Implementation of GST has gained momentum in the country, with the Government initiating the stage wise / State wise GST Enrolment for all the assessee’s. The Government is working really hard to achieve the target date (i.e. 1st April 2017), for introducing the new Indirect Tax regime.
The Enrolment process has started with different enrolment period being allotted to various States for enabling the various assessee’s covered under the respective states to migrate to the new Indirect tax regime.
Transitional Provisions are incorporated in the Model GST Law, in order to enable the existing tax payers to migrate to the new indirect Tax Regime. The Transitional provisions are aimed to give clarity and sanctity to the transactions and events that have been undertaken or are pending as on the date, from when the GST will be implemented thru out the Nation.
There would be many events and transactions which not have been finished as on the appointed date such as closing balance of CENVAT Credit and ITC of VAT, lying in the books of accounts of the assessee’s, goods in transit, material sent for job work which is pending at the job worker’s premises, balance 50% CENVAT Credit on Capital Goods procured in the previous financial year, etc.
In order to take care of all those transactions, transitional provisions have been incorporated in the Model GST Law. In the ensuing table, we will have look at the various transitional provisions regarding the CENVAT Credit / Input Tax Credit, that have been formulated for giving effect to the CENVAT Credit / Input Tax Credit balance lying in the books of accounts of the Assessee’s, while switching over to the new Indirect Tax Regime –
Section No. (in the Model GST Law)
|Section Heading||Summary (Crux) of the Provisions in the said section|
|165||General Provisions||a. Officers appointed by the respective Governments (i.e. either Central Govt. or State Govt.) under the earlier law, shall be deemed to be appointed as GST Officers / Competent Authorities under the respective provisions of this Act.
b. The Central Government or the State Government may make any rules or issue any Orders for enabling smooth transitions to GST.
|166||Migration of existing taxpayers to GST||Contain provisions regarding migration of the existing taxpayers under respective State VAT laws / Central Excise / Service Tax.
Existing Taxpayers registered under the earlier law shall be given provisional registration certificate which shall be valid for a period of six months from the date of issue.
Existing taxpayers have to furnish the information and details, within such period as may be specified.
Upon furnishing the details and information as may be required, the certificate of registration granted on provisional basis will be granted on final basis.
If an existing taxpayers fails to furnish the information and details as required, the registration certificate granted to him shall be cancelled.
|167||Amount of CENVAT Credit / Input Tax Credit carried forward in Return to be allowed as Input Tax Credit||This provision allows a registered taxable person to take in his electronic credit ledger, the amount of CENVAT Credit shown as closing balance in his return filed for the period immediately preceding the appointed date.
However, the taxable person shall be able to take as CENVAT Credit only such amount which was admissible as CENVAT Credit under the CCR 2004.
If the amount of CENVAT Credit is wrongly availed, then the same shall be recovered as an arrears of tax.
The State Goods and Service Tax Law will contain similar provisions in respect of Input Tax Credit (admissible under the respective VAT Acts) lying in balance as on the date immediately preceding the appointed date. In the revised Model Draft law introduced in November 2016, they have also inserted the amount of Entry tax carried forward in the return filed for the period immediately preceding the appointed date.
The CENVAT Credit lying in balance as on the date immediately preceding the appointed date will be admissible as Input Tax Credit of the CGST portion in the Electronic Credit ledger.
Similarly the Input Tax Credit lying in balance on account of the amount of VAT and Entry Tax lying in balance as on the date immediately preceding the appointed date will be admissible as Input Tax Credit of SGST portion in the Electronic Credit Ledger.
|168||CENVAT Credit / Input Tax Credit on Capital Goods, not carried forward in Tax Return, to be allowed to be carried forward.||In respect of Capital Goods, under the CENVAT Credit Rules, 2004, only 50% CENVAT Credit can be availed during the first year. The remaining 50% of CENVAT Credit can be availed in any of the subsequent financial years.
This section enables a registered taxable person to avail the balance unavailed CENVAT Credit in his electronic credit ledger, in respect of the Capital Goods which is not carried forward by him in his return filed for the period immediately preceding the appointed date.
It should be noted that Registered taxable person is already allowed under the earlier mentioned section 143, to take in his electronic credit ledger, the amount of CENVAT Credit carry forward in his return filed for the period immediately preceding the appointed date. Such CENVAT Credit balance consist of Inputs, Capital Goods and Input Services.
A registered taxable person is not allowed to avail Credit under this section unless CENVAT Credit was admissible to him under the earlier law.
Similarly a registered taxable person can take in his electronic Credit ledger, the unavailed Input Tax Credit (of the tax paid under the State VAT laws) in respect of Capital Goods, which is not carried forward by such taxable person in his return filed for the period immediately preceding the appointed date.
|169||Credit of eligible duties and taxes on Inputs held in stock to be allowed||A registered taxable person will be allowed to avail CENVAT Credit of duties paid on Inputs held in stock, contained in semi-finished goods or finished goods held in stock, on the appointed date, subject to certain conditions.
Such registered Taxable person should have been –
a. person not liable to be registered under earlier law or;
b. engaged in the manufacture of exempted goods or provision of exempted service or;
c. was providing works contract service and was paying service tax on abated value or;
d. was a first stage dealer or second stage dealer or registered importer.
Under the earlier Draft of Model GST law kept in the public domain in June 2016; CENVAT Credit of duties paid on inputs held in stock, contained in semi-finished goods or finished goods; was admissible only to the manufacturers who were not registered under the Central Excise either because they were below the threshold limit or because their goods were exempted. Now this facility has been extended to the service providers as well as to the dealers and importers registered under Central Excise and Service Tax.
The CENVAT Credit is allowed only of the eligible duties and taxes which as of now does not include CENVAT Credit balance of Education Cess and Secondary and Higher Education Cess.
The CENVAT Credit shall be allowed to the registered taxable person other than the manufacturer or supplier of service, even if such taxable person is not in possession of an Invoice or any other duty paying documents subject to such conditions, limitation and safeguards as may be prescribed.
Similarly in case of VAT, a person who was not liable to be registered under the respective VAT Laws or who is engaged in the sale of exempted goods under the earlier VAT law but which are liable to tax under the GST regime, such registered taxable person shall be entitled to take credit in his electronic credit ledger, the credit of the VAT and Entry tax paid on the inputs held in stock, inputs contained in the semi-finished or finished goods held in stock as on the appointed date, subject to certain conditions.
|170||Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations||This section provides that where registered taxable person is engaged in the manufacture or provision of dutiable as well as exempted goods or services, then he shall be entitled to avail in his electronic credit ledger, CENVAT Credit carried forward in a return furnished under the earlier law and the amount of CENVAT Credit on Inputs lying in stock or contained in semi-finished or finished goods lying in stock as on the appointed date, relating to the exempted goods or services.|
|171||Credit of duties and taxes in respect of Inputs and Input services, in respect of goods in transit.||It may happen that the goods may have been dispatched before the appointed date, on payment of appropriate Excise duty and VAT, however the same were received by the taxable person after the appointed date (i.e. after the introduction of GST).
In such situation, a registered taxable person receiving such goods and or services after the appointed date, on which appropriate duty or tax has been paid under the earlier law, shall be entitled to take in his electronic credit ledger, the amount of duty or taxes paid on such input or input services.
The only condition prescribed for allowing registered taxable person to avail such Credit of such duties and taxes, is that the Bill or Invoice should be recorded in the books of accounts within a period of thirty days from the appointed date. Secondly the registered taxable person shall furnish a statement of Invoices, on which credit has been taken under this section.
Here it should be noted that this section uses the words “Input and Input Services”. But what about any Capital Goods in transit. Whether credit will be allowed on such capital goods in transit under this section. The answer is big NO.
|172||Credit of duties and taxes on Inputs held in stock while switching over from the composition scheme||Where a taxable person was working under composition scheme under the earlier law (i.e. paying tax at a fixed rate or paying a fixed amount instead of the tax payable amount) then he can take in his electronic credit ledger, the credit of eligible duties and taxes, in respect of Inputs held in stock, inputs contained in semi-finished goods and finished goods as on the appointed date, subject to the following prescribed conditions –
a. The inputs / goods should be used for making taxable outward supply under the GST;
b. He (i.e. the taxable person) should not be working under the composition scheme
c. The taxable person is eligible for availing Input tax credit on such inputs;
d. The taxable person should posses copy of the Invoice which should not be earlier than twelve months immediately preceding the appointed day.
|182||Claim of CENVAT / Input Tax Credit under the earlier law||All the claims of CENVAT Credit / Input Tax Credit, pending in an appeal, revision, review or reference, shall be disposed of in accordance with the provisions of earlier law and if any amount is found admissible to the claimant, then the same shall be refunded in cash, provided the assessee has not carried forward the said amount as credit balance on the appointed date, under the Act.
Similarly if any amount / claim of CENVAT / Input Tax Credit, is found to be recoverable as a result of the appeal, revision, review, or reference, the same shall be recovered as an arrears of tax under this Act.
|190||Credit distribution of Service Tax by ISD||Assessee registered as Input Service Distributor shall be eligible for distribution of input tax credit received on account of any services rendered prior to the appointed date.
However the manner of distribution has not been prescribed under the statute.
|191||Transfer of unutilised CENVAT Credit by a taxable person having Centralised Registration||As per this provision, where a registered taxable person, had obtained Centralized Registration under the earlier law, then such person shall be allowed to avail, in his electronic credit ledger, the amount of CENVAT Credit, carried forward by him in the return furnished under the earlier law, for the period ending with the day, immediately preceding the appointed day.
Further such Credit can be transferred to any of the registered taxable person, having the same PAN, for which the centralized registration was obtained.
|192 and 193||Tax paid on goods (inputs / capital goods) lying with agents, to be allowed as Credit||An Agent in whose premises any inputs or capital goods are lying, which are belonging to the principal, the agent shall be allowed to avail Credit of the tax paid on such Inputs or capital goods subject to the following conditions –
a. The Agent should be registered under the GST Act;
b. both the principal as well as the agent should declare in the form as may be prescribed, the details of stock of Inputs and or capital goods lying with such agent, within the time as may be prescribed;
c. the Invoices for such inputs and or capital goods should have been issued within the immediately preceding twelve months from the appointed day;
d. the principal should not have availed Input tax credit on such goods.
|197||Transitional provisions for availing CENVAT Credit in certain cases||As per CENVAT Credit Rules, 2004, where an assessee has availed CENVAT Credit on Input services, but has not made payment of such Invoices including the service tax, to the service provider, within three months from the date of Invoice, the assessee has to reverse the CENVAT Credit availed on such Input Services.
Such Credit which has been reversed due to non-payment of the Invoice amount, can be reclaimed provided the assessee makes the payment of the Invoice, within three months from the appointed day.
The success in implementation of the Goods and Service Tax (GST) through-out India, depends a lot on smooth transition from the current Indirect tax structure to the GST regime. If the transition is smooth, then it will obviously be heartening for all the stakeholders involved (i.e. both the tax collectors and tax payers).