TMI BlogVerification of Transitional Credit (TRAN-1) claimed under GST in Electronic Credit Ledger.X X X X Extracts X X X X X X X X Extracts X X X X ..... h the Transitional Credit is to be taken under the GST law. 1.2. For verification of the Transitional Credit taken to the Electronic Credit Ledger, Economic Intelligence Unit (EIU) has already shared the data with the respective Joint Commissioner of State Tax who in-turn must have shared this data with the respective Nodal Officer(s). The instructions issued earlier clearly stated that the verification of the TRAN-1 credit is to taken in a time bound manner and to be taken to the logical end. This exercise should have been completed at earliest. However, no feedback is received from concerned Joint Commissioner(s) about the outcome of the verification of the TRAN-1 credit so undertaken. 1.3. It is hereby clarified that the MGSTD (State Tax) authorities should only verify the Transitional Credit in respect of MVAT and Entry Tax. In other words, the State Tax Authorities should not undertake the verification of the CENVAT credit pertaining to the Central Excise Act or, as the case may be, the Service Tax Act. 1.4. As you all are aware that the date for submission or revision of FORM-GST-TRAN-1 at GSTN portal was finally extended to the 27th December 2017. Thus, the tax paye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of excess credit carried forward shown in the return filed for the period ending June-2017. 3.3. Further, the input tax credit as attributed to the inter-State sales, Branch Transfer/Consignment Transfer, or deemed export, sales to Special Economic Zone and where declarations or certificates i.e. Form-C, Form-F, Form-H, and Form-I as provided under the Central Sales Tax Act, 1956 has not been received then to such extent, the tax payer is not entitled to take credit of ITC into Electronic Credit Ledger. This can be explained with the help of the Example given below: Example-A (1) Say tax payer A has filed the return for the period ending June-2017 and disclosed the excess credit carried forward at ₹ 10,00,000/-. The said tax payer is entitled to take credit into Electronic Credit Ledger upto ₹ 10,00,000/-. It should be kept in mind that in no circumstances the said tax payer could claim such credit in the Electronic Credit Ledger in excess or ₹ 10,00,000/-. (2) Needless to state that such credit is further subject to the reduction on account of non-receipt of declarations or Certificates under CST Act, 1956 Viz. Form-C, Form-F, Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Nodal Officer concerned shall verify the details in the return filed for the period ending June-2017 or, as the case may be, for the period 2015-16 and 2016-17 filed under MVAT Act and CST Act (or Audit Report wherever available) i.e. Sales u/s 8(1) i.e. Inter-state sales, deemed Exports and value of Branch Transfers/ Consignment Transfers sent outside the State. 3.6. The Input Tax Credit under this category is claimed in the FORMTRAN-1 TABLE as shown below: 5(a)-Amount of credit carried forward to Electronic Credit Ledger as State tax (Section 140(1) and 140(4)(a)]; 5(b)-Details of statutory forms received for which credit is being carried forward. (It may be kept in mind that the information in respect of Statutory forms and declarations is to be given starting from 1st April 2015 and ending on 30th June 2017. 5(c)- Amount of credit carried forward to Electronic Credit Ledger as State tax. The details with regards to turn-over of sales/transfer etc. vis- -vis form pending is given in this Table. This information is also required to be given starting from 1st April 2015 to 30th June 2017. 3.7. In case, after verification of the details as aforesaid or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nic Credit Ledger: 5.1. A registered taxable person as per the provisions of section 140 (3), will be entitled to take into Electronic Credit Ledger, the credit under MVAT Act, in respect of the inputs held in the stock and inputs contained in the semi-finished or finished goods held in the stock as on the 1st July 2017, under the following circumstances: (1) that registered person was not liable to be registered under the MVAT Act or; (2) was engaged in the sales of exempted goods or tax free goods or; (3) the goods which have suffered tax at the first point of their sale in the State and the subsequent sales of which are not subject to tax in the State under existing law but which are liable to tax under this Act or (4) where the person was entitled to take credit of input tax at the time of sale of goods (Eg. Set-off u/r 52A and 52B of the MVAT Rules, 2005) provided that no set-off in this situation is claimed by the tax payer albeit contrary to the provisions of aforesaid rules. 5.2. Entitlement of such credit to be taken into Electronic Credit Ledger is subject to the following conditions: (1) such inputs or goods are used or intended to be used for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been explained in the preceding para s pertaining to credit claim under section 140(1) of the MGST Act. The Tax payer can claim said credit under Column 5(a) of the Table of FORM-GST-TRAN-1 (2) Clause (b): (a) The entitlement of credit under this clause is applicable to the tax payer who was engaged in the sales of taxable as well as exempted (tax free) goods. Such tax payer was entitled to claim the input tax credit under rule 52 of the MVAT Rules, as reduced by the provisions of rule 53 of MVAT Rules. (b) Under MVAT Act barring few exceptions, the set-off was allowed to be claimed, in the month in which the purchases are made, and the set-off was reduced in the month in which the tax free sales or exempted sales takes place. In other words, under MVAT Act, there is no prohibition to claim set-off in the month in which purchases are made. (c) Hence, under MVAT Act, the tax payer is entitled to claim set-off in respect of the inputs held in the stock or the inputs contained in the semi-finished or finished goods held in the stock in the return filed for the month of June2017 except in the cases where the inputs contained in semi-finished or finished goods are cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the said goods are received within the time limit i.e. on or before 30th August 2017 or within such period as may be extended by the Commissioner of State Tax. 7.4. Any deviation or excess claim of credit which is taken in breach of aforesaid provisions need to be reversed. It may also be confirmed from the office of the concerned Joint Commissioner as to whether an extension is given. The details about such extension, if any, given by the Joint Commissioner, shall be kept on record. 7.5. In the event, the tax payer has claimed the said credit in breach of aforesaid provisions then the tax payer may be advised to reverse the said ITC through the return in FORM-GSTR-3B of the subsequent month for which the return is pending. 8. This part of the Internal Circular explains the credit entitlement of a Builder and Developer under GST: Sub-sections (1) and (6) of section 140- The Transitional Credit Entitlement of a Builder and Developer is explained below: 8.1. The provisions of this sub-section are applicable to a registered taxable person who was paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under MVAT Act. Thus, tax payer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... builder, shall be entitled to take to GST Electronic Credit Ledger, the credit of VAT shown as excess credit in the return for the period ending June-2017, subject to the fulfilment of conditions provided in the MGST Act. (2) In other words, under the circumstances given in Para-(1) above, excess VAT credit shown as per the last VAT return i.e. for period ending June-2017 would be allowed to be taken into Electronic Credit Ledger as per the provisions of section 140(1) of the MGST Act. 8.6. Claim of Credit under section 140(6) of MGTS Act: (a) In case a builder was not paying the taxes as per rule 58 and instead had opted to pay fixed amount in lieu of VAT i.e. under Composition Scheme [Section 42(3A)] then, such builder would be entitled to take credit of VAT into Electronic Credit Ledger, in respect of inputs held in stock. (b) In order to determine the credit of VAT availability to the said Builder and Developer in respect of the inputs contained in semi-finished goods i.e. contained in work in progress; and inputs contained in finished goods, it is necessary to examine the provisions relating to the Inputs , Goods and section 140(6) of the MVAT Act. (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shall not be entitled to claim the credit of VAT in respect of the capital goods that are held in the stock as on the 1st July 2017. 8.7.4. Further, it is seen that the term Goods does not include a building under construction being permanently attached to earth i.e. immoveable property. The building whether semi-finished or finished and which remains unsold as on 30th June 2017 cannot be treated as goods being the immoveable property to the extent inputs contained in semi-finished or finished goods as on 1st July 2017. 8.7.5. The section 2(6) of the Registration Act, 1908 defines the term immovable property which includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass. 8.7.6. Thus from the above definition the things permanently attached to earth shall mean the immoveable property and hence Building or the work in progress i.e. the inputs contained in semi-finished or finished goods, will not get covered under the term goods as defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, extent of the credit pertaining VAT available or not available in respect of inputs held in stock and inputs contained in semi-finished goods or finished goods, that may be taken into Electronic Credit Ledger is explained with the help of example given below: Table-2 Sr. No. Details Qty. in Bags Amount in Rs. VAT @ 13.5% (1) Opening Stock of Cement as on 01.07.2016 having cost ₹ 300 per Bag 2000 6,00,000 81,000 (2) Cement purchase during the period 01.07.2016 to 30.06.2017 having cost ₹ 300 per Bag 6000 18,00,000 2,43,000 (3) Cement lying in stock as on 30.06.2017 having cost ₹ 300 per Bag. 3000 9,00,000 1,21,500 (4) It may be seen from the above TABLE that credit of ₹ 1,21,500/- of VAT pertaining to the inputs i.e. 3000 Bags of cement held in the stock as on 30th June 2017, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) Opening Stock of Cement as on 1 st July 2017 ₹ 300 per Bag 2000 6,00,000 81,000 (2) ADD : Cement purchase during the period 01.07.2016 to 30.06.2017 ₹ 300 per Bag 6000 18,00,000 2,43,000 (3) LESS : Cement lying in stock as on 30.06.2017 @ ₹ 300 per Bag. 3000 9,00,000 1,21,500 (4) Proportionate value of cement contained in Work in Progress for 40 flats. 5000*40/50=4000. Cement pertaining to within one year and beyond one year. 4000 12,00,000 1,62,000 (5) Cement contained in semi-finished goods or finished goods in the under construction of 40 flats [2-3] (Where invoice date is within one year period i.e. after 1 st June 2016) 2000 6,00,000 81,500 (6) Ceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the aforesaid definition that unlike the MVAT law the works contract relates to only the contracts relating to the immoveable property and therefore will not cover the contract for undertaking works in relation to moveable property. (3) As discussed above, under GST law, a contract for construction of flats, commercial complex, building, civil structure etc. is considered as supply of service . Please see MGST Act [Schedule II, para 5 clause (b)]. (4) Under MGST Act, the aforesaid works contract undertaken by a developer would be a supply of services and the developers liability to pay tax under GST would normally arise at the time of supply [Sec. 13 of MGST Act] which is earliest of the date of issue of invoice or the date of receipt of payment, or the date of provision of service etc. (5) Examined in the light of the aforesaid provisions, the issue of taxation in relation to the works contract under GST would arise in respect of the contracts that are continued even after the date of commencement of MGST Act i.e. on or after 1st July 2017. Please see the Chapter XX of the MGST Act [Transitional Provisions], provides for different contingencies and the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developer was required to compute the 1% composition amount in case of agreement for sale has not been registered till 31st May 2017 but the developer has received the advance. In such scenario the developer was given an option to pay the 1% of the Advance amount received on or before 31st May 2017. This payment was required to be made on or before 30th June 2017. (b) with effect from 1st June 2017 to 30th June 2017, the developer was required to pay 1% of the Advance Amount received irrespective whether the agreement is registered or not on or after 1st June 2017. This amount was required to be paid on or before 21st July 2017. (7) The section 42(3B) of MVAT Act was also amended so as to provide credit of the amount paid earlier i.e. on or before the 30th June 2017 vis- -vis supply that is made on or after the 1st July 2017 i.e. during the GST period. In other words, the Developer would be liable to pay GST to the extent of the supply made on or after 1st July 2017 and take the credit in proportion to such supply after 1st July 2017. (8) The rule 118 of the MGST Rules provides for the entitlement of a Developer for the proportionate credit in respect of aforesaid continge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act, 1994 (Billed amount). 2,00,00,000 4. VAT paid 1% of the on value stated in the agreement. 3,00,000 5. Supply made on or after 1 st July 2017 1,00,00,000 6. Liability under GST 1,00,000,000*12% 2,00,000 7. Less: Input tax credit available (in respect of inward taxable supply (with tax invoice) made on or after 1 st July 2017. 4,00,000 8. Balance GST payable 8,00,000 9. Credit that may be taken into Electronic Credit Ledger (33% of 3 Lakh i.e. the supply taking place under GST) 99,000 10. GST payable 7,01,000 Transactions on or after 1st June 2017 and where the agreement for sale is not registered or not. Table-5 Sr. No. Particulars Amount in Rs. (1) Value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Nodal Officer shall verify as to whether the tax payer has revised the return and increased the VAT credit amount carried forward. In such cases, the tax payer is entitled to claim the VAT credit that is carried forward in the Original return, In case such credit is as per the revised return then then the excess credit so taken under GST need to be reversed. The Nodal Officer for this purpose may issue notice in FOMR-603 under MVAT Act and ascertain the aforesaid factual aspects. (4) On the basis of the data provided by the EIU and that is available on the SAP portal under BI Launch pad under various reports, the Nodal officer shall take into account the available information and in case there is a mis-match then issue the notice in FORM-603 and call for the information in this respect. On receipt of the information, in case the excess credit is noticed then in the cases other than the claim of credit on account non-receipt of declaration, for recovery of the such excess VAT credit taken into Electronic Credit Ledger under GST, the process of Demand and Recovery as given in section 73 or 74 of the MGST Act need to be undertaken. After providing the opportunity of being heard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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