21 Que. & Ans.: Transitional Provision of GST Model Laws

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INTRODUCTION

This post is an attempt to analyze the transition process provided under the Model GST Law which is made public by Empowered Committee in the month of June, 2016.

Keeping in view that it is just a Model GST Law not even a draft Law, it is a welcome move and the Empowered Committee need an applaud for making awareness towards passing through into GST Regime easy and transparent.

Whenever a new tax has been introduced taxpayers have a problem with respect to businesses not knowing, how the existing taxes will transition to new taxes and various issued concerning the existing taxes.

A brief of Goods and Services Tax (GST)

The proposed GST works in a dual taxation form which is a multi-stage tax on domestic consumption. GST is charged on all taxable supplies of goods and services in India except those specifically exempted. GST is also charged on importation of goods and services into India.

Under the framework of GST goods and services shall be liable to pay both Centre and State Goods and Services Tax. In Intra-state supply SGST and CGST will be charged at the time of supply, collected by supplier against a valid Invoice and paid by acquirer. While in the course of Inter-State transaction, the goods and services shall be liable to pay Integrated Goods and Services Tax (CGST+IGST) paid to Center Government and the SGST portion shall be transferred by Central Government to the state of consumption. Thus payment of GST is made in stages by the intermediaries in the production and distribution channels. Although the tax would be paid throughout the production and distribution chain, it is ultimately passed on to the final consumer. Therefore, the tax itself is not a cost to the intermediaries and does not appear as an expense item in their financial statements.

The Transition Provisions is placed separately in Chapter-XV of the Model GST Laws containing Sections from Section 141 Section 162E, it is a complete set of transformation process law framework covered almost all possible situation needed to be clarified.

Transformation from existing indirect tax regime to the GST have been puzzling taxpayers and professionals to no end. To address the anxiety of taxpayer and profession the Model GST Law made public by Empowered Committee of State Finance Ministers contains a separate Chapter, i.e., CHAPTER– XXV Transitional Provisions, which answers several questions, which I am trying to summarise in following manner.

1. is there a automatic registration under GST framework for those taxpayers who are already registered under State/Central Government under State VAT?

No: Every Taxpayer will required to be registered under GST [Section 19], there will be multiple registration for every State and verticals, however a provisional certificate of registration will be issued for initial six month to every assessee who was registered under any of the earlier laws. [Section -142. Migration of existing Taxpayers to GST]. 

1. Whether CENVAT Credit shall be allowed to carry forward under GST regime?

Yes: 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.

1. What will be treatment under GST Law pertaining to un-availed Cenvat Credit pertaining to Capital Goods?

A registered taxable person shall be entitled to take the credit of the un­-availed Cenvat credit in respect of Capital Goods, not carried forward in a return, furnished under the earlier law by him. Provided that where such carry forward shall not be allowed, if the Cenvat credit permissible under the earlier law is not admissible under the GST Law for the particular capital goods. [Section 144]

1. Whether CENVAT Credit available to person which will be registered under GST but not required under earlier laws?

Yes, any person who is not liable to be registered under present indirect tax laws but will liable to tax under this tax for the reason its final goods were exempted goods become taxable outward supply and any other reason, shall be entitled to take CENVAT Credit of eligible duties and taxes paid in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock.

1. Is the availment of CENVAT Credit is unconditional?

No: the availment of Cenvat Credit will be subject to the following conditions:

[Section 145]

1. Such inputs and / or goods are used or intended to be used for making taxable supplies under this CGST/SGST Act.
2. Such person was eligible for CENVAT Credit/Input Tax Credit under the prior state law, on receipt of such inputs under earlier law but for his not being liable for registration or the goods remaining exempt under the said law.
3. Such person is eligible for input tax Credit under this CGST/SGST Act.
4. Invoice and other documents relating to payment of duty of inputs are in the possession of such person.
5. Such invoices and other documents were issued not earlier than twelve months immediately preceding the appointed day.
6. The amount of Cenvat Credit/Input Tax Credit under the prior state law is calculated on the basis of generally accepted accounting principles.

NOTE: If the amount of CENVAT Credit is wrongly allowed then the same shall be recovered from such person.

1. What are the "Eligible duties and taxes"?

For the purpose of GST act "Eligible duties and taxes " means:-

The following duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day.

1. The duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;
2. The duty of excise specified in the second schedule to the CETA, 1985;
3. The additional duty of excise leviable under section 3 of the Additional Duties of Excise Act, 1978;
4. The additional duty of excise leviable under section 3 of the Additional Duties of Excise Act,1957;
5. The National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001;
6. The additional duty leviable under sub section (1) of section 3 of the Customs Tariff Act, 1975;
7. The additional duty leviable under sub section (5) of section 3 of the Customs Tariff Act,1975;
8. The service tax leviable under section 66B of the Finance Act, 1994; and
9. The State VAT and other duties leviable under State Laws

1. Whether CENVAT Credit of eligible duties and taxes allowed to a taxable person opt to out from composition scheme?

Yes: the credit of eligible duties and taxes shall be allowed to the person availing of the benefit of composition scheme under the earlier laws. [Section 147]

1. What amount will be payable, if a taxable person opting for composition scheme?

[Section 149 to 152]

The amount payable by the taxable person is equivalent to the credit of input tax in respect of :

• inputs held in stock and
• inputs contained in semi-finished or
• finished goods held in stock

on the day immediately preceding the date of such switch over by debiting the input credit or in cash. Provided that after payment of such amount, the balance of input tax credit, if any lying in his credit ledger shall lapse.

1. What will happen if goods are returned to the place of business on or after the appointed day?

1. Where the Exempted returned

If any goods on which duty has been exempted under the earlier law and such goods are returned within six months from the appointed day, then no liability will arise but if goods returned goods are liable to tax under this act and are returned after a period of six months from the appointed day then the amount of tax shall be payable by the person returning the said goods.

1. Where the duty paid goods returned

If any goods on which duty has been paid under the earlier law not being earlier than six months prior to the appointed day, are returned to the place of business within a period of six months from the appointed day, then there is no liability of tax arises on such goods. However, if such goods are returned after six months from the appointed day, then tax shall be payable by the taxable person.

• Where inputs or semi-finished goods removed for job work

1. If any good removed before the appointed day to the job worker for further processing, testing , repair, reconditioning or any other purpose, are returned to such factory on or after the appointed day but within six months from the appointed  day then no tax shall be payable.
2. The period of six months may be extended by the competent authority for a further period of two months.
3. If the job worker returns goods after a period of six months and such extended time, and the goods are liable to tax, then the tax will be payable by the job worker.
4. In order to avail of the benefit of this provision the job worker and the manufacturer have to declare the details of input held in stock for inputs or as a semi finished goods for availing benefits for inputs.
5. Where finished goods removed for job work

Same as point (a) above for the inputs or semi finished goods.

1. How can price revise under the existing contract, what will be the compliances for such revision?

• Where the revision clause already present under the pre-GST contract, the price can be revised in the way of upward or downward revisions.

• The taxpayer will required to issue a supplementary invoice or debit note for such revision.

• If any contract takes place before the appointed day and the price of goods / services is revised on or after the appointed day, then in this case the taxable person may issue a supplementary invoice or debit note within thirty days of such prices revision.

• The taxable person shall be allowed to reduce his tax liability only if the recipient of the invoice or credit note has reduced its input credit corresponding to such reduction of tax liability.

1. What will be future of refund claim/Cenvat Credit/VAT Credits claim of present regime? [Section 154]

• If any duty / tax and interest on tax / duty or any other amount paid by any taxable person and refund claimed by such person on such duty/ tax amount, then the amount claimed by taxable person shall be disposed of in accordance with the provisions of earlier law and any amount eventually accruing to him shall be paid in cash.

• The amount of CENVAT Credit/VAT Credit claimed by the person under the present laws shall be disposed of in accordance with the provisions of present law and if any amount of credit found to be admissible to the claimant shall be refunded to him in cash. If any amount of credit becomes recoverable as a result of appeal, revision, review or reference, the same will be recovered from such person.

1. How finalization of proceedings relating to output duty liability will be carried out?

Every proceeding relating to output duty shall be disposed of in accordance with the earlier law and if any amount recoverable or refundable as a result of appeal, revision , review or reference, the same will be recovered or refunded from or to such person. [Section 154]

1. How the amount recovered or refunded in pursuance of assessment or adjudication proceedings be treated?

 In pursuance of an assessment or adjudication proceedings , whether before or after the appointed day, under the earlier law if any amount of tax, interest , fine or penalty recoverable or refundable from or to the person , the same will be recovered or refunded. [Section 157]

1. How the amount recovered or refunded in pursuance to revision of returns be treated? [Section 158]

 If any return furnished under the earlier law is revised and as a result of such revision any amount is found to be recoverable or refundable from or to the taxable person, the same will be recovered or refunded.

1. What treatment will be done for long term construction/works contracts?

The goods or services supplied on or after the appointed day in pursuance of a contract entered prior to the appointed day will be taxed under the new provisions. [Section 159]

1. What consequences will arise when supply of goods is on progressive or periodic?

If supply of goods or services is made after the appointed day but consideration for such goods or services is already received before the appointed day and the duty and tax payable thereon has already been paid under the earlier law then no liability of tax arises on such goods or services. [Section 160]

1. What treatment will be done for retention payments?

 If supply of goods or services is made on or after the appointed day but a part consideration for such goods or services is already received before the appointed day and the duty and tax payable thereon has already been paid under the earlier law then no liability of tax arises on such goods or services. [Section 161]

1. What will the effect on credit distribution of service tax by Input Service Distributor?

The input tax credit on account of any services received prior to the appointed day by an Input Service Distributor 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 appointed day.

1. Under what conditions CENVAT Credit is allowed for tax paid on goods/Capital goods lying with agents?

Where any goods/capital goods belongs to the principal but are lying at the premises of the agent on the appointed day, the agent shall be entitled to take credit of tax paid on such goods subject to fulfillment of the following conditions:-

1. The agent is registered taxable person under GST;
2. Both the principal and agent declare the details of stock of goods lying with such agent;

• The invoices for such goods had been issued not earlier than twelve months immediately preceding the appointed day;

1. The principal has either reversed or not availed of the input tax credit in respect of such goods.

1. What are the provisions for the treatment for branch transfers?

 Any amount of input tax credit reversed prior to the appointed day shall not be admissible as credit of input tax under this act.

1. What treatment for goods sent on approval basis returned on or after the appointed day?

 If any goods are sent on approval basis not earlier than six months from the appointed day and the goods are rejected or returned by the buyer then no tax liability arises if such goods are returned within a period of six months from the appointed day. Further, this period of six months may be extended by the competent authority for a further period of two months.

However, goods are returned after a period of six months and such extended time, and the goods are liable to tax, then tax will be payable by the such returning person.

Moreover, if such goods are sent on approval basis and such goods are not returned within a period of six months and also such goods are liable to tax under this act then the tax shall be payable by such person who has sent the goods.

Thus the transitional provisions provided under Model GST Laws provided adequate provisions to deal with the transition from the present frame work of indirect taxation to GST regime.