CA Mukund Abhyankar

Mukund Abhyankar

Articles deals with following issues related to GST which needs to be taken care of immediately before roll out date of GST

1. HSN /SAC Codes

2. Carry Forward of Cenvat /  VAT Credit balance on Inputs / Input Services

3. Adjustment of CST Differential Tax Liability for Carry Forward of VAT Credit balance. (Applicable in case of refund carried forward under GST)

4. Un-availed Credit on Capital Goods

5. Capital Goods in Transit

6. Treatment of Excise and Service Tax Credit on Input/WIP/Finished Goods held in Stock

7. Assessees engaged in Manufacture of Taxable as well as Exempted good or services

8. Credit of Inputs or Input Services in transit

9. Credit on switching over from composition scheme under existing regime

10. Treatment of Input Service Distributor (ISD)

11. Transfer of credit under Centralised Registration

12.Treatment for credit on services unpaid within 90 days

13. Goods sent for Job Work

14. Seller’s Tax Liability for Supplies partly before and after 1st July 17

15. Treatment of tax deducted at source (TDS on works contract supplies)

16. Treatment of sales return

17. Treatment of goods lying with agents

18. Issuance of debit or credit note– Sec. 142 (2)

Immediate Points of Action before roll out date of GST alongwith Relevant Legal Provisions and Timeline

Sr No. Particulars / Legal Provisions Action to be taken by clients Time line
1. HSN /SAC Codes Immediately identify HSN codes for your finished goods or traded goods for which you will raise bills under GST from 1.7.17 onwards.

This is most important because unless you could determine correct HSN code and its applicable GST Tariff Rate, you may land up charging lower GST in your sale bills which will place burden on you for paying the differential tax not collected from customers.

If you are a trader, get correct HSN code from your manufacturer suppliers and verify tariff rate for those codes and confirm rate determined by you with those suppliers.

If you are providing services, identify Service Accounting Code (SAC) for your services, and ascertain correct GST rate for that code.

All the assessees should compulsorily obtain the HSN (Harmonised System of Nomenclature i.e.) Tariff Codes / SAC (Service Accounting Codes) for all types of inputs/capital goods and services used in the business and required for sold to its customers. This is required for determining the GST rates and also for the purpose of return filing under GST.

Hence all companies should ensure to update in their system such HSN / SAC Codes at the earliest.

Businessmen should update the HSN/SAC codes for products or services to be sold along with respective GST rates in the Invoicing software immediately and ensure that it gets completed before roll out of GST i.e. on of before 01.07.2017.
2. Carry Forward of Cenvat / VAT Credit balance on Inputs / Input Services It must be ensured that all un-availed/ un-utilised credits which are eligible under GST laws are carried forward through Excise, Service Tax & VAT Returns for the quarter/month ending on 30.06.2017.

If any amount of credit/set off that is eligible under Excise / Service Tax / VAT is not so far captured in the Returns filed till now, then unless it is booked in June 17 Returns, will be lost permanently and will this become loss for the business.

Proper scrutiny of eligible credits therefore should be done to ensure that no benefit is lost due to transition towards GST.

Total clean up exercise must be taken up now for ascertaining optimum availment of credit.

Towards this end, following activities must be done on priority basis, separately for two accounting periods namely FY 2016-17 & Qtr Apr-Jun 17

1) Reconcilition of unutilized CENVAT credit/VAT Refund as per ER-1/ER-3 & ST-3 (For Excise & Service Tax) and Form 231/233 etc (For VAT) with Cenvat credit/VAT Receivable Account Balance as per books of Accounts.

2) Reconciliation of Purchase Bills with GRRs/GRNs to ensure all receipts of goods are accounted for in the books of Accounts with proper accounting of CENVAT/VAT as current asset. If bills are not received from suppliers for any of the GRRs then those should be obtained on priority and accounted for as purchases.

3) Undertake thorough scrutiny of all major expenditure heads, to ascertain any missing claims for service tax paid to service providers.

4) GRGRR related issues requiring booking of Debit/Credit Notes on suppliers. If any major amounts are required to booked for such supplies ensure that relevant documents are booked in June 17 itself.

5) Non-payment to service providers within 90 days if any, must be attended so that reversal of credit of service tax is not required.

6) If any credit are kept pending due to likely denial by authorities, a call may be taken to book it now under intimation to authorities because it is not clear whether, such credits can be claimed in GST period when clarity is arrived about eligibility.

06.07.2017 for excise & service tax credits and 21.07.2017 for VAT set-off
3. Adjustment of CST Differential Tax Liability for Carry Forward of VAT Credit balance.

(Applicable in case of refund carried forward under GST)

This is applicable only to those dealers who have VAT refund (Excess set off) that may remain unabsorbed at the end of Jun 17. All such excess set off till Marc 17 to the extent it was more than Rs. 5 Lakhs must have been claimed as Refund of FY 16-17. If such excess till Marc 17 was less than Rs. 5 Lakhs then it will be carried forward in Apr 17 Returns and may appear in June 17 returns also.

Every such registered person has to furnish details invoice-wise of list of Declarations received and pending for the period from 01.04.2015 to 30.06.2017

Therefore it is essential that all pending declaration forms are collected on or before 30.07.2017

In case of large pendency of declaration forms, a decision has to be taken by dealers whether to go for transfer of credit under the GST Act, since credit will be minimized to the extent of differential tax liability of pending declaration or to opt for refunds under the existing MVAT/CST Acts.

Further where excess set-off is not carried forwarded as on 31.03.17 in cases where set-off was more than Rs. 5 lakhs and claimed as refund as on 31.03.17, hence details of pending declarations to be given only for the period from 01.04.17 to 30.06.17 under form GST TRAN-1.

No action is required if total of set-off during Apr-Jun-17 quarter as added by refund of Mar-17 carried if any is less than tax liability on sales during Apr-Jun-17. In other words if there is payment under VAT / CST for Jun-17 return, then no deduction will be made for pending declaration forms.

Identify refund for Apr-Jun-17 quarter and make list of received and pending forms and calculate differential tax liability for adjustment against VAT to be carried forwarded under GST.
4. Un-availed Credit on Capital Goods This will cover all capital purchases made during Apr –Jun 17 Qtr only.

Scrutiny of all receipts of Fixed Assets during this period must be done to ensure that 50% credit is claimed in ER1/ER 3 Returns of this period and make list of unclaimed 50% credit for each such asset purchase.

Also ensure that all balance 50% credit not availed till 31.3.17, for purchases of assets made in earlier Financial years is claimed as balance credit Apr 17 or June 17 Returns

Balance un-availed credit @ 50% as on 30.06.2017 can be taken under GST on 01.07.2017, through GST TRAN-1.

It is essential that said credit was admissible as CENVAT credit / VAT Credit under the existing law and is also admissible as input tax credit under GST Acts.

To ensure proper compliance and availment of cenvat / vat following exercise will give correct picture to analyse pending credits:-

1) Cenvat Reconcilition,

2) MVAT Reconciliation

Capturing of all un availed credit in RG-23 by 10.07.2017.
5. Capital Goods in Transit :-

There is no provision under GST, for claiming credit of capital goods which will be in transit during GST Rollout

The assesses have to ensure that there shall be no capital goods in transit on June 30, 2017, because capital goods CENVAT credit becomes eligible only when goods are received in the premises. It is advised that purchase of Capital Goods can be postponed till GST is implemented, or it if purchases are made before 01.07.17, it is to be ensured that capital goods reach the premises on or before 30.06.2017
6. Treatment of Excise and Service Tax Credit on Input/WIP/Finished Goods held in Stock :-

Following registered persons under GST Act, who were not eligible to take credit under the existing Excise / VAT Acts will be able to take credit of excise and service tax on inputs/WIP/Finished goods held in stock as on 30.06.2017, such as

a) Traders,

b) SSI units,

c) Units mfg exempted goods /services or both,

d) Work contractors,

e) First Stage Dealer or Second Stage Dealer or Importer or Depot of manufacturer

There are two scenarios available :-

a) Where excise invoices / duty paying documents are available :-

 

Full Input Tax Credit is allowed in GST Act for said dealers only if they are in possession of an invoice or other duty paying document issued within 12 months before 30.06.2017.

i.e. Invoices issued after 01.07.2016.

b) Where excise invoices / duty paying documents are not available but some tax invoice / GRN is available (Option not available for excise registered manufacturers)

 

Even an unregistered taxpayer under existing central tax law shall be allowed to take credit of eligible duties even if he is not in possession of excise invoice or duty paying document

The deemed credit will be available at the rate of 60% of CGST for taxable goods above 18% whereas for other goods below 18% CGST will be available @ 40% after payment of complete GST .

This is mainly for traders who do not possess invoice to claim credit of excise duty but has to have certain documents or invoice proving that such documents were issued only after 01.07.2016.

Therefore dealers have to finalize their books and have proper stock statements as on 31.03.2017, so as to prepare correct statement of closing stock of inputs/WIP/Finished stock as on 30.06.2017 and correlate the same with invoices / duty paying documents for availing credits under GST Act.

The dealers have to file Form GST TRAN-1 & 2 within 90 days from date of GST roll out i.e. 01.07.2017.

Hence working on compilation of stock statements duly matched with books of accounts and its correlation with excise / duty paying documents should start immediately.

7. Assessees engaged in Manufacture of Taxable as well as Exempted good or services:-

All assessee who are engaged in manufacture or sale of exempted goods or services, will be eligible for availing input tax credits as follows:-

a) Amount shown as closing balance in returns filed (ER-1/ER-3/ST-3/Form 231 / Form 233 / Form 234) as mentioned under Para 1 above

b) Amount of cenvat / vat credits in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, relating to such exempted goods or services.

All Assessees should identify inputs to be used for taxable as well as exempted supplies under existing laws and can claim cenvat credit of such inputs in the returns filed under existing laws.

Further in case of inputs held in stock as 30.06.2017 on which cenvat credit is not claimed under existing laws can be claimed as per invoices given under clause b .

CENVAT Credit on Exempted goods can be claimed only if such Exempted goods are Taxable in GST era.
8. Credit of Inputs or Input Services in transit Registered person would be entitled to claim credit of taxes paid on input or input services which are received after GST rollout but taxes thereon are paid under existing tax laws: If GST is implemented from July 1, 2017, then, taxes must have been paid by the supplier for the month of June 30, 2017 and receipt must be recorded in books of accounts by the recipient on or before July 30, 2017.
9. Credit on switching over from composition scheme under existing regime A registered taxable person who is a composition scheme taxpayer under existing laws, is entitled to take the Cenvat credit of eligible duties and taxes in respect of stock. Composition dealer shall not avail the facility of Composition Scheme under GST.
10. Treatment of Input Service Distributor (ISD) The ISD shall be allowed to distribute the input tax credit on input services received by it before the appointed day under the GST Act even if the invoices relating to such services are received on or after the appointed day. Input Services received before 01/07/2017

ITC can be availed even if invoices relating to such services are received on or after 01/07/2017

11. Transfer of credit under Centralised Registration A registered person, having Centralised registration under the existing law shall be allowed to take, in his electronic credit ledger, credit of the amount of CENVAT credit carried forward in a return, furnished under the existing law by him. Such credit may be transferred to any of the registered persons having the same Permanent Account Number for which the centralised registration was obtained under the existing law.
12. Treatment for credit on services unpaid within 90 days Where any CENVAT credit availed for the input services provided under the existing law has been reversed due to non-payment of the consideration within a period of three months, such credit can be reclaimed subject to the condition that the registered person has made the payment of the consideration for that supply of services within a period of three months from the appointed day. Earlier , the Dealer was able to avail the Credit again on payment to Supplier and no time lag was prevailing for such payment.

But in GST, it should be ensured that payment for such invoices are made within 90 days from 01.07.2017. If not, credit shall be allowed to be taken.

13. Goods sent for Job Work

If Inputs / semi-finished goods are sent for job-work under existing laws on or before 30.06.2017 and returned within six-months under GST Regime i.e. after 01.07.2017, then no tax shall be payable on such goods.

However if such goods are received after six months under the GST Regime, then the assessee has to reverse the input tax credit on such goods claimed under the existing laws under GST Regime.

The assessee who are engaged in sending inputs/semi-finished goods for job-work purposes shall be having Job-work register.

They should ensure to track the goods that are not received within six months. Because all such goods which are sent on job-work challans and pending to be recived or 30.06.2017, the assesses have to give details of such goods under Form GST TRAN-1.

The job-work register should be updated immediately and track of all goods should be available as on 30.06.2017
14. Seller’s Tax Liability for Supplies partly before and after 1st July 17

(Applicable mostly for dealers enagaged in business of works contract and construction of residential / commercial complexes)

Where VAT and Service tax under works contract services are paid for both goods and services which are supplied before 30.06.2017, then GST will not be applicable on such supplies.

If GST is payable on supplies which are made after 01.07.2017, then credit of taxes paid earlier on such supplies will be available.

Tax shall be payable to the extent Supplies made after 01/07/2017 but credit for earlier taxes will be allowed.

i.e In case of Builder’s , GST will be paid on the portion which was completed in GST period and set off of 1% MVAT paid earlier, will be available as set off under SGST.

Details of each un-completed works contract based on percentage of completion should be available as on 30.06.2017 so as to bifurcate the tax liability under current regime and taxes to be payable under GST regime for supplies to be made from 01.07.2017 onwards.
15. Treatment of tax deducted at source (TDS on works contract supplies)

 

If the company has sold any goods in respect of which TDS was required to be deducted and has also issued an invoice in respect of the same before 01.07.2017, but has not received the payment before 01.07.2017, then no TDS shall be deducted under the GST Act.

 

 

The dealers have to prepare list of transactions effected before 30.06.2017 on which TDS is applicable, and ensure that invoices for the same is also issued on or before 30.06.2017, then on such transactions, even though payment will be made after 30.06.2017, TDS will not be deducted as per GST provisions. On such transactions, TDS will be deducted as per earlier laws for which credit will be available in the returns to be filed for the period ending 30.06.2017. List of Transaction liable for TDS to be prepared immediately on or before 30.06.2017 and ensure that invoices are issued on or before 30.06.2017
16. Treatment of sales return A) Exempted Goods

In case the registered taxable person has removed any exempted goods before six months from the appointed day and the same are returned back within six months on or after the appointed day, then no tax shall be payable under the GST Act.

If the goods are returned after six months, then tax shall be levied on the same at the rate applicable under the GST Act.

In case the goods are returned by a person who is not registered under the GST Act, then no tax shall be payable at the time of return of goods by such person.

B) Duty paid goods

In case the registered taxable person has removed any duty paid goods before six months from the appointed day and the same are returned back within six months on or after the appointed day, then the company shall be eligible for refund under the GST Act.

• Goods must be returned by a person who is not registered under the GST Act

• In case the goods are returned by a registered taxable person, then such transaction shall be considered as a supply and, accordingly, chargeable to tax.

C) Goods sent on approval basis :

In case the registered taxable person has sent any goods on approval basis before six months from the appointed day and the same are either rejected or not approved by the buyer and returned back to the company within six months on or after the appointed day, then no tax shall be payable on such goods if the same are returned within 6 months from the appointed day.

Check whether any exempted goods are removed before 01/01/2017 and same are returned back within 01/07/2017 to 31/12/2017 then NO TAX shall be payable under GST Act

If goods are returned back after 01/01/2018 then tax shall be levied

Check whether any duty paid goods are removed before 01/01/2017 and same are returned back within 01/07/2017 to 31/12/2017 then company shall be eligible for REFUND under GST Act

Check whether any goods are send on approval basis before 01/01/2017 and same are either rejected or not approved by the buyer and returned back to the company within 01/07/2017 to 31/12/2017 then no tax shall be payable by company.

17. Treatment of goods lying with agents

 

In case any inputs or capital goods belonging to the company are lying with its agent on the appointed day, then the registered taxable person can take the credit in respect of those goods.

The assessee can claim the credit if :

The principal and the agent both declare the stock of goods lying with agent.

Invoice for such goods should not be more than 12 months old preceeding the appointed day.

The agent can also take the credit in respect of goods lying with him, provided that the agent is registered under the GST Act and the principal, i.e., the company has not availed of the input tax credit in respect of such inputs or capital goods.

The register of goods lying with agents should be updated immediately and track of all goods should be available as on 30.06.2017
18 Issuance of debit or credit note– Sec. 142 (2)

In case of any contract/agreement entered into a by a company prior to the appointed day, the price of a particular good or service is revised upward or downwards, then the company may issue a supplementary invoice or debit /credit note, respectively, in respect of the same under the GST Act within 30 days of such price revision.

 

Debit and Credit Notes need to be adjusted against Invoice No. Line rejection and Adjustment with no reference to invoice numbers – will not get any benefit under GST

One should note that, there is no provision of cancellation of Original Invoice in the GST Regime.

Original Invoice can be amended only by passing Debit Notes or Credit Notes.

Hence, proper care is required to be taken while issuing the Original Invoices.

 

 

Dealers should ensure that all Pending debit notes / credit notes are accounted for before 30.06.2017.

Any debit / credit notes raised after 01.07.2017 in respect of invoices prior to 01.07.2017 will be taxable as per the provisions of GST Act.

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6 responses to “18 Immediate Points of Action before roll out date of GST”

  1. Kulkarni J N says:

    If Manufacture have finished goods stock /old stock laying with finished goods store as on 30.06.2017. After GST what is provision for remove this goods/stock

  2. Suhani says:

    Can you please explain point 3 in detail, and scenarios when it can happen?

    • CA Mukund Abhyankar says:

      Adjustment of CST Differential Tax Liability for Carry Forward of VAT Credit balance. –
      Applicability:

      This clause is applicable to dealers’ who have excess MVAT input balance in the returns as on 30.06.2017 . As per MVAT rules, if a dealer is having excess input over his liability for more than Rs.5 lakhs , is eligible to claim refund by filing Form 501 within 18 months from the end of FY .
      But, in case of dealers having excess input of less than Rs.5 lakh shall carry forward the balance in next years returns.
      Now, in GST such carry forward balance has been restricted ,if the dealer has not received declaration Forms from 01.04.2015 to 30.06.2017. Therefore, if the differential liability of pending forms is more that excess carry forward of input tax, then the dealer will not be allowed to carry forward the input credit in GST.
      Scenarios explained below:

      If Excess carry forward is less than Rs.5,00,000/- Differential liability of pending forms shall be calculated from 01.04.2015 to 30.06.2017 If differential liability is > Input Tax, then no carry forward of credit allowed in GST.

      If Excess carry forward is more than Rs.5,00,000/- This clause will not be applicable Dealer shall claim Refund as on 30.06.2017 and will not be entitled to carry forward in GST. This however will depend upon whether necessary enabling provision is made in MVAT Rules for claiming refunds at the time to transition to GST

  3. sanjay sharma says:

    please tell us the treatment of RCM Liability on works contract supplies, service received & invoice received prior to 30.06.2017 but payment not done. whether the liability of RCM is 30.06.2017 or we have to pay RCM under GST?

    • CA Mukund Abhyankar says:

      As per Point of Taxation Rules 2011, where any of the following two events occur before the appointed day, i.e
      1. Services are received prior to 30.06.2017
      2. Invoice is also issued prior to appointed date
      3. Payment received after appointed day

      Then, Point of Taxation will be earlier of two occasion’s i.e Provision of Service or Issue of Invoice.
      In this case, Point 1 and point 2 occur before the appointed dated, hence, Point of Taxation will be 30.06.2017. Hence, RCM will be required to be paid as per earlier law and not as per GST.

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