Understanding Goods and Services Tax - II with Dr. Anita G. Kadapatti

Goods and Sevices Tax-II Dr. Anita G. Kadapatti

Syllabus Unit 1: GST Rates (10 Hours): Zero rating, Zero rating of exemptions, Exemptions and lower rate of tax for certain items such as food and healthcare, Abatements (i.e. deductions), GST structure rates. Unit II: Valuations under GST (15 Hours): Introduction to valuation under GST, Meaning and types of considerations. a. Consideration received through money b. Consideration not received in money c. Consideration received fully in money Valuation rules for supply of goods and services: a. General valuation rules b. Special valuation rules Other cases of valuation of supply, Imported services, Imported goods. Valuation for discount, Transaction value: Meaning and conditions, inclusive of transaction value, Exclusive discount excluded from transaction value. Methods of valuation, Computed value method, Residual value method, Problems on GST. Unit III: Composition Scheme (15 Hours): Meaning, Eligibility for Composition Scheme, Tax Rate Applicable, Calculation of Tax Liability under this scheme, Advantages and Disadvantages. Unit IV: Payment Process in GST ( 15 Hours): Features of payment process, Methods of payment in GST i. Payment by tax payers by interest banking through authorized banks ii. Over Counter payment through NEFT (RTGS) from any banks. Unit V: E-way Bill (10 Hours) : Meaning, threshold limit for Generation of E-way Bill, Calculation of Consignment Value, Form E-Way Bill Person Responsible for issuing E-Way Bill

Unit I: GST Rates Introduction: What is the need for Zero Rating? As per section 2(47) of the CGST Act, 2017, a supply is said to be exempt, when it attracts nil rate of duty or is specifically exempted by a notification or kept out of the purview of tax (i.e. a non-GST supply). But if a goods or service is exempted from payment of tax, it cannot be said that it is zero rated. The reason is not hard to find. The inputs and input services which go into the making of the goods or provision of services has already suffered tax and only the final product is exempted. Moreover, when the output is exempted, tax laws do not allow availment/utilisation of credit on the inputs and input services used for supply of the exempted output. Thus, in a true sense the entire supply is not zero rated. Though the output suffers no tax, the inputs and input services have suffered tax and since availment of tax credit on input side is not permitted, it becomes a cost for the supplier. The concept of zero rating of supplies aims to correct this anomaly.

What is Zero Rating By zero rating it is meant that the entire value chain of the supply is exempt from tax. This means that in case of zero rating, not only is the output exempt from payment of tax, there is no bar on taking/availing credit of taxes paid on the input side for making/providing the output supply. Such an approach would in true sense make the goods or services zero rated. All supplies need not be zero-rated. As per the GST Law exports are meant to be zero rated the zero rating principle is applied in letter and spirit for exports and supplies to SEZ. The relevant provisions are contained in Section 16(1) of the IGST Act, 2017, which states that zero rated supply means any of the following supplies of goods or services or both, namely: a) export of goods or services or both; or b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Goods and Services Tax on food services in India can be 5%, 12% or 18% depending on a variety of factors including but not limited to type of establishment and location of restaurant/food service provider. The implementation of GST on food services replaced the earlier VAT and service tax regime, however, the service charge which is implemented by restaurants is separate from GST. It is notable that alcoholic beverages still attract VAT, which is a state level tax, therefore restaurants serving both food and alcoholic beverages will feature separate taxes with GST being applicable to food and non-alcoholic beverages while VAT will be charged on alcoholic beverages served. Apart from food services, GST on food is also applicable to food items purchased by the common man which currently feature rates ranging from nil to 18% GST. In the following sections, we will discuss the key rates applicable to GST on food services and products.

GST on Food Services The following are the key rates applicable to GST on food services*: 5% GST on food services provided by restaurants (both air-conditioned and non a/c). 5% GST on restaurant services including room service and takeaway provided by restaurants located within a hotel featuring room tariff less than Rs. 7,500. 5% GST on any food/drink (non-alcoholic) served at cafeteria/canteen/mess operating on contract basis in office, industrial unit, school, college, hostel, etc. 5% GST on meals/food services provided by Indian Railways/IRCTC or their licensees both onboard trains and on platforms. 18% GST on restaurant services including room service and takeaway provided by restaurants located within a hotel featuring room tariff over Rs. 7,500. 18% GST on food services including delivery of food provided by a restaurant/food joint located within premises of a club, guest house, etc. 18% GST applicable to all outdoor catering services provided.

GST on Food Items The following are the key GST rates applicable to some common food items*: Nil GST on fresh and chilled vegetables including potatoes, onions, garlic, leek etc. NIL GST on non-container packed dried leguminous vegetables(shelled) whether skinned/split or not Nil GST on fresh grapes, fresh/dried coconut, fresh/dried bananas/plantain, fresh apples, fresh pears, etc. Nil GST on meat (not in container whether fresh or chilled) Nil GST on birds eggs in shell (fresh/cooked/preserved) Nil GST on unsweetened milk (pasteurised/unpasteurised), cream, etc. Nil GST on container packed vegetables (uncooked/steamed/boiled) Nil GST on vegetables preserved using brine/other means unsuitable for immediate human consumption 5% GST on meat packed in container bearing registered trademark/brand name 5% GST on birds eggs not in shell/egg yolks boiled or cooked by steaming 5% GST on dried leguminous vegetables packed in container bearing registered brand name (skinned/split or not) 5% GST on ginger (excluding fresh ginger), turmeric (excluding fresh turmeric), thyme, curry leaves, bay leaves, etc. 5% GST on food such as meal/powder of dried leguminous vegetables 12% GST on vegetables, fruits, nuts and edible plant parts preserved using sugar 12% GST on vegetables, fruits, nuts and edible plant parts that are preserved/prepared using vinegar/acetic acid. 18% GST on food preparations such as those prepared using flour, malt extract, etc. containing cocoa less than 40% of total weight. 18% GST on chocolate and other cocoa products *The list is indicative and rates are subject to periodic change. For detailed list of GST rates on various food products, use Paisabazaar s GST Rates and HSN/SAC Code Finder.

Health services India is the largest producer for generics. Country s Pharmaceutical Industry is currently the 3rdlargest in the world in terms of volume and ranks 14thin terms of value. As the population continues to grow, the need for better Healthcare Services is also growing. Currently, 5 percent of the country s GDP is spent on the Healthcare sector. Most healthcare expenses are paid out of pocket by patients and their families, rather than by the Government. However, the Government of India has slightly minimized the burden on medical expenditure by way of exempting such expenses from levy of Taxes. In the service tax regime, the health care services were kept out of preview of Service Tax. Now the same has been exempted in the GST regime. But what is the meaning of health care services on which exemption is granted, we have to understand the nature of services presently exempt under GST. The point of discussion on GST on health care services will be incomplete if we do not talk in totality on health care services i.e. taxability of consultation fees of doctors, Room rent in Hospital, Medicines, Medical and clinical tests, Services of ambulance, Blood Banks, treatment of clinical waste etc. Also, we would like to discuss about the taxability of other income of doctors in addition to income from practicing as a doctor. The GST impact on various issues are as under

Exemptions notification on Health Care services under GST: Notification No. 9/2017- Integrated Tax (Rate) dated 28.06.2017 has exempted health care services vide entry no 77 which is reproduced as under: Healthcare Services by a Clinical Establishment or Authorized Medical Practitioner or Para medics are exempt from Goods and services tax For understanding the exemption, we need to understand below important terms used in the said notification. These terms are also defined/clarified in the explanations given in the notification as: 1. Health care services 2. Clinical establishment 3. Authorized Medical Practitioner 4. Paramedics

GST Tax Rates on some common items Tax Rates 0.25% Products Cut and semi-polished stones are included under this tax slab. Household necessities such as edible oil, sugar, spices, tea, and coffee (except instant) are included. Coal, Mishti/Mithai (Indian Sweets) and Life-saving drugs are also covered under this GST slab. This includes computers and processed food Hair oil, toothpaste and soaps, capital goods and industrial intermediaries are covered in this slab. Luxury items such as small cars, consumer durables like AC and Refrigerators, premium cars, cigarettes and aerated drinks, High-end motorcycles are included here. 5% 12% 18% 28%

Exemptions notification on Health Care services under GST: Notification No. 9/2017- Integrated Tax (Rate) dated 28.06.2017 has exempted health care services vide entry no 77 which is reproduced as under: Healthcare Services by a Clinical Establishment or Authorized Medical Practitioner or Para medics are exempt from Goods and services tax For understanding the exemption, we need to understand below important terms used in the said notification. These terms are also defined/clarified in the explanations given in the notification as: 1. Health care services 2. Clinical establishment 3. Authorized Medical Practitioner 4. Paramedics

1. Health care services : The said notification defines Health Care services as any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery,except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or Thus, all treatments excluding cosmetic treatments have been covered by this definition. As per Oxford Dictionary, Health Care means the maintenance and improvement of physical and mental Health, especially through the provision of medical services.

2. Clinical establishment As per the said notification, meaning of clinical establishment is: Clinical establishment means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases;

Section 2(e) of the Clinical Establishments (Registration and Regulation) Rules, 2010 defines clinical establishment as: (i) a hospital, maternity home, nursing home, dispensary, clinic, sanatorium or an institution by whatever name called that offers services, facilities requiring diagnosis, treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicine established and administered or maintained by any person or body of persons, whether incorporated or not; or (ii) a place established as an independent entity or part of an establishment referred to in sub clause (i), in connection with the diagnosis or treatment of diseases where pathological, bacteriological, genetic, radio logical, chemical, biological investigations or other diagnostic or Investigative services with the aid of laboratory or other medical equipment, are usually carried on, established and administered or maintained by any person or body of persons, whether Incorporated or not, and shall include a clinical establishment owned, controlled or managed by the : The Government or a department of the Government; A trust, whether public or private; A corporation (including a society) registered under a Central, Provincial or State Act, whether or not owned by the Government; A local authority; and A single doctor, But does not include the clinical establishments owned, controlled or managed by the Armed Forces constituted under the Army Act, 1950, the Air Force Act, 1950 and the Navy Act, 1957.

Meaning of various categories of Clinical Establishment as used in the above definition:- (i) Hospital: As per WHO, hospital means Health care institutions that have an organized medical and other professional staff, and inpatient facilities, and deliver medical, nursing and related services 24 X 7 hours. Hospitals offer a varying range of acute, convalescent and terminal care using diagnostic and curative services in response to acute and chronic conditions arising from diseases as well as injuries and genetic anomalies. (ii) Maternity Home: Means any premises used or intended to be used for reception of pregnant women or of women in labour or immediately after child birth (iii) Nursing home: Means any premises used or intended to be used for reception of persons suffering from any sickness, injury or infirmity and providing of treatment and nursing for them and include a maternity home. A nursing home is a small private establishment providing healthcare services with accommodation. (iv) Clinic: A medical facility run by a single or group of physicians or health practitioners smaller than a hospital. Clinics generally provide only outpatient services and can have an observation bed for short (v) Sanatorium: A sanatorium is an institution that provides medical treatment and rest, often in a healthy climate, for people who have been ill for a long time for chronic disease such as tuberculosis etc.

3. Authorized medical professional: As per the said notification, authorized medical professional means: A Medical Practitioner registered with any of the councils of the recognized system of medicines established or recognized by law in India and includes a medical professional having the requisite qualification to practice in any recognized system of medicines in India as per any law for the time being in force. The definition of authorized medical professional brings out the following prerequisites: Practitioner should be registered with any medical council; Practitioner should have requisite qualification to practice; Such qualification should be of any system of medicine recognized in India. Recognized medical system in India are : Allopathic , Ayurveda ,Siddha, Unani, Homeopathy, Yoga & Naturopathy. Accordingly, qualified doctors holding recognized degrees in any of the above systems are covered in this entry if they are registered with their respective medical councils. To sum up, any person as an individual or as part of clinic or hospital giving any kind of medical treatment through a duly qualified doctor empanelled with a recognized medical council, excluding hair transplant or cosmetic surgery is exempted from payment of GST.

4. Paramedics: These are trained healthcare professionals such as nursing staff, physiotherapists, technicians, lab assistants etc. They are accountable for their services when provided independently and therefore exempt. Services by them in a clinical establishment would be in the capacity of employee and not provided in independent capacity and will thus be considered as services by such clinical establishment. Similarly, services of assisting an authorized medical professional would be considered as services by such authorized medical professional only.

Other Exemption under the above notification No 9/2017 (i) Services provided by veterinary doctors: (Entry No 48) : This entry exempts services in relation to health of animals and birds from GST. This entry does not have any prerequisite with regard to qualification, recognition or affiliation. (ii) Blood Banks: (Entry No 76) : Cord Blood Banks include other Blood Banks and thus the services provided by Cord/Other Blood Bank for preservation of stem cells or any other services for such preservation are covered in Entry No: 76 and are thus Exempt from GST. (iii) Ambulance Services: (Entry No 77) : Providing of ambulance services are also exempt from the ambit of GST. GST or service tax is not applicable on ambulance services provided to Government under National Health Mission MF(DR) (TRU) circular No. 51/25/2018-GST dated 31-7-2018 in respect of GST and CBI&C circular No. 210/2/2018-ST dated 30-7-2018 for service tax. (iv) Medical Tests: (Entry No 77) :Medical Test (either done in own Clinical establishment or done in the separate clinical establishment setup specially for such test) are covered in Entry No 77 and are thus Exempt. any GST. (v) Bio Medical Waste: (Entry No 78):This entry excludes unconditionally, services provided by operators of the common bio-medical waste treatment facility to a clinical establishment by way of treatment or disposal of bio- medical waste or the processes incidental thereto. Thus, services provided to hospitals by way of treatment and disposal of bio medical waste is not taxable under GST under the strength of this entry (vi) Room rent for patient (Entry No 77 ) : Rent charged for rooms for patients are not taxable under GST. However, if the hospital is renting space for a chemist shop or providing rooms on rent for care takers, then that would attract GST. (vii) Services provided by hospitals under health care service are naturally bundled services and exempted under GST Act

Health care Services which are not exempted under GST : (i) Sale of Medicines is Taxable: Medicines are taxable under GST. Although most of the medicines are taxed at 5% under GST laws but few are also taxed at 12% and some at 18%. We need to identify the HSN of the medicines / consumables / injectables and implants to ascertain the rate of tax applicable to them. If medicines etc. are purchased for resale then ITC is available and sale would attract tax. (ii) In an establishment , tests done from outside accredited laboratory and giving consultancy is not clinical establishment and hence, exemption is not available. (J C Genetic India P Ltd. In re (2019) 73 GST 272 = 104 taxmann.com 88 (AAR-MP),) (iii) Food supply to attendants or visitors or out patients on chargeable basis is not exempted . Further, tax is payable by supplier of foods if supply of food is outsourced CBI&C circular No. 32/06/2018-GST dated 12-2-2018. (iv) Tax payable if hospital gives part of premises on rent GST is leviable on rent paid/payable for premises, given on lease by hospital Tathagat Health Care Centre LLP,In re [2018] 93 taxmann.com 419 (AAR-Karnataka) (v) Tax ability of other Income of Doctors : We shall also discuss about the other income of doctors in addition to the income from the medical profession and also discuss about the necessity of the registration in GST. GST is applicable on amounts paid to senior doctors by hospitals.

CONCLUSION: Health care being important and many times life saving, most of the health care services are exempt from GST. However, the Medicines, Consumables, and provision of services by plastic surgeons (when cosmetic in nature) are not exempt. The artificial limb which is essential for restoration of life and implants as mentioned above are also taxable. Therefore, we can say that medical services are mostly exempt but not fully exempt.

Exempted Goods Food Fruits and vegetables, cereals, meat and fish, potatoes and other edible tubers and roots, tender coconut, tea leaves, jaggery, coffee beans, ginger, turmeric, milk, curd, etc. Raw materials Silk waste, raw silk, raw jute fibre, unprocessed wool, handloom fabrics, cotton for khadi yarn, khadi, charcoal, and firewood. Tools/Instruments Shovels, spades, agricultural tools, handmade musical instruments, hearing aids, and tools used by physically challenged individuals. Miscellaneous Contraceptives, semen, human blood, vaccines, organic manure, earthen pots, beehives, live animals (except horses), maps, books, journals, newspapers, non-judicial stamps, kites, and pooja props. Note: The above list of exempted goods is listed under GST rules but may be subject to change as the council suggests. Also, the above mentioned are examples of a few exempted goods, and more goods qualify for Nil GST.

Exempted Services All the services related to agriculture including harvesting, cultivation, supply, packaging, warehouse, renting or leasing of machinery, etc. are exempted from GST. However, this does not include the rearing of horses. Transportation of individuals via public transport, metered cabs, auto-rickshaws, metro, etc. Transport of agriculture produce and transportation of goods outside of India Transportation of goods where the total amount of charges is less than Rs 1500 Government and foreign diplomatic services Services provided by RBI or any foreign diplomatic mission in India are also exempt from GST Services provided to diplomats including the United Nations Certain healthcare and educational services are also exempt from GST such as mid-day meal catering services, services provided by a Vet, clinic, or paramedics. Services by ambulances and charities are also included in the list

Some of the other exemptions of services under GST Include: Services provided by tour guides to foreign tourist. Library services Services for conducting religious ceremonies Distribution of electricity Services by authorised sports organizations

Revised Hospital Room Rent with GST Tax Slabs Hospital Room Rent Applicable GST Rates Below Rs.1000 0% Rs.1000 to Rs.2499 12% Rs.2500 to Rs.7499 18% Above Rs.7500 28%

The final GST rates have been disclosed and have included numerous categories from the wide range of healthcare amenities. Tax Rate Healthcare Commodities 0% Contraceptives, Human Blood 5% Medicines, Animal or Human Blood Vaccines 12% Ayurvedic Medicines, Medicinal Grade Hydrogen Peroxide, Anaesthetics, Potassium Iodate, Iodine, Steam, Glands And Other Organs For Organo- Therapeutic Uses, Ayurvedic, Unani, Homoeopathic Siddha Or Biochemical Systems Medicaments, Sterile Suture 18% Tampons, Disinfectants

GST Rates on Services The government implied GST on services, follows a similar 4-tier tax structure as of goods. The GST rates of 5%, 12%, 18% and 28% on goods, were affecting consumers with several pros and cons on services. However, services such as healthcare and educational services were excluded from GST. The passed GST rates slabs from the GST council consists of NIL, 5%, 12%, 18%, 28% rates on different services. Some of them are mentioned below under different categories. Nil GST Chargeable services offered on Basic Savings Bank Deposit (BSBD) account opened under the PMJDY (Pradhan Mantri Jan Dhan Yojana) Hotel accommodation for transaction value per unit per day being Rs. 1000 or less

5% Tax Slab . AC and Non AC Restaurants Takeaway Food Restaurants in hotels with a room tariff less than Rs. 7,500 (no input credit for these restaurants) Transport services like railways and airways Transport of passengers by air in economy class Supply of tour operators services Selling of space for advertisement in print media Small restaurants with turnover of Rs. 50 Lakhs Transport of passengers by motor cabs and radio taxis Tailoring services Small house-keeping service providers (No input credit available) Crude and petroleum product transportation Job work for footwear and leather goods

12% Tax Slab Rail transportation of goods in containers from a third party other than Indian Railways Air travel excluding economy Food /drinks at restaurants without AC/heating Renting accommodation for more than Rs.1000 and less than Rs.2500 per day IP rights temporarily Common Effluent treatment plants Movie tickets priced Building construction for sale Hotel accomodation with per room per night charge up to Rs. 7,500 Temporary basis IP rights Crude or natural gas mining and drilling. Business class air tickets Hotels, inns, guest houses, which have a room tariff of Rs.1,000 and above but less than Rs.7,500 per room per night Metro and monorail construction Mining and drilling for crude or natural gas

18% Tax Slab Food /drinks at restaurants with AC/heating Outdoor catering Renting for accommodation for more than Rs.2500 but less than Rs.5000 per day in Hotels, inns, and guest house Supply of food, shamiana, and party arrangement Supply of works contract Theme parks, water parks, circus, folk, theatre, drama, classical. IT services Hotel stay with bill above Rs. 7,500 Telecom services

28% Tax Slab Entertainment events-amusement facility, water parks, theme parks, joy rides Accommodation in 5-star hotels Food/Drinks/Stay at AC Five Star Hotels Betting at race club and gambling Hotels, inns, guest house with room tariff above Rs. 5,000 Cinema