THE CHAMBER OF TAX CONSULTANTS Indirect Tax Study Circle Meeting GST Impact Analysis on Service Sector - By CA Parita Shah & CA Payal Shah - On 18 th April, 2017 I. Tours and Travels Tour and Travel Private Ltd is organising a tour in the month of August 2017 to Rajasthan for 5 days for an amount of Rs 50,000/- per couple. The tour cost includes Hotel Accommodation, Breakfast, Lunch, Dinner, Sightseeing, Transportation cost and the charges of the Tour Guide. Air/Rail Travel is arranged by the company at an extra cost. The company has 5 branches across India in the states of Maharashtra, Delhi, Gujarat, Bangalore and Chennai which are centrally registered in Mumbai. Customers from all these locations have approached the respective branches and have booked the said tour. Some customers have booked the tour by paying an advance amount in the month of June-2017 on which the company has discharged service tax @ 9% vide Notification 26/2012-ST (Sr.No.11). In accordance with t he said notification, the company is availing CENVAT credit of all input services. Issues for Consideration (a) Whether the aforesaid activity of arranging the tour involving hotel accommodation, travel, food, sightseeing is considered as a composite supply or a mixed supply under GST? (b) The treatment under GST of the advances received prior to July-2017? Page 1 of 8
(c) The company has availed the CENVAT credit of input services like outdoor catering, sales promotion, hotel accommodation etc. under Notification 26/2012-ST and an amount of Rs 10,00,000/- is lying unutilized in their books of accounts at Mumbai. Whether the company can carry forward the same under the GST Regime? If yes, the manner in which the same can be distributed across the branches during the transition phase. (d) Tours and Travels Private Ltd would expend on hotel accommodation, catering, sightseeing in Rajasthan in August, 2017. Whether Tours and Travels Pvt. Ltd. can claim Input Tax Credit under GST? (e) The company being an IATA agent has arranged air travel for certain customers in the month of July 2017. Certain airlines have extended discounts/incentive on the booking made for the month and the company has also charged service charges for the bookings made on the customers. Tours and Travels seeks your advice to determine the taxability of the aforesaid transactions under GST? (f) Tour and Travel Private Ltd also operates an online portal 24/7 Rooms.com with their server located in Delhi. The portal is a B2B global reservation system with hotels across the globe listed on their website and the agents can book the hotels located anywhere in the world as per their requirement through the online portal. The portal issues its own invoice on the agent booking the hotel. The company seeks your advice to determine their liability under GST in relation to the said activity. Page 2 of 8
II. Construction/Works Contract Seva Construction Ltd. situated at Mumbai is contemplating a new project of joint development which may be finalized in July, 2017. Seva has agreed to pay Rs. 10,00,00,000/- towards FSI of the land for this project. Further Seva is already engaged in a redevelopment project namely; Turquoise. The Redevelopment agreement entered with the society provides the following: Cost of construction, development and other costs to be borne by Seva Seva to give possession of newly constructed flats first to the existing flat owners and only thereafter, sell flats to prospective buyers Seva to provide additional area to the extent of 30% of original area to all existing members free of cost Rent allowance till the occupation of newly constructed units are given to members Corpus of Rs 25,00,000/- to each member IOD for this project is received and the construction of the new building has started. Various works contractors are engaged for constructing these buildings. Out of total 510 Units to be constructed by Seva, 272 Units would be sold to prospective buyers. Seva had launched a scheme of 20:80 i.e. the customers are required to pay 20% as down payment and balance 80% of the total consideration to be paid at the time of handing over vacant and Page 3 of 8
peaceful possession of the Units. 100 Units are already booked by prospective customers and Agreements for such sale are already executed. Issues for Consideration New Joint Development Project: (a) Whether Seva would be eligible for input tax credit of works contact services availed under GST? (b) Assuming introduction of GST from 1 st July, 2017, whether Seva would be required to pay GST on such FSI? (c) Works contractors of Seva fear that under GST, all the raw material supplied by Seva would be included in valuing their works contract services. Whether such apprehension of work contractors is correct? Turquoise: (d) Whether Seva is providing any services to the existing flat owners? If yes, what would be the value of supply of services under GST regime? (e) Whether existing flat owners/society are providing any services to Seva? If yes, who would be liable to pay GST? (f) For 100 Units which are already booked, agreement for sale is already executed and therefore, Seva has paid Maharashtra VAT @ 1% (Composition Scheme). Service tax on 20% of the consideration received as down payment is also paid. What would be the treatment of such agreements under GST? Page 4 of 8
III Logistics Marine Logistics Pvt. Ltd is a custom house agent (CHA) and is also in the business of being a freight forwarder acting on a principal to principal basis providing end to end logistics solutions. The company is centrally registered with the service tax department with centralized accounting in Mumbai. The company has branches in New Delhi, Gandhidham, Ludhiana, Bhopal and Nagpur. In addition thereto, the company has also acquired table space at various ports viz. Nhava Sheva, Pipavav, Kandla to monitor and coordinate the movement of the cargo at the port and assist in relation to the various documentations. The company also has an administrative office in the city of Gurgaon. The table space acquired at the port and the administrative office are not currently registered with the service tax department as no billing is undertaken from the said premises. Issues for Consideration (a) Whether the company is required to obtain registration for the table space and the administrative office under the GST Regime from where no billing is undertaken by the company. However, there are various overhead costs involved in relation to the said premises i.e. rent, telephone expenses etc. on which applicable taxes would be charged by the vendors? (b) As a CHA, the company incurs various expenses as a pure agent of the shipper which includes charges for loading, unloading, buffer yard charges, dock expenses etc. The company procures these services from third party vendors/port authorities who in turn raise their invoice on the company with service tax and generally mention only the name of the shipper. Currently, Page 5 of 8
the company is making the payment to these vendors and is issuing a debit note on the shipper incorporating the various expenses as receipted/nontaxable and is also enclosing the invoices of the vendors/port authorities to entail the shipper to avail the CENVAT credit. Whether the said practice can continue in the GST Regime? (c) The company has the following queries in relation to their freight forwarding business (i) A shipper in Gujarat has approached the Gandhidham Office of the Company to transport goods from Nhava Sheva to Mombasa, Uganda. The Gandhidham Office has in turn instructed their Mumbai Office to undertake the said transportation activity. Accordingly, the Mumbai Office has contracted with the shipping line for the transportation. The Mumbai office is responsible to transport the goods from the factory of the shipper in Mumbai to the port, undertake the port formalities and handover the goods to the shipping line. (ii) In relation to the above transaction, the Mumbai office appoints a networking partner located in Uganda who acts in the capacity of a CHA and gets the goods cleared at the customs station outside India, gets the loading, unloading of goods done, pays the custom clearance charges and transports/delivers the goods to the consignee. The charges for all the above services is recovered by the networking partner outside India from the Mumbai Office. Determine the tax implications under GST in the scenario and the manner in which the billing will be done to the shipper. Page 6 of 8
IV Banking & Financial Services HMSC Ltd. is a NBFC engaged in providing loans, project finances etc. It has operations across India and has got more than 120 branches spread in 10 States. Major income source of HMSC are interest on loans, processing charges and pre-payment charges. In case the borrower does not pay EMI on time, HMSC also collects interest on delayed EMI payments. Presently, HMSC is operating under centralised service tax registration and CENVAT Credit of all input services is accumulated at Head Office. Issues for Consideration (a) If one borrower residing at Delhi, is taking loan from Mumbai Branch of HMSC and is providing communication address of Mumbai to HMSC. What should be the place of supply for such transaction: Delhi or Mumbai? (b) Whether interest on delayed EMI payments would be taxable under GST? If yes, when would the GST liability arise for such interest? (c) HMSC has certain common expenses such as marketing, audit fees, IT support etc. How to distribute ITC in respect of such services to respective branches? (d) HMSC has availed 50% of CENVAT credit on capital goods amounting to Rs. 10,00,000/- under pre-gst regime. Whether HMSC can claim input tax credit of balance Rs. 10,00,000/- under GST? Page 7 of 8
(e) Since HMSC has numerous branches, it is common for them to transfer furniture and certain capital assets from one branch to another. Whether such transfers would face any implications under GST? (f) HMSC procures services at all such branches and therefore, has various service providers spread across India. HMSC understands that in order to claim Input tax Credit under GST, HMSC is required to ensure that GST collected by all such service providers is deposited to Government Treasury. HMSC is looking forward to you for setting up a proper system to claim ITC. Page 8 of 8