Volume - X | November 2018 Baroda Branch of Western India Regional Council of The Institute of Chartered Accountants of India The Institute of Chartered Accountants of India (Setup by an Act of Parliament) Editorial Team Contents CA. Dhiren Parikh 93762 11099 Chairman CA. Hitesh Agrawal 99980 28737 CA. Krunal Brahmbhatt 78748 11551 CA. Vin d Pahilwani 98980 78176 CA. Pradeep Agrawal 98985 60967 CA. Arpan Dodia 98983 83530 CA. Abhijit J Kotecha 98254 83173 CA. Manoj Sahu 90990 94500 CA. Rikin Patel 88667 09509 Vice-Chairman Secretary Treasurer Ex-officio IP - Chairman Committee Member Committee Member Committee Member o CA. Dhiren Parikh CA. Manoj Sahu CA. Rahul Parikh CA. Nayan R Kothari CA. Neena Patel CA. Gunjan Agrawal CA. Jigita Shah CA. Dhruti Vaidya CA. Parth Patel CA. Chintan Popat Forthcoming Events Direct Tax Updates Return of Time Expired Drugs or Medicines ... 4 Snap Gallery ... 11 Ind AS 115 - Revenue from Contracts with Customers Part 4 ... 2 ... 3 ... 6 Judicial Decisions on Indirect Taxes ... 10 Pg. No. Managing Committee Chairman Communication Respected Professional Colleague, For we, Chartered Accountants the word responsibility holds great sense. It is said that the degree of responsibility you take for your life determines how much change you can create in it. The more you take responsibility for your past and present, the more you are able to create future you seek. Whereas till October ’18 we were more concerned for completion of Income TaxAudits and now December 18 has become the deadlines for completion of GST Audits. So members will be busy in next task of GST Audits as well as to spare fruitful time with the family for Diwali festival. In the month of October, many programme were organised for our members. The month started with new batch of Certificate Course on GST. Apart from this, we have organised two days workshop on RERA as well as two days workshop on Tally. The government has notified a new return form for Goods and Services Tax (GST) that will have to be filed for the full year. Therefore, Baroda Branch has organised a full day seminar on GST to update knowledge of members. Interactive meet with Dy. Mayor of Vadodara Shri Jivrajbhai Chauhan gave us a chance to represent contribution of Chartered Accountants and Institute as a ’ whole in partner in nation building. In the month of November, we have planned to start new ISA Professional Training batch after Diwali. We have also planned to start first batch of Educational Course on ICAI Registered Valuers organisation (RVO). Awareness programme on ICAI Valuation Standard 2018 is planned which is organised by Valuation Standards Boards of ICAI. Interested members are requested to register at the earliest. We have also arranged lecture meeting on Start-up and Role and Opportunity for Chartered Accountants in Start-up venture. I request all the members to ensure that the Branch Office has your updated address and email.I appeal all the members to give their constructive feedback on all the activities of the Branch, including Newsletters. In the month of November we will be busy in celebrating Diwali festival and to enjoy vacation with family and friends.It’s that time of the year which every Indian looks forward to ….the month of Festivals!!!! In this month we all will be celebrating Diwali that is festival of Light, Joy, Happiness, and family & friends get -together and many more. Wishing all of you a very Happy Diwali and Prosperous NewYear. Thanks & Regards, Yours’in Profession, Chairman CA. Dhiren Parikh e-Newsletter (Circulated by Email)
Transcript
Volume - X | November 2018
Baroda Branch of Western India Regional Council ofThe Institute of Chartered Accountants of India
The Institute of Chartered Accountants of India(Setup by an Act of Parliament)
EditorialTeam
Contents
CA. Dhiren Parikh 93762 11099Chairman
CA. Hitesh Agrawal 99980 28737
CA. Krunal Brahmbhatt 78748 11551
CA. Vin d Pahilwani 98980 78176
CA. Pradeep Agrawal 98985 60967
CA. Arpan Dodia 98983 83530
CA. Abhijit J Kotecha 98254 83173
CA. Manoj Sahu 90990 94500
CA. Rikin Patel 88667 09509
Vice-Chairman
Secretary
Treasurer
Ex-officio
IP - Chairman
Committee Member
Committee Member
Committee Member
o
CA. Dhiren Parikh CA. Manoj Sahu
CA. Rahul Parikh CA. Nayan R Kothari
CA. Neena Patel CA. Gunjan Agrawal
CA. Jigita Shah CA. Dhruti Vaidya
CA. Parth Patel CA. Chintan Popat
Forthcoming Events
Direct Tax Updates
Return of Time Expired Drugs orMedicines ... 4
Snap Gallery ... 11
Ind AS 115 - Revenue fromContracts with Customers Part 4
... 2
... 3
... 6
Judicial Decisions on Indirect Taxes ... 10
Pg. No.
ManagingCommittee
Chairman Communication
Respected Professional Colleague,
For we, Chartered Accountants the word responsibility holds great
sense. It is said that the degree of responsibility you take for your life
determines how much change you can create in it. The more you take
responsibility for your past and present, the more you are able to create
future you seek.
Whereas till October ’18 we were more concerned for completion of
Income TaxAudits and now December 18 has become the deadlines for
completion of GSTAudits. So members will be busy in next task of GST
Audits as well as to spare fruitful time with the family for Diwali
festival.
In the month of October, many programme were organised for our
members. The month started with new batch of Certificate Course on
GST. Apart from this, we have organised two days workshop on RERA
as well as two days workshop on Tally. The government has notified a
new return form for Goods and Services Tax (GST) that will have to be
filed for the full year. Therefore, Baroda Branch has organised a full day
seminar on GST to update knowledge of members. Interactive meet
with Dy. Mayor of Vadodara Shri Jivrajbhai Chauhan gave us a chance
to represent contribution of Chartered Accountants and Institute as a
’
whole in partner in nation building.
In the month of November, we have planned to start new ISA
Professional Training batch after Diwali. We have also planned to start
first batch of Educational Course on ICAI Registered Valuers
organisation (RVO). Awareness programme on ICAI Valuation
Standard 2018 is planned which is organised by Valuation Standards
Boards of ICAI. Interested members are requested to register at the
earliest. We have also arranged lecture meeting on Start-up and Role
and Opportunity for CharteredAccountants in Start-up venture.
I request all the members to ensure that the Branch Office has your
updated address and email.I appeal all the members to give their
constructive feedback on all the activities of the Branch, including
Newsletters.
In the month of November we will be busy in celebrating Diwali festival
and to enjoy vacation with family and friends.It’s that time of the year
which every Indian looks forward to ….the month of Festivals!!!!
In this month we all will be celebrating Diwali that is festival of Light,
Joy, Happiness, and family & friends get -together and many more.
Wishing all of you a very Happy Diwali and Prosperous NewYear.
1. Circular No. 72/46/2018-GST dated 26.10.2018 has
been issued clarifying the procedure in respect of return
of time expired drugs or medicines. Said circular
clarifies that the time expired drugs or medicines can be
returned either by issuance of credit note or by treating
the said goods return as fresh supply and hence on an
invoice. Said circular also clarifies the input tax credit
(“ITC”) implications under both the options. Let us
explore whether the said clarification is in line with the
legal provisions.
2. Referred circular at paragraph 3(A) provides for an
option to treat the return of time expired drugs or
medicines as “fresh supply”. In other words a person
can return the said goods by treating it is as a fresh
supply and thereby issue an invoice for the same as
under:
i. If the registered person returning the goods is under
composition: Such person shall prepare a bill of
supply and pay tax at the rate applicable to a
composition taxpayer. The registered recipient
(wholesaler or manufacturer) shall not be entitled
to ITC in respect of the composition tax paid.
ii. If the registered person returning the goods is not
under composition: Such person shall prepare a tax
invoice and pay the tax on the value of supply
declared on such tax invoice. The recipient shall be
eligible to avail ITC of the tax levied on such
invoice subject to the fulfilment of the conditions
specified in Section 16 of the CGSTAct.
Return of time expired goods to be treated as fresh supply
iii. If an unregistered person is returning the goods:
Such person may return the said goods by issuing
any commercial document without charging any
tax on the same.
3. Said circular also provides that if the returned goods are
destroyed by the recipient, then in accordance with the
provisions of Sec. 17(5)(h) of the CGSTAct, 2017 ITC
on the said goods is required to be reversed. Following
illustration has been provided in the referred circular:
4. Referred circular also provides that such time expired
goods can be returned by issuing a credit note by the
supplier who had originally supplied the goods.
Circular further provides that an adjustment of the tax
shown on such credit note can be claimed only if such
credit note is issued within the time limit specified in
sub-section (2) of section 34 of the CGST Act. If a
credit note is issued beyond the stated time limit, the
supplier issuing the credit note will not be able to claim
adjustment of the tax. Consequently there is no
requirement to declare such credit note on the common
portal by the supplier (i.e. by the person who has issued
the credit note) as tax liability cannot be adjusted in this
case. Hence in such scenario from the circular it
appears that even ITC is not required to be reduced by
the registered recipient, if such recipient has claimed
the ITC. An illustration as under has been provided in
the referred circular:
ITC implications if the returned goods are destroyed
Return of time expired goods by issuing Credit Note
“Illustration: Supposedly, manufacturer has availed
ITC of Rs. 10/- at the time of manufacture of medicines
valued at Rs. 100/-. At the time of return of such
medicine on the account of expiry, the ITC available to
the manufacturer on the basis of fresh invoice issued by
wholesaler is Rs. 15/-. So, when the time expired goods
are destroyed by the manufacturer he would be
required to reverse ITC of Rs. 15/- and not of Rs. 10/-.”
Case
1
2
D a t e o fS u p p l y o fgoods frommanufacturer/wholesaler towholesa le r /retailer
1st July, 2017
1st July, 2017
Date of returno f t i m eexpired goodsfrom retailer /wholesaler towholesaler /manufacturer
20thSeptember,2018
20th October,2018
Date of return of time expired goodsfrom retailer / wholesaler towholesaler / manufacturer
Credit note will be issued by thesupplier (manufacturer/wholesaler)and the same to be uploaded by himon the common portal. Subsequently,tax liability can be adjusted by suchsupplier provided the recipient(wholesaler/retailer) has either notavailed the ITC or if availed hasreversed the ITC.
Credit note will be issued by thesupplier (manufacturer/wholesaler)but there is no requirement to uploadthe same on the common portal.Subsequently tax liability cannot beadjusted by such supplier.
ITC implications if the returned goods are destroyed
Critical analysis
Time limit for issuing the credit notes
5. Circular further provides that if the goods which are
returned on the strength of a credit note (within the time
limits or beyond) are destroyed, then the concerned
supplier is required to reverse the ITC attributable to
the manufacture of such goods, in terms of the
provisions of clause (h) of subsection (5) of section 17
of the CGSTAct.
6. The contents of the circular stated above contains many
gaps when one considers the same in light of the legal
provisions. Let us understand the said gaps:
7. The circular through the illustration states that the time
limit for issuing the credit notes in respect of invoices
issued from July 2017 - March 2018 is the end of the
month of September, 2018. Hence in case-2 above, it
provides that tax in respect of the credit note issued on
20th October, 2018 cannot be adjusted. Sec. 34(2) of
the CGST, 2017 which stipulates such time limit is
Baroda Branch of WIRC of ICAI5
relevant and hence reproduced below:
8. Close perusal of the above provision will entail that the
registered person who issues the credit note shall
declare “the details of such credit note in the return” for
the month during which such credit note has been
issued but not later than September following the end of
the financial year in which such supply was made or the
date of furnishing of the relevant annual return,
whichever is earlier. Hence the cut-off date shall be
determined with reference to the “return for the month
of September” wherein “details of credit note” are
required to be declared or the actual date of filing of the
annual return, whichever is earlier. Hence the crucial
question to answer is that what is the “return” wherein
the “details of such credit note” are to be declared ?
9. Sec. 37(1) of the CGSTAct, 2017 read with Rule 59(2)
of the CGST Rules, 2017 clearly provides that the
details of the credit note are to be declared in the
“details of outward supplies” which are to be furnished
in FORM GSTR-1. Rule 61(2) further provides that
PART A of the “return” in FORM GSTR-3 shall be
electronically generated on the basis of information
furnished through FORM GSTR-1, FORM GSTR-2
“Sec. 34(2) Any registered person who issues a credit
note in relation to a supply of goods or services or both
during which such credit note has
been issued following the
end of the financial year in which such supply was
made,
and the tax liability shall
be adjusted in such manner as may be prescribed:
Provided that no reduction in output tax liability of the
supplier shall be permitted, if the incidence of tax and
interest on such supply has been passed on to any other
person.”
shall declare the details of such credit note in the
return for the month
but not later than September
or the date of furnishing of the relevant annual
return, whichever is earlier,
and based on other liabilities of preceding tax periods.
Hence the “return” referred under Sec. 34(2) is the
return in “FORM GSTR-3” wherein details of the
credit note are required to be furnished. Return
furnished in “FORM GSTR-3B” under Rule 61(5) is
not the return wherein such “details of credit note” are
to be declared. Hence in absence of FORM-3, the due
date for issuance of such credit note shall be the date of
furnishing of the relevant annual return.
10. Above conclusion emerges due to the fact that the law
(which is designed on the GSTR 1, 2 & 3 system) is
made to be applied where such system has been
suspended and has been replaced with GSTR-3B.
Hence unless law is amended to make it in line with the
reality of GSTR-3B, such issues will remain open.
11. The referred circular very conveniently says that in
cases where credit note is issued and returned goods are
destroyed, ITC “attributable to the manufacture of such
goods” needs to be reversed as per provisions of Sec.
17(5)(h) of the CGSTAct, 2017. Circular however does
not address the issue with respect to the determination
of such “attributable” ITC (which will include capital
goods as well as input services), if such reversal is
called for. Let us see the legal provisions. Sec. 17(5)(h)
is reproduced below for ready reference:
12. Close reading of the above provision shall entail that
the ITC shall not be available “in respect of goods”
destroyed. Now, whether the said provision can cover
inputs, input services as well as capital goods which
ITC implications
“Sec. 17(5) Notwithstanding anything contained in
sub-section (1) of section 16 and subsection (1) of
section 18, input tax credit shall not be available in
respect of the following, namely:—
(h) goods lost, stolen, destroyed, written off or disposed
of by way of gift or free samples;”
might have been used in/for the manufacture of goods
which have been destroyed ?
13. The interpretation of the term “in respect of” fell on the
apex court in the case of State of Madras vs M/s.
Swastik Tobacco Factory 1966 AIR 1000 (SC). Hon.
Supreme Court held that the Indian tax laws have used
the expression “in respect of" as synonymous with the
expression “on”. Reference was made toArt. 288 of the
Constitution of India; s. 3 of the Indian Income-taxAct,
1922; ss. 3(2) and 3(5), Second Proviso, of the Madras
General Sales Tax Act, 1939; s. 3(1A) of the Central
Excise and Salt Act, 1944; and ss. 9 of the Kerala Sales
Tax Act. It was also held that even if the word
“attributable” is substituted for the words “in respect
of”, the result will not be different, for the duty paid
shall be attributable to the goods. If it was paid on the
raw material it can be attributable only to the raw
material and not to the finished goods.
14. Reference is also invited to Rule 42 & 43 of the CGST
Rules, 2017 which provides for the determination of
the ITC “attributable” to non-business use or exempted
supplies as per the provisions of Sec. 17(1) & (2) of the
CGSTAct, 2017. Abare reading of said Rules will lead
to an inescapable conclusion that the same applies to
only cases covered u/s 17(1) & 17(2). It does not apply
to cases covered u/s 17(5) including clause (h) referred
above. In absence of any mechanism to determine such
“attributable” ITC, the said reversal is not tenable (see
Commissioner of Income Tax vs. B.C. Srinivasa Setty
((1981) 128 ITR 294 (SC)).
15. It is hence suggested to the Government to kindly
clarify on the gaps identified above. Leaving it for the
Courts will do no good to anyone.
Conclusion
Baroda Branch of WIRC of ICAI6
Continuing with the five-step approach to recognize revenue
under Ind AS - 115; the fourth step and fifth step will be
discussed in this issue. We shall also discuss in detail about
contract costs.
Step-4 Allocating the transaction price to performance
obligations
Ind AS 115 requires an entity to allocate transaction price
when there is single transaction price for contract having
multiple performance obligations. At the time of allocation
of the transaction price, entity should ensure that the amount
allocated to each performance obligation represents the
amount of consideration which an entity expects to be
entitled in exchange of promised goods or services.
Entities should determine the standalone selling price for
each performance obligation and allocate the transaction
price based on each item’s relative value to the total value of
the goods and services in the contract.
The stand-alone selling price is the price at which an entity
would sell a promised good or service separately to a
customer and is best evidenced when the entity sells that
good or service separately in similar circumstances and to
similar customers. In many situations, stand-alone selling
prices will not be readily available with entity. In those cases,
the entity must estimate the stand-alone selling price by
considering all information reasonably available, such as
market conditions, entity-specific factors, information about
customers, etc.
Suitable methods for estimating the stand-alone selling price
of a good or service include, but are not limited to:
This approach considers the market in whichgoods or services is sold and estimates theprice that a customer in that market would bewilling to pay. For example, an entity may takeinto consideration prices of entity’scompetitors for similar goods or services andadjusting those prices as necessary to reflectthe entity’s costs and margins.
Applying this approach can be difficult whenentity is selling relatively new goods orservices because estimating market demandmay be difficult in those cases.
This approach considers entity’s expected costof goods or services and adding appropriatemargins for that good or service.
This approach involves deducting from thetotal transaction price the sum of the estimatedstandalone selling prices of other goods andservices in the contract to estimate astandalone selling price for the remaininggoods or services. This method is permittedonly if the entity either:
a. sells the same good or service to differentcustomers (at or near the same time) fordifferent prices; or
b. has not previously sold good or service ona standalone basis and has not yetestablished a price for that good orservice.
A combination of methods may need to be used to estimate
the stand-alone selling prices of the goods or services
promised in the contract if two or more of those goods or
services have highly variable or uncertain stand-alone selling
prices.
Customers often receive a discount for purchasing
multiple goods and/or services as a bundle for single
transaction price. Discounts are allocated to all the
Exceptions to general allocation principles
1) Allocation of a discount
performance obligations in an arrangement based on
their relative standalone selling prices, so that the
discount is allocated proportionately to all performance
obligations.
However, an entity shall allocate a discount entirely to
one or more, but not all, performance obligations in the
contract if all the following criteria are met:
(a) the entity has standalone selling price of each good
or service in the contract;
(b) the entity also regularly sells on a stand-alone
basis a bundle of those distinct goods or services at
a discount; and
(c) the discount attributable to each bundle of goods
or services is substantially the same as the discount
in the contract.
Contracts may contain an element of consideration that
is variable or contingent upon certain thresholds or
events being met or achieved. For example, an entity
could have the right to additional consideration upon
early delivery of a product in an arrangement that
includes multiple products.
Var iable cons idera t ion wi l l be a l loca ted
proportionately to all the separate performance
obligations under the relative stand-alone selling price
allocation method. However, an entity shall allocate a
variable amount and subsequent changes to that
amount– entirely to a performance obligation, only if
both of the following criteria are met:
a. The variable payment relates specifically to the
entity’s efforts towards, satisfying that particular
performance obligation.
b. The result of the allocation is consistent with the
amount of consideration to which the entity
expects to be entitled in exchange for the promised
goods or services.
2) Allocation of variable consideration
Baroda Branch of WIRC of ICAI7
Above discussion can be summarized as:
A Company provides IT system establishment and support
service to its client. It enters into contract with its customer
for one-time establishment of Local Area Network,
development of Server and support services aggregating to
Rs. 100,000. As per terms of contract, Company is eligible
for Rs.10,000 as an incentive (in addition to above fees), if
issues raised are solved within time specified by the client.
a) How will the transaction price of Rs.100,000 be
allocated to performance obligations?
b) What will be the accounting treatment for the incentive
amount assuming that Company is able to solve issues
raised by the client in 100% of the cases within time
specified by the client?
The Company determines that each of the promised goods or
services represents a separate performance obligation
because it frequently establishes local area network on a
stand-alone basis, the stand-alone selling price of the same is
Rs.25,000. The Company develops the Server and estimates
the stand -alone selling price of Rs. 45,000 based on the
underlying cost and the amount of margin the company
believes the market will bear ((i.e., the expected cost plus a
margin approach).
(a) Company needs to allocate the Transaction price of
Let us understand the same with an example
Example 1:
Solution:
Rs.100,000 to each performance obligation based on
stand-alone selling price as under:
* Stand-alone selling price of support service:
Total Transaction Price- Stand-alone Selling Price of
Determine stand-alone selling prices - is the price directly observable?
Yes No
Use observableprices
Estimate the price
Adjusted marketassessmentapproach
Expected costplus approach
Residual approach
Exceptions to theallocation requirement:• Discount
Variable consideration•
Baroda Branch of WIRC of ICAI8
For each performance obligation identified, an entity shall
determine at contract inception whether it satisfies the
performance obligation over time or satisfies the
performance obligation at point in time. If an entity does not
satisfy a performance obligation over time, the performance
obligation is satisfied at a point in time.
Recognition of revenue at ‘point in time’ indicates
recognising revenue either on completion of contract or
when condition for revenue recognition is met and
recognition of revenue at ‘point over time’ indicates
recognising revenue based on work completion i.e
percentage of completion method basis.
An entity recognises revenue over time, if any one of
following criteria is met:
• The customer can control the asset as it is created or
enhanced.
E.g. Contract to build customised plant on the
customer’s land based on specification provided by the
customer and work done till date remains with
customer.
• The entity transfers benefit of the services to the
customer as it performs. Normally performance
obligation is satisfied over time if another entity will
not be required to rework on the portion of work which
is already done by an entity if that other entity is
required to complete the remaining performance
obligation.
E.g. Software service company engaged in
development of customised software and providing
support services recognises revenue from software
support services at point over time since it is provided
by the company and used by the client simultaneously.
• The entity’s performance creates or enhances an asset
that has no alternative use to the entity and is specific to
customer’s requirement, and the entity has the right to
receive payment for work performed to date.
Performance obligations satisfied over time
E.g. Construction of specific machinery on instruction
of customer, which cannot be used by any other
customer and company has right to receive payment for
work completed till date.
If none of the above criteria is met, then performance
obligation is satisfied at point in time when there is transfer of
control. For this, an entity shall consider indicators of the
transfer of control by analysing whether:
• The entity has present right to payment for the asset
• Legal title is passed to the customer
• There is transfer of physical possession of asset to
customer
• Significant risks and rewards of ownership of the asset
transferred to customer
• The Customer has accepted the asset
Ind AS 115 discusses two methods that are appropriate for
measuring an entity’s progress toward completion of a
performance obligation. An entity shall apply single method
for each performance obligation satisfied over time
Methods for measuring progress to recognise revenue
over time
Method
OutputMethod
Based onmeasurementof resultsthat areachieved andvalue that istransferredto thecustomer
Examples
• Surveys ofperformancecompleted to date,
• Appraisals ofresults achieved,
• Milestonesreached,
• Time elapsed andunits produced, or
• Units delivered
Description
• If an entity has a rightto receiveconsideration from acustomer based onwork completed todate, then the entitymay recognize revenueequivalent to anamount to which theentity has a right toinvoice.
• Since this methodmeasures directly theperformance, it isconsidered asappropriate depictionof entity’sperformance.
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