GST is a significant reform in the field of indirect taxes in our country. Multiple taxes levied and collected by the Centre and States have been replaced by one tax called Goods and Services Tax (GST). GST is a multi-stage value added tax on consumption of goods or services or both.
As GST sought to consolidate multiple taxes into one it was very essential to have transitional provisions to ensure that the transition to the GST regime is very smooth and hassle free and no ITC (input tax credit) / benefits earned in the existing regime are lost. The transition provisions can be categorized under three heads:
a) Relating to input tax credit
b) Continuance of existing procedures such as job work for a reasonable period without any adverse consequence under GST law.
c) All claims (pending as well as future) pertaining to existing laws filed before, on or after the appointed day.
a) A. Transitional arrangements for ITC
Elaborate provisions have been made to carry forward the ITC earned under the existing law. Such credit should be permissible under GST law. However, the taxable person opting for composition scheme would not be eligible for carry forward of existing ITC. ITC of various taxes under the existing laws (CENVAT credit, VAT etc.) would be carried forward as under:
a) Closing balance of the credit in the last returns: The closing balance of the CENVAT credit /VAT in the last returns filed under the existing law can be taken as credit in electronic credit ledger. Such credit would be available only when returns for the previous last six months have been filed under the existing law. In order to claim this credit, declaration in form GST TRAN 1 is required to be furnished on the common portal within ninety days from the appointed day i.e. 1st July, 2017 or within such extended time. b) Un-availed credit on capital goods: The balance instalment of un-availed credit on capital goods credit can also be taken by filing the requisite declaration in the GST TRAN 1.
c) Credit on duty paid stock: A registered taxable person, other than manufacturer or service provider, may have a duty paid goods in his stock on 1st July, 2017. GST would be payable on all supplies of goods or services made after the appointed day. It is not the intention of the Government to collect tax twice on the same goods. Hence, in such cases, it has been provided that the credit of the duty/tax paid earlier would be admissible as credit. Such credit can be taken as under: i. credit shall be taken on the basis of invoice evidencing payment of duty of excise or VAT. ii. such invoices should be less than one-year old. iii. Declare the stock of duty paid goods within prescribed time on the common portal. d) credit on duty paid stock when registered person does not possess the document evidencing payment of excise duty/VAT. For such traders who do not have excise or VAT Invoice, there is a scheme to allow credit to them on the duty paid stock. The features of this scheme are as under:
i. The scheme is operative only for six months from 1st July, 2017. It is not available to manufacturer or supplier of service. It is available to traders only.
ii. Credit @ 60% on such goods which attract central tax @ 9% or more and @ 40% for other goods of GST paid on such stock cleared after 1st July, 2017 would be allowed. However, such goods should not be unconditionally exempted goods or taxed at nil rates under the existing law. It has also been provided that where integrated tax is paid on such goods; the amount of credit shall be allowed at @ 30% and 20% respectively of the said tax.
iii. Credit would be allowed after the GST is paid on such goods subject to the condition that the benefit of such credit is passed on to the customer by way of reduced prices.
iv. A statement of supply of such goods in each of six tax period has to be submitted
v. Stocks stored should be easily identifiable.
e) Credit relating to exempted goods under the existing law which are now taxable.
Input Tax Credit of CENVAT / VAT in respect of input, semi-finished and finished goods in stock attributable to such exempted goods or services which are now taxable can also be taken in the same manner.
f ) Input /input services in transit:
There might be a scenario where input or input services are received on or after the appointed day but the duty or tax on the same was paid by the supplier under the existing law. Registered person (RP) may take credit of eligible duties and taxes, provided the invoice has been recorded in the books within 30 days from 1st July, 2017. The period can be extended by the Commissioner GST by another 30 days. A statement of such invoices has to be furnished. ISD can also distribute such credit.
g) Tax paid under existing law under composition scheme:
Those taxpayers who paid tax at fixed rate or fixed amount in lieu of tax payable under the existing law but are working under normal scheme under GST can claim credit on his input stock, semi-finished and finished stock on the appointed date subject to the following conditions: -
I. Such Input stock used for taxable supply under this Act.
ii. Registered person is not covered under section 10 (composition scheme) of this Act.
iii. Registered person is eligible for ITC under this Act.
iv. Registered person is in possession of such Invoice or other duty payment documents.
v. Such Invoices are not more than twelve months old on appointed day.
h) ITC in case of Centralized Registration under service tax:
Such registered person can take credit of the amount of CENVAT carry forwarded in return furnished under the existing law, if the original / revised return under the existing law has been filed within three months. Such credit may be transferred to any of the registered persons having the same PAN for which the centralized registration was obtained.
i) Reclaim the reversed Input Service credit:
CENVAT credit reversed on account of non-payment of consideration within three months can be reclaimed if payment is made to the supplier of service within 3 months from 1st July, 2017
j) Where any goods or capital goods belonging to the principal are lying at the premises of the agent on the Appointed Day: This provision is specific to SGST law. In such cases, agent shall be entitled to take credit subject to the following conditions:
i. the agent is a registered taxable person
ii. Both the principal and the agent declare the details of stock
iii. The invoices are not earlier than twelve months
iv. The principal has either reversed or not availed of the input tax credit.
b) Transition provisions relating to job work, goods returned/ sent on approval etc.:
a) Job work: - Inputs, semi-finished goods or finished goods were sent to the job worker or any other premises without payment of duty/VAT under the existing law. No GST is payable by the job worker when such goods are returned by him within six months after 1st July, 2017. The period can be extended by the Commissioner, GST by another two months. If not returned within the prescribed period, then ITC shall be liable to be recovered from the principal as per second proviso to section 141(1) of the Act. In addition, the job worker will have to pay the GST on such supplies. In case of semi-finished goods, the manufacturer may transfer the goods to premises of a registered person without payment of tax within the prescribed period. In case of finished goods, the manufacturer may transfer the goods on payment of tax or clear for export within the prescribed period.
b) Goods removed before 6 months of the appointed day i.e. 1st July, 2017 but returned within 6 months from 1st July, 2017:
If such goods are returned by an unregistered person, then refund of the duty/VAT paid under existing law can be claimed If returned by a registered person, then return of goods shall be treated as supply of goods (ITC can be claimed)
c) Goods sent on approval basis before 6 months of the appointed day i.e. 1st July, 2017 but returned within 6 months from 1st July, 2017:
No tax is payable by the person returning the goods. Commissioner may extend the period by 2 months. If returned after that, tax is payable if the supply is taxable under GST (by the recipient. If not returned, tax is payable by the person who sent the goods on approval basis.
d) TDS deducted in VAT
Where a supplier has made any sale of goods and tax was required to be deducted under VAT Act and Invoice was issued before the appointed day, however, the payment was made on or after appointed day. In such cases no TDS under GST is to be deducted.
e) Price revision in respect of existing contracts
In case of upward price revision, a registered person will issue a supplementary invoice or debit notes within 30 days from the date of revision and such revision shall be treated as supply under GST and tax is payable under this Act. In case of downward revision, registered person may issue credit note within 30 days from such revision and credit note shall be deemed to have been issued in respect of outward supply made under this Act. A registered person will reduce his tax liability for such credit note subject to reversal of credit by the recipient.
f) Proceedings under the existing laws:
GST law has become operational w.e.f. 1st July, 2017 and existing laws have been repealed. Elaborate provisions have been made to save the pending as well future claims relating to existing law made before, on or after the appointed day i.e. 1st July, 2017. Such proceedings may pertain to refund claims of CENVAT credit/VAT or export related rebate or service tax, such proceedings may either result in recovery of tax or refund. All such cases would be disposed of under the existing law. If any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse. Refund of CENVAT credit shall be paid in cash. There will be no refund of CENVAT if already carry forwarded. If any amount becomes recoverable, the same shall be recovered as arrear of tax under GST Act. Statutory provisions relating to transition are contained in chapter XX (section 139 to 142) of the CGST Act, 2017, SGST Act(s), 2017 and Rule 117 to 121 of the CGST Rules, 2017.