Transitional provisions under GST-Part I
Transitional provisions under GST-Part I
In our 9th article of the series, we are discussing the very important aspect of MGL that is transitional provisions, provided in model law for all the existing taxpayers. The transitional provisions are applicable to all the existing taxpayers and will impact majorly for assessees registered under central excise, service tax, state VAT.
Issue 1: Migration/Enrollment of existing taxpayers into GST
Section 166 of MGL provides for migration of existing taxpayers into GST. It provides that on the appointed day (more likely to be 01-07-2017), every person who is registered under any of the earlier laws (e.g. Service tax, Excise, State VAT, Luxury tax, etc.) and having a valid PAN shall be granted a registration on a provisional basis and certificate of registration in FORM GST REG -21. Every person who has been granted the provisional registration shall submit an application electronically in FORM GST REG–20 duly signed along with documents specified in such form within 6 Months from the date of issue of provisional certificate. On the basis of documents furnished, the proper officer may issue the Final certificate of registration under Form GST REG-06. The same shall be available on the common portal (www.gst.gov.in ).
A person to whom a certificate of registration has been issued on a provisional basis and who is eligible to pay tax under section 9 i.e. composition scheme, may opt for composition scheme while filing the application for final registration.
Issue 2: Carry forward of Cenvat credit OR VAT as per the return filed under earlier law
Section 167 of MGL provides for Carry forward of Cenvat credit in a return to be allowed as Input tax credit. It provides that a registered taxable person (except composition dealer in GST law) shall take the input tax credit of amount of cenvat credit carried forward by him in the return relating to the period ending (most likely 30-06-2017) on previous day of appointed day.
But, we need to make sure that such Cenvat credit in admissible as Input tax credit under GST law.
Further, the credit of VAT would be allowed to be carried forward in the return furnished for the period ending on the previous day of appointed day as input tax credit, to a registered taxable person (except the composition dealer in GST law). The credit of VAT will be allowed to be carried forward not later than 90 days from the appointed day.
The amount carried forward shall be available as balance in electronic credit ledger of the taxpayer as CGST, SGST.
Further, as per the BGM released by ICAI on revised MGL, the existing tax payer shall be allowed to carry forward the Education cess and Secondary higher education cess as per the return filed in the earlier law. Cenvat credit of KKC shall not be allowed to the manufacturer and Cenvat credit of SAD shall not be allowed to the service provider. However, this may require more clarity from the CBEC.
Issue 3: Carry forward of Cenvat credit on Capital goods
Section 168 of MGL provides for un-availed CENVAT credit on capital goods, not carried forward in return, to be allowed in certain situation. It provides that a registered taxable person, shall be allowed to carry forward the un-availed cenvat credit in respect of capital goods, not carried forward in return, furnished under earlier law. However, the said credit should be admissible under the earlier law as well as under provisions of revised MGL. Un-availed cenvat credit means the cenvat credit amount remains after reducing the amount of cenvat credit claimed in the return for earlier period. Same is the case for VAT dealers.
For eg. In case a service provider is having Rs. 50,000 of CVD 3(1) is unclaimed cenvat credit as on 01-07-2017, the amount of Rs. 50,000 shall be allowed to carried forward in the electronic credit ledger.
Please also note that incase of any excess claim found then it shall be recovered under the GST law.
Issue 4 – Carry forward of cenvat credit if not claimed in return filed under earlier law
This is the situation which has not yet been addressed. For eg. If a registered taxable person does not claim the cenvat credit in the return filed for the period ending on day immediately preceding the appointed day, then such credit shall not be allowed to carry forward in electronic credit ledger. Therefore, it is advised to claim the cenvat credit in the return and loose no benefit.
Issue 5 – Cenvat credit of excise duty paid and State VAT paid in respect of inputs
The CGST law provides that the following persons shall be allowed to get the credit on inputs-
- A person not liable to be registered under earlier law(eg. Service tax, Excise, law, VAT)
- A person manufacturing or providing exempted goods or services respectively,
- A person availing the benefit of abatement notification,
- First stage dealer or Second stage dealer,
These persons shall be entitled to take credit of eligible duties and taxes in electronic credit ledger. The credit shall be allowed on inputs held in stock, inputs contained in semi-finished or finished goods held in stock as on appointed day. (Most likely 01-07-2017)
- Such inputs and / or goods are used or intended to be used for making taxable supplies under his Act – SUCH INPUTS ARE USED FOR SUPPLYING TAXABLE OUTPUT;
- The said taxable person passes on the benefit of such credit by way of reduced prices to the recipient – REDUCTION IN PRICE CORRESPONDINGLY;
- The said taxable person is eligible for input tax credit on such inputs under this Act – ELIGIBLE FOR INPUT TAX CREDIT UNDER GST;
- The said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law in respect of such inputs – POSSESS A VALID DOCUMENT EVIDENCING PAYMENT OF DUTY. THIS CONDITION IS APPLICABLE ON SUPPLIER ON MANUFACTURER AND SUPPLIER OF SERVICES. FOR OTHER SUPPLIERS, CONDITIONS AND SAFEGUARDS SHALL BE PRESECRIBED;
- Such invoices and /or other prescribed documents were issued not earlier than 12 months immediately preceding the appointed day. – DOCUMENT SHOULD NOT BE OLDER THAN 12 MONTHS ON APPOINTED DAY i.e. if input purchased vide invoice dated 01-07-2016 is available in stock then it will be eligible document.;
- The supplier of services is not eligible for any abatement under the Act – THE SUPPLIER IS NOT A SUPPLIER OF SERVICE WHICH COVERED UNDER ABATEMENT PROVIDED IN GST LAW;
Please also note that Eligible duties and taxes means excise duty, service tax, CVD 3(1), CVD 3(5), etc.
The SGST law provides that a person who:-
- was not liable to be registered under the earlier law or
- who was engaged in the sale of exempted goods under the earlier law but which are liable to tax under this Act,
shall be entitled to take, in his electronic credit ledger, credit of the Value Added Tax (VAT) in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions:
- Such inputs and / or goods are used or intended to be used for making taxable supplies under his Act – SUCH INPUTS ARE USED FOR SUPPLYING TAXABLE OUTPUT;
- The said taxable person passes on the benefit of such credit by way of reduced prices to the recipient – REDUCTION IN PRICE CORRESPONDINGLY;
- The said taxable person is eligible for input tax credit on such inputs under this Act – ELIGIBLE FOR INPUT TAX CREDIT UNDER GST;
- The said inputs are not specified in schedule, rules or notification (as provided in earlier law) as inputs on which credit is not admissible – SPECIFIED INPUTS ON WHICH CREDIT IS NOT ELIGIBLE
- The said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law in respect of such inputs – POSSESS A VALID DOCUMENT EVIDENCING PAYMENT OF DUTY. THIS CONDITION IS APPLICABLE ON SUPPLIER ON MANUFACTURER AND SUPPLIER OF SERVICES. FOR OTHER SUPPLIERS, CONDITIONS AND SAFEGUARDS SHALL BE PRESECRIBED;
- Such invoices and /or other prescribed documents were issued not earlier than 12 months immediately preceding the appointed day. – DOCUMENT SHOULD NOT BE OLDER THAN 12 MONTHS ON APPOINTED DAY i.e. if input purchased vide invoice dated 01-07-2016 is available in stock then it will be eligible document.;
FAQs:
- 1 When will the provisional registration be converted into final registration?
Ans. A person holding the provisional registration certificate shall submit the prescribed information and documents as per the GST rules within 6 months or the extended period. On furnishing the information and documents the final registration will be issued.
- 2 Can a person who is registered under the earlier law opt out of GST voluntarily?
Ans. Yes, by making an application a person can opt out of GST. But only after getting the provisional registration.
- 3 What happens where distinct registrations are obtained under the Central Excise/Service Tax law for distinct units/ business premises in one State?
Ans. All units/ business premises registered either under Central Excise or Service Tax law would be consolidated into a single CGST registration for that State, unless they qualify as distinct business verticals under the GST law. Even if they qualify as distinct business verticals, then taxable person has option to opt for single registration for all such business verticals.
Q.4 Will a person registered in a State say Delhi be eligible to claim credit if he does not take registration in that State under GST for any reason say closure of operations etc.?
Ans. The credit claimed in the return of a particular State will ordinarily be eligible to be carried forward only in terms of the SGST law of that State, in the instant case, Delhi and cannot be availed as credit under any other State GST Law.
Q.5 Is there a provision to claim credit if not carried forward in the return for capital goods?
Ans. Yes. Section 168 of revised MGL provides for claiming un-availed credit in respect of capital goods only. However similar provisions do not exist for inputs and input services, except inputs in transit as on the appointed day.
Q.6 How will the condition of reduced price to recipient be satisfied?
Ans. The component of eligible duties and taxes should be reduced from the ordinary sale price to pass on the benefit of reduced prices. This is illustrated by way of a comparative example in respect of a trader –
Particulars |
Earlier law |
GST Law |
Basic cost |
1,00,000 |
1,00,000 |
Excise duty @ 12.50% |
12,500 |
-(Since cenvatable) |
Total cost |
1,12,500 |
1,00,000 |
|
|
|
Selling price |
1,50,000 |
1,37,500 |
Profit markup |
37,500 |
37,500 |
In the above illustration if the registered taxable person sells at Rs. 1,50,000, only he will get the benefit of credit.
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the authors are personal view and this cannot be quoted before any authority without the written permission of the authors. This article is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this article will be accepted by authors. It is recommended that professional advice be sought based on the specific facts and circumstances. This article does not substitute the need to refer to the original pronouncements on GST. (Authors – CA Neeraj Kumar and CA Deepak Arya, RAPG & Co. Chartered Accountants from Delhi and can be reached at info@rapg.in, 9999836182/9818449179)
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