Transitional Provisions under GST

GST is a significant reform in the end of indirect taxes in our country. Multiple taxes levied and collected by the Centre and States would be replaced by one tax called Goods and Services Tax (GST). GST is a multi-stage value added tax on consumption of goods or ser-vices or both.

As GST seeks to consolidate multiple taxes into one, it is very essential to have transitional provisions to ensure that the transition to the GST regime is very smooth and hassle-free and no ITC (Input Tax Credit)/benefits earned in the existing regime are lost. The transition provisions can be categorized under three heads:

A. Relating to Input Tax Credit

B. Continuance of existing procedures such as job work for a reasonable period without any adverse consequence under GST law

C. All claims (pending as well as future) pertaining to existing laws led before, on or after the appointed day

A. Transitional arrangements for ITC

Elaborate provisions have been made to carry forward the ITC earned under the existing law. Such credit should be permissible under the GST law. However, the taxable person opting for composition scheme would not be eligible for carry forward of the existing ITC. ITC of various taxes under the existing laws (CENVAT credit, VAT etc.) would be carried forward as under:

(a) Closing balance of the credit in the last returns: The closing balance of the CENVAT credit/VAT in the last returns led under the existing law can be taken as credit in electronic

credit ledger. Such credit would be available only when returns for the previous last six months have been led under the existing law. In order to claim this credit, declaration in form GST TRAN 1 is required to be fur finished on the common portal within ninety days from the appointed day i.e. the day on which the GST law would come into force.

(b) Un-availed credit on capital goods: The balance installment of un-availed credit on capital goods credit can also be taken by  ling the requisite declaration in the GST TRAN 1.

(c) Credit on duty paid stock: A registered taxable person, other than the manufacturer or service provider, may have duty paid goods in his stock on the appointed day. GST would be payable on all supplies of goods or services made after the appointed day. It is not the intention of the Government to collect tax twice on the same goods. Hence, in such cases, it has been provided that the credit of the duty/tax paid earlier would be admissible as credit. Such credit can be taken as under:

(i) Credit shall be taken on the basis of invoice evidencing payment of duty of excise or VAT
(ii) Such invoices should be less than one-year old
(iii) Declare the stock of duty paid goods within the prescribed time on the common portal

(d) Credit on duty paid stock when Registered Person does not possess the document evidencing payment of excise duty/VAT: For traders who do not have excise or VAT invoice, there is a scheme to allow credit to them on the duty paid stock. The features of this scheme are as under:

(i) The scheme is operative only for six months from the appointed day. It is not available to manufacturer or supplier of service. It is available to traders only.

(ii) Credit @ 60% on such goods which attract central tax @9% or more and @40% for other goods of GST paid on the stock cleared after the appointed day would be allowed. However, such goods should not be unconditionally exempted goods or taxed at nil rate under the existing law. It has also been provided that where integrated tax is paid on such goods, the amount of credit shall be allowed at @ 30% and 20% respectively of the said tax.

(iii) Credit would be allowed after the GST is paid on such goods subject to the condition that the benefit of such credit is passed on to the customer by way of reduced prices.

(iv) The statement of supply of such goods in each of the six tax periods has to be submit-ted.

(v) Stocks stored should be easily identifiable.

(e) Credit relating to exempted goods under the existing law which are now taxable: Input Tax Credit of CENVAT/VAT in respect of input, semi- finished and  finished goods in stock attributable to exempted goods or services which are now taxable can also be taken in the same manner.

(f) Input/input services in transit: There might be a scenario where input or input services are received on or after the appointed day but the duty or tax on the same was paid by the supplier under the existing law. Registered person (RP) may take credit of eligible duties and taxes, provided the in-voice has been recorded in the books within 30 days from the appointed day. The period can be extended by the Commissioner GST by another 30 days. A statement of such in-voices have to be furnished. ISD can also distribute such credit.

(g) Tax paid under the existing law under composition scheme: Those taxpayers who paid tax at taxed rate or taxed amount in lieu of the tax payable under the existing law but are working under normal scheme under GST can claim credit on their input stock, semi- finished and finished stock on the appointed date, subject to the following conditions:

(i) Such input stock used for taxable supply under this Act
(ii) Registered Person is not covered under section 10 (composition scheme) of this Act
(iii) Registered Person is eligible for ITC under this Act
(iv) Registered Person is in possession of the invoice or other duty payment documents
(v) Such invoices are not more than twelve months old on the appointed day

(h) ITC in case of Centralized Registration under service tax: Such Registered Person can take credit of the amount of CENVAT carry forwarded in return furnished under the existing law, if the original/revised return under the existing law has been  led within three months. Such credit may be transferred to any of the Registered Persons having the same PAN for which the centralized registration was obtained.

(i) 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

(j) Where any goods or capital goods belonging to the principal are lying at the premises of the agent on the appointed day

This provision is specific to SGST law. In such cases, agent shall be entitled to take credit, subject to the following conditions:

(i) The agent is a registered taxable person
(ii) Both the principal and the agent declare the details of state
(iii) The invoices are not older than twelve months
(iv) The principal has either reversed or not been availed on the input tax credit

B. Transition provisions relating to job work, goods returned/sent on approval etc.

(a) Job work

Inputs, semi- finished goods or finished goods were sent to the job worker or any other premises without payment of duty/VAT under the existing law. No GST is payable by the job worker when such goods are returned by him within six months after the appointed day. The period can be extended by the Commissioner, GST by another two months.

If not returned within the prescribed period, then ITC shall be liable to be recovered from the principal as per second provision to section 141(1) of the Act. In addition, the job worker will have to pay the GST on such supplies. In case of semi- finished goods, the manufacturer may transfer the goods to premises of a Registered Person without payment of tax within the prescribed period. In case of finished goods, the manufacturer may transfer the goods on payment of tax or clear for export within the prescribed period.

(b) Goods removed before 6 months of the appointed day but returned within 6 months from the appointed day

If such goods are returned by an unregistered person, then refund of the duty/VAT paid under the existing law can be claimed. If returned by a Registered Person, then the return of goods shall be treated as supply of goods (ITC can be claimed).

(c) Goods sent on approval basis before 6 months of the appointed day but re-turned within 6 months from the appointed day

No tax is payable by the person returning the goods. Commissioner may extend the period by 2 months. If returned after that, tax is payable if the supply is taxable under GST (by the recipient). If not returned, tax is payable by the person who sent the goods on approval basis.

(d) TDS deducted in VAT

Where a supplier has made any sale of goods, and tax was required to be deducted under VAT Act, and invoice was issued before the appointed day. however, the payment was made on or after the appointed day. In such cases, no TDS under GST is to be deducted.

(e) Price revision in respect of existing contracts

In case of upward price revision, a registered person will 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, and tax is payable under this Act.

In case of downward revision, Registered Person may 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 this Act. A Registered Person will reduce his tax liability for such credit note, subject to reversal of credit by the recipient.

C. Proceedings under the existing laws

GST law would become operational w.e.f. the appointed day and existing laws would be repealed. Elaborate provisions have been made to save the pending as well future claims relating to existing law made before, on or after the appointed day. Such proceedings may pertain to refund claims of CENVAT credit/VAT or export related rebate or service tax, and the proceedings may either result in recovery of tax or refund.

All such cases would be disposed of under the existing law. If any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse. Refund of CENVAT credit shall be paid in cash. There will be no refund of CENVAT if already carry forwarded. If any amount becomes recoverable, the same shall be recovered as arrear of tax under GST Act.

FAQ

1. How do I avail transition credit?
Transition credit can be availed by filing the respective forms under Transition rules upto 30.09.2017.

2. Please provide the clarity on area based exemption 50/2003 in UK & HP.
Area based exemptions will not be continued under GST. It will be operated through the route of reimbursement as prescribed.

3. We manufactured excisable goods. But unit availed the exception benefits 50/2003. What about my dealer�s stock?
The dealer will get deemed credit @ 40%/60% of the CGST paid on supply of such goods in GST. If the goods are branded and greater than Rs. 25,000, full credit using CTD can be availed.

4. A trader buys from manufacturer not registered in excise as his turnover is below 1.5 cr. Then in such case can trader take ITC on stock up to 40%?
Yes, deemed credit will be available subject to satisfaction of other conditions as prescribed.

5. I am a trader. I have excise paid purchase invoice. Whether I can claim credit of full excise duty on closing stock of 1st July 2017?
Full transition credit of such duty will be available on stock in hand in respect of which you have duty paying excise document subject to conditions under Section 140(3) of the CGST Act.

6. If a trader purchases directly from manufacturer & has documents showing excise, will he get full excise credit or 40% of CGST?
Full transition credit of such duty will be available on stock in hand in respect of which you have duty paying excise document subject to conditions under Section 140(3) of the CGST Act.

7. If a fsd purchases directly from manufacturer and has value cum excise duty and excise duty is not separately shown will he get full credit?
Full transition credit of such duty will be available on stock in hand in respect of which you have duty paying excise document subject to conditions under Section 140(3) of the CGST Act.

8. Is the full excise credit also available to traders who purchases directly from manufacturers and excise is separately shown in invoice?
Full transition credit of such duty will be available on stock in hand in respect of which you have duty paying excise document subject to conditions under Section 140(3) of the CGST Act.

9. In June 17 VAT return, no amount carried forward & held stock of Rs.50 lakh. Then can we take credit of that stock or not?
The supplier would be eligible to carry forward the closing balance of ITC from VAT return for June 17.

10. What will be the impact of closing stock which has been already paid vat on 1st July?
The supplier would be eligible to carry forward ITC on such stock from VAT return for June 17.

11. If in VAT return refund claimed in June 17 & no balance credit in GST. Then what's the position of submission of Form C?
Refund claimed under existing law will be handled as per the provisions of the existing law. Form C to be submitted in terms of provision of Rule 1(1) of Transition Rules.

12. Some service was provided on 28.06.2017 but invoice will be raised on 05.07.2017. Whether we have to charge Service Tax or GST?
If Point of Tax arises after appointed date, then GST will be chargeable on such supply.

13. Would we be eligible for credit on Capital Goods in transit and received post GST?
No provision for such credit is there in GST law.

14. What about VAT balance pending on transition date?
Balance VAT credit in the return will be transferred to new provisional ID as SGST Credit.

15. What about deemed export against Form H?
Form H will not be there in GST.

16. Who will bear tax difference on closing stocks as on 30th June 2017? Whether the manufacturer/dealer or government?
Closing ITC in VAT return will be allowed to be carry forward in GST

17. How will we get input credit on stock in hand for spare parts billed from other state, excise, CST and entry tax paid?
For all inputs with duty paying documents available respective CGST /SGST credit will be available. But credit of CST will not be available.

18. A trader buys from manufacturer not registered in excise as his turnover is below 1.5 crore. Then in such case can traders take ITC on stock up to 40%?
Deemed Credit will be available on stock in hand provided the conditions of section 140(3) read with Rule 1(4) of Transition Rules are satisfied.

19. Whether we will be eligible for credit of duty paid on Capital Goods in transit and received post GST?
No such provision in GST.

20. Can ITC of Swacch Bharat Cess or Krishi Kalyan Cess be carried forward under GST?
No

21. Will Clean Energy CESS on imported Coal @ Rs.400 PMT continue to be applicable in GST?
No. Clean Energy Cess is being repealed. Coal, however, will be subject to compensation cess @ Rs. 400/- per tonne.

22. Whether closing balance of education cess and secondary higher education cess prior to 1st Mar 2015 can be carried forward in GST?
No, it will not be carried forward in GST as it is not covered by definition of "eligible duties and taxes" under Section 140 of the CGST Act.

23. Can you clarify for 40% benefit on closing stock does 1year limit apply or not?
Deemed credit will be available for all stock procured within a 1year period.

24. Till what time is transition credit available? Where do I need to declare my input stock?
The window to declare transition credit forms is three months from the appointed day. Please refer to transition rules for more details.

25. Will there be GST in A&N Islands as previously there was no VAT?
Yes. For supplies within A&N, CGST plus UTGST would be leviable.

26. Whether IGST would be levied twice on high seas sales? First on high seas sales and second on custom clearance. IGST paid on 1 available as ITC?
IGST shall be levied only once on imports.

27.  Will Krishi Mandi Fee (imposed in UP) be waived off in GST?
GST does not concern such fee so GST does not affect it.

28. Is E-Way Bill applicable from 1st July 2017?
The present system for E-way Bill in states to continue, till the E-Way Bill procedures are finalised.