Transition Provisions under GST: EximGuru.com
Transition Provisions under GST
GST is a significant reform in the field of indirect taxes in our country.Multiple taxes lev-ied and collected by the Centre and States wouldbe replaced by one tax called Goods and Services Tax (GST). GST isa multi-stage value added tax on consumption of goods or ser-vicesor both.
As GST seeks to consolidate multiple taxes into one, it is veryessential to have transitional provisions to ensure that thetransition to the GST regime is very smooth and hassle-free andno ITC (Input Tax Credit)/benefits earned in the existing regimeare lost. The transi-tion provisions can be categorised under threeheads:
A. Relating to Input Tax Credit
B. Continuance of existing procedures such as job work fora reasonable period without any adverse consequence underGST law
C. All claims (pending as well as future) pertaining to existing lawsfiled before, on or after the appointed day
A. Transitional arrangements for ITC
Elaborate provisions have been made to carry forward the ITCearned under the existing law. Such credit should be permissibleunder the GST law. However, the taxable person opting forcomposition scheme would not be eligible for carry forward of theexisting ITC. ITC of various taxes under the existing laws (CENVATcredit, 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 returnsfiled under the existing law can be taken as credit in electroniccredit ledger. Such credit would be available only when returnsfor the previous last six months have been filed under the existinglaw. In order to claim this credit, declaration in form GST TRAN 1 isrequired to be furnished on the common portal within ninety daysfrom the appointed day i.e. the day on which the GST law wouldcome into force.
(b) Un-availed credit on capital goods:
The balance instalment of un-availed credit on capital goodscredit can also be taken by filing the requisite declaration in theGST TRAN 1.
(c) Credit on duty paid stock:
A registered taxable person, other than the manufacturer or serviceprovider, may have duty paid goods in his stock on the appointedday. GST would be payable on all supplies of goods or services madeafter the appointed day. It is not the intention of the Govern-mentto collect tax twice on the same goods. Hence, in such cases, it hasbeen provided that the credit of the duty/tax paid earlier would beadmissible as credit. Such credit can be taken as under:
(i) Credit shall be taken on the basis of invoice evidencingpayment 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 prescribedtime on the common portal
(d) Credit on duty paid stock when Registered Person does notpossess the docu-m-ent evidencing payment of excise duty/VAT
For traders who do not have excise or VAT invoice, there is a schemeto allow credit to them on the duty paid stock. The features of thisscheme are as under:
(i) The scheme is operative only for six months from the appointedday. It is not available to manufacturer or supplier of service. Itis 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 stockcleared after the appointed day would be allowed. However,such goods should not be unconditionally exempted goods ortaxed at nil rate under the existing law. It has also been providedthat where integrated tax is paid on such goods, the amount ofcredit shall be allowed at @ 30% and 20% respectively of thesaid tax.
(iii) Credit would be allowed after the GST is paid on such goodssubject to the condition that the benefit of such credit is passedon to the customer by way of reduced prices.
(iv) The statement of supply of such goods in each of the six taxperiods has to be submit-ted.
(v) Stocks stored should be easily identifiable.
(e) Credit relating to exempted goods under the existing lawwhich are now taxable
Input Tax Credit of CENVAT/VAT in respect of input, semi-finishedand finished goods in stock attributable to exempted goods orservices which are now taxable can also be taken in the samemanner.
(f) Input/input services in transit
There might be a scenario where input or input services arereceived on or after the ap-pointed day but the duty or tax on thesame was paid by the supplier under the existing law. Registeredperson (RP) may take credit of eligible duties and taxes, providedthe in-voice has been recorded in the books within 30 days from theappointed day. The period can be extended by the CommissionerGST by another 30 days. A statement of such in-voices have to befurnished. ISD can also distribute such credit.
(g) Tax paid under the existing law under composition scheme
Those taxpayers who paid tax at fixed rate or fixed amount in lieuof the tax payable un-der the existing law but are working undernormal scheme under GST can claim credit on their input stock,semi-finished and finished stock on the appointed date, subject tothe following conditions:
(i) Such input stock used for taxable supply under this Act
(ii) Registered Person is not covered under section 10 (compositionscheme) of this Act
(iii) Registered Person is eligible for ITC under this Act
(iv) Registered Person is in possession of the invoice or other dutypayment documents
(v) Such invoices are not more than twelve months old on theappointed day
(h) ITC in case of Centralised Registration under service tax
Such Registered Person can take credit of the amount of CENVATcarry forward-ed in return furnished under the existing law, ifthe original/revised return under the ex-isting law has been filedwithin three months. Such credit may be transferred to any of theRegistered Persons having the same PAN for which the centralisedregistration was ob-tained.
(i) Reclaim the reversed Input Service credit
CENVAT credit reversed on account of non-payment of considerationwithin three months can be reclaimed if the payment is made to thesupplier of service within 3 months from the appointed day
(j) Where any goods or capital goods belonging to the principalare lying at the premises of the agent on the appointed day
This provision is specific to SGST law. In such cases, agent shall beentitled 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 stock
(iii) The invoices are not older than twelve months
(iv) The principal has either reversed or not been availed on theinput tax credit
B. Transition provisions relating to job work, goods returned/senton approval etc.
(a) Job work
Inputs, semi-finished goods or finished goods were sent to the jobworker or any other premises without payment of duty/VAT underthe existing law. No GST is payable by the job worker when suchgoods are returned by him within six months after the appointedday. The period can be extended by the Commissioner, GST byanother two months.
If not returned within the prescribed period, then ITC shall beliable to be recovered from the principal as per second provisionto section 141(1) of the Act. In addition, the job worker will have topay the GST on such supplies. In case of semi-finished goods, themanufacturer may transfer the goods to premises of a RegisteredPerson without pay-ment of tax within the prescribed period. Incase of finished goods, the manufacturer may transfer the goodson payment of tax or clear for export within the prescribed period.
(b) Goods removed before 6 months of the appointed day butreturned within 6 months from the appointed day
If such goods are returned by an unregistered person, then refundof the duty/VAT paid under the existing law can be claimed.
If returned by a Registered Person, then the return of goods shallbe treated as supply of goods (ITC can be claimed).
(c) Goods sent on approval basis before 6 months of the appointedday but re-turned within 6 months from the appointed day
No tax is payable by the person returning the goods. Commissionermay extend the peri-od by 2 months. If returned after that, tax ispayable if the supply is taxable under GST (by the recipient). If notreturned, tax is payable by the person who sent the goods on approvalbasis.
(d) TDS deducted in VAT
Where a supplier has made any sale of goods, and tax was requiredto be deducted under VAT Act, and invoice was issued before theappointed day. however, the payment was made on or after theappointed 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 asupplementary invoice or debit notes within 30 days from the dateof 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 creditnote within 30 days from such revision and credit note shall bedeemed to have been issued in respect of outward supply madeunder this Act. A Registered Person will reduce his tax liability forsuch 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 andexisting laws would be repealed. Elaborate provisions have beenmade to save the pending as well future claims relating to existinglaw made before, on or after the appointed day. Such proceedingsmay pertain to refund claims of CENVAT credit/VAT or exportrelated rebate or service tax, and the proceedings may eitherresult in recovery of tax or refund.
All such cases would be disposed of under the existing law. If anyclaim for refund of CENVAT credit is fully or partially rejected, theamount so rejected shall lapse. Refund of CENVAT credit shall bepaid in cash. There will be no refund of CENVAT if already carryforwarded. If any amount becomes recoverable, the same shall berecovered as arrear of tax under GST Act.
Statutory provisions relating to transition are contained inchapter XX (section 139 to 142) of the GST law and the transitionrules available at department website www.cbec.gov.in may bereferred.