Representations by Tally Solutions – Issues in GST Laws and Rules
With each passing day, GST is inching closer to becoming a reality. The law makers are giving final touches to the GST law. As part of the process, the government had made available a copy of the draft law in the public domain for feedback. We at Tally have gone through the law, rules and procedures in detail. Our reading and understanding tells us that multiple aspects of the law need to be revisited and revised as in their current form they are potentially detrimental for the small and medium businesses in the country and therefore for the economy.
We have spent the better part of the last 3 decades of our journey in not only providing software for this group of businesses but understanding their pulse and way of life. This has guided us to review the GST law in light of their hopes and aspirations. We have also gone ahead and sent feedback on the law to the government, tax and revenue authorities and industry bodies.
We firmly believe that GST is a great thing for our country and economy. However, the issues that we have identified need to be addressed for it to be useful and effective for all of us. We are committed to the cause of taking up these issues with relevant authorities and decision makers so that necessary corrective measures can be taken.
Given below are the feedback and representations sent by us.
1.Payment linkage to input credit
Law : Sec 16 (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
The GST Bill denies input credit to the tax payer if the supplier has not paid his tax liability. This creates a lot of friction in the trade by increasing working capital, especially for small businesses who work on thin margins. This can have a manifold effect for the economy as a whole and can derail the successful implementation of GST. Once invoice is issued by a supplier with applicable tax reflected on it and on filing of the Return and also matching the Invoice, the recipient cannot be burdened with the responsibility of knowing if that tax has actually been credited to the Government. Here onerous burden is being cast on recipient to prove tax has been deposited by the supplier.
Supplementary problem due to payment Linkage to Input Credit
SMEs will not be able to find new buyers, or only find buyers who will pay after ITC mismatch report, making it impossible for anyone to start a new business, or grow an existing business.
SMEs will take panic loans to ensure that they don’t appear as defaulters when the ratings are public. There will be cases where occasional and intermittent cash flow problems will reduce the rating, and start causing customer erosion leading to spiralling of problems, and forcing SMEs to take ‘panic loans’.
Section of the CGST law defining a compliance rating as highlighted above
149(1) Every registered person may be assigned a goods and services tax compliance rating score by the Government based on his record of compliance with the provisions of this Act. (2) The goods and services tax compliance rating score may be determined on the basis of such parameters as may be prescribed. (3) The goods and services tax compliance rating score may be updated at periodic intervals and intimated to the registered person and also placed in the public domain in such manner as may be prescribed.
2.Advances-Determination of time of supply and treatment
12. (1) The liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section.
(2) The time of supply of goods shall be the earlier of the following dates, namely:
(a) the date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply; or
(b) the date on which the supplier receives the payment with respect to the supply: Provided that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice in respect of such excess amount
Explanation 1––For the purposes of clauses (a) and (b), “supply” shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.
Explanation 2––For the purposes of clause (b), “the date on which the supplier receives the payment” shall be the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier.
(3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely:
(a) the date of the receipt of goods; or
(b) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
(c) the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:
Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.
(4) In case of supply of vouchers by a supplier, the time of supply shall be— (a) the date of issue of voucher, if the supply is identifiable at that point; or (b) the date of redemption of voucher, in all other cases.
(5) Where it is not possible to determine the time of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), the time of supply shall––
(a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or
(b) in any other case, be the date on which the tax is paid.
(6) The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value
Similarly, for time of supply provision for Service under sec 13
Tax on advance payments will become a non-starter, including the need to identify the HSN Codes against which an advance is made. Typically, a large order may contain multiple HSN codes, while the advance will be for a fraction of the order value. There will be no practical way for people to segregate and conform to the current specified rules. Advances should not be taxed at all, unless the period of advance has exceeded (say) 6 months, in which case it is treated as ‘purchase’ and tax applied at the standard rate on the entire advance amount, rather than attempting to get an ‘HSN’ basis involved.
3.Treatment of e-way bill
Law: Rule 1 (1) Every registered person who causes movement of goods of consignment value exceeding fifty thousand rupees —
(i) in relation to a supply; or
(ii) for reasons other than supply; or
(iii) due to inward supply from an unregistered person,
shall, before commencement of movement, furnish information relating to the said goods in Part A of FORM GST INS-01, electronically, on the common portal and
(a) where the goods are transported by the registered person as a consignor or the recipient of supply as the consignee, whether in his own conveyance or a hired one, the said person or the recipient may generate the e-way bill in FORM GST INS-1 electronically on the common portal after furnishing information in Part B of FORM GST INS-01; or
(b) where the e-way bill is not generated under clause (a) and the goods are handed over to a transporter, the registered person shall furnish the information relating to the transporter in Part B of FORM GST INS-01 on the common portal and the e-way bill shall be generated by the transporter on the said portal on the basis of the information furnished by the registered person in Part A of FORM GST INS-01:
Provided that the registered person or, as the case may be, the transporter may, at his option, generate and carry the e-way bill even if the value of the consignment is less than fifty thousand rupees.
Provided further that where the movement is caused by an unregistered person either in his own conveyance or a hired one or through a transporter, he or the transporter may, at their option, generate the e-way bill in FORM GST INS-01 on the common portal in the manner prescribed in this rule.
Explanation – For the purposes of this sub-rule, where the goods are supplied by an unregistered supplier to a recipient who is registered, the movement shall be said to be caused by such recipient if the recipient is known at the time of commencement of movement of goods.
1.Need to enhance the threshold limit of Rs 50,000 to higher limit for generation of e-way bills,
2. B to C purchases to be excluded from generation of e-way bills alternatively higher threshold limit to be fixed (IPhone are today sold at Rs 80,000)
Law Rule 1 (3) Any transporter transferring goods from one conveyance to another in the course of transit shall, before such transfer and further movement of goods, generate a new e-way bill on the commo n portal in FORM GST INS-01 specifying therein the mode of transport.
Comments: Practical difficulty of this provision
When courier is booked by a courier like DTDC or First flight etc.
Their branch or booking counter generate a e waybill for shipment he booked for said courier and then he moves it to branch near to him, again that branch (where multiple booking counter consolidate their load) again generate an E-WAY BILL to transfer it to their HUB.
Again courier hub will generate an E-way bill for connection to
And then again one E-way bill for co-loader to airlines or train or road.Same process for destination till the end recipient. This is practically impossible.
3.Law Rule 1 (8) The details of e-way bill generated under sub-rule (1) shall be made available to the recipient, if registered, on the common portal, who shall communicate his acceptance or rejection of the consignment covered by the e-way bill.
Comments Need clarity if the recipient is rejecting the e-way bill what will be the consequence on that shipment. Is the supply stopped and accordingly issuing of Invoice?
Law Rule 3 ( 1) The Commissioner or an officer empowered by him in this behalf may authorise the proper officer to intercept any conveyance to verify the e-way bill or the e-way bill number in physical form for all inter-State and intra-State movement of goods
Comments – The authorised officer’s right to intercept any conveyance to verify or inspect the e-way bill will be leading to Transportation delays and also bring back the Check post Raj.
Issues in draft rules of accounts and records
CHAPTER— ACCOUNTS AND RECORDS
1. Maintenance of accounts by registered persons
Rule – (2 )The account or records specified in sub-rule (1) shall be maintained separately for each activity including manufacturing, trading and provision of services, etc.
When one takes all the transactions which happen in an accounting environment, it includes all inter-bank transfers, cash deposits and withdrawals, payments, receipts, non-tax transactions such as loans, repayments, and so on. These are generally not done ear-marked for a kind of ‘activity’ – but are organizational in nature. Requiring that every single transaction is segregated out so that accounts/records can be maintained ‘separately’ would be almost impossible for any organization to fulfill.
Proposed: The account or records specified in sub-rule (1) shall be maintained such that it is possible to get all revenue details associated with each separate activity including manufacturing, trading and provision of services, etc.
Rule – (3) Every registered person, other than a person paying tax under section 10, shall maintain accounts of stock in respect of each commodity received and supplied by him, and such account shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and balance of stock including raw materials, finished goods, scrap and wastage thereof.
Several types of businesses rely on ‘exhaustion of stock’ in order to ‘replenish’ rather than ‘tracking of stock’ simply due to the nature of their business, which deals in enormous number of SKUs or products which are difficult to count/cross-count. Examples which come to mind are pharma shops, grocery/FMCG stores, food/sweet shops, ball-bearings and hardware stores, garment shops, to name just a few. Except for very structured organizations or those dealing with high-value SKUs, this is an impractical expectation for several such businesses.
Rule – (4) Every registered person shall keep and maintain a separate account of advances received, paid and adjustments made thereto.
Comments This is good for traceability of the full transaction, but this should NOT be brought into the tax net unless an extended period has expired (like 6 months). Today the provisions are to bring it into the tax net if it remains outstanding in the same Return Period (which is a month). So, essentially, if an advance is received on (say) 28th of a month, and the invoice raised on 3rd of next month, the tax payer has to ‘pay the tax on the advance’ separately for the previous month, and the balance for the invoice in the next month – making it complex to comply.
Rule – (6) Every registered person shall keep the particulars of – (a) names and complete addresses of suppliers from whom he has received the goods or services; (b) names and complete addresses of the persons to whom he has supplied the goods or services; (c) the complete addresses of the premises where the goods are stored by him, including goods stored during transit along with the particulars of the stock stored therein.
Comments This seems impossible for any retail supplier to comply – which is, names and complete addresses of the persons to whom he as supplied the goods or services. Similarly, for the vegetables and fruits markets (mandis), this will be impossible. While the addresses of the premises where goods are stored are definitely going to be possible, it also seems impossible to state that the registered person will have all the addresses of the places where goods are stored in transit – since that is generally outside their area of control, and in control of the persons who have taken custody to deliver the goods.
Proposed: Every registered person shall keep the particulars of – (a) names and complete addresses of registered suppliers from whom he has received the goods or services; (b) names and complete addresses of the registered persons to whom he has supplied the goods or services; (c) the complete addresses of the premises where the goods are stored by him.
Rule – (7) If any taxable goods are found to be stored at any place(s) other than those declared under sub-rule(6) without the cover of any valid documents, the proper officer shall determine the amount of tax payable on such goods as if such goods have been supplied by the registered person.
Comments This does not take into account exigencies that an organization may face due to occasionally running out of space when consignments arrive and needing to keep things in temporary storage, needing to shift things when there are natural problems (like rain/floods), needing to shift material when there is restructuring/construction activity in their own premises, needing to shift material due to fumigation/pest control activities, and so on. Making this as a broad-based statement will simply open the subject for arbitrary interpretation.
Proposed: (7) If any taxable goods are found to be stored at any place(s) other than those declared under sub-rule(6) without the cover of any valid documents or valid explanation, the proper officer shall determine the amount of tax payable on such goods as if such goods have been supplied by the registered person.
Rule – (8) Every registered person shall keep the books of account at the principal place of business and at every related place(s) of business mentioned in his certificate of registration and such books of account shall include any electronic form of data stored on any electronic device.
Comments In today’s world, where it is ‘access’ to data which is important rather than ‘storage’ of data, this is a retrograde provision.
Proposed: Every registered person shall keep the books of account in a such a manner that it is accessible at the principal place of business and at every related place(s) of business mentioned in his certificate of registration and such books of account shall include any electronic form of data stored on any electronic device. All electronic form of data stored should be stored within the boundaries of the Republic of India.
Rule – (9) Any entry in registers, accounts and documents shall not be erased, effaced or overwritten, and all incorrect entries shall be scored out under attestation and thereafter correct entry shall be recorded, and where the registers and other documents are maintained electronically, a log of every entry edited or deleted shall be maintained.
Comments This will make every single business in the country, large and small, immediately non-compliant. Larger businesses have processes like maker, verifier, approver – simply because human errors are expected (and not an exception). Human errors in an electronic environment – due to key punch errors – are far more frequent due to the nature of the human interface. Errors do not imply manipulation or mala fide intent. Inability to support an entry through counter-party transaction, and/or bank records and/or other manual supporting should be the focus, rather than ‘trail of error correction’. Requiring that every error should remain ‘visible’ will make every system of records untidy, and promote people to keep things ‘outside the system of records’ until they are ‘certain to be able to punch it in without error’ – causing more harm than good. This provision is equivalent to asking companies like Microsoft to prevent Word or Excel from having the ‘delete’ and ‘backspace’ key, and people should only be able to ‘score out their error’ and not ‘erase’ them!
The benefit and purpose of this clause from a revenue angle is also debatable – as to whether it will yield any valuable inputs or insights for revenue maximization or policy intervention. In fact, it has the potential to yield the opposite result as people avoid using electronic means, or avoid recording events with regularity – yielding more opaque records, or less efficient businesses (leading to lesser revenue collection).
Proposed: Any entry in registers, accounts and documents shall be fully supported with either scanned or manual documents, or traceable to the counterparty records (like banks), and should be reconciled with all records submitted in returns, including modifications made to such submitted records, if any.
Rule – (10) Each volume of books of account maintained by the registered person shall be serially numbered.
Proposed: Each volume of manual books of account maintained by the registered person shall be serially numbered.
Rule – (13) Every registered person manufacturing goods shall maintain monthly production accounts, showing the quantitative details of raw materials or services used in the manufacture and quantitative details of the goods so manufactured including the waste and by products thereof.
Comments For many SME manufacturers this will be an impossible task. Examples include lathe/milling shops, carpentry, pottery, toys/artefacts, and so on. The unstructured nature of their raw materials, and their finished products, will resist any ability to capture the details as expected.
Rule – (14) Every registered person supplying services shall maintain the accounts showing the quantitative details of goods used in the provision of each service, details of input services utilised and the services supplied.
Comments Identical observation to the previous point for SMEs. Like Beauty Parlors, Restaurants, and so on. Generally, the ability to correlate information as proposed in the clause will be impractical (for many), and impossible (for some).
Rule – (15) Every registered person executing works contract shall keep separate accounts for each works contract showing – (a) the names and addresses of the persons on whose behalf the works contract is executed; (b) description, value and quantity(wherever applicable) of goods or services received for the execution of works contract; (c) description, value and quantity(wherever applicable) of goods or services utilized in the execution of each works contract; (d) the details of payment received in respect of each works contract; and (e) the names and addresses of suppliers from whom he has received goods or services.
Comments This is again impossible for any SME contractor to do – and in fact, probably impossible for ANY contractor to do (that is, maintain separate accounts for each contract). In most cases, people use multiple shared services across a host of currently running contracts, and maintaining what services are utilized for ‘each works contract’ will be impossible to segregate even for highly structured organizations (who may still use some form of ‘allocation’), but no SME will be able to do it sensibly. The benefit and purpose of this clause from a revenue angle is also debatable – as to whether it will yield any valuable inputs or insights for revenue maximization or policy intervention.
Rule – (16) The records under these rules may be maintained in electronic form and the record so maintained shall be authenticated by means of a digital signature.
Comments Accounting Records tend to be stored in databases, and the concept of a ‘digital signature’ is designed to sign a ‘document’ and not sign a ‘database’. This is, therefore, a non-executable clause.
Rule – (17) Accounts maintained by the registered person together with all invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply shall be preserved for the period as provided in section 36 of the Act and shall be kept at every related place of business mentioned in the certificate of registration.
Comments Requiring ALL records to be maintained at EVERY related place of business, will be impractical – and particularly when paper records are also involved (which are supportings to either manual or electronic records). When a registered person has multiple outlets in a given city or state (which are the related places of business) it is impractical to expect that ALL records will be replicated and kept at every place. Also, for electronic records, there is need for ‘access’ rather than physical availability of the records in every place, and several (if not all) businesses tend to use centralized systems to operate their transactions.
2. Generation and maintenance of electronic records
Rule – (1) Proper electronic back-up of records shall be maintained and preserved in such manner that, in the event of destruction of such records due to accidents or natural causes, the information can be restored within reasonable period of time.
Comments This cannot be a ‘rule’ but a ‘suggestion’ – as the ability to adhere to this rule will be beyond the means of every SME, and is beyond the means of most large companies also. The concepts of Disaster Recovery are nascent, and the costs prohibitive, and it should suffice to say that people should have the ability to reconstruct their books of records in the event of loss, rather than the choice of words used above. Typically, this will involve reconstruction by using data from previously submitted records to the Government, GSTN, Banks, counterparties, and any manual or electronics records that may have survived.
Rule – (2) The registered person maintaining electronic records shall produce, on demand, the relevant records or documents, duly authenticated by him, in hard copy or in any electronically readable format.
Comments One must be clear that the concept of ‘duly authenticated’ is a manual certificate claiming that a particular set of supplied records are indeed representative of their affairs – again due to the fact that databases will not have any other electronic authentication process. It is entirely possible to seek a checksum of the submitted electronic data, to prove that the verified records were the same as the submitted records – so that a taxpayer cannot subsequently claim that these records are not the ones they have submitted.
Rule – (3) The registered person shall also provide, on demand, an account of the audit trail and inter-linkages including the source document, whether paper or electronic, and the financial accounts, record layout, data dictionary and explanation for codes used and total number of records in each field along with sample copies of documents.
Comments While this may be potentially possible to seek from the developer of the software application, it is unlikely that a registered person will be able to provide the technical details being asked. This is equivalent to making the buyer of a car responsible for explaining the hydraulics and associated calculations which go behind the braking system. Additionally, several tens (or hundreds) of thousands of SMEs use software which is not written/created in India, and their ability to comply to this clause is questionable. We should again examine the purpose and benefit of this clause, and what problem it is trying to solve.
3.Records to be maintained by owner or operator of godown or warehouse and transporters
Rule – (5) Subject to the provisions of rule 1, every owner or operator of a warehouse or godown shall maintain books of accounts, with respect to the period for which particular goods remain in the warehouse, including the particulars relating to dispatch, movement, receipt, and disposal of such goods.
Comments This should be re-examined in context of ground reality of the way trans-shipment depots work, and the practicality of maintaining rigor of records considering their business context, and the skill levels of the people operating such a context.
Rule – (6) The owner or the operator of the godown shall store the goods in such manner that they can be identified item wise and owner wise and shall facilitate any physical verification or inspection by the proper officer on demand.
Comments This will typically be impractical where movement of small quantities of goods – which are normally what an SME ships – gets consolidated from a transportation point of view. While the traceability of such shipments/containers will ultimately yield the source constituents and owners, this clause implies the ability of every intermediate point of the journey to be able to identify item-wise/owner-wise, and is unlikely to be available. It should be sufficient to say that they should be able to identify the ‘source of shipment’ and ‘associated document of shipment’ – and the reverse trail will ultimately yield the details being sought for.
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