Key features of the notified 6% GST Tax Scheme in special taxation system for small service providers .

 

 Notification No. 02/2019 - Central Tax (Rate), dated March 07, 2019 

 

1.This is applicable for intra-State supply of goods or services or both

2.New system is effective from April 1, 2019

3.This is available to registered persons whose aggregate turnover, including exempt supplies in the preceding financial year, was 50 lakhs rupees or below. Turnover has to be seen on PAN-India basis.

4.The rate of tax shall be 6% (3% CGST + 3% SGST)

5.This is applicable for first supplies of goods or services or both up to an aggregate turnover of rupees 50 lacs made on after 1st April, 2019

6.It applies to supplies made by registered persons who are not eligible for composition levy under section 10

7.Registered person should not be engaged in making any supply which is not leviable to Tax under the Act

8.Registered person should not be making any inter-State supply

9.Registered person is neither casual taxable person nor a non-resident taxable person

10.Registered person is not making supply to E-Commerce operator who is liable to TDS under section 52

11.Goods involved should not be ice cream and other edible ice (HSN 21050000) or pan masala (21069020) or tobacco and manufactured tobacco substitutes (HSN Chapter 24)

12. If registered person is having more than one GSTIN then this system is applicable to all

13. Such registered person shall issue bill of supply under rule 49 of the Central Goods and Services Tax Rules, 2017 mentioning on top- 'taxable person paying tax in terms of notification No. 02/ 2019 -CT (Rate), dated 07-03-2019 not eligible to collect tax on supplies' and shall not be eligible to collect any tax from receiver of supplies. Such registered person will also not be eligible for any ITC.

14. Such registered person shall be liable for RCM under section 9(3),9 (4), if liable, at applicable rates.

15. In determining eligibility, value of exempt services by way of extending deposit loans and advances and getting consideration in the form of interest or discount shall not be taken into account.

 

Issues and challenges

 

1.It is nowhere mentioned in the notification that this system is optional. However, at two places it is mentioned that person who opts for paying tax @ 6% hints that system is optional.

  Notification is issued in terms of sections 9(1) and 11(1) of the CGST Act, 2017 which does not empower the government to give an option. If it was issued under powers of section 10, then section 10(1) provision itself suggests that it is optional.

 

2.Whether supply is inter-State or not has to be strictly carried in accordance with sections 10, 11, 12 and 13 of the IGST Act, 2017. Any wrong interpretation of determining place of supply will land the registered person in very difficult situation resulting in huge tax liability plus interest and penalty.

  For e.g., If at a later stage, it is found that even one in-between transaction was inter-State then he will be called for regular tax for all turnover after such transaction.

 

3.Explanation given in the notification indicates that for counting turnover for eligibility, previous year turnover from 1st April has to be seen including the period wherein person was not liable for registration. But for determining tax payable under the notification 'first supply of goods or services or both' shall not include supply from 1st April of financial year to date from which he becomes liable for registration under the Act.

  Language of the explanation and description of supply are somewhat contradictory. However, if liberally construed, a new taxpayer will get 20 lakh free turnover and then 50 lakh turnover at concessional rate of 6% under this notification.

 

4.Person with this notification will be liable to tax @ 6% even on exempt supplies.

 

  This notification is issued under section 9 which empowers the government to levy tax and section 11 is for granting exemption which has an overriding effect. It will be illegal to tax exempt supply under section 9.

 

5. There is no requirement in the notification that a person opting for this scheme has to file any declaration before any specified time period. This fact creates a question as to whether it has to be opted from 1st April, 2019 or can even be opted during the year.

 

6.There is no mention of any reversal of ITC on goods in stock or capital goods in stock. For e.g., A service provider availed ITC of capital goods in previous year and also utilised it entirely to discharge regular tax liability. Now under this scheme, where no ITC benefit is available, nothing is mentioned in notification about reversal or lapse of such ITC.

 

Conclusion

Though notification is issued to give effect to the Council's decision and the government declaration, yet it has a lot of conditions which make it not feasible for any small taxpayer to opt for such a scheme (though notification does not clearly mention it to be optional). Even if it is optional and someone does opt for it, there are lot of issues which need to be thoroughly examined and addressed before this scheme is made effective.

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