Goods and Service Tax – “Transitional Provisions”
By: CS Sanjay Malhotra (Practising Company Secretary / Indirect Tax Expert)
Goods and Service Tax will bring in Business Transformation; hence it’s important to understand the Transitional Provisions to ensure that the proposed tax system takes care of existing tax credits, payments and should not be a TAX COST for the assessee’s.
Due care has to be taken in shift over from Present set of Indirect Tax system to GST Regime so that the required compliances shall be complied with and taxes paid under present taxation system should be rolled over in GST Law.
Appointment of Officers under GST Act (Section 165) of Model GST Law provides that all the officers appointed under Central / State Laws relating to Taxes shall be deemed to have been appointed as GST Officers under the respective Acts.
Migration of Existing Tax Payers (Section 166)
- All the persons registered under the present Tax structure and holding a valid PAN shall be migrated automatically to GST on provisional basis, which is valid for a period of 6 months or extended period as State/Central Govt. may prescribed.
- Every person to whom provisional Registration as stated above has been granted needs to furnish information as may be called for by proper officer and upon furnishing of same, final registration shall be granted by State / Central Govt. officer as the case may be.
- Provisional Certificate issued to Existing Tax payer shall be cancelled if the person fails to furnish the information as called for.
- If the taxable person under the present tax system submits application that he is not liable to be registered under GST Act, then the certificate of registration issued on provisional basis shall be deemed to have not been issued upon cancellation of provisional registration under GST.
Carry Forward of CENVAT Credit in Return to be allowed as Tax Credit in GST (Section 167)
- Registered Taxable person other than a person opting to pay Tax under Composition Levy shall be allowed to take credit of CENVAT / VAT / Entry Tax as available on the day immediately preceding the day on which GST Act comes into force. Tax credit has to be taken as opening balance in Electronic Ledger i.e. online Input Tax Credit Ledger in GSTIN.
- CENVAT Credit available under Excise and Service Tax as on date preceding to GST Act date shall be carried forward in Electronic Ledger under the head “CGST” and Vat / Entry Tax credit under the head “SGST”.
- Tax Credit has to be carry forward provided the same is admissible both under present and in GST law.
- Refund of CST if any under the earlier law shall be refunded as per the provisions of earlier law and no credit / refund is eligible under GST.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Unavailed CENVAT Credit on Capital Goods not carry forward in return to be allowed in GST in certain situation (Section 168)
- Unavailed CENVAT credit means that the Tax credit on capital goods which have not been availed. For e.g. in the present Excise law, CENVAT credit is eligible @ 50% of Tax amount during first year and remaining 50% to be claimed in next F.Y. Hence 50% CENVAT Credit on Capital goods acquired during F.Y. 2016-17 remains unavailed in 2015-16, which can be claimed in 2016-17 in GST Regime.
- Capital Goods shall have meaning as defined in clause 2(a) of CENVAT Credit Rules 2004.
- Registered Taxable person (other than under Composition Levy) shall be allowed to take credit of unavailed credit of CENVAT / VAT / Entry Tax not taken in return furnished under present law and as available on the day immediately preceding the day on which GST Act comes into force.
- CENVAT Credit available under Excise Tax as on date preceding to GST Act date shall be carried forward in Electronic Ledger under the head “CGST” and VAT /Entry Tax credit under the head “SGST”.
- Tax Credit is allowed provided the same is admissible both under present and in GST law.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations (Section 169)
Any person who is into the sales of Exempted goods / Provision of Exempted Services is exempted from Registration under the present Law. Under GST, these persons besides First Stage & Second Stage Dealer, Registered Importer, Providing Works Contract Services, shall have to get himself registered under the GST Act if the products / services come out of exemption or is subject to levy under the GST Act.
Such registered persons under the GST Act shall be eligible to claim Input Tax credit in respect of Inputs, WIP held in stock , Inputs contained in final products as on the date immediately preceding to the Date from which GST Act comes into force.
Such Tax Credit is admissible provided recipient should have Invoice with him, tax credit is admissible under GST, reduced tax benefit has been passed on to Customers and Inputs are used in making Taxable supplies under the Act.
Credit of Eligible duties and taxes in respect of “Inputs held in Stock” to be allowed in certain situations (Section 170)
Registered Taxable Person manufacturing Taxable and Non-Taxable goods shall be eligible to take / carry forward CENVAT Credit in his E-Ledger AND also eligible to avail CENVAT Credit contained in Semi-finished goods, Finished Goods or Inputs lying in stock.
Credit of Eligible duties and taxes in respect of “Inputs or Input services during Transit” (Section 171)
Registered Taxable Person shall be entitled to avail CENVAT Credit in respect of Inputs and Inputs services which was rendered before GST Act comes into force and receipt afterwards, subject to condition that the Invoices / Duty Paying documents shall be recorded in books of accounts within 30 Days from the date Implementation of GST Act.
Credit of eligible duties and taxes on inputs held in stock to be allowed to a Taxable person switching over from Composition scheme (Section 172)
- Any Registered person who is paying tax in the capacity of Composite Tax Payer at a fixed rate or fixed amount under the present tax law of Centre / State shall be eligible to take input Tax credit in Electronic Credit Ledger in respect of Inputs, WIP held in stock, input contained in Finished Goods as on the date immediately preceding to the Date from which GST Act comes into force.
- Tax Credit is allowed provided the same is admissible both under present and in GST law.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Exempted Goods Returned to Place of Business in GST regime(Section 173)
- No Tax shall be payable by the person returning the exempted goods provided the said goods are cleared not earlier than a period of 6 months from the date of enactment of GST Act and further returned to supplier of goods within a period of 6 months from the date on which GST Act comes into force.
- Tax stands payable if the above stated condition is not satisfied.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Dutiable Goods Returned to Place of Business in GST regime(Section 174)
- No Tax shall be payable by the person returning the Dutiable goods provided the said goods are cleared not earlier than a period of 6 months from the date of enactment of GST Act and further returned to supplier of goods within a period of 6 months from the date on which GST Act comes into force.
- Tax stands payable if the above stated condition is not satisfied.
- Refund of tax paid under earlier law shall be available to supplier of goods in case of return of material within 6 months.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Inputs removed for job work and returned on or after the appointed day (Section 175)
- In case Inputs as such or removed for Job work after partially processing under the provisions of present tax law for further processing, testing, repair, etc and are returned after processing within a period of 6 months or extended period of 2 months from the date on which GST Act comes into force, then NO Tax shall be payable.
- Tax shall be payable by manufacturer if the inputs are not received back within a period of 6 months or extended period from the date when GST comes into force OR Tax is to be paid by Job Worker if the goods after processing are returned back after a period of 6 months after the GST enactment date.
- If registered person shows sufficient cause, then the period of 6 months may be extended by another 2 months by the competent authority.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Semi-finished Goods removed for job work and returned on or after the appointed day (Section 176)
- In case Semi-finished goods are removed for carrying out certain manufacturing processes under the provisions of present tax law for further processing, testing, repair, etc and are returned after processing within a period of 6 months from the date on which GST Act comes into force, then NO Tax shall be payable.
- Tax shall be payable by manufacturer if the inputs are not received back within a period of 6 months from the date when GST comes into force OR Tax is to be paid by person returning the goods if the goods after processing are returned back after a period of 6 months after the GST enactment date.
- If registered person shows sufficient cause, then the period of 6 months may be extended by another 2 months by the competent authority.
- Job-Worker and Manufacturer to declare the stock with Job-worker on the appointed day to avail the benefit of above stated provisions.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Finished Goods removed for job work and returned on or after the appointed day (Section 177)
- In case finished goods are removed for carrying out certain processes not amounting to manufacture under the provisions of present tax law and are returned after processing within a period of 6 months from the date on which GST Act comes into force, then NO Tax shall be payable.
- Tax shall be payable by manufacturer if the inputs are not received back within a period of 6 months from the date when GST comes into force OR Tax is to be paid by person returning the goods if the goods after processing are returned back after a period of 6 months after the GST enactment date.
- If registered person shows sufficient cause, then the period of 6 months may be extended by another 2 months by the competent authority.
- Manufacturer has the option as available under the earlier law to remove goods from Job worker premises on payment of duty in domestic market or without payment of duty in case of Exports.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Issue of supplementary invoices, debit or credit notes where price is revised in pursuance of a contract (Section 178)
- In case the price of goods are revised upwards after their clearance from the supplier premises, the taxable person issuing the goods has to issue supplementary Invoice or Debit Note containing such particulars as may be prescribed under the GST Rules within a period of THIRTY DAYS of such price revision.
- In case the price of goods are revised downwards after their clearance from the supplier premises, the taxable person issuing the goods has to issue supplementary Invoice or Credit Note containing such particulars as may be prescribed under the GST Rules within a period of THIRTY DAYS of such price revision
- Such Debit Note / Supplementary Invoice shall be deemed to have been issued as document in respect of Outward supply under GST Act.
- Such Credit Note / Supplementary Invoice shall be deemed to have been issued as document in respect of Inward supply under GST Act.
- Provided that the taxable person shall be allowed to reduce his tax liability on account of issue of the said invoice or credit note only if the recipient of the invoice or credit note has reduced his input tax credit corresponding to such reduction of tax liability.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Pending Refund Claims to be disposed of under earlier Law (Section 179)
- Claim for Refunds submitted by any taxable person in earlier law in respect of Tax/Duty/Interest or any other amount shall be refunded as per the then provisions of Tax laws and any amount accruing to him shall be paid in cash.
- If the claim is fully or partially rejected, then the amount so rejected shall stands to lapse.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Refund claims filed after the appointed day for goods cleared / Exported or Services provided before the appointed day to be disposed of under earlier law (Section 180)
- Provisions for Refund Claims as applicable in the earlier law shall be followed for refund in GST in respect of Goods / Services Exported prior to GST Implementation date.
Refund claims filed after the appointed day for payments received and tax deposited before the appointed day in respect of services not provided (Section 181)
- Provisions for Refund Claims as applicable in the earlier law shall be followed for refund in GST in respect any Tax deposited prior to GST Implementation date.
Claim of CENVAT Credit to be disposed of under earlier Law (Section 182)
- Claim for CENVAT Credit on account of any appeal, revision, review or reference shall be disposed off in accordance with the provisions of earlier law and any amount stands accrue to the person shall be paid in Cash.
- In similar way, any amount stands recoverable on account of any appeal, revision; review or reference shall be recoverable as Tax arrears and shall not be admissible as input tax credit under this Act.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Finalisation of proceedings relating to Output Tax Liability (Section 183)
- Every proceeding initiated under any appeal, revision, review or reference shall be disposed off in accordance with the provisions of earlier law and any amount stands accrue to the person shall be paid in Cash and ANY amount stands recoverable on account of any appeal, revision; review or reference shall be recoverable as Tax arrears and shall not be admissible as input tax credit under this Act.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Treatment of the amount recovered or refunded in pursuance of assessment or adjudication proceedings (Section 184)
- Where any duty / interest / penalty or any other amount is demanded under any appeal, revision, review or reference whether before or after the enactment of GST Act, the same shall be recovered as Tax arrears and amount shall not be admissible as input tax credit under this Act.
- Where any duty / interest / penalty or any other amount becomes Refundable under any appeal, revision, review or reference whether before or after the enactment of GST Act, the same shall be refunded to him in Cash or as per the provisions of earlier act.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Treatment of the amount recovered or refunded in pursuance of Revision of Returns (Section 185)
- Where any duty / interest / penalty or any other amount stands recoverable due to Revision in Return furnished under earlier law, the same shall be recovered as Tax arrears and amount shall not be admissible as input tax credit under this Act.
- Where any duty / interest / penalty or any other amount becomes Refundable due to Revision in Return furnished under earlier law, the same shall be refunded to him in Cash or as per the provisions of earlier act.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Treatment of long term construction / works contracts (Section 186)
- Tax is applicable at the rates specified under GST Act in respect of Supply of Goods and services provided after the enactment of GST Act even if the agreement / contract is executed prior to introduction of GST Act.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Progressive or periodic supply of goods or services (Section 187)
- No Tax is payable if the payment has been received and tax has been deposited prior to the introduction of GST Act in respect of Supply of Goods and services after the enactment of GST Act.
- The above provisions shall be incorporated under respective CGST and SGST Acts.
Taxability of Goods / Services in Certain Cases (Section 188-189)
- Tax shall be payable as per the earlier provisions of the Point of Taxation if the said POT arose prior to the GST Act comes into force.
Credit distribution of service tax by ISD (Section 190)
- Input Tax shall be distributed by ISD on the invoices issued before the enactment of GST and received after the enactment of said act.
Provision for transfer of unutilized CENVAT Credit by taxable person having centralized registration under the earlier law (Section 191)
- Taxable person having Centralised Registration in earlier law shall take the CENVAT Credit carry forward in return on the appointed date in E-Ledger.
- Taxable person shall transfer the CENVAT Credit to any of registered persons having same PAN for which Centralised Registration has been taken.
Tax paid on Goods lying with Agents to be allowed as Credit under SGST Law (Section 192)
- This provisions shall be incorporated only under respective SGST Acts.
- Input Tax credit is admissible to the Agent in respect of goods lying at his place subject to the following conditions:-
- (i) the agent is a registered taxable person under this Act;
- (ii) both the principal and the agent declare the details of stock of goods lying with such agent on the date immediately preceding the appointed day in such form and manner and within such time as may be prescribed in this behalf;
- (iii) the invoices for such goods had been issued not earlier than twelve months immediately preceding the appointed day; and
- (iv) the principal has either reversed or not availed of the input tax credit in respect of such goods.
Tax paid on Capital Goods lying with Agents to be allowed as Credit under SGST Law (Section 193)
- This provision shall be incorporated only under respective SGST Acts.
- Input Tax credit is admissible to the Agent in respect of CAPITAL goods lying at his place subject to the following conditions:-
- (i) the agent is a registered taxable person under this Act;
- (ii) both the principal and the agent declare the details of stock of capital goods lying with such agent on the date immediately preceding the appointed day in such form and manner and within such time as may be prescribed in this behalf;
- (iii) the invoices for such goods had been issued not earlier than twelve months immediately preceding the appointed day; and
- (iv) the principal has either reversed or not availed of the input tax credit in respect of such capital goods of if credit has been availed, has reversed the credit to the extent availed by him.
Treatment of Branch Transfers (Section 194)
- This provision shall be incorporated only under respective SGST Acts.
- Input Tax credit shall not be admissible in respect of any amount reversed prior to the introduction of GST Act.
Goods sent on approval basis returned on or after the appointed day (Section 195)
- No Tax shall be payable by manufacturer if the goods sent on approval basis not earlier than 6 months from date of enactment of GST Act and are further not received back within a period of 6 months from the date when GST comes into force.
- If registered person shows sufficient cause for delay, then the period of 6 months may be extended by another 2 months by the competent authority.
- The above provisions shall be incorporated only under SGST Acts.
Deduction of Tax at Source (Section 196)
- Where a supplier has made any sale of goods in respect of which tax was required to be deducted at source under the earlier law and has also issued an invoice for the same before the enactment of GST act, NO deduction of tax at source shall be made by the deductor under the said section where payment to the said supplier is made on or after the enactment of GST Act.
Transitional provisions for availing CENVAT credit in certain cases (Section 197)
- Wherever CENVAT Credit has been reversed due to non-payment to the supplier within a period of 3 months, the same can be reclaimed subsequently upon payment of consideration to supplier.
