With NDA government releasing the Model GST Law on 14/06/2016 the government had signaled that 01.04.2017 could be the appointed day for enactment of GST. In this regards it becomes important to understand the Transition provisions under the Law;
As per Section 142 every person registered under any of the earlier laws be it Central Excise, VAT, Service Tax etc. shall be mandatorily given registration on provisional basis. Further on submission of the required documents and information the provisional registration of the taxable person shall be confirmed by the government.
The Various issues which a business unit/service provider shall face in this change over from earlier law to GST would be:
- Carry forward of Cenvat Credit.
- Un-availed Cenvat Credit on capital goods
- Cenvat Credit in respect of stocks held in the date of enactment.
- Cenvat Credit issues for taxpayers covered under the composition scheme.
- Goods return/Movement of Goods and Services after the Appointed day to enact GST.
- Cenvat Credit in the case of Job Work
- Revision of prices after the enactment of GST
- Refunds pending in the earlier law
- Issues relating to continuous supply of goods and services
- Issues of tax in case of goods lying with the agent.
- Credit Distribution of service tax by Input Service Distributor.
- Treatment of long term construction/works contracts.
1. Issues relating to carry forward of Cenvat Credit:
As per section 143(1) the taxpayer shall be eligible to carry forward the Cenvat credit reflected by him/her in the returns filed under the earlier laws. The only condition where such carry forward shall not be allowed is when the Cenvat credit permissible under the earlier law is not admissible under the GST Law for that particular input/capital goods/input service.
2. Un-availed Cenvat Credit on Capital goods:
As per section 144 registered taxable person shall be entitled to take the credit of the unavailed Cenvat credit in respect of capital goods, not carried forward in a return, furnished under the earlier law by him. The only condition where such carry forward shall not be allowed is when the Cenvat credit permissible under the earlier law is not admissible under the GST Law for the particular capital goods.
As per Explanation 2 to section 144 Capital goods means the goods defined under clause (a) of rule 2 of Cenvat Credit Rules 2004.
3. Cenvat Credit with respect to inputs/stock which are held at the date of enactment of
GST:
As per Section 145 the registered taxable shall be entitled to take the credit of eligible duties and taxes 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 fulfilling of ALL these conditions:
(i) such inputs and/or goods are used or intended to be used for making taxable supplies under this Act;
(ii) the said taxable person was eligible for Cenvat credit on receipt of such inputs and/or goods under the earlier law but for his not being liable for registration or the goods remaining exempt under the said law;
(iii) the said taxable person is eligible for input tax credit under this Act;
(iv) the said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty/tax under the earlier law in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day; and
(v) such invoices and/or other prescribed documents were issued not earlier than 12 months immediately preceding the appointed day.
Duties and taxes eligible for claiming the credit are:
1.Excise Duty
2.Additional Excise Duty
3.National Calamity Contingent Duty
4.Additional Custom Duty
5.Service Tax
4. Cenvat Credit issues relating to taxpayers covered under the composition scheme:
i) Taxpayers opting OUT of Composition scheme:
A registered taxable person who was paying taxes under the composition scheme of earlier law shall be entitled to take the credit of eligible duties provided he fulfills ALL the following conditions:
a) such inputs and / or goods are used or intended to be used for making taxable supplies under this Act;
b) the said person is not paying tax under section 8 i.e. composition scheme under GST;
c) the said taxable person was eligible for cenvat credit on receipt of such inputs and/or goods under the earlier law but for his being a composition taxpayer under the said law;
d) the said taxable person is eligible for input tax credit under this Act;
e) the said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty / tax under the earlier law in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock on the appointed day; and
f) such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day i.e 1st April 2016
ii) Taxpayers opting IN the Composition scheme of GST:
For opting the composition scheme as prescribed by section 8 of Model GST Law the registered taxpayer shall pay the amount equivalent to the credit of the input tax in respect of inputs held in stocks and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such switch over. After payment of such amount the balance of input tax credit if any lying in the account of the tax payer shall lapse.
5. Issues relating to the movement of goods after the enactment of GST:
1.Exempted Goods returned to place of business after the enactment of GST: Section 148-No Tax if the goods were removed 6 months prior to date of enactment ie. 30/09/2016 AND the goods are returned within 6 months of enactment i.e. 30/09/2017. Tax have to paid if the goods are returned after 6 months i.e. after 30.09.20 17.
2.Duty Paid Goods Returned to a place of business on or after the date of enactment: Section 149-No Tax if the goods were removed 6 months prior to date of enactment ie. 30/09/2016 AND the goods are returned within 6 months of enactment i.e. 30/09/2017. Tax have to paid if the goods are returned after 6 months i.e. after 30.09.20 17.
3.Goods sent on approval basis returned on or after the date of enactment: Section 162-DNo Tax if the goods were removed 6 months prior to date of enactment ie. 30/09/2016 AND the goods are returned within 6 months of enactment i.e. 30/09/2017. Tax have to paid if the goods are returned after 6 months i.e. after 30.09.2017. Competent Authority can extend this period by maximum for 2 moths i.e. in total 6+2=8 months
6. Issues related to Taxability in case of Job Work:
1.Inputs removed for Job Work and returned on or after the date of enactment: Section 150-No Tax if the goods were removed 6 months prior to date of enactment ie. 30/09/2016 AND the goods are returned within 6 months of enactment i.e. 30/09/2017. Tax have to paid by manufacturer if the goods are returned after 6 months i.e. after 30.09.2017. Competent Authority can extend this period by maximum for 2 moths i.e. in total 6+2=8 months.
2.Semi-finished Goods removed for Job work and returned on or after the appointed day: Section 151-No Tax if the goods were removed 6 months prior to date of enactment ie. 30/09/2016 AND the goods are returned within 6 months of enactment i.e. 30/09/2017. Taxes have to paid by manufacturer if the goods are returned after 6 months i.e. after 30.09.2017. Competent Authority can extend this period by maximum for 2 moths i.e. in total 6+2=8 months.
3.Finished goods removed for carrying out certain processes and returned: Section 152-No Tax if the goods were removed 6 months prior to date of enactment ie. 30/09/2016 AND the goods are returned within 6 months of enactment i.e. 30/09/2017. Tax have to paid if the goods are returned after 6 months i.e. after 30.09.2017. Competent Authority can extend this period by maximum for 2 moths i.e. in total 6+2=8 months.
7. Revision of Prices after the enactment of GST Law:
1.Where the Prices of the goods/services supplied before enactment has increased: Section 153-The taxable person shall issue to the recipient a supplementary invoice or debit note containing the particulars within 30 days of such price revision. The tax shall have to be paid on the same as it will be classified as “Deemed Sales”.
2.Where the Prices of the goods/services supplied before enactment has decreased: Section 153-The taxable person shall issue to the recipient a supplementary invoice or credit note containing the particulars within 30 days of such price revision. The taxable person shall be allowed to reduce his tax liability on account of issue of the said credit note only if the recipient has reduced his Input Tax Credit Corresponding to such reduction of tax liability.
8. Pending refund claims to be disposed of under earlier law:
Every claim for refund of any duty/tax and interest, if any, paid on such duty/tax or any other amount, filed by any person before the appointed day, shall be disposed of in accordance with the provisions of earlier law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of earlier law other than the provisions of sub section (2) of section 11B of the Central excise Act, 1944.
9. Issues relating to continuous supply of goods and services under section 12 & section 13:
1.Where the consideration for the supply of the goods/services have been received prior to the appointed day and the tax payable thereon has already been paid under the earlier law: Section 160-No Tax shall be payable on the supply of goods/services made on or after the enactment of the law.
2.Where the part consideration for the supply of goods/services is received on or after the date of enactment but the full duty /tax payable on such supply has already been paid under the earlier law: Section 161-No tax shall be payable on the supply of goods and/or services made before the date of enactment of law.
10. Issues of Tax relating to goods lying with the agent:
1.Where any goods belonging to the principal are lying at the premises of the agent on the day of enactment: Section 162A-Agent shall take credit of the tax paid only upon fulfilling the following conditions:
i) Agent must be registered.
ii) Declaration by both of principal and agent regarding the stocks prior to the enactment of law.
iii) The invoices for such goods have been issued 12 months immediately preceding the date of enactment.
iv) The principal has either reversed or not availed the input tax credit in respect of such goods.
2.Where any capital goods belonging to the principal are lying at the premises of the agent on the day of enactment: Section 162B-Agent shall take credit of the tax paid only upon fulfilling the following conditions:
i) Agent must be registered.
ii) Declaration by both of principal and agent regarding the stock of capital goods prior to the enactment of law.
iii) The invoices for such goods have been issued 12 months immediately preceding the date of enactment.
iv) The principal has either reversed or not availed the input tax credit in respect of such capital goods.
11. Credit Distribution of service tax by Input Service Distributor (Section 162):
The input tax credit on account of any services received prior to the date of enactment by an Input service Distributor (ISD) shall be eligible for distribution as credit under this Act even if the invoice(s) relating to such services is received on or after the date of enactment.
12. Treatment of long term construction/works contracts:
The goods and/or services supplied on or after the date of enactment in pursuance of a contract entered into prior to the date of enactment shall be liable to tax under the provisions of this Act.