The below article lays discussion on Section 142 (10) and (11) of CGST Act, 2017 which provides taxability of transaction of goods spread over Current Regime and GST Regime. 

“142 Miscellaneous transitional provisions

 (10) Save as otherwise provided in this Chapter, the goods or services or both supplied on or after the appointed day in pursuance of a contract entered into prior to the appointed day shall be liable to tax under the provisions of this Act.

 (11) (a) notwithstanding anything contained in section 12, no tax shall be payable on goods under this Act to the extent the tax was leviable on the said goods under the Value Added Tax Act of the State;”

1. Combination of Sub section 10 and 11

Section 142 (10), provides that goods supplied after the GST date, shall suffer GST regardless of whether the contract of the said supplies were entered before the GST date. The contract could either means a contract of promise, or it could also mean a contract of execution viz. Invoice.

Take for an example, suppose an assessee who raises an invoice on 28/6/2017 for supply of goods, but the actual supplies are effected by the supplier 4/7/2017, shall suffer GST. This seems fine, if the invoice of 28/6/2017 was a tax free invoice, however if the invoice had born the tax component of current regime, it would be absurd to charge GST again on the “to be supplied goods”.

Therefore Section 142 (11) (a) has been incorporated, (which clearly over rides sub section 10 (starts with “save as otherwise provided”), to provide an exception to the above dual taxation anomaly. Sub section 11 (a), says that no GST shall not be payable on the goods to the extent the tax was leviable on the said goods under the Value Added Tax Act of the State.

2. Reference to VAT Levy, why?

Interestingly, a Central Legislation, provides taxability subject to the taxability event of a State Legislation, why? Seeing the larger picture, the intention of the provision is to stop second time taxation of goods i.e. when goods are subject to Excise Duty and VAT, they shouldn’t be subject to CGST and SGST (or IGST). Clearly, only when both Excise Duty and VAT are paid, then only GST liability would vanish.

In normal circumstances, out of (1) Leviability of Excise Duty (‘Event 1’) and (2) Leviablity of VAT (‘Event 2’), the Event 2 would succeed Event 1, therefore the reference has been put Event 2. The reference to Event 2 would ensure that, both Excise Duty and VAT are being paid on a transaction, only then exemption from GST be provided.

3. Anomalies with reference to VAT levy;

Convincingly, it can be said that sub section 142 (11) (a) presumes that every transaction that has suffered VAT, must have suffered Excise Duty. However this presumption is not true for some transaction like below;

  Facts GST Implications
Scenario 1 A manufacturer, manufactured Tools and Dies (‘T&D’) for his customer on 10/6/2017. The manufacturer sold the T&D to customer, but retained them for further manufacturing of Goods. The manufacturer raised VAT invoice for INR 100 and charged VAT @ 15% – INR 15, however the Excise Duty was not charged, availing exemption under Notification No. 67/95-CE (Captive Consumption). The T&D will be supplied finally to customer say, after 3 years. Because, the T&D were leviable to VAT, there would be no GST liability as and when the goods will be finally dispatched to the customers, per Section 142 11 (a). In effect, the Goods escaped the Excise Duty portion (that should’ve been paid by then). (See Note below)
Scenario 2 Taking same scenario as in 1 above, except for the fact that the T&D are sold inter-state, and manufacturer charged INR 100 from customer along with CST @ 2% – INR 2. Since, sub section 11 (a) is applicable only when VAT levy is triggered, and not leviablity of CST Act, GST will be applicable as and when the T&D will be dispatched to the customer, per section 142 (10). In effect, the T&D have dual taxation – both under the current law as well as under GST Law.

 Conclusion: From an apparent look, it seems had the reference be given to Excise Duty levy in CGST Act and VAT levy under SGST Act, it could have created distort. In a sense that some transactions could have suffered only CGST and some could have suffered only SGST. Hence the reference to a VAT legislation was to contain the synchronized/ harmonized levy of CGST and SGST on future transactions. Therefore, be the anomaly there in the law, it would erode once the few transactions of such nature are over in the future. 

Note: Some portion of Excise duty would suffer Excise Duty as part of Amortization, to the extent, the final goods manufactured out of T&D, (supplied under Current Regime), Refer Rule 6 of Central Excise Valuation Rules, 2000.

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December 2020