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Clause by Clause Analysis of TRAN-1 under GST

Transition involves moving from what was to what will be—its a period of time where one is in between a familiar and a new situation or environment. This can be an exciting, or could be stressful or may be frightening. Witnessed it is like opening of mystery in front of your eyes. Now we move forward from migration of registrations, furnishing of provisional returns to another task of availing transitional credit.

1. Introduction

Transition involves moving from what was to what will be—it’s a period of time where one is in between a familiar and a new situation or environment. This can be an exciting, or could be stressful or may be frightening.  Witnessed it is like opening of mystery in front of your eyes.

Now we move forward from migration of registrations, furnishing of provisional returns to another task of availing transitional credit.

Transitional credit is in terms of carry-forward of un-utilized credit balances of erstwhile indirect tax regime to GST Electronic credit ledger for utilization towards discharging of GST liability. This switch over of the balances into GST has various aspects & few pitfalls, which needs to be considered to avoid the loss of credit.

The process for transfer of balances & other credits from erstwhile indirect tax regime to GST is enabled through submission of “TRAN-1” return electronically. This return has been divided into 12 clauses, allowing various credits to the taxpayer as follows:

2. Clause by Clause analysis of “TRAN-1” (Text in Italic represent applicability for State Credit)

Sr No Clause No Clause Description Explanation
1 1 GSTIN GSTIN of Dealer
2 2 Legal name of the registered person As appearing legal registration i.e. Certificate of Incorporate or Partnership Registration Certificate or Shop Act License
3 3 Trade Name If different from Legal name
4 4 Whether all the returns required under existing law for the period of six months immediately preceding the appointed date have been furnished:- Yes / No. This is confirmative clause for the submission of return under existing law and on its affirmation clause No 5 (Claim Closing Balances) & 8 (Claim for distribution of Credit of centralized registration) will get activity for furnishing of information.
5  5(a) Amount of CENVAT Credit carried Forward to Electronic ledger as Central tax (Section 140(1) & 140(4)(1) i) Exiting manufacturer and service providers getting migrated into GST can carry-forward their credit balance of ER1 /ST3 return to Central tax through this clause.

ii) Particulars such as Registration number, date of filing of last return and un-utilized credit balance need to be furnished to avail this credit.

iii) Pre-requisite of availing the credit is furnishing return for previous six months in old law. The clause does not make specific reference to type of return or due date of return. Thus we may assume revised return and late returns will also be allowed.

iv) To claim the credit, GST profile of the dealer must reflect registrations under old laws. In absence, respective fields need to be amended/ updated.

5  5(b) Amount of tax carried forward to electronic credit ledger as State/UT tax for which statutory Forms are received i) VAT dealer can also carry-forwards unutilized balance to State Tax, provided statutory declaration in Form C/E/F/H & I have been received.

ii) No submission required, if no carry-forward of credit.

6  5(c) Amount of tax carried forward to electronic credit ledger as State/UT tax for which statutory Forms are not received ( For all registration on the same PAN and in the same state) i) VAT credit balance can be carry-forwarded, even if the statutory declaration in Form C/E/F/H & I have not been received.

ii) Such Carry-forward will be subject to deduction of differential tax liability on account non-receipt of forms for the period from 1/4/2015 to 30/06/2017.

iii) On submission of statutory declaration, refund can be claimed for differential tax liability reduced from carry-forwards Credit.

iv) No submission required, if no carry-forward of credit.

v) Similarly no restriction on credit, if no pendency of statutory declaration.

7  6(a) Amount of unavailed CENVAT credit in respect of capital goods carried forward to electronic credit ledger as Central tax (Section 140(2) of CGST Act) i) Manufacturer can also claim CENVAT Credit of capital goods purchased prior to 30th June 2017, where partial CENVAT credit is availed in ER-1 returns and balance amount is still unavailed.

ii) This allows Excise dealer to avail 50% of CENVAT credit for purchase of Capital goods during the period from 01/04/2017 to 30/06/2016.

iii) It seems that CENVAT credit can also be claimed for all those CG purchases on which CENVAT credit is yet to be claimed in ER-1, provided these purchases are within 12 months.

8  6(b) Amount of unavailed input tax credit carried forward to electronic credit ledger as State/UT tax in case of Capital goods (Section 140(2) of CGST Act) Provisions are similar to clause 6(a) as explained above, as few state has policy of allowing credit for capital goods over 3 years
9  7(a)(A) Amount of duties and taxes on inputs claimed, where duty paid invoices are available of eligible duties 140(3), 4(b), (5) & (6) of CGST Act (excluding the credit claimed under Table 5(a).) i) VAT dealer not registered under excise law and having stock of items on which excise duty has been paid can claim credit of duty paid on such items.

ii) Credit is to the extent of actual duty paid on invoice. Thus, holding duty paying document for stock in hand is a pre-requisite.

iii) Credit claim will be allowed as balance in central tax.

iv) To claim the credit, information such HSN code (6 digits Level) of items, no of units & its value will be required to be furnished.

10 7(a)(B) Amount of duties and taxes on inputs claimed, where duty paid invoices are not available of eligible duties 140(3),4(b),(5) & (6) of CGST Act (Credit in terms of Rule 117(4) of CGST Act. Dealers can claim credit, even if duty paying document is not in possession of dealer, subject to following restrictions:

i) Credit with reduced amount,

a.  60% of CGST payable, if applicable CGST rate is 9% or more

b. 40% of CGST payable, in other cases

ii) Credit will be further reduced to 30% or 20%, i.e. 50% of applicable rate, if disclosed stock is sold by applying IGST or as an interstate supply.

iii) Credit will be available only after supply of these goods and on submission of Form GST TRAN-2 at the end of each month. Scheme is valid for six months. Thus, credit will lapse, if goods are not sold within 6 months starting 1st July 2017.

iv) The stock corresponding to such credit claim has to be identifiable.

v) To claim the credit, information such HSN code (6 digits Level) of items, no of units & its value will be required to be furnished.

11  7(b) Amount of eligible duties and taxes/VAT/ET in respect of  inputs or input services under section 140(5) of CGST Act i) This clause allows credit of both central and state taxes paid on goods in transit on the day of the transition i.e. 1-7-2017 on the basis of duty paying documents.

ii) Such invoice should have been recorded in books on or before 30thJuly 2017

iii) Not applicable for capital goods in transit.

12  7(c) Amount of VAT & Entry tax paid on inputs( RM) & inputs contained in WIP & FG supported by invoices/documents evidencing payment of tax carried forwarded to electronic credit ledger as SGST/UTGST u/2 140(3)(4b) &(6) SGST provisions are similar to clauses 7(a) as explained above
13  7(d) Stock of goods not supported by invoices/documents evidencing payment of tax        ( Rules 117(4)) SGST provisions are similar to clauses 7(b) as explained above
14  8 Transfer of CENVAT credit for registered person having centralized registration u/s 140(8)of CGST Act i) Mainly applicable to person registered under Service tax with centralized registration.

ii) Specified manufacturers, such as Jewelers, Mines, inter-linked units, CNS units, aluminum roofing panels, etc. with centralized registration.

iii) Credit can be transferred to any registered person with same PAN.

iv) Credit on the basis of submission return under existing law and subject to lower of the amount shown original return or revised return. Thus, in case of upward revision, credit will lapse.

15  9(a) Goods sent to job-worker and held in his stock on behalf of principle under section 141 of CGST Act i) No tax shall be payable on return of goods from job worker to the principal within six months, where the goods were sent for job work before 01-07-2017

ii) If goods are not returned within 6 months, it will be assumed as supply & tax will be required to be paid accordingly.

iii) Both the job worker and manufacturer are required to furnish details of stock with them as of 30th June 2017.

iv) Information to be furnished includes details of challan number, HSN code of goods, value of goods, GSTN no of job workers, etc.

v) As manufacturer and job worker both need to report, it seems matching of records may be performed by GSTN network.

16  9(b) Goods held in stock  as job-worker on behalf of principle under section 141 of CGST Act
17  10(a) Goods held in stock as Agent on behalf of the principle under Section 142(14) of SGST Act i) Applicable to Agent & Principle, where principal intend to pass on duty benefit to agent.

ii) Both Agent & Principle are registered person and declare stock of such goods and capital goods in position of agent in Trnas-1.

iii) Principle reverses the credits on such stock & capital goods or has not availed the credit.

iv) Invoices for these goods are issued with 12 months before the appointed day i.e. 1st July 2017

18  10(b) Goods held in stock as Agent on behalf of the principle under Section 142(14) of SGST Act
19  11 Credit availed in terms of Section 142(11 (c )) i) Applicable to supplies where both VAT & Service tax is applicable and tax is paid under Service Tax &/ or VAT law on advance basis.

ii) Actual supply happens after 30th June 2017 either in full or partial.

iii) In such situation migrant dealer will get credit to the extent of tax paid earlier.

20  12 Goods sent on approval basis six months prior to the appointment date (Section 142(12)) of CGST Act i) Applicable for Goods sold on approval basis and material received back due to customer rejection.

ii) Prerequisite – sales must have happened before 6 months from 30th June 2017

iii) Goods are returned back by the customer within 6 months starting 30th June 2017.

iv) If goods are not returned within 6 months, person sending goods need to pay tax.

v) Person returning the goods, returns it after 6 months, he has to pay tax.

vi) Challan wise &Items wise reporting in TRAN-1.

 3. Certain Important Aspects of TRAN-1:

I. On submission of TRAN-1, credits are auto transferred either to Central or State Ledger and can be used immediately.

II. CENVAT credit rules has been amended to introduce Credit transfer documents, wherein, if unit price of goods are more than Rs. 25000/-, credit transfer documents will act as duty paying document, and non-registered dealer can get this document from manufacturer to claim full credit.

III. TRAN-1 is to be submitted ONLINE within 90 days i.e. upto 28th Sept 2017

IV. To avail carried-forward of credit, one has to ensure that all registration under exiting VAT, Excise and Service tax regime are correctly reflected in Registration profile. If there is a mismatch in registration number or it is not appearing on GSTN portal, it needs to be corrected through Non-core field amendments.

V. If deemed credit is availed as per 7(a)(B) above, it is mandatory to pass on the benefit of reduced prices to the recipient/buyer of goods.

VI. Return in TRAN-1 cannot be modified and revised.

VII. Clause (5) & (6) of TRAN-1 not applicable to composition dealers.

Conclusion

One of the major concerns for businesses was the availability and eligibility for claiming input tax credit during transition of current indirect tax regime to GST. Transitional provisions under GST law have taken care of these concerns exhaustively and effectively.

However, few areas such as balances in PLA have been left out from transition and taxpayer has to make refund application. Similarly there is no provision for in-transit capital goods, which could be major loss of credit for project companies.

Delayed introduction of TRAN-1 form has also caused hardship on taxpayers to pay tax in spite of availability of credit. Further, ONLINE submission is error prone and may cause loss of credit or availing wrong credit.

Taxpayers with voluminous data are awaiting easy to upload offline utility for availing tax credit.

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