Computer operator expense etc which is on a fixed monthly basis to C&F agents.
Ans. Answer to Question no 15 could also be applied here regarding reimbursement of Expense
17. Purchase return by XX TEA Patna Depot to XX TEA Siliguri.
Ans: This shall be treated as normal purchase return and both the Section 34 & 16 of the act shall be obeyed. Section 34 of the act states:
“1. Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient a debit note containing such particulars as may be prescribed.
2.Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued and the tax liability shall be adjusted in such manner as may be prescribed.”
Section 16, as stated earlier, bounds the person to issue a debit note for the original invoice pertaining to a financial year before filing of Return for the month of September for the succeeding financial Year. But then too practically the issue of credit note by the supplier shall be the prior step before issuing a debit note by the purchaser as the seller would only give effect of it in GSTR 1.
18. Purchase of POP and Advertisement material items and supply it to stockiest through delivery challan and pest /hang that POP material through merchandiser (Employee of the company) on Retailer’s shop/ wall / poll etc. Company wants to take Input credit for the purchase of POP/Advertisement material.
Ans Answer to Ques no 5 could be applied here
19. Payment to retainer ship fee and reimbursement of expenses ( service provider is unregistered party) .
Ans: The supply u/s 9(4) has been made exempted from reverse charge wef 13.10.2017 and till 31.03.2018. The council is under preparation to take decision regarding the abolishment of 9(4) forever. Therefore this would not an issue further
Issues related to Delhihead office/depot Activity
20. Purchase sales promotion Items under Trade scheme/coupon scheme at XX TEA Delhi head office and issued it to XX TEA Muzaffarpur/Patna, G Rungta Marketing corporation Super Stockiest of Muzaffarpur (related party),Real Gold Sales Corporation Super Stockiest of Ghaziabad-UP (related party), Super Stockiest Rajasthan unrelated Party, Super Stockiest of Jharkhand unrelated Party through Delivery Challan free of Charge to unrelated parties and to related parties and distinct persons through Tax Invoice.
i) applicability of Valuation rule
ii The value on which the above said items to be issued to related party and distinct person
iii) which branch is entitled to take input credit
Ans: Handled in later part of the opinion
21. Purchase of POP and Advertisement material items by XX TEA Delhi Head office and supply it to XX TEA Muzaffarpur/Patna, G Rungta Marketing corporation Super Stockiest of Muzaffarpur (related party),Real Gold Sales Corporation Super Stockiest of Ghaziabad-UP(related party), Super Stockiest Rajasthan(unrelated Party),Super Stockiest of Jharkhand(unrelated Party)through Delivery Challan free of Charge to unrelated party:-
i) applicability of Valuation rule
ii The value on which the above said items to be issued to related party and distinct person
iii Manner through which it transfer to related party and distinct person
iv which branch is entitled to take input credit
Company wants to take Input credit for the purchase of POP/Advertisement material.
Ans: Principles of Ques no 5 and Concept of pure agent could be applied here
22. GST charged on bills issued by the service provider (Brand consultant, Legal consultant, advocates, Marketing consultant, financial consultant and other service provider like telephone /mobile /internet operator, marketing software provider etc
These services are commonly used for all the branches how GST involved can be used by the company. Whether it can be transferred to different branches through ISD registration? How it can be transferred.
Advice also what kind of transaction can be made through ISD registration.
Ans: Input service Distributor is defined as per Section 2(61) of the act “As an office of the Supplier of goods and services or both which receives tax invoices issued under Section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of GST paid on the services to a supplier of taxable goods or services to a supplier of taxable goods or services or both having the same PAN as that of Head office”
So the basic things which comes out after interpreting of definition along with section 25 of the act is:
a. The person requiring distributing Input is required to get registered as Input Service Distributor. This registration has nothing to do with the normal registration.
b. The person to whom the input is to be distributed shall have Same PAN.
c. Only the Input tax Credit regarding the services could be distributed. No credit of goods or capital goods could be transferred.
d. The necessary document i.e the credit transfer document shall be issued by the Input service distributor to the recipient of Inputs.
Manner and criteria for distributing is to be done according to Section 20 of CGST Act along with Rule 4 of Input Tax Credit Rule. Following steps shall be followed for distributing Input:
i) GSTR 6 has to be filed by the person distributing the Input.
ii) Input specifically related to the service received by a branch shall be specifically allocated to that branch only.
iii) Input in relation to the common services shall be allocated in the ratio of the turnover of the respective branch. Turnover could be monthly, quarterly or turnover of the previous year whichever is clearly evident or available.
23. Company avail some professional services from unregistered service provider who is form different states. Can companies avail such services? Whether GST paid on reverse charge can be transferred to another branch through ISD registration. How it can be transferred.
Ans: Principal laid in Ques No 19 is to be applied here
24. Salaries of all the branches are processed by XX TEA Delhi. Salary of a particular branch is transferred to the respective branch. Reimbursement of Following Expenses to Employees :-
i. Tour & travelling Expenses- a) Fixed @ of Rs 2/- per KM to employees
b) Actual train /air fair
ii Daily Allowance – HQ treated as conveyance payment
– Ex a) 25% for Fooding
b) 75% for Conveyance
– UC a) 25% for Fooding
b) 25% for Conveyance
c) 50% Hotel accommodation
iii Telephone and Internet – a) Fixed amount not actual (bill not in the name of Company)
b) Actual (bill not in the name of Company)
c) Actual (bill in the name of Company)
What is the treatment under GST of these transactions with the company? And in which branch the expenses should be accounted for and which branch is entitled to take input credit?
Ans: GST not applicable on salary payment and allowances to the staff. For better compliance, issue an appointment letter to the employees under the letterhead of XX TEA mentioning all the salary and perks to be provided. As discussed earlier this is not considered supply under Clause 1 of Schedule III of Section 7 of the CGST act.
Input credit could be availed by the XX TEA for the Invoice of Expenses issued in the name of XX TEA. Later on could be distributed according to the Input service Distributor mechanism
25. Commercial vehicle Haired by the XX TEA Muzaffarpur Branch/XX TEA Delhi Branch from a related party who is not registered under GST Act. What is the treatment of these transactions under GST and can the company avail Input credit.
Ans: Principal laid under ques 19 could be applied here
26. Vehicle Maintenance like Fuel expense/ toll tax/ parking etc paid by the Super Stockiest under whom the commercial vehicle is running for sales promotion and goods delivery activity and reimbursement by the company through credit note. what is the treatment of these transactions under GST and can the company avail Input credit.
Ans: Principal laid under Ques No 15 could be applied here
27. Private vehicle (Car) hired by a company from a related party who is not registered under GST Act. What is the treatment of these transactions under GST and can companies avail Input credit?
Ans: Principal laid under Ques no 19 could be applied here. In addition to this , even if the Person providing car rental services would have been registered and charging GST, then too the Input credit in relation to this won’t be available as same is disallowed under Section 17 of the act.
28. Godown rent / office rent paid to related parties who are not registered under GST Act. What is the treatment of these transactions under GST and can companies avail Input credit?
Ans: Principal laid under Ques 19 could be applied here
29. Small commercial vehicle owners carrying goods from warehouse to factory location who are not registered under GST. Company treat the same as GTA service and if payment is within limit of 750 per consignment note or 1500/- per vehicle the is not considered while calculating 5000/- per day limit of purchase from unregistered party.?
Ans: With reference to this question we need to understand two things, First that who shall be considered as GTA and second the condition according to which the Exemption of RS 750/1500 is available.
A Good Transport Agency according to the act shall be the person who is running an agency of Transportation whether registered or unregistered but not owning a single carriage and only handling the carriage owned by others. A consignment note is necessary to be issued by GTA. Hence the person owning his own vehicle and not issuing a consignment note shall not be considered as GTA.
Now as per Entry No 18 of Notification No 12/2017- Central Tax ( Rate) dated 28.06.2017 exempts the services by way of transportation of goods by road except by GTA. Hence the service provided by the small vehicle owner is totally exempt under GST regime irrespective of the consignment note of Rs 750/1500
30. Company paid GST on purchase from Unregistered party if it crosses the limit of 5000/ per day of purchase from unregistered party by all the branches
Ans: Principal laid under Ques no 19 could be applied here.
Analysis of the legal structure of the Coupon scheme, Target Scheme and other gift scheme provided by XX TEA
The current model suggested is based on the theorem of Bill to Ship to Model, wrong analysis of related party, composite Supply, the deeming wrong function of credit note and delivery challan in the current GST regime. The criteria or the suggestion were almost common for every scheme, so it needed to be answered separately.
The Suggestion states that the scheme Item is billed to XX TEA and delivered to Super stockist and then again the XX TEA bills the same to Consignee/ Buyer. Clients need to take care that the Bill to Ship to Model has been done away with in the current GST regime. Unlike VAT regime, if a person is billing to XX TEA and delivering to super stockiest then the Primary bill and the input contained in the bill shall belong to XX TEA only. Afterwards it is compulsory for the XX TEA to raise a new bill for the same amount to the super stockiest which will lead to ultimate transfer of credit to super stockiest. XX TEA could not bill the Consignee/buyer for the same item.
The Related party has been defined under Section 15 (5) of the act and it states under clause C that “ persons who are associated in the business of one another in that one is the sole agent or distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.”. Therefore all the people in the chain till the level of super stockiest are deemed related party of XX TEA. On other hand XX TEA, Delhi and XX TEA, Bihar shall be considered as distinct Parties under Section 25(4) and Sec 25(5). The valuation rules for related parties and distinct parties under Section 25(4) and 25(5) are the same and both have to obey the Rule 2 of the Determination of Valuation Rule. Even if the consignee or buyer is the sole seller of XX TEA then also the clause c would make them very much a related party. So issuing the Scheme product to them on marginal value or free of cost or credit note would be not viable with the legal terms of the act.
I have pointed out earlier also that credit notes under act have some criteria to be issued. It cannot be issued if not related to earlier invoice and it has to be issued for the purpose of Sales return or in case of reimbursement for excess tax or value. It has to be specifically linked with the earlier invoice. The issue of credit note could not be made as per the convenience of the issuer. Rule 8 of Tax Invoice also prescribes the condition in which delivery challan could be issued. It embarks that that delivery challan could be issued for following purpose only:
a) Supply of liquid gas
b) Transportation of goods for job work
c) Transportation of goods for reasons other than by way of supply, or
d) Such other supplies as may be notified by the board
Therefore the issuance of delivery challan for the purpose of scheme is not correct
Combined supply could be mixed or composite in nature depending upon the nature of supply. If the combined supply is naturally bundled i.e Installation of air condition with the purchase, then it is called composite supply as per section 8 of the act. In case of composite supply the rate applicable on the principal supply is applicable on combined supply. But if the combination is not naturally bundled i.e artificially bundled, For example: If Television is supplied with air conditioner, then the rate whichever is higher shall be taken for combined supply. Therefore supplying scheme items along with Tea would make it taxable at higher rate
Now the main issue is about the availability of credit with the XX TEA. When the goods are getting delivered to super stockiest then credit has to be ultimately available with the super stockiest only because the XX TEA cannot issue invoices at a low rate to super stockiest being a related party.
Now the arrangement is needed to be made so that the credit is made available with the XX TEA only. If it is not necessary to get delivered the items with the super stockiest then the goods could be delivered to the XX TEA W.B, Delhi and Bihar. But if it is necessary for the company to get delivered the items to the Super stockiest premises only then XX TEA Delhi, W.B, Bihar should get a rent agreement done with super stockiest of their respective states and add the same as additional place of business in the registration. If super stock is present in the state other than the states in which XX TEA exists then XX TEA needs to take registration in that state also. Now the Depot could take the following transaction: Consumer offer coupon ( kept in packet along with tea), Target Scheme, Other scheme, the coupon collected by the consumer/ Consignee/ buyer shall be redeemed at the depot. The depot shall be issuing invoices at marginal rate to the consumer i.e Rs 10 and charging GST for that. As the consumer is totally unrelated so Rule 1 of the Valuation Rule of CGST would be applicable for this transaction where the money paid is considered as the full value of the transaction. Ultimately the credit will remain with the XX TEA only.