Nirav Modi Scam Explained

    1. What is the fraud about?

Two PNB employees sent unauthorised letters of undertaking (LOU), essentially Bank Guarantees to foreign branches of Indian lenders, on behalf of firms related to Nirav Modi and Gitanjali Group so that they can pay for their imports, if they don’t pay up, we will make good this payment.

   2. What’s irregular about this?

 In the normal course, when an importer goes to bank for such a guarantee, one of two things happen. Bank ask for a collateral before it gives guarantee, the collateral should be property in his name or a fixed deposit with bank. Second, bank sanctions the credit limit.

In PNB fraud case, bank has given guarantee without credit limit and collateral security. Secondly, they didn't make entry in the bank’s core banking system – the software used to support a bank’s most common transactions.

   3. Why would an importer use this method to raise money?  

There are multiple reasons. For one, he has to raise money in foreign currency to pay for goods bought abroad. Second, the cost of such foreign currency borrowings abroad is typically lower.

  

  4. What happens when the foreign bank or branch receives this    guarantee? 

     When foreign bank or branch receive guarantee, it will give a loan to the importer. That means it will deposit money either in the accounts of the supplier who’s selling goods to the importer, or in PNB’s account held with it. The tenure of this loan varies from 90 days to 5 years for capital goods.

The money used to settle the payment for imports. Then, when the term of the loan is up and the importer makes money from reselling the goods he imported, he will pay this sum to bank with interest. Bank in turn will settle with other banks.

In this case, money raised through this guarantees was not used to make payments for imports. But it was used to settle earlier loans taken. Every time, a Nirav Modi related firm ask for a bank guarantee, it was to settle an older loan taken through a previous bank guarantee. Thus amount piled upto around Rs 11,400 crore.

  5. How was this detected?

According to FIR, two junior employees of PNB had been sending these unauthorised guarantees for 7 years. Then, one of them retired. In January, when representatives of Modi firms asked for a fresh guarantee, the new PNB employee in that position asked for collateral security. On being told that this was never been asked in the past, the bank start investigating and found hundreds of guarantees relating to these firms.

Important Points:

1. A reduction in GST rate for construction items like paint, marble, cement, tiles, varnishes and digital cameras is being examined to bring it from 28% to 18% in next meeting of GST Council on 21st July 2018 chaired by Piyush Goyal for the first time.

2.The rates for 176 items including detergents, shampoo and beauty products were reduced from 28% to 18% on 15th November 2017 meeting leaving only 50 items in the highest tax bracket.

3. Reducing the rate from 28% to 18% may result in foregoing revenue of Rs 25 Billion per month. Currently government earns around Rs 60 Billion revenue from cement industry on a monthly basis.

4.For cement purchased by Real Estate players, the GST offset is allowed whereas it is for own construction or to build a factory then no offset is allowed.

5.Therefore there is a case for reduction in rates for cement to boost infrastructure in the country.

Difference between Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII)

1. FDI means when an organization of one nation makes an investment in any organization of another country. FII means where an organization of any country makes an investment in the stock market of another country.

   2. FDI is made to acquire to controlling ownership in an enterprise. FII tends to invest in the foreign financial market.

   3. FDI brings long term capital. FII brings long term as well as short term capital.

   4. FII is a way to make quick money, the entry and exit to stock market is very easy whereas the entry and exit are not easy in FDI.

   5.In FDI, there is transfer of funds, resources, technology, strategies, know-how. In FII, involves transfer of funds only.

   6. FDI results in increase in the country’s productivity. As opposed to FII that results in the increase in the country’s capital.

Section 15 of CGST Act 2017 : Value of Supply

Price Actually Paid or Payable for the Supply

i) Inclusions

a) All Taxes Other than GST (CGST, SGST, UTGST, IGST, Compensation Cess)

b) Obligations: Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both

c) Incidental Expenses Like Packing, Commission: Incidental Expenses like Packing, Commission charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.

d) Interest, Penalty etc: Interest, Penalty or late fee for delayed payment of any consideration for any supply

e) Subsidy: Subsidies directly linked to the price excluding subsidies provided by the Central Government and State Government.

ii) Exclusions

Discount of Any Kind: The value of supply shall not include any discount which is given-  

    - Before or at the time of the supply if such discount has been duly recorded in the invoice in respect of such supply and

    - After the supply has been effected, if-

i)Such Discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices and

ii)Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Who has to take Registration Under GST Compulsory?

Sec 24 of CGST Act 2017 : Compulsory Registration in Certain Cases

i) Persons making any Inter-State Taxable Supply.

ii) Casual Taxable Person making taxable supply.

iii) Person who are required to pay tax under reverse charge.

iv) Person who require to pay tax under section 9(5).

v) Non - Resident taxable persons making taxable supply.

vi) Persons who are required to deduct tax under section 51 (TDS), whether or not separately registered under this Act. 

vii) Persons who make taxable supply of goods or services or both on behalf of other taxable person whether as a agent or otherwise.

viii) Input Service Distributor (ISD), whether or not separately registered under this Act.

ix) Persons who supply goods or services or both other than supplies specified under section 9(5), through such Electronic Commerce Operator who is required to collect tax at source (TCS) under section 52.

x) Every Electronic Commerce Operator.

xi) Every person supplying Online Information and Database Access or Retrieval Services (OIDAR) from a place outside India to a person in India, other than a registered person.

xii) Such other person or class of persons as may be notified by the Government on the recommendations of the Council.

Who is Not Liable for Registration under GST?

Section 23 of CGST Act 2017 : Persons Not Liable for Registration i.e. Not a Taxable Person

The following persons shall not be liable to registration

a) Any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act (IGST Act).

b) An Agriculturist, to the extent of supply of produce out of cultivation of land.

c) The Government may, on the recommendation of the GST Council, by notifications, specify the category of person who may be exempted from obtaining registration under this Act.

Agriculturist : As per Section 2(7) of CGST Act 2017, agriculturist means an Individual or a Hindu Undivided Family (HUF) who undertakes cultivation of land-
a) By own labour, or
b) By the labour of family, or
c) By servants on wages payable in cash or kind or by third labour under personal supervision or the personal supervision of any member of the family.

The Most Incredible Article About GST you'll ever Read

GST Report Card: Understanding the revenue performance of Goods and Services Tax

After one fiscal year into the implementation of the GST, it is worth asking how it has performed in terms of revenue generation, both for the country and for individual states. And, here, the news, based on analysing nine full months of data, is encouraging. Three important and new points stand out.

Aggregate revenues are highly buoyant: In this year’s Economic Survey, we had argued that confusion reigns in understanding GST performance because of focusing on one or more of the bewildering sub-categories of the GST (CGST, SGST, IGST, and the cess.) To assess how the new system is doing, we need to understand overall GST performance, both actual collections and collections, stripping out some of the clearly transitional factors (call it “steady state” performance).

Based on the first nine months of data (and including April 2018 collections in those of March 2018 as they should be), revenue collections for nine months were `8.2 lakh crore (11 lakh crore annualised), yielding revenue growth of 11.9%, compared with the relevant pre-GST numbers. The implied tax buoyancy (responsiveness of tax growth to nominal GDP growth) is 1.2, which is high by the historical standards for indirect taxes.
But, another measure (more indicative of the medium run) of revenue performance is to strip the actual collections of transitional factors. Some of these will boost future performance (for example, a large overhang of CGST credit has kept last year’s revenues down), and some might depress them (uncleared export and other pending refunds have inflated last year’s revenues).

It is difficult to precisely quantify these factors but rough estimates yield an annual (steady-state) aggregate GST revenue growth that is likely to be greater than the actual collections growth of 11.9%.  A moment of reflection indicates that that these revenue growth and buoyancy estimates are in fact quite surprising considering three significant headwinds that the GST faced: implementation challenges in the first year of a massively disruptive tax change; decelerating growth in the economy (both nominal and real), which tends to dampen revenue growth; and finally, the large GST rate reductions that were effected throughout the first nine months, but, especially after November 2017, which should also have lowered revenue collections.

“True” compensation requirements are minimal: Recall that in the period leading up to the Constitutional Amendment bill in 2016, the need for compensating the losing states animated discussions and created deep anxieties. How has the GST fared on this score?
The government itself produces estimates which show that compensation, although compensated for from within the GST, has been substantial. But, compensation from a legal perspective is quite different from compensation from an economic perspective. The true measure of compensation is one that arises after all the revenues (from the unsettled IGST and the cess) are first allocated to the individual states. The fact that the unsettled IGST and the compensation cess are in a centralised kitty does not mean that they do not accrue to the Centre and individual states. We undertook such a notional analysis making a few assumptions.

Once all the GST taxes are allocated to individual states we find that very few states should require compensation and that the sum of all these compensation amounts is between 5000 and 10,000 crore. Again, this low compensation requirement is surprising given the early anxieties; but, it was something that was predicted in the Report on the Revenue Neutral Rate that one of us had written for the government in December 2015. What it shows is that, even in the first year, nearly all the states have seen their revenues grow by at least 14% (and this against a background of decelerating growth and reductions in rates).

Another implication of this new finding is that on current trends, and given likely improvements in compliance with the introduction of e-way bills and invoice matching, nearly all the states will register revenue growth in excess of the 14% guaranteed in the years ahead. The Centre’s commitment to compensate the states for 5 years might be rendered largely moot, and quite soon. If so, scope will be created for revisiting the structure of GST rates and cesses.

GST is boosting revenues of consuming states: One of the factors contributing to the political acceptability of the GST was the fact that many of the opposition states (for example, UP, West Bengal and Kerala) were net consuming states that stood to gain from the GST or so they thought. Has that expectation been met? Evidence from the first nine months suggests that it has, with a few exceptions. How do we know this? Once we correctly attribute all the GST revenues to the states, we can compare the share of the different states in the GST revenues compared with their share in taxes in the pre-GST regime.

This analysis highlights a few patterns. There are very few states where there is a significant decline in the post-GST share compared to the pre-GST share, consistent with the finding that “true” compensation requirements are small. Many of the net consuming states, such as nearly all the North Eastern states as well as UP, Rajasthan, MP, Delhi, Kerala, and West Bengal have indeed increased their post-GST shares. States that have seen a small decline in their shares are states that had special tax regimes in terms of incentives or in agriculture. The GST appears, therefore, to be, desirably, a force for fiscal convergence.

After the first nine months of implementation, there is, of course, a full agenda for future reform: further simplifying the rate structure, widening the base to include currently exempted sectors, and streamlining procedures for filing and refunds.  But, on the revenue front, performance has been very encouraging. Aggregate GST revenues have performed remarkably buoyantly (despite three headwinds), there has been a desirable and equitable shift in revenues towards the consuming states, and this has happened without threatening the revenues of the producing states reflected in the small compensation requirement.  From a revenue perspective, and especially considering the headwinds, the GST has been a positive development: overall, for the states, and especially for most of the less developed, consuming states.

Source : https://www.financialexpress.com/opinion/gst-report-card-understanding-the-revenue-performance-of-goods-and-services-tax/1212560/

GST returns filing: Compliance optimal now at 70%, says GST Network’s chief executive

With close to 70% of the 1.1 crore businesses registered for the goods and services tax (GST) filing the returns by the deadline, the compliance level is now satisfactory, GST Network’s chief executive officer Prakash Kumar told FE, adding that the vexed issue of delays in refunds to exporters has also been fully resolved for those pay integrated GST and seek to get it back.

In the initial months since GST’s July 2017 launch, just a little over half of the registered taxpayers used to file returns (and pay tax) by the deadline (the 20th of the next month). While overall taxpayer base has expanded over months from around 64 lakh at the start, the number of monthly return-filers also has risen. According to Kumar, almost all taxpayers who have a tax liability are now filing the returns. “These numbers are in line with what we had in the VAT regime. Even in the case of income tax returns, there are 25 crore PANs but only over 6 crore people who actually file the returns,” he added.

Among exporters, those who pay integrated GST (IGST) and file refund applications with “the correct details” were getting the refunds in four to five working days, he added. The prospect of prompt refunds, he said, encouraged exporters to use the fully automated IGST route rather than the letter of undertaking route, which doesn’t involve tax payment but only refund of input tax credits. Exporters are eligible for refund of tax content in export goods as such such sales overseas are zero-rated.

“Refund process for claims filed since February has largely been smooth. We have been clearing refunds everyday and it has become relatively error-free,” Kumar said. Exporters have to declare the identical details to the customs department as well as to the IT backbone for GST refunds but failure to match details in earlier days had led to refunds getting stuck.

However, Kumar added that the input tax credit (ITC) route for exporters still suffered from delays as it was not completely automated and tax officials were required to verify details before sanctioning refunds. Apart from exporters, ITC refunds are also claimed by businesses supplying GST-exempt goods and those dealing in goods with inverted duty structure.

“We had the software for even automated ITC refund but it would work only with GSTR-2 and 3 forms, which have remained suspended. Since there is no validation with GSTR-2 and 3, the time-consuming task of manual interference is required,” he said.
The Central Board of Indirect Taxes and Customs (CBIC) has had to undertake special refund drives — one in March and the other earlier this month — to ensure that refunds are cleared with manual intervention and checks. At the beginning of the second such drive, the government had said that Rs 14,000 crore of refund claims were stuck.

GSTN will start work on the new simplified return-filing system after the tax department moots the final draft (software modules related to appeals, investigation and assessment are currently being developed). Detailed returns are crucial for invoices-matching, which is integral to check tax evasion.

Source: https://www.financialexpress.com/economy/compliance-optimal-now-at-70-says-gst-network-ceo-prakash-kumar/1212816/

Who has to take registration under GST?

TAXABLE PERSON

Section 22 of CGST Act 2017 : Persons liable for registration

1. Every supplier shall be liable to be registration under this Act in the State or Union Territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rs 20 Lakhs.

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds Rs 10 Lakhs.

2. Every person who, on the day immediately preceding the appointed day, is registered or holds a licence under an existing law, shall be liable to be registered under this Act with effect from the appointed day.

3. Where a business carried on by a taxable person registered under this Act is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession.

4. Notwithstanding anything contained in sub-sections (1) and (3), in a case of transfer pursuant to sanction of a scheme or an arrangement for amalgamation or, as the case may be, demerger of two or more companies pursuant to an order of a High Court, Tribunal or otherwise, the transferee shall be liable to be registered, with effect from the date on which Registrar of Companies (ROC) issues a certificate of incorporation giving effect to such order of the High Court or Tribunal.

Government Website of GST - www.gst.gov.in

SBI report: States set to reap Rs 37,426-cr bonanza from GST, oil revenues

1. States are estimated to gain Rs 37,426 crore more in the current      fiscal following improved collections from the Goods and Services Tax (GST) and revenue due to increase in crude prices, a report by the Economic Research Division of State Bank of India said on Friday.

2. The report, authored by Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India, is based on the budget      documents of 24 States (not including North-Eastern States) for 2018-19. 

3. Analysis showed that out of 24 States, revenues of 16 States have increased over and above of 14 per cent baseline/mutually accepted minimum tax growth rate between Centre and States, post GST implementation below which States have to be compensated. “We found that on an aggregate, States have gained by Rs 18,698 crore in revenue in 2017-18. 

4. This report has come at a time when the new indirect tax regime      will compete one year in a fortnight. This new system,                      subsuming 17 types of indirect taxes and and 23 types of cess of Centre and States, was introduced on July 1.” 

5. The report further said that if gain in revenue figure is combined       Rs 18,728 crore which States have gained due to increase in           crude oil, the overall figure of Rs 37,426 crore will be                     sufficient  to neutralise the revenue forgone of Rs 34,627             crore if States impose VAT only on base price. “If this was so the States could still cut the diesel prices Rs 3.75/litre and petrol  prices by Rs 5.75/litre without impacting fiscal health of  the states, the report said. 

6.  The Centre levies excise duty at specific rate (Rs 19.48 a litre           on  petrol and Rs 15.33 a litre on diesel) while States impose           VAT/Sales Tax at ad valorem (percentage of value), ranging from 6 per cent to nearly 40 per cent. Now, if international prices of crude go up, base price for levying VAT/Sales Tax also goes up, benefiting the States most.

7.  The report expects that while there is a need to optimise tax revenues for funding social security programmes, there is also a  need to insulate consumers from adverse price shocks.“From  that perspective, the States could come forward and rationalise their VAT rates. After all, oil prices in FY19 declining much below $70 look uncertain as of now,” it suggested.

Link of SBI Report publish in The Hindu BusinessLine                            

[https://www.thehindubusinessline.com/economy/sbi-report-states-set-to-reap-37426-cr-bonanza-from-gst-oil-revenues/article24175142.ece]

Section 13 of IGST Act 2017 : Place of Supply of Services where location of Supplier or location of Recipient is Outside India

a) Residuary Rule 
   i) The Place of Supply shall be the location of the recipient of services. Provided that where the location of the recipient of services is NOT available in the ordinary course of business, the place of supply shall be the location of the supplier of services.


b) Performance based Services

i) Services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services.

ii) Services related to an individual represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services.
Place of Supply shall be the location where the services are actually performed.

Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services. Example - Through Team Viewer etc.

Provided further that nothing contained in this clause shall apply in the case of services supplied in respect, of goods which are temporarily imported into India for repairs and are exported after repairs without being put to any other use in India, than that which is required for such repairs.


c) Immovable Property Linked Services







In case of services supplied directly in relation to an immovable property, including services supplied in this regard by experts and estate agents, supply of accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or coordination of construction work, including that of architects or interior decorators, - Place of Supply shall be the place where the immovable property is located or intended to be located.

d) Event Admission and Event Linked Services

 In case of services supplied by way of admission to, or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organisation.
Place of Supply shall be the place where the event is actually held. 

e) Multiple Location 
    Where any services referred to in (b), (c), (d) is supplied at more than one location, including a location in the taxable territory.
Place of Supply shall be the location in the taxable territory.

f) Multiple State
Where the services referred to in (b), (c), (d) are supplied in more than one State or U.T. 
Place of Supply of such services shall be taken as being in each of the respective such supplies specific to each of the respective States or U.T. and the value of such supplies specific to each State or U.T. shall be in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.

g) Specified Services
   i) Services supplied by a banking company, or a financial institution, or a non-banking financial company, to Account Holders ;
   ii) Intermediary Services ;
   iii) Services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels upto a period of one month.
Place of Supply shall be the location of the supplier of services.

h) Transportation of Goods
      








In case of services of transportation of goods, other than by way of mail or courier.
Place of Supply shall be the place of destination of such goods.

i) Passenger Transportation Service

In respect of passenger transportation services 
Place of Supply shall be the place where the passenger embarks on the conveyance for a continuous journey.

i) On Board Services

In case of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board.
Place of Supply shall be the first scheduled point of departure of that conveyance for the journey.

j) Online Information and Database Access or Retrieval Services (OIDAR)
 

In case of OIDAR services, Place of Supply shall be the location of the recipient of services.

Explanation - For the purpose of (j), person receiving such services shall be deemed to be located in the taxable territory, if any two of the following non - contradictory conditions are satisfied, namely - 

i) The location of address presented by the recipient of services through internet is in the taxable territory.

ii) The credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment  has been issued in the taxable territory.

iii) The billing address of the recipient of services is in the taxable territory.

iv) The internet protocol address of the device in which the account used for payment is maintained is in the taxable territory.

v) The bank of the recipient of services in which account used for payment is maintained is in the taxable territory.

vi) The country code of the Subscriber Identity Module Card (SIM Card) used by the recipient of services in of taxable territory.

vii) The location of the fixed landline through which the service is received by the recipient is in the taxable territory. 

Income Tax Return Forms for Assessment Year 2018-19

Income Tax Return Forms for Assessment Year 2018-19

1.     ITR-1 [For Individuals being a RESIDENT other than Not Ordinarily Resident having Income from Salaries, ONE House Property, Other Sources and having TOTAL INCOME upto Rs 50 Lakhs.]

2.     ITR-2 [For Individuals and HUFs NOT having income from profits and gains of business or profession.]

3.     ITR -3 [For Individuals and HUFs having income from profits and gains of business or profession.]

4.     ITR -4 [For presumptive income from Business & Profession.]

5.     ITR-5 [For persons OTHER THAN Individual, HUF, Company and Person filing Form ITR-7.]

6.     ITR-6 [For Companies other than companies claiming exemption under section 11.]

7.     ITR-7 [For persons including companies required to furnish return under section 139 (4A) or 1394(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F).]