GST and centralized registration
By K. Srikanth
Much has been said about the introduction of levy of additional 1% tax proposed under clause 18 of the Constitutional (122nd Amendment) Bill 2014, (duly passed in Lok Sabha and which is now placed before a special committee, pending for approval by the Rajya Sabha, and subsequently by 50% of State Legislatures) on supply of goods moved from one State to another including stock transfers which are presently being effected against Form F without payment of CST. Further, the consequence of proposed 1% non-creditable origin-based tax on all interstate supply of goods including branch transfers, as a measure to help the manufacturing states in the initial phase of introduction of GST adds more complication and the situation gets further compounded due to break in GST credit chain, resulting in ultimate increase in the cost of the goods at the hands of end consumer.
However, in this article an attempt has been made to briefly discuss and share the thoughts on the probable impact of GST on service providers who have opted for centralized service tax registration at present.
Impact of proposed GST on service providers having centralized registration
Under the present negative list based service tax regime, where the person liable for paying service tax on a taxable service is having more than one premises or offices, which are engaged in relation to such service in any other manner, and has centralized billing or centralized accounting system in respect of such service, and such centralized billing or centralized accounting systems are located in one or more premises, he may, at his option, register such premises or offices from where centralized billing or centralized accounting systems are located.
Thus, as per Rule 4(2) of the Service Tax Rules, 1994, facility is provided to the provider of output service to opt for centralized service tax registration for a single premise instead of having separate registration at different places.
Furthermore, by exercising this option, the provider of output service can have control over the entire business operations from single location from where invoices for services provided from different places are raised, receive payments against the invoices raised, make payment to the provider of input services as well as to the supplier of inputs and capital goods. Besides, the major benefit of having centralized registration is the facility to avail credit on inputs, capital goods and input services at single location, irrespective of the location of the receipt and use of such inputs, capital goods and input services and the name of the location to which such invoices were addressed.
No doubt such class of service providers presently are enjoying this benefit to a great extent as it allows the service provider to avail credit at single location and utilize such credit effectively for discharging service tax on output services and also can handle litigations at single location from the central place thereby reducing the compliance cost to a great extent.
If one looks at sector-wise distribution of such class of assessees, telecom, insurance and banking are the major sectors which are presumably operating under centralized service tax registration presently, say from corporate offices located in different cities.
Report of the Task Force of 13th Finance Commission
The Task Force appointed by the Thirteenth Finance Commission, Government of India, had issued a report on December 15, 2009 with recommendations on various issues relating to the design and implementation of the proposed GST in India. According to this report, all persons with turnover of more than Rs. 10 lakhs will be required to obtain registration and it will be a single registration for all branches in a State. Dealers in multiple states / having operations across States will have multiple GST registration number. A relevant point here would be to note that the model GST Registration Form floated by NSDL as part of pilot project, in effect, envisages single registration certificate for multiple business premises within a particular state only and not inter-state.
Proposals made by GST Core team
The CBEC set up a GST Core Team for providing a comprehensive conceptual framework for the proposed GST legislation and submitted its report in the form of a Discussion Paper in October 2011. The Paper suggested that while framing the place of supply rules, as far as practicable, the state where the service is performed should be taken as the place of supply. This Paper acknowledged the importance of requirement of registration at multiple places and also discussed exceptions like telecommunication service which may necessitate special place of supply of services rules. Hence, one of the foremost challenges would be to determine the place of supply of services to fasten GST liability and to require a person engaged in supply of goods or services to apply for registration.
Position under the proposed GST regime
However, in the proposed GST regime conceptually supply of service can be again inter-state or intra state and hence in all probability the question of having provisions / facility for centralized registration for assessee supplying services appears to be remote.
In addition, importers of services and persons who make inter-state supplies will, however, be considered as ‘taxable persons’, irrespective of turnover and accordingly need to take GST registration compulsorily.
Thus, if we weigh the overall impact of GST on service providers having centralized registration, the most crucial issue that emerges, will be the need for taking separate GST registration in multiple locations and the need to have separate books of account for each such premises and also to have control and monitoring system for both receipts and payments (income and credits) by such service providers. Such requirement is subject to the caveat of introduction of any other alternative scheme.
Thus the service industry will have to wait, watch and lookout for provisions governing registration under the to-be enacted GST legislations and find an answer to the issue as to whether the concept of centralized registration shall continue under GST atleast for CGST and IGST.
Impact analysis is sine qua non
The need of the hour for all service providers in general and service providers who have opted for centralized registration in particular is to see GST as a reality in the near future considering the Government’s commitment to roll out this mega tax reform from April 2016. The industry should well accord priority to study their existing processes and revamping the existing ERP / other accounting software systems to make them compatible with proposed GST. Procedural requirements may not be counted as one of the high impact factors. But an impact study in respect of GST will indicate even registration and having locations in multiple states from where supply is undertaken, are issues which cannot be placed out of the periphery of relevant issues.
[The author is a Joint Partner, Lakshmikumaran & Sridharan, Gurgaon]