TMI BlogTransitional provisions related to credit under GSTX X X X Extracts X X X X X X X X Extracts X X X X ..... Transitional provisions related to credit under GST - By: - Abhishek Gupta - Goods and Services Tax - GST - Dated:- 29-12-2016 - - Transitional Provisions for CENVAT Credit under GST Need for Transitional Provisions To facilitate the implementation of any new law or amendment in old law, role of transitional provisions comes into play. As India in gearing up for one of the biggest tax reform of its country, it is very important to read, analyze and assess the impact of GST Law and in amid these discussions of GST, transitional provision plays a very critical role for smooth migration to GST. Implementation of GST from 1 st April, 2017 seems to be a challenging task. Finance Minister Shri Arun Jaitley after meetings with GST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... council has shared his concerns on the deadline of GST but he is trying his best for GST rollout. On Goods and Service tax council s 7 th meeting, Shri Arun Jaitley said that the drafts of Central GST and the compensation law have been mostly approved with the only portions relating to dual control being left out . Next step will be to look into the drafting of IGST Act. But, yes we can say that GST is an unquestionable new indirect tax of India. It may be deferred but yes it will come. Chapter XXVII of Model GST Law prescribes the transitional Provisions under GST. Transitional provisions are very important for exiting indirect tax payers as it will enable them to migrate into different aspects like migration, CENVAT Credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, sales return, job work, refund, pending contracts, stock transfers etc. Closing balance of CENVAT Credit Section 167 of Model GST Law provides for the amount of CENVAT Credit carried forward in a return to be allowed as input tax credit. This would be a facilitating section allowing the assesse to carry forward their closing balance of CENVAT Credit under current indirect tax laws regime to GST regime. CENVAT credit can be related to input, input service and capital goods as defined in CENVAT Credit Rules, 2004. Balance of CENVAT Credit carried forward in the return will become opening balance of input tax credit in electronic credit ledger. This balance of CENVAT credit will be known as CGST (central goods ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax). What is electronic credit leger in GST? All the input taxes under various major heads i.e. CGST, SGST and IGST shall be credited to an electronic ledger. Any availment of input tax credit will be credited in the ledger and any utilization, refund, reversals will be debited in the ledger. Section 2(43) of Model GST Law , electronic credit ledger means the electronic credit ledger referred to in section 44(2) . As per section 44(2) self-assessed input tax credit shown in the return will be credited in a ledger which will be called as electronic credit ledger. GST will subsume VAT and entry tax in itself, therefore, closing balance of VAT and entry tax carried forward in a return shall be entitled for in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put tax credit. This balance of Vat or entry tax will be known as SGST (State Goods Service tax). Eligibility of Input tax credit in GST Following conditions needs to be considered before carrying forward the said credit: The CENVAT Credit must qualify as admissible input credit under both, the existing law and the GST Law. The CENVAT Credit must have been reflected as input credit carried forward in the return filed for the last period under existing law. It is important to note that the admissible CENVAT Credit as per last return filled under current indirect tax laws would be considered and recognized. The closing credit balance in book of accounts would be immaterial. Credit on capital goods not carried fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward in return to be allowed as ITC In respect of capital goods, under the CENVAT Credit Rules, 2004 , only 50% credit can be availed during the first year. The remaining 50% of credit can be availed in any of the subsequent financial years. This section enables a registered taxable person to avail the balance un-availed CENVAT Credit in his electronic credit ledger. The expression un-availed CENVAT Credit means the amount that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the earlier law from the aggregate amount of CENVAT credit to which the said person was entitled in respect of the said capital goods under the earlier law. A registered taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble person is not allowed to avail credit under this section unless CENVAT Credit was admissible to him under the earlier law and GST as well. It is very important to recap here that time limitation of availing credit from 1 year from date of invoice is applicable only on inputs or input services and not on capital goods. Similarly a registered taxable person can take in his electronic credit ledger, the un-availed input tax credit(levied under state VAT laws) in respect of capital goods, which is not carried forward by such taxable person in his return filed for the period immediately preceding the appointed date. Credit of eligible duties and taxes in inputs held in stock to be allowed A registered taxable person will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed to avail CENVAT Credit of duties paid on inputs held in stock, contained in semi-finished goods or finished goods held in stock, on the appointed day, subject to certain conditions. Such registered taxable person should have been- Person not liable to be registered under earlier law Engaged in manufacture of exempted goods or provision of exempted service Was providing work contact service and paying tax on abated value First stage dealer or second stage dealer or registered importer Under the earlier draft of Model GST law kept in the public domain in June 2016; this provision is applicable only for those who is not liable to be registered under the earlier law or manufacturer of exempted goods As inputs ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n also be used by a service provider or first stage dealer or second stage dealer or register importer, this facility has been now extended to them also by virtue of section 169 of revised model GST law. Similarly, in case of VAT or entry tax, a person who has not liable to be registered under the respective VAT laws or who was engaged in the sale of exempted goods under the earlier law but liable to pay tax under this act can also take input tax credit in electronic credit ledger. Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations A registered taxable person who was engaged in manufacture of non-exempted as well as exempted goods or provision of non-exempted as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as exempted services shall be entitled to take in ledger credit carried forward in return and credit of inputs held in stock relating to exempted goods or services. Credit of duties and taxes in respect of input and input services in respect of goods in transit It may be happen that the goods may have been dispatched before the appointed day, on payment of appropriate excise duty, service tax, and Vat or entry tax, however the same were received by the taxable person after the appointed day. In such a situation, a registered taxable person receiving such goods and or services after the appointed day, on which appropriate duty or tax has been paid under the earlier law shall be entitled to take in his electronic credit ledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the amount of tax paid earlier. The condition to be fulfilled to avail such credit shall be that the bill or invoice should be recorded in the books of accounts within a period of thirty days from the appointed day. Also, assessee shall furnish a statement in respect of credit that has been taken. Credit of duties and taxes on inputs held in stock while switching over from the composition scheme Where a taxable person has opt for composition scheme under earlier law paying tax at a fixed rate or paying a fixed amount instead of the tax payable amount and paying tax at normal rate in GST, then he is entitled to take credit in electronic credit ledger of inputs held in stock subject to following conditions:- The inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uts or goods should be used for making taxable outward supply under the GST Assessee should not be working under composition scheme Taxable person is eligible for availing input tax credit on such inputs Taxable person is in possession of supporting documents Such documents were not issued earlier than 12 months immediately preceding the appointed day Illustration : X ltd. registered in Delhi is manufacturing medical equipment s on which 10% excise duty is applicable and is providing health care services which is exempted by notification number 25/2012 . Also, Delhi vat @5% is payable on sale of medical equipment s. No composition scheme is opted by X ltd under earlier law as well as under GST law. X ltd. is also engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in inter-state sale of goods attracting CST@2% and paying Octroi (entry tax) on receipt of goods in Delhi. In 2016-17, the following data is available: Closing balance of CENVAT credit shown in last return: Capital Goods on plant and machinery purchase on 8 th August, 2016(50%)- ₹ 1,00,000 Inputs-Rs 25,000 Input services- ₹ 20,000 From above closing balance, credit of input service of value ₹ 1,000 is eligible as per CCR, 2004 but not eligible under GST. Closing balance of credit of VAT shown in last return: ₹ 10,000 Closing balance of credit of entry tax shown in last return: ₹ 12,000 Credit attributable to section 3 , 5(3) , section 6 or section 6A of the CST Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1956 claimed within the time of rule 12 of CST(Registration and turnover) Rules, 1957 - ₹ 6,000 CENVAT credit of inputs held in stock exclusively used for exempted health care service is Rs . 15,000 On 28 th March, 2017 Y ltd, a vendor of X ltd. removed goods from factory and pay excise duty of ₹ 2,000 on it. These goods are received by X ltd. on 4 th April, 2017. Details of April 17 is as follows: Supply of medical equipment s (amount of sale) ₹ 20, 00, 000 Supply of health care services ₹ 10, 00, 000 Out of above supplies, X ltd. made inter-state supply of value ₹ 5, 00, 000 Rate of CGST, SGT and IGST are 9%, 9% and 18% respectively. Suggest tax compliances as GST will roll- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out on 1 st April, 2017 considering an assumption that supplies of goods or services made by X ltd. will be taxable under GST. Solution: As per section 167 of Model GST Law : Closing balance carried forward in return will become input tax credit under GST Input tax credit as per section 167 will be: Particulars Amount Remarks Capital Goods 1,00,000 It can be claimed as ITC in electronic credit ledger at any period of time. No time limitation is given Inputs 25,000 Input Services 19,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total-CGST 1,44,000 It can be claimed as ITC in electronic credit ledger within 90 days from the appointed day VAT 10,000 Entry tax 12,000 Total-SGST 22,000 Refund of CST as per earlier law is allowed under section 167 - ₹ 6,000 Input tax credit under section 168 of un-availed credit of capital goods is ₹ 1, 00, 000 (CGST) Credit of inputs used for exempted service allowed under section 170 - ₹ 15,000 (CGST) Credit of inputs received on 4 th April, 2017 allowed under section 171 -Rs. 2,000 (CGST) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total input tax credit is: CGST: ₹ 2, 61, 000(1, 44, 000+1, 00, 000+15,000+2,000) SGST: ₹ 22,000 Supply of goods and service in April 2017: Particulars Amount Intra-state supply of goods/services ₹ 25, 00, 000 Add: Taxes on intra-state supply: CGST (9%) ₹ 2, 25, 000 SGST (9%) ₹ 2, 25, 000 Total GST on intra-state trade ₹ 4, 50, 000 Paid by: Input Tax Credit(electronic credit ledger) CGST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2, 25, 000 SGST ₹ 22, 000 Cash or bank(electronic cash ledger) ₹ 2, 03, 000 *for SGST payment credit of CGST cannot be utilized Inter-state supply of goods/services ₹ 5, 00, 000 Add: Taxes on inter-state supply: IGST (18%) ₹ 90, 000 Paid by: Input Tax Credit(electronic credit ledger) Nil Cash or bank(electronic cash ledger) ₹ 90, 000 Credit of CGST of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36,000(2, 61, 000- 2, 25, 000) will become opening balance of Feb 17 First payment of IGST will be made in cash/bank as opening credit is not available. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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