Goods and Service Tax – GST – By: – ashish chaudhary – Dated:- 2-9-2015 – India is on behest of implementing Goods and Service Tax (GST) which is said to be biggest tax reform since Independence. One important aspect under GST would be to deal with transitional provisions especially in relation to ongoing contracts which have been entered into pre GST but not completed at the time of GST introduction. Present discussion is confined to transitional challenges on the contracts entered into by service providers only. The conditions in contract and their legal enforcement is a subject matter of civil law. However, under the concepts of consensus ad idem or offer and acceptance it is better that the parties to the contract consider and factor the future GST in the contracts. If consciously and knowingly one enters into a contract in pre-GST period, then when GST is introduced, there would be no question of additional tax being paid in an inclusive contract. In case, GST is not considered,
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the very survival of the entity. Apart from this, there could be exemption under existing service tax law on services provided to government say construction of road, canal, dam or other irrigation works etc. These contracts are of significant value and include the value of both material as well as services. It is very unlikely that theexemption will be continued in the GST regime on these type of contracts and if charged to standard rate of tax say 22%, you can think of what would happen to service provider. None of such infrastructural projects have that much margin. Following could be few suggestions which could safeguard interest of service provider: It must be clearly mentioned in the contract that the tax imposed under GST would be charged and recovered separately. Proper records must be maintained evidencing the extent of work completed before introduction of GST. The point of taxation under GST regime is also expected to be based on completion of 2 out of 3 events (completion o
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to be incorporated in the service to avoid levy of additional 1% tax. Proper reconciliation must be prepared for revenue arising from these contracts booked in profit & Loss A/c viz a viz shown inST-3 returns. 2. Contract for services presently exempted/abated/covered by negative list: Service provider may presently be engaged in providing services which are covered by exemption notification or by negative list. Most of the exemptions presently granted are expected to be phased out in the GST regime. This could make the service provider to expose with the indirect taxation system for the first time in the GST regime. These service providers are most likely to hit as the tax rate presently from zero is expected to be in the range of 20-24%, directly affecting the cost especially in cases of B2C cases where end consumer may not be eligible to take the set off of tax charged by service provider. In case of ongoing contracts expected to overlap in GST regime, following could be guidin
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is could directly affect the service exporters as the service receiver located abroad may not be concerned with the changes of tax structure in India and may straightforward deny for reimbursing additional tax cost especially where tax clause is not mentioned in the contract. The exporter of service could take following actions to safeguard against possible consequences of imposition of tax: All existing and running contracts must be relooked to examine the tax clause. If not mentioned, modify existing agreement or enter into supplement agreement to provide for GST in case transaction ceases to be export of service. Refund claim must be filed for all credit accumulated till the time GST is introduced especially in cases where it could be possible that the services presently covered under export of services could be taxed as per revised place of supply rules. Clear demarcation should be established as regards to services rendered but not billed as on the date of GST introduction. Sugges
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ditional tax @1% during initial 2 years period etc. Internationally accepted practice in few countries is to treat all composite supply to be considered as supply of service notwithstanding it involves material portion also.This obviate need to segregate the consideration towards goods and services. It is not certain as of now what would be supply principle of works contract, yet following aspects could assist a service provider engaged in ongoing works contract during transition to GST. Specify all components of tax i.e. VAT, service tax clear in the agreement/work order so that additional cost arising under GST do not eat into the margin of service provider. It could be possible that existing contracts are exempted which may be brought under tax net in GST regime. In order to avail the exemption benefit extended during pre GST regime, proper documentary records must be mentioned clearly mentioning the stage of completion of contract. Certificate from chartered engineer as to stage of
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