Indian Railways
– Rollout of GST
Milestones & Path Ahead
What is GST & Impact of GST
• Goods and Services tax (GST): a destination based consumption tax levied on supply (taxable event) of goods and services
• GST eliminates the cascading effect –– Cascading effect: double payment of tax, where
previous tax payments on a particular good or serviceis not accounted for.
• GST system enables suppliers to have tax chargesreduced where the GST paid on the purchaseprocess will be offset against the GST payable inthe supply of the merchandise or services.
Architecture of GST
• Entirely Electronic
• Transaction based accountal-Generate Invoice
for transaction
• Each transaction examined: – Two distinct entities
– Goods or service
– Forward charge or reverse charge
– IGST or CGST& SGST/UTGST
A B
Provide Service-Invoice, Collect GST
Pay Cost +GSTAvail ITC
GST Compliance- As seen on 17.5.2017
Registration- As Ministry of Railways in each State- through nominated Railway
GST on Output- Transportation Services and Sundry Receipts-Changes in Centralized Software (FOIS/PRS/UTS) and capturing Manual transactions- Parcels, Way Leave charges, Catering, Advertisement, Rentals etc
GST on Input- Inward Supplies of Goods and Services- Changes in Centralized Software – Zonal Railways (IPAS) and Production Units, Database on GSTIN of Suppliers
Uploading Tax Invoices and Input Taxes – GST Returns- 1,2 and 3- on IT based GST Network (GSTN)
Seeking Exemptions, Abatement and other Relief, Clarifications from MoF/ GST council
Preparation for Compliance- Output Tax GST RolloutPeriod
Ending
10.5.17
Ending
16.6.17
Ending
20.5.17
Ending
27.5.17
Ending
1.6.17
Ending
10.6.17
Ending
20.6.17
Ending
30.6.17
Activity
I) Getting PAN for Ministry of
Railways and Registration in each
State/UT
II) Modification in software for PRS,
UTS, FOIS to levy GST
(CGST/SGST/IGST/UTGST)- YET
TO START
II A) Commercial DTE- To Advice
Logic for CGST/SGST/IGST to CRIS
for PRS, UTS, FOIS, Parcels-
PENDING `
III) Levy of GST on Parcels, Sundry
Commercial Receipts and
Engineering Receipts- Instructions
Issued to GMs
IV) CRIS to DEVELOP IT Platform
for uploading ofline transactions daily
for including in GST returns- For
Parcels, Sundry Commercial Receipts
and Engineering Receipts-Instructions
under Issue
41 days available
41 days available
45 days available
41 days available
Preparation for Compliance- Input Tax Ending
10.5.17
Ending
16.6.17
Ending
20.5.17
Ending
27.5.17
Ending
1.6.17
Ending
10.6.17
Ending
20.6.17
Ending
30.6.17
Modification in software for
IPAS by CRIS to capture all
Input tax paid details and
Generate GST Reports
(CGST/SGST/IGST/UTGST)-
Instructions Issued
Production Units to modify Bill
Passing Software to capture GST
details on Input Taxes paid-
Instructions issued
CRIS to Develop software to
integrate Data of Production
Units and offline transactions
with Centralized Software
CRIS to DEVELOP Software-for
preparing GST Returns- Output
tax, Input Tax and Net Credit
Claims-GSTR 1,2, 3- FORMATS
GIVEN
51 days available
51 days available
51 days available
51 days available
GST Implementation Architecture on IR
GM/AGMs head Multi-disciplinary
teams in field
A slew of circulars/ notifications and working instructions, transaction analysis, formats for invoices etc.
Accounts Directorate, Empowered Committee
GST Cells
Centralized Registration
Through Principal Railways in each State/UT- Deposit Tax, Upload GSTR 3B return
GST consultant
CRIS-Common
IT platform for GST
Each Transaction of outward supply-PRS/UTS/FOIS/Scrap Sale/Manufacturing etc
Each Inward supply-IPAS/PU s
GSP- NSDL
Calculates GST
Liability based on ITC
Flags
Generates GSTR 3B tax
detail
Share GSTIN wise
information with
Principal Railways
A lesson in
Strategy
and Team
effort
GST on IR in PracticeCapture GST recoverable on each
transaction due
• PRS/UTS/FOIS/IREPS- Changes in software, generate 41 fields to match invoice, incorporation of GST rates
• Logic of GST- IGST v/s CGST&SGST
• Manual GST utility set up by CRIS in record time for all residual transactions
• Production Units upload through Manual utility
• Correct Account of each transaction-Credit Dep. Misc
Claim Input Tax Credit as permissible, fully
and correctly
• Internalize treatment of GST paid- Stores/Works/Services
• Differential ITC based on Railway/Workshop/Production Unit
• Is GST eligible for ITC?- correct flagging- full/partial/nil ITC
• Extensive work on providing filters and check lists
Watch procurement costs, post GST
•IR to ensure that benefit of ITC availed
by suppliers passed on to IR
•Clauses added in GCC/IRS
•Business Process Re-engineering- Free
supply, SPVs
Resolution of Disadvantageous Rates
•IR faces inverted duty structure- lobbies at
work to raise tax on goods under Chp. 86
•Refund restriction on goods under Chapter
86 – Leads to increase in cost of products
supplied by vendors
Copyright (c) 2018. Lakshmikumaran & Sridharan/Confidential.
Input Supply Rate Output Supply Rate
General construction
Services/Works contract service12% Transportation of goods 5%
Railway Track Construction
Material18%
Transportation of Passengers
(AC & First Class)5%
Catering Service 18% Production of Rail coaches 5%
Lease of Rail coachesExempte
d
Renting of Immovable Property
*18%
Cement 28% Sale of scrap * 18%
‒ Reverse charge applicable (*) on all supply of services by IR (other than
transportation) and on supplies of old and used goods and waste and scrap
(13.10.17) and Rentals ( 25.1.2018)
‒ Inter-Governmental supplies of services are fully exempt except in case of three
services (transportation of goods or passengers; specified postal services; services
in relation to vessels or aircraft)
Major input and output supplies by IR
ITC Flags in Expenditure Data
T4- Full Credit (AMC of AC coaches)
C2- Partial Credit (Coach maintenance in Sick line)
T1- Non Business (Medicines, Stationery)
T2- Exempt (Staff Quarter maintenance)
T3- Credit Restriction ( Goods procured by Railway)
Input Tax Credit Utilization-Check ListSl.No. Nature of goods / services ITC
Flagging
Utilization
ITC (Y/N)
Remarks
1. Goods procured for capital works
such as manufacturing of coaches,
wagons, locomotives for sale to
IRFC
T4 – full
Credit
Y To be utilized only for discharging GST
liability on outward supply of finished goods
to IRFC on payment of 5% GST and not to be
utilised for discharging GST liability on
Goods and Passenger transportation services
by respective GSTIN.
2. Services provided by various
contractors for capital works such as
manufacturing of coaches, wagons,
locomotives for sale to IRFC
T4 – full
Credit
Y No restriction.
3. Goods procured for use in repairing
wagons, coaches, locomotives etc.,
T3-No
Credit
N ITC pertains to these purchases not to be
utilised for discharging GST liability on
Goods and Passenger transportation services
by respective GSTIN.
4. Services received at workshop in
relation to procurement of goods for
repair of coaches, wagons,
locomotives, etc.,
C2 – Partial
Credit
Y No restriction
Input Tax Credit Availment-Check ListSl.No. Nature of goods / services ITC
Flagging
Utilization
ITC (Y/N)
Remarks
5. Services provided by various
contractors in relation to repair of
wagons, coaches, locomotives, etc.
C2 –
Partial
Credit
Y No restriction
6. Procurement of goods and services for
creation of new assets which are in the
nature of Immovable Property (other
than plant and machinery) like Bridges,
Tunnels, Roads, Buildings etc.
T3- No
Credit
N Not to be availed. Respective accounting
codes can be mapped as T5 – No credit in
order to avoid wrong availment of credit
on these line items.
7. Procurement of goods relating to Plant
and Machinery like Railway track,
Signalling and Telecommunication
equipments, sleepers made of concrete,
wooden and iron & steel, lathe
machines, cranes.
T3- No
Credit
N Not be utilized for discharging GST
liability on Goods and Passenger
transportation services by respective
GSTIN
8. Procurement of services relating to
Plant and Machinery like Railway track,
Signalling and Telecommunication
equipments, sleepers made of concrete,
wooden and iron & steel, lathe
machines, cranes.
C2-
Partial
Credit
Y Can be utilized for discharging GST
liability on Goods and Passenger
transportation services by respective
GSTIN
Input Tax Credit Availment-Check ListSl.No. Nature of goods / services ITC
Flagging
Utilization
ITC (Y/N)
Remarks
9. Goods Transport Agency services
received for both inward and
outward transportation of goods
used in workshop.
C2- Partial
Credit
Y In this case both the consignor and consignee
being Indian Railways, GST on GTA services
to be discharged by Consignor IR. If the GTA
service provider discharges GST under
forward charge (12%), then IR is not liable to
pay GST but in any case, tax paid can be
availed as credit.
10. Taxi hire by IR at different
locations by the staff / officers for
any use.
T3 – No
Credit
N ITC on Rent-a-cab service is covered under the
negative list as per Section 17(5) of CGST Act, 2017
and hence no credit is available on this service.
Respective accounting codes can be mapped as T3 –
No credit in order to avoid wrong availment of credit
on these line items.
Copyright (c) 2018. Lakshmikumaran & Sridharan/Confidential.
Challenges faced in Data
Incorrect practice Impact on operations Action taken
Wrong GSTIN of
Vendors mentioned in
the RR
- Rejection by GSTN portal (validation
error)
- Denial of credit to the recipient
- Interest cost on late reporting of
details
- RR details with correct invoice
were furnished in the subsequent
months
Inward supply was
wrongly flagged
- Lead to excess availment of credit
- Short payment of taxes
- Flagging finalised w.r.t.
HSN/Description vis-a-vis
Accounting unit code
- Ineligible portion for July-March
month reversed
Exempt supply not
exhaustively captured
- User did not record exempt supply
data
- Incorrect determination of ITC
reversal ratio
- Instruction to capture exempt
supply exhaustively for July- March
Wrong capturing of
Description
- Wrong ITC flagging
- ITC eligibility inaccurately captured
- HSN heading used as description is
misleading
- Instruction for correct description
circulated
- Text bar provided in the system
software to capture description.
HEADLINE NUMBERS
Rs. In crore
July'
2017
Aug'
2017
Sept'
2017
Oct'
2017
Nov'
2017
Dec'
2017
Jan'
2018
Feb'
2018
Mar'
2018
April'
2018
May'
2018 Total
GST paid on Inputs 19 259 258 310 574 551 695 752 1032 520 636 5607
of which ITC availed 5 189 251 269 443 98 180 0 783 120 120 2459
Net Tax Deposited 461 375 297 345 199 601 526 697 92 440 502 4534
6993699 706 697 874 560 622
Outward liability
467 565 548 614 642
Taxes Paid in 16-17Category of Taxes (₹ in Cr) FY-2016-17
A Service Tax Remitted (levied on earnings) after availing Cenvat Credit
(2016-17)4826
B Taxes Paid on Stores/ Services
(1) Revenue Expenditure
i. Excise and Customs Duty 3201
ii. Sales Tax, Service Tax and VAT 2221(1) Total (i+ii) 5422
(2) Capital Expenditure
i. Excise Duty 782.57
ii. VAT 70.40
iii. WCT 13.23
iv. CST 233.86
v. Customs Duty 229.95
(2) Total (i to v) 1330
Total Taxes paid (1+2) 6752
Few Important GST Provisions
Contd….
Composite supply or mixed supply
• Composite supply to attract the tax rate applicable to the principal supply
• Mixed supply to attract the tax rate of that supply which is taxable at the highest rate
[Ref: Sections 2 (30) & 2 (74) read with section 8 of CGST Act, 2017]
--------------------------------------------------------------------
Composite supply: Passenger transportation + Food & Beverage + Travel Insurance: Naturally bundled
Mixed Supply: Two or more independent supplies offered at a single price (Palace on wheels)
17
Business Process Re-engineering
• Free Supply of Material for wagons – differential in GST rates 5% v/s 18%
• Supply of Rails by SAIL- Transportation
SAIL raises invoice for rails with 18% GST including freight as sale is on FOR basis
GST law treats supply of goods along with freight as composite supply
Transaction is tax inefficient – 18% GST on rails + freight component and 5% GST on transportation of rail by IR
Alternatives– Ex-works/To pay basis –GST on rails only
• Government
Government means Central Government
General Clauses Act, 1897 the 'Government' includes both the Central Government andany State Government. As per clause (8) of section 3 of the said Act, the 'CentralGovernment', in relation to anything done or to be done after the commencement of theConstitution, means the President.
• Government Entity [Notification No. 12/2017-Central Tax (Rate)]
“Government Entity” means an authority or a board or any other body including asociety, trust, corporation, (i) set up by an Act of Parliament or State Legislature; or (ii)established by any Government, with 90 per cent. or more participation by way of equityor control,
to carry out a function entrusted by the Central Government, State Government, UnionTerritory or a local authority.
• Governmental Authority [Notification No. 12/2017-Central Tax (Rate)]
“Governmental Authority” means an authority or a board or any other body, - (i) set upby an Act of Parliament or a State Legislature; or
(ii) established by any Government, with 90 per cent. or more participation by way ofequity or control,
to carry out any function entrusted to a Municipality under article 243 W of theConstitution or to a Panchayat under article 243 G of the Constitution.
Certain definitions relevant to IR
Notification No. 12/2017-Central Tax (Rate) –Exemption to supply of service by Government Entity to Central Govt.
• Govt. entity defined – Set up by legislature or established by govt. with 90% or more equity participation to carry out function
– entrusted by the Central Govt. /State Govt.
• Two conditions to be satisfied: (a) Set up by Govt. (b) To carry out function entrusted by Central Govt.
RLDA – set up by Act of Parliament but involved in monetizing Railway Land – Receives consideration from IRCON – Not covered by exemption for such activity
Notification No. 12/2017-Central Tax (Rate) –Exemption to supply of service by Governmental Authority in relation to function entrusted to Municipality / Panchayat
E.g. Statutory bodies providing water, road, etc., related work (Drainage Board, etc.)
Governmental Authority defined –
• Set up by Legislature or established by Govt., with 90% or more equity participation
• To carry out municipal functions
To be resolved Zonal Railways purchase concrete sleepers from sleeper plants on payment of GST for IR &
RVNL projects of IR
IR supplies (sells) sleepers to RVNL, adjusting advance amount maintained by RVNL with
IR
IR to issue tax invoice to RVNL as IR is effectively supplying sleepers to RVNL- SET OFF
GST BY CLAIMING ITC.
SPV/ JV companies (PPP model) for rail connectivity and capacity augmentation
GST demanded from SPVs on freight apportioned by IR
GST invoice sought on O&M charges by IR
SPVs Model a financing model. Net adjustments of freight and O&M cost are
towards return on investment- matter being pursued with MoF-Exemption
sought on lines of exemption granted to toll charges and annuity (roads and
bridges)
Transportation of railway materials and equipment by rail or vessel from one place to
another place within India is exempt from GST
No such exemption provided for transportation of such railway materials and
equipment by road
Exemption required to bring transportation of railway materials by road on par with
other modes like rail or vessel
Interpretation Issues
IR provides service of haulage of wagons of Private Container Train Operators (PCTOs). Haulage charge includes 5% towards maintenance. Provision for granting rebate from haulage charges if maintenance is undertaken by entities other than IR
No separate maintenance service provided by IR but tax demanded from PCTOs on such maintenance @18%
Stand taken that maintenance of wagons is integral part of haulage service and GST not payable on maintenance
Works Contracts- GST on Rail Infra
• Works contract services provided to IR attract 5% GST if
earthwork is predominant (75% or more by value)-
Intention to benefit labour centric contracts but most of IR
contracts cannot fulfil criterion of pre-dominance of earth
work
– Contracts however would need to be restructured in
line with law
– Case for seeking 5% on rail infrastructure- No ITC-
Logistics
• MRVC: All types of Railway contracts (works, supply of
goods, composite supplies, works contracts) should be
placed in the tax slab of 5% for organizations like MRVC
• Treatment of pre GST Contracts- Works Directorate letter
Contract Clauses to be reviewed
Contracts entered in pre-GST regime - Terms and clauses to be
revisited and modified to address GST implications
Clauses related to breaches, damages, penalties to be reviewed
for possible GST implication
Pricing clause should be exclusive of taxes
Person liable to pay tax, RCM or forward charge, place of
supply, type of tax (CGST / IGST) should be clearly defined
Liability as to expenses on freight, insurance, etc., to be
reviewed
Composite contracts – Decision to be taken from tendering stage
Copyright (c) 2018. Lakshmikumaran & Sridharan/Confidential.
GST Council
Constituted under Article 279A of the Constitution with Union FM as
Chairman and State FMs as Members
Major decisions taken Pending on the agenda of GST Council
Deferment of payment of tax on reverse
charge on procurements from
unregistered persons
Rationalisation of returns
Institution of E-way bill system Centralised Advance Ruling Mechanism
Deferment of purchase return - GSTR- 2 Inclusion of ATF/Natural Gas in GST
Rationalisation of rates Applicability of TDS /TCS provisions
Grievance Redressal & Dispute Resolution
Mechanism under GST
GST Council
‒ Constitution body chaired by Union FM, with State FMs –Representations by industry considered by GSTC.
GST Implementation Committee: Central and State level GST Commissioners
Advance Ruling & Appellate Authority (AAR) for providing clarity in 90 days
(a) Limited to:
‒ Classification
‒ Liability to pay tax
‒ Applicability of notification
‒ Admissibility of credit
(b) State-level authorities: State-wise application to be filed. Not optimally useful.
National Anti-Profiteering Authority (NAPA)
• Benefits of GST must be passed on to consumers
• Accepting Complaints -> State-level screening committee
scrutinizes and forward observations to NAPA for proper
probe -> NAPA orders reduction in prices, pass on benefits of
GST, impose penalty and cancel registration.
Way forward - Future challenges
Annual return: 31st December
Reconciliation of books of accounts with details furnished in GST Returns
IR maintains cash-based accounting system and the accounting records are not maintained State-wise
Reconciliation of balance sheet with the State-wise GST returns, for filing Annual Return under the GST Law, GSTIN-wise is a challenge
Responding to the notices on excessive credit availment
CAG and GST Audit
Redefining Business arrangements with PSUs/SPVs and new organizations in light of GST
Notification12/2017, Central Tax Rate- Service exemption- government entity-RVNL
Developing robust practices to pursue benefits of GST in reducing procurement costs.
Thank you