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