V S Krishnan is answering questions from the readers of The Indian Express on GST.
There are apprehensions that in order to enforce the anti-profiteering clause, and even to ensure the filing of returns etc., a new inspector raj will come into existence. Are these fears legitimate?
Kunal Jhamb, Chandigarh
The government has clarified that the anti-profiteering clause will be used only as a last resort. This clause will not be invoked for activities like filing of returns but only in case of large companies that do not pass on the benefit of more input tax credit to customers in the form of lower prices. A detailed administrative mechanism has been prescribed for invoking the anti-profiteering clause, which includes the formation of a committee under the chairmanship of a Secretary level officer. The data will then be examined by officials from the Directorate of Safeguards which is under the administrative domain of the Central Board of Excise and Customs (CBEC). Therefore, fears of an inspector raj are misplaced.
MUTUAL FUND SALES
Professionals who are involved in teaching, training, and selling to distributors mutual funds and insurance products, have been asked by asset management companies and insurance companies to provide GSTN numbers. We have been told that failure to do so will result in a tax being deducted by the mutual fund companies (AMCs) at a fixed rated before paying out our distribution fees.
How do we gain by obtaining a GSTN number? We won’t get any input credit for this tax that will be deducted from the fees, as we are not manufacturers. Moreover, our turnover is very small, not even Rs 5 lakh. Isn’t this a burden on small distributors?
Ravi Chhabra, Pune
In the GST regime, a legal entity (defined by a PAN number) need not take registration if its annual turnover is less than Rs 20 lakh. In this case, small entities whose turnover is less than Rs 20 lakh can also do business with mutual fund companies. In such cases of transactions between unregistered and registered companies, the GST will be paid by the mutual fund company on behalf of the unregistered entities on a reverse charge basis by raising a self-invoice.
The mutual fund companies can then take input tax credit on such GST paid on behalf of the unregistered companies. This will enable small distributors to be a part of the business chain without having to register.
RANDOM CHECKS, AUDITS?
How will the government ensure that a trader is part of the value chain, and is not under-reporting? Will there be random checks and audits?
Vidyapati Bajpai, Kanpur
The design of the GST will itself ensure compliance through a self-policing mechanism. Because of the integration of the value chain from raw material to retail under the GST, buyers of goods and services will only procure this from compliant suppliers who issue a tax invoice — for, otherwise, the buyer cannot avail of input tax credit. Therefore, no random checks will be done, and audits will be confined to larger units with an annual turnover of over Rs 2 crore, who file a tax-audited return in Form 3CD to the Income Tax Department.
I have a works contract business with the Indian Railways in four states. Do I need to take a GST number in each state? Also, I have a contract for track construction, in which the work extends to two states. How do I go about fulfilling my obligations under GST?
Ashutosh Kumar, Bokaro Steel City
Under GST, a works contract is treated as a supplier of construction services and is subject to GST of 18%. If the works contract business extends to more than one state, GST registration would have to be taken in each of these states, and input tax credit on both input goods and input services would be available to offset against the 18% output tax on the works contract.
A company has rented out industrial property to three tenants. GST is being charged in the rental bills. There is only one electricity meter, and hence one electricity bill is received every month. The company raises debit notes to the tenants based on actual consumption. The company is only a facilitator, and does not earn any profit on electricity bills. In this situation, is it necessary to charge GST on the debit notes raised on the reimbursement of actual expenses?
Sadananda Pai, Aurangabad, Maharashtra
Renting of immovable property is treated as supply of services under GST and therefore is liable to GST of 18%. However, electricity is not a part of GST and therefore electricity charges will only be subject to state levies and not to the GST. Each state can charge state duties in terms of their own legislation.
V S Krishnan is answering questions from the readers of The Indian Express on GST. A selection of questions and answers will be published in these columns. Please provide your full name and address in order for us to identify your city. Write to firstname.lastname@example.org