In our last article titled “Transitional provisions under Revised Model GST law (MGL)-Part I“we discussed 5 issues that may arise on transition to GST law for existing tax payers. The 5 issues are summarized as below:
1. Migration of existing taxpayers for registration under GST law;
2. Carry forward of cenvat credit or input credit claimed in the return filed under earlier law;
3. Carry forward of unclaimed cenvat credit on capital goods;
4. Carry forward of unclaimed cenvat credit on other than capital goods;
5. Claim of input tax credit of duty or tax paid on Inputs in stock on appointed day;
Now, in our 10th article of the series, we will continue and touch the major concerns of the taxpayers with regard to transition effect.
Issue 6: Credit of eligible duties and taxes on inputs held in stock-
IMPORTANT FOR MANUFACTURER
It is a concern of the manufacturer that in case they are manufacturing both exempted and non-exempted goods then what would be the mechanism to get the credit in GST regime on inputs lying in stock as on the appointed date.
Section 170 of revised model GST law deals with this issue of taxable person who are engaged in manufacturing of non-exempted or exempted goods or provision of non-exempted and exempted services.
It provides that
It is worth noting that the provision does not laid down any condition that such goods or services should not be exempted in the GST regime. Therefore, it is advised to make requisite arrangements to get the invoices on time so that such invoices can be claimed as credit in the return of earlier law.
Issue 7: Credit of inputs or input services received after appointed date
IMPORTANT FOR MANUFACTURER, SERVICE PROVIDER AND TRADER
Now, another question arises that what about the credit on inputs or input services on which taxes are paid in earlier law but invoice has not been booked by the receiver and inputs or input services are received on or after the appointed date.
The credit shall allowed under electronic credit ledger if the invoice/document has been booked within 30 days from the appointed day which can be extended to another 30 days post approval of competent authority.
This would be applicable in case of goods in transit or advance cases where tax liability has arisen in earlier law and goods or services received post appointed date. It is therefore suggested to keep track of such inputs which are in transit and input services which are not received. Account for such invoices in the books within 30 days from appointed date and claim credit of the same in electronic credit ledger.
There is a requirement of statement which would be furnished by such registered taxable person in a manner as may be prescribed.
Issue 8: What about the credit on inputs to composition dealer in earlier law
IMPORTANT FOR TRADER
A composition dealer of earlier law, who wants to get registered as regular taxable person under GST regime, shall be eligible to get the credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods in stock on appointed date subject to fulfillment of some conditions like inputs shall be utilized for making taxable supplies under GST act, possession of documents, invoice date is not earlier than 12 months preceding the appointed date.
→ It is advisable for composition dealers to keep the records of inputs in stock as on the appointed date if they wish to migrate into GST as registered taxable person and not to opt for composition dealer.
Issue 9: Goods are returned to the place of business on or after the appointed date
IMPORTANT FOR MANUFACTURER AND TRADER
The transitional provisions cover almost every case of goods returned to the place of business of the taxable person. The conditions subject to which the input tax credit shall not be required to be reversed or no output tax shall be payable on such goods returned. The summarized provisions laid down here under:-
Section 173 Exempted good returned after appointed date
Section 174: Duty paid goods are returned
Section 175: Input received in factory, earlier sent on job work
Section 176: Semi finished goods returned, earlier sent for manufacturing process
Section 177: Finished goods are received, earlier sent for testing or other processes
→ Therefore, a manufacturer or a trader is required to analyze above provisions with respect to tax liability on goods returned or received back in the factory or place of business post appointed date and take necessary actions, so that tax liability should not arise on goods removed earlier.
Issue 10: Supplementary debit notes or credit notes – Revision of contract w.r.t. Price
IMPORTANT FOR MANUFACTURER, SERVICE PROVIDER AND TRADER
The model law has provided a provision to deal with a situation where in case of any revision in contract with respect to price, either upwards or downwards, the tax payer can take the relief by issuing the debit/credit notes. However, there are following conditions which must be met:
Then only, it shall be deemed that such debit note or credit note has been issued in relation to output supply under the GST law.
We know that this issue needs to be elaborated more, hence we have covered this topic in our next article as FAQs.
Issue 11: What about the Cenvat credit of Centralized registered service tax assessees’
IMPORTANT FOR SERVICE PROVIDER
The model law has observed the need to explain the question that how a centralized registered service tax assessee will share the Cenvat credit to different state registration under GST law. In this regard, the model law provides that
→ Points to be noted:
It is also provided that revised return shall be considered only if it is filed within 3 months from the appointed date and there is a reduction in cenvat credit amount claimed in the original return.
Further, the cenvat credit can be claimed by any registered taxable person having the same PAN for which centralized registration was obtained.
The method is yet to be prescribed on the basis of which cenvat credit shall be apportioned to all registered taxable person in GST.
We have discussed the provisions related to transition from existing law to GST regime, provided under Model GST law and observed that the existing tax payers are required to analyze the current business practices and take some stringent actions to avail the benefits provided under transitional provisions with fulfillment of relevant conditions. However, it is observed that in some places the government is yet to clarify the situation.
In our next article, we will focus on practical issues relating to the transition from existing tax laws to GST.
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the authors are personal view and this cannot be quoted before any authority without the written permission of the authors. This article is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this article will be accepted by authors. It is recommended that professional advice be sought based on the specific facts and circumstances. This article does not substitute the need to refer to the original pronouncements on GST.
(Authors – CA Neeraj Kumar and CA Deepak Arya, RAPG & Co. Chartered Accountants from Delhi and can be reached at firstname.lastname@example.org, 9999836182/9818449179)