With only few days to go for the Goods and Services Tax ('GST') to go live, we have enumerated below top 10 key aspects with respect to a smooth and hassle free transition to GST from the existing tax regime:
A. CARRY FORWARD OF INPUT TAX CREDITS ('ITC')
1) ITC with respect to tax payable under Reverse Charge Mechanism ('RCM'): For the vendor payments made in June 2017 which are liable to Service tax under RCM as per Service tax law, it is recommended to discharge Service tax liability within June 2017 to ensure availability and disclosure of related ITC in the month of June 2017 itself. This is in absence of any relevant transition provision for availing credits in respect of Service tax payments made under RCM post appointed date i.e. the day on which the GST law would come into force.
2) Input/ Input services in transit: Any inputs/ input services received after GST but on which duty/ tax has already been paid under earlier tax regime, ITC can be claimed under GST if the invoice/ duty or tax paying document is recorded in the books of accounts within a period of 30 days after GST. Accordingly, please ensure that all such transactions where tax has already been paid by vendors should be duly accounted for in books by 30th July 2017.
3) Closing balance of ITC in the last returns: In order to carry forward of ITC from the tax returns filed under the existing tax regimes (viz. Service tax, Excise, VAT), please ensure the following:
a. To file returns for the previous last six months under the existing law.
b. To furnish declaration in form GST TRAN 1 within 90 days from the appointed day.
c. Ensure collection of all pending statutory forms (like Form C, H, I, F). This is because in respect of utilized VAT credit, the same can be carried forward only when the same is substantiated with relevant declaration forms pertaining to said credit.
However, in case Forms are not available, then VAT ITC corresponding to such transaction (where forms are not available) may be denied and a refund may have to be claimed at a later stage (when forms are available).
4) ITC on duty paid stock: In respect of goods lying in stock as on June 30, 2017, the following credits can be carried forward under GST subject to fulfillment of prescribed conditions including submission of declaration in Form GST TRAN 1 (in respect of goods purchased in preceding 12 months):
a. VAT credit will be available in full (based on the VAT invoice) and will be adjusted against SGST
b. Excise / CVD Credit - If Duty paying documents (Excise invoice/Bill of Entry) is available, then full credit will be available. In absence of duty paying document, credit would be available only to the extent of 60%/ 40% of CGST payable post sale of goods (30%/ 20% in case of IGST)
For more details regarding this aspect, please refer our following articles (link given below):
Traders' Eligibility To Claim Credits On Unsold Stock
5) Reclaim the reversed Input Service credit: CENVAT credit reversed on account of non-payment of consideration within three months can be reclaimed if the payment is made to the supplier of service within 3 months from the appointed day
B. OTHER KEY POINTS
6) Goods/ services supplied after GST in pursuance of a contract entered prior to GST implementation day shall be liable to GST. Further, no GST shall be payable on goods/ services to the extent the tax was leviable under the existing VAT/ Service Tax legislation. Accordingly, the implications and action points relating to the same would be as under:
a. All goods and services supplied/ received in the month of June 2017 for which invoices are raised/ received post July 1, 2017 should be with applicable GST.
b. All invoices received/ raised in the month of June 30, 2017 should be with applicable taxes as per the existing tax laws.
c. For all practical purposes, no invoices from vendors should be entertained after 30th July 2017 (which are invoiced prior to July 1, 2017)
7) Sales Return: Treatment with respect to goods removed before 6 months of the appointed day but returned within 6 months from the appointed day:
a. If such goods are returned by an unregistered person, then refund of the duty/VAT paid under the existing law can be claimed.
b. If returned by a Registered Person, then the return of goods shall be treated as supply of goods. (ITC can be claimed)
8) Goods sent on 'sale on approval basis': No GST is payable if goods sent on approval basis before 6 months of the appointed day but returned within 6 months from the appointed day.
9) Price revision in respect of existing contracts:
a. In case of upward price revision, issue a supplementary invoice or debit notes within 30 days from the date of revision and such revision shall be treated as supply under GST.
b. In case of downward revision, issue credit note within 30 days from such revision and credit note shall be deemed to have been issued in respect of outward supply made under GST.
10) In order to ensure availability of ITC on imported goods, please ensure to declare GSTIN on the Bill of Entry.