GST - Q AND A

Q. What is the major difference from Cash Discount and Trade Discount? We are giving discount to our customers for making payment prior to agree due date / credit periods. Discount is not worked on the basis of any percentage on the basic selling price. It is based on the number of days of payment made prior to the due dates. Whether we have to charge GST on the Discount amount. Whether we have to give Credit Note or we can get Debit Note from party or any one of the both can be used. Whether, the issuance of Credit Note without GST is a mistake and leviable penalty under GST act. Because, some of our clients are asking Credit Note without GST and some of our clients are asking Credit Note with GST. The parties asking Credit Note with GST is giving their Debit Note also for the same transaction (i.e.) the discount allowed by us. We are taking credit of ITC by using their Debit Note. Is it correct or not? (Or) shall we have to reduce our GST liability by using our Credit Note declared in GSTR-1. Accounting wise, amount wise both are correct. But, as per GST act, which one is to be used. Whether, the GST on Discount amount should be mentioned in Credit Note?? Is it mandatory?

A. GST doesn’t differentiate between trade and cash discounts. Rather, GST segregates the discounts allowed into two categories:

those given before or at the time of supply

those given after the time of supply

If a discount has been allowed before or at the time of supply, and it has been mentioned in the invoice separately, it will not be added in the value of supply.

If discount is allowed after the supply, it may or may not be added in the value of the supply, depending on the following factors:

whether the discount can be linked directly to the relevant invoice of supply,

whether the discount has been allowed as per the terms already agreed upon before or at the time of supply, or

whether the input tax credit related to the amount of the discount allowed has been reversed by the recipient of the supply.

If you have a policy of allowing a cash discount if a customer pays a particular invoice within specified days. The discount amount will not be added to the value of taxable supply. The customer must reverse the input tax credit (the amount of the discount allowed).

If you don't have pre decided policy of offering cash discounts to the customers at the time of payment, however, you supply to a customer who didn’t pay his debts. If now you offers the customer a discount in order to encourage the customer to clear all his debts, but the discount wasn’t agreed before or at the time of supply, and can’t be linked to a particular invoice, this discount will be added in the value of the taxable supply.

In case of discount where value shall stand reduced, a credit note can be issued by supplier not later that September 2018 or date of filing of return whichever is earlier (Sec 34 (2) of CGST Act) Credit note should have details i.e. Taxable value, Rate of tax and amount of tax credited. Clients (Recipient) cannot issue debit note.

Q. We have supplied goods during Pre-GST regime which got rejected and needs to be replaced free of charge before lifting back the rejected goods. The customer needs Invoice copy for free replacement to issue way bill.

A. If the amount of invoice exceeds ₹ 200 only then it is mandatory to prepare ‘Tax invoice’. Section 31 of the. CGST Act, 2017. And as far as way bill is concerned, Way bill need to issue for value for more than ₹ 5000. Delivery challan is required for Free Replacement as the same is not covered under SUPPLY in GST.  The goods can be replaced free of cost without paying the GST. Even there is no need to reverse the credit on the free supply.it has been clarified in the FAQ. This also applicable to the pre GST supplies.  "Invoice" and "Free replacement" cannot go simultaneously in this situation. Delivery challan will serve the purpose. Delivery challan can be correlated with the invoice issued initially.

Q. What is the procedure to get refund of excess/accumulated ITC? Every month, the closing balance of ITC is gradually increasing in Electronic Credit Ledger. We want refund since our fund is unnecessarily blocked and we need for the same for working capital. Any time frame is there?

A. As per law, refund of accumulated credit can be claimed at end of financial year. Please read the provisions as stated in Section 18 of CGST Act along with Rule 89.

Q. We are receiving bills for Raw Materials supply from GST registered persons with GST charged bills. After receipt at our end, we found some discrepancies in their GST bill such as Insurance, Freight and Price difference and short supply etc. Shall we raise Debit Note to our suppliers for the taxable value to be deducted + GST? We were informed that we do not have rights to raise Debit Note for the goods purchased by us and only the supplier of goods (seller) has to give Credit Note only. Kindly clarify whether we can raise Debit Note or only seller has to give Credit Note or both are allowed for our debits to be made. Likewise, against our supplies (sales) made, we want to raise Credit Note on Trade Discount to our customers for prompt payments or early payments. This is after sales only and we have not mentioned any Trade Discount in our Tax Invoices. If we raise Credit Note, where GST to be added with Discount amount. If we add GST, party will make payment after deducting Discount + GST amount (that is Credit Note Value). If so, what we have to do in GST portal for GST on discount amount in GSTR-3B. Shall we take back that GST available in Credit Note as ITC. Whether we have to add GST on Discount amount and we can give Credit Note for Discount value only without GST?

A. In your first case, as per sec. 34(3), a debit note should be issued by a supplier in the following circumstances:

(a) The taxable value shown in the invoice is lesser than the taxable value of the supply; or

(b) The tax charged in the invoice is less than the tax payable on the supply.

Also note that: A debit note has to be issued by the supplier. A debit note issued by a recipient, say for accounting purposes, is not a relevant document for GST purposes. The details of the debit note have to be declared by the supplier in the return of the month of the issue of debit note. And for the later case, where intend to give discount, you have to issue Credit note with GST. GST can be reversed for the value of discount and by mentioning it in GSTR 3B or GSTR-1 your liability to that extent shall get reduced. Refer Sec.34 of CGST Act for better understanding.

Q. Regarding the GST paid on Factory Building repairing charges can be availed ITC. It is not a new construction, it is not a contract and it is not an admin building construction. It is only repairing of old existing Factory Building such as renovation, painting, debris removal. We have done some repair works in Factory Building like painting, renovation, debris removal. The work was carried out by GST registered supplier and given bills to us with GST. Shall we take ITC of this?

A. As per Sec.17 (5) ITC of GST paid on works contract services will be allowed only if the output is also works contract service. In your case ITC is not admissible (you being manufacturing unit having factory). ITC is admissible if the expense is debited in P& L. it should be capitalize. So no need to show in p & l account. No ITC if capitalized. Credit on repair of factory building is admissible.

Q. If service providers such as Advocates, GTA etc. providing services to unregistered persons (business services not personal). Who will be required to pay GST?

A. Where services are provided by supplier which are covered under reverse charge then recipient is liable to pay tax. The section 24 (iii) of the GST Act requires a person to obtain registration on compulsory basis if he is liable to pay tax under reverse charge. Thus such unregistered person is liable to pay tax and he should obtain registration. Unregistered to unregistered not attract GST.

Q. I want to understand the difference between the local consumption and local sales under the GST regime if any?

A. Any commodity sold locally in the same state after charging SGST and CGST not necessarily will be consumed in the same state and can be sold further to any other state after charging IGST. The problem may arise where the sales/clearances made by the units availing the area based exemptions and after getting some benefits in the SGST and CGST from the state Govt. on the local consumption and which in return can be further sold to some other state after charging IGST and were never actually consumed in the same state but were only sold. The term SALES has been replaced with SUPPLY in GST regime. Your point can be explained with the help of following example:-

Suppose Mr X (in Karnataka) sold an item to Mr. Y in same state (Karnataka). He will charge SGST & CGST. If the same good will be sold by Mr. Y to other state (say Maharashtra), Mr. Y will be charging IGST, Mr. Y will avail ITC for CGST & SGST paid to X and the Maharashtra will be the consumption point

Regarding Area Based Exemption: - Due to introduction of GST all the manufacturing units are mandatorily required to clear the manufactured goods including traded goods on payment of GST, Area based exemption unit will be eligible for budgetary support.

The application for imbursement of budgetary support shall be made by the eligible unit after the payment of CGST/IGST has been made, for the quarter to which the claim relates, in cash, in respect of specified goods after utilization of Input Tax credit, if any. Thus even for area based exemptions, GST has to be paid and then budgetary support will be provided.

Sales and consumption are two different terms. The term sales has been replaced with Supply but consumption has its own meaning. GST is destination (consumption) based tax means where the goods and services supply will flow (consumed) whole tax revenue will go to that state.

Q. I have some doubts regarding the works contracts of -

1. repair and maintenances of restaurants, banquet hall, cafeteria, kitchen can I take ITC or not?                                                                                                                               2. electrical items and fittings above like restaurants, banquet hall, cafeteria, kitchen etc. can I take ITC or not?               

3. if they how to accounted for like value-100+gst-               

4.What about treatment of capital assets like above example?

A. As per Sec. 2(119) of CGST Act. “Works Contract” means a contract for building, construction, fabrication ,completion, erection, installation , fitting out, improvement, modification, repair ,maintenance, renovation, alteration, or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. input tax credit is not available to any taxable person who constructs on his own account even if it is for business use. Thus , you cannot take ITC for repairs & maintenance and electrical fittings etc. Repair & maintenance pertain to immovable property. Embedded into earth. Works contract under GST is limited to contracts to do with Immovable property. (Ref sec.2 (119) where it is clearly defined).

Sec.17(5) of CGST act mentions clearly that " works contract services when supplied for construction of immovable property is ineligible for credit except where it is for further supply of works contract services.

In your example the output services like restaurants, halls, cafeteria etc. are not works contract services and therefore you are not entitled for credit on your repairs and maintenance, electrical works and related. Refer definition of WCT 2(119) and Sec.17 (5) for clear understanding.

Q. I was updated Aggregate Turnover in the preceding financial year ₹ 131445297.00 in GSTR-1 July 2017. (T/O F.Y 2016-17 + 2017-18 Q1=131445297.00). Actually Previous F.Y 2016-17 Turnover is ₹ 103631746.00. Kindly give suggestions and rectification process?

A. You will have to change GSTR 3 B for July, 17 also and facility for RESET of GSTR 3 B has been allowed. This will pave the way for amendments in the remaining GSTR Returns.

Q. We have supplied medicine to Govt. hospital, Maharashtra in the month of Sept. 17. But now we have to lift the same item as it is supplied and party not giving any proper documents. Whether we can show Dec.17 return as a sales return or any other return 3B of Dec. and GSTR-1 of Sept.?

A. Show it as sales return in December month return and issue a credit to this extent to the customer.

Q. In some cases we have received short payment from customers due to short quantity/rate difference. These thing comes to notice after received the payment. Customers are not giving us any debit note. For accounting purpose shall we book the short payment under discount head?

A. You have to book the difference under Credit note head and reverse the GST liability to the extent of shortage/damaged goods. It’s better to inform your customers to give you immediate intimation about the details of such deductions so that you will get your GST liability reduced in the same month.

Q. We wish to return part quantity of our purchased materials as rejection. It is only purchase return. What documents to be given to the supplier? Can we raise Debit Note to our Suppliers? We were informed that we can raise Debit Note or Credit Note only to our customers only and not to our suppliers.

A. Purchase return is also supply as per the provisions of CGST Act, 2017. Therefore the same may be supplied under taxable invoice. Credit note has to be issued by the supplier.  However, goods can be returned on the basis of delivery challan.

Q. Section 17 (5) (g) of CGST denies credit on goods and services or both used for personal consumption. In the light of this when an employee travels on business and avails hotel accommodation, whether GST on the hotel rent is eligible for ITC, as the services is consumed by the employee for personal consumption  Employee goes on tour for and behalf of the company. He stays in the hotel for the purpose of company. So if tour is for official purpose, ITC is allowed. If for personal use, ITC is not allowed?

A. Section 17 (5) (g) of CGST Act, 2017 debars availment of ITC only when the goods or services or both when supplied for personal consumption. However in your case the employee travels and avails hotel accommodation if furtherance of the business. Hence GST paid on hotel rent is available as ITC. Credit is eligible for hotel stay, ITC on food is not allowed.

Q. Logistic Transporter was missing of material from his custody, now we need to debit to Logistic Company Invoice Amount (Material + GST) & poor service?

A. In this case you need not raise any invoice, inform transporter about the loss caused and deduct the amount to be paid from his bills. If your transporter is registered and opted for forward charge he will raise Credit note and issue to you. And if the transporter is unregistered who falls under RCM     (most of the transporters falls under this), you have to raise a credit note against the RCM invoice (consignment note raised under sec.9 (3) of the Act with full value) with applicable tax rate for the amount of deduction being made. The rate of tax is 5% on GTA services.