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Welcome to another session of #ASKMEANYTHING. We have Mr. Santosh Maurya here with us. Mr. Santosh Maurya is a chartered accountant by profession having over a decade of experience in the field of indirect taxes. He has worked with well-known brands in the industry like KPMG, PWC, RSM etc. and today he will be answering a few questions on GST.

Question 1: Is GST applicable on e-commerce marketplace for fresh vegetables and fruits, serving as a commission agent between end customers and farmers? If Yes, then at what rate?

No. The intention of the government throughout has been not to levy any tax or rather burden any consumer with respect to the essential goods. So one of the essential goods is agricultural products. So, for any service which is provided in relation to agricultural products, there is no tax. So effectively, for the commission services that you provide for agriculture products, there is no tax and there is a specific exemption which is provided which is notified by the government for exempting this specific category, so there is no tax on this particular activity.

Question 2: What is the tax rate in goods transportation? Are there any exemptions and what is the reverse charge mechanism in goods Transportation?

A couple of questions arise here, one is, ‘What is a goods transport agency?’ Goods transportation agency (GTA) is an agency which provides transportation services. To distinguish this that individual provide transport services so, the intention of the government here is to Tax GTAs who are providing the goods transportation agency services.  Now who are called as good transport agency services? They are typically a person who issues consignment note and if they qualify as a good transport agency, there are two options available for them to discharge their liability - a) At 5% rate wherein they are not allowed to avail the input tax credit. b) At 12% rate wherein they can avail the input tax credit. So it is at the discretion of the goods transport agency. So first we have to see whether it qualifies as a GTA or not. If it qualifies as a GTA, then depending upon the procurement pattern, if they have high value credit, then it is advisable to go for 12% route wherein they can avail the credit. But in case the procurement is not highly taxed, then they may go under 5%. So this is with respect to what are the tax rates. Is there any exemption available? Yes, there is an exemption provided under the law with respect to GTA for agricultural produce. If you transport agricultural produce, any services provided in relation to GTA is not taxable. Secondly, in case the consignment note that you issue is less than INR 1500/- or INR 750/- as the case maybe depending upon the nature of the services, then again the GTA is exempted. These are a couple of exemptions predominantly provided by the government for claiming exemption under GTA. Now, what is reverse charge mechanism? Predominantly the tax liability always rests with the service provider. But under exceptional cases, the liability to pay tax is of the service recipient. Now, government has notified certain categories of the dealers like company, body corporates, cooperative housing society, Partnership Firms, registered body corporates. So in case if these categories of people receive services from GTA, the responsibility to pay tax is on the service recipient and not on the service provider. So in case your client or the clients are body corporates and in case they receive this GTA services transportation from any GTA, in spite of he is providing the services but because we are a body corporate the liability is on us to pay tax under the reverse charge mechanism.

Question 3: What is the impact of GST on the Indian economy and various industries therein?

Just to sum up, what was happening before introduction of GST was, we had multiple taxations prevailing in the country. So, for manufacturers, there was a different set of taxation, for services, there was a different set of taxation, for sale of goods, there was a different set of taxation, for movement of goods and transportation, there was a different set of taxation. So what was happening was that the entire industry was getting confused always as to which tax is to be applied and at what rate. Whenever I have been visiting foreign countries for client meetings, they had just one question before the introduction of GST -"Why does your country have so many complicated laws and what is the objective? Just to give them an answer, there is no specific logic to it we are following the old system now. Hence, there was a need to change and have a single system of taxation, which is GST. Now what GST has done for the economy is that, GST has brought in transparency. GST has brought in clarity in terms of removing the cascading effect of tax. Cascading effect means tax on tax, so earlier, before introduction of GST, if you buy, for example, a laptop or a car, first there is an excise duty. Assume that the laptop's price is one lakh rupees, excise duty on that component is 18%. So, the value of laptop becomes INR 1,18,000/-. On INR 1,18,000/- 15% VAT is levied, so the value effectively comes to 1, 35,000 rupees. So there is a tax on tax which is happening under the old system, which we call it as cascading effect of tax. But now under GST, there is no cascading effect of tax. So now, all industries including healthcare, automobile, financial sector, FMCG sector and all other sectors have benefited left, right and center by way of introduction of GST because we have a single price, we have a single tax and multiplicity of taxes has been eliminated. So as far as the GST's impact on the economy is concerned, it is very much positive. I'm sure we all read newspaper and in, in, you know, a month they reflect the collections, which is increasing day by day. So that is really a good thing and it is impacting positively on all sectors. Construction industry is, what the government is ensuring that the impact is minimum on. So government is working very hard for the construction industry as far as GST implementation is concerned. But as far as the consumers are concerned we have seen in some cases the prices drop out because now the industry will get the benefit of credits, which was not available under earlier legislation. So there is a positive impact on the industry and there is a positive impact on the economy and government is very happy and kudos to the government for implementing GST in a much successful manner.

Question 4: What is the impact of GST on building materials like cement, steel, bricks, paint, etc.?

See the impact of GST on construction materials is that while the intention of the government has been not to, overburden the consumers. But there are certain categories of projects which are you can say, 'premium projects'. So what government has done is that they have a separate set of principles for affordable and for luxurious houses there is a separate set of principles, in the both the  cases there is a need to buy cement, bricks etc. So for, different products the rate varies. For cement, the rates are 28% for steel the rates are seen at 12% and 18%, depending upon the nature of product, depending upon the kind of product that is bought, for bricks again, the rate of tax is 18%. So depending upon the goods that you buy and depending on the project for which you buy, in case of affordable housing, there is a concession given while in case of luxurious product there is no concession and you continue to pay a higher rate of tax, but when you come back to the old regime which we experienced it's still far better than GST.

Question 5: How is GST regulating the unorganized sector?

Okay. What GST has done here, is that GST has brought in transparency. GST has tried to regulate the unorganized sector by way of collection of data. Now there is a change of information between the governments, earlier between the central government and the state government there was no exchange of information. Now the state government's shares their information with the central government and vice versa. Now I'll just give you a classic example of one of my clients, he got a notice from the central government saying that you have filed income tax returns, you have paid taxes and have shown sales turnover, but there is no entry in the GST, why has GST not been paid on that? When the sales that you have shown reflected in the income tax crosses that threshold, why is that you have not been taxed on it? So what they have done is there is an exchange of information between the governments. Secondly, now to catch hold of the unorganized sector there is a responsibility placed on the organized sector to give the list of the information or to give the list of clients of unorganized sector. So in case you buy from an unorganized sector, there is an obligation on you to pay tax under reverse charge mechanism. There is a statutory levy prescribed under the law that in case any organization buys goods from an unorganized sector, it is a responsibility of the organized sector to disclose their names and pay taxes on their behalf. So for an organized sector, there is an additional complaint that, why should I buy from an unorganized sector? Let me buy goods from an organized sector, pay tax and buy peace of mind, rather than me paying tax as a penalty because the unorganized sector has not paid the tax. Now, the inspectors have got the power to visit the premises and ask for the information, so the physical verification has increased.

In case, of ecommerce, now you will see many unorganized sector placing their products on Flipkart and Amazon. So now the moment the information of the seller and the buyer is provided, the government actually sends notices to these platforms, to provide them the information of these unorganized sectors. So these are the key steps that the government has started taking to reach out to the unorganized and identify the liabilities.

Question 6: How GST is benefiting the consumers?

As I said, the biggest benefit is the removal of tax on tax, which we call it as cascading effect of tax. So, a product which, before the implementation of GST was costing INR 1,25,000/-, the GST reduced it substantially and the revised pricing came down to INR 1,15,000/-. So as far as the end consumers are concerned, they have benefited in a much positive manner.

There is a regulation under the law, which is called as anti-profiteering. What has happened is under the old law, obviously all the manufacturers would be having some old stocks, which they will be selling under the GST, so what government has done is they have said that we will give you additional credits on the unsold stock, which is required to be passed onto the consumer.

I will give you one example, Mc Donald’s Burger, which earlier was costing INR 55.00. The way they used to show the break-up of the price was, INR 40.00 plus INR 5.00. So INR 40.00 was their selling price and INR 5.00 was taxes. Now, what they have done is they have, increased the selling price so instead of INR 40.00 it says INR 42.00, and INR 3.00 is taxes, so for the consumer the burger still costs INR 55.00, earlier they used to pay INR 5.00 as taxes to the government but now they are paying INR 3.00 as taxes to the government. So what they have done under the law, what we have is the anti-profiteering department, anti-profiteering cell is founded by the government to catch hold of these sort of people, who have manipulated the price and have not passed on the benefits of reduction in the price to the consumer. In this case the consumer has the right to approach the anti-profiteering cell of the respective jurisdiction and give them the written complaint and the department is taking action against those companies. So impact on the consumer is really positive, but as I said it’s about self-awareness and half of the people will say who is going to fight with them, let me buy eat and let me go home. So therefore awareness is very important that with the introduction of GST, there is a reduction in the prices and we have a right under the law to ask for a reduction in the prices. And if companies are not revising the prices, we have a right to approach the anti-profiteering cell and seek for the proper compensation.

Question 7: Can a state exempt any commodity from SGST?

No, the main objective of the implementation of GST was that there has to be one nation, one market and one tax. So before introduction of GST, all state finance ministers had shaken hands and they have agreed on the list of products that were required to be exempted or that were required to be taxed. I will just give you one example that in Maharashtra ‘Lungi’ was taxable in Maharashtra, but in Tamil Nadu this product was exempted, why? Because it is customary there to wear lungi, but in Maharashtra it was levied at a 5% rate, but with the introduction of GST the disparity has vanished now.  What we see in India is uniformity in one product. So if you buy this product in Maharashtra or you buy the product in Tamil Nadu the rate of tax will remain the same. So, to answer your specific question, under the GST regime the state government has no power to exempt any product or to levy any additional taxes.

Question 8: How is disposal of scrap treated under GST?

We need to understand that if you are doing the business and you are disposing off scrap, you need to pay taxes because it is in the course of business that you have generated this. The scope under GST says that the activity that you carry out, if it qualifies as a supply then you need to pay GST. Now, in case I am disposing off any household item that does not qualify as a supply because that is not my business. But in the case of a new startup, established business entities, any scraps which is generated, be it newspapers, raw materials, old furniture etc. then even if you are not predominantly into selling but because you are a business and you are disposing of these scraps you need to pay GST.

Question 9: How are imported goods taxed under GST?

As I said, predominantly the responsibility to pay tax is on the service provider. But under exceptional cases, what government has done is government has put a law that in case the services are received by a person who is in India from outside India, so in case I am receiving certain services from outside India for me it becomes an import. The Government cannot catch hold of those exporters because of the jurisdictional issues. Therefore the liability is put on the recipient to pay tax under reverse charge mechanism. Okay. So any import, be it goods or be it services, anything that you import, under reverse charge mechanism, you need to pay tax at applicable rates and it is payable as IGST i.e. Integrated Goods & Services Tax and the revenue goes to the central government.

So these transactions are not exempt, these transactions are not tax free, we need to pay taxes on the import of goods and services, so in case any client or any of the businesses they are paying or are incurring expenditure in foreign currency do ensure that you do a proper due diligence and you read the law, you read notifications, you read the appropriate schedules to understand what are the services you have received and is there any reverse charge mechanism which is applicable on the transaction because the government is taking this seriously and there this a huge penalty for nonpayment of taxes.

Question 10: What is the GST exemption limit for MSMEs?

The GST threshold limit, earlier it was 20 lakh rupees, which was increased to 40 lakh rupees for MSMEs. For the north eastern region, the limit still continues to be 20 lakh rupees.