Query-1 :
If we transfer material from our Allahabad Unit to Noida Depot should we charge tax on such transfer ?
Reply :
Before discussing the issue of taxability , the related law is to be discussed .
• It is pertinent to note that Schedule-I of the SGST / CGST Act , 2017 embodies that –
“2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25 , when made in the course or furtherance of business, shall be treated as supply even if made without consideration .
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.”
• Explanation to Section 15 embodies following provisions :
“Explanation.- For the purposes of this Act,-
(a) persons shall be deemed to be “related persons’’ if –
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognized partners in business;
(iii)such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty five per cent or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls
the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons.
(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.”
• It is also pertinent to note that clause (18) of section 2 of the SGST/CGST Act , 2017 embodies following provisions :
“(18) “business vertical” means a distinguishable component of an enterprise that is engaged in the supply of individual goods or services or a group of related goods or services which is subject to risks and returns that are different from those of the other business verticals.
Explanation.––For the purposes of this clause, factors that should be considered in determining whether goods or services are related include––
(a) the nature of the goods or services;
(b) the nature of the production processes;
(c) the type or class of customers for the goods or services;
(d) the methods used to distribute the goods or supply of services; and
(e) the nature of regulatory environment, (wherever applicable), including, banking, insurance, or public utilities;”
• It is significant to note that sub-section (4) and sub-section (5) of section 25 embody following provisions :
“(4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act:
(5) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act. “
From the aforesaid legal provisions it is quite evident that if any supply is made by a taxable person to the related or distinct person even without consideration then it will be deemed to be supply and shall attract taxation under the GST regime .
The related persons are clarified by the Explanation to section 15 and it is quite evident that any branch or depot of any company or any firm cannot be a related person because any company or a partnership firm in itself is a legal person and their branches separately do not constitute different legal persons . Any suit can be instituted against the incorporated company and not against its branches and the same applies to the partnership firm . Thus any depot or branch of any company or partnership firm cannot be termed as related persons as defined in Explanation to section 15 of the aforesaid Acts, simply on the logic that the branches and the head office cannot be treated as different legal persons because for being related persons there must be at least two persons whether natural or legal .
It is also pertinent to note that if any branch is not vertical then it cannot be termed as distinct person . And by going through the definition of “Business vertical ” as provided in section 2(18) it is clear that “business vertical” shall have following ingredients –
(i) it is a distinguishable component of the business entity ,
(ii) it is engaged in the supply of individual goods or services ,or it is engaged in the supply of group of goods or services ;
(iii) such supply is subject to risks and returns which are different from other verticals of this business entity .
Thus various units of an enterprise or its branches if they satisfy the aforesaid ingredients shall form the business verticals of that entity . It is pertinent to note that accounting system , bank accounts should also be different for any entity to qualify for being a Vertical .
Now there is no room for any doubt that any branch of any business entity which is located in a different State shall have to take registration in that State and as such it will become a vertical and any transfers to such branch ( which is located in a different State ) shall attract liability of IGST on each transfers .
However if within the State any branch or depot which is not an independent segment of the main entity , whose accounting system and Bank accounts are not different , whose risk factors and returns are not different , then such a branch shall not qualify to be a Business Vertical as envisaged under section 2(18) and as required under section 25 and any transfer by the main branch to such branch or depot will not be a deemed supply as envisaged in Schedule-I of the aforesaid Acts and as such shall not attract the liability of State tax and Central tax ( SGST and CGST )
In such scenario a intra-State transfer to the branches or depot ( not being verticals ), which is otherwise than a supply of the goods , shall be executed on delivery challan as envisaged by Rule-55 of the CGST Rules , 2017 ( exactly the same provision is there in SGST Rules, 2017 ) and due declaration of such challan shall be made in the e-way Bill ( as and when it is envisaged )
Query-2 :
If we transfer material from Allahabad Unit to our Noida Unit , should we charge GST on the are GST Number . In this case Noida Unit purchases material from Allahabad Unit and further work on that material add some component and then supply to the customer ?
Reply :
The reply has already been given in reply to first query .
Query-3 :
Earlier we maintained RG-1 Register to maintain records of finished goods and Part-1 register to maintain stock of raw materials and other excisable material . What is the new format to maintain record ?
Reply :
No new production registers have been envisaged in GST regime as yet and you can continue to maintain RG-1 etc. as you have been maintaining .
Query-4 :
Is it mandatory to take GST by transporter if their business not exceed Rs. 20.00 lacs?
Reply :
If any Registered person wishes to transport goods through GTA ( Goods transport agency) then liability of reverse charge shall accrue as per the Notification No. Ka.Ni.-2-844/XI-9(47). . . . . . . . . . Dated 30 June , 2017 and instead of the GTA , such registered person shall have to discharge the liability of tax and shall have to deposit the requisite tax . It is pertinent to note that the GST rate on transportation of goods through GTA is 5% and ITC is available on such services to the recipients.
It is also pertinent to note that no monetary limit has been prescribed either in section 9(3) of the CGST/SGSCT Act , 2017 or in the aforesaid Notification .
Query-5 :
If we send some material to job-work ( inter-State / intra-State ) then GST registration is mandatory if the business exceed Rs. 20.00 Lakh .? What is the new format when we send any material for job work.
Reply :
Registration and Job-work are two different concepts . Registration is to be taken if the conditions as envisaged under section 22 and section 24 exist . For job-work the goods shall be sent on delivery challan as envisaged in Rule-55 of the CGST Rules, 2017 ( exactly the same rules are embodied in SGST Rules, 2017 )
Query-6:
If GST registration is mandatory then they charge GST in their invoice ?
Reply :
No unregistered person can charge GST . To charge GST the concerned person shall have to be registered .
The PEN TALKS 