In our 9th article of the series, we are discussing the very important aspect of MGL that is transitional provisions, provided in model law for all the existing taxpayers. The transitional provisions are applicable to all the existing taxpayers and will impact majorly for assessees registered under central excise, service tax, state VAT.

Also Read- Transitional provisions under Revised Model GST law (MGL)-Part II

Issue 1: Migration/Enrollment of existing taxpayers into GST

Section 166 of MGL provides for migration of existing taxpayers into GST. It provides that on the appointed day (more likely to be 01-07-2017), every person who is registered under any of the earlier laws (e.g. Service tax, Excise, State VAT, Luxury tax, etc.) and having  a  valid  PAN  shall  be  granted a  registration  on  a  provisional basis and certificate of registration in FORM GST REG -21. Every person who has been granted the provisional registration shall submit an application electronically in FORM GST REG–20 duly signed along with documents specified in such form within 6 Months from the date of issue of provisional certificate. On the basis of documents furnished, the proper officer may issue the Final certificate of registration under Form GST REG-06. The same shall be available on the common portal (www.gst.gov.in ).

A  person  to  whom  a  certificate  of  registration  has  been  issued  on  a  provisional basis and who is eligible to pay tax under section 9 i.e. composition scheme, may opt for composition scheme while filing the application for final registration.

Issue 2: Carry forward of Cenvat credit OR VAT as per the return filed under earlier law

Section 167 of MGL provides for Carry forward of Cenvat credit in a return to be allowed as Input tax credit. It provides that a registered taxable person (except composition dealer in GST law) shall take the input tax credit of amount of cenvat credit carried forward by him in the return relating to the period ending (most likely 30-06-2017) on previous day of appointed day.

But, we need to make sure that such Cenvat credit in admissible as Input tax credit under GST law.

Further, the credit of VAT would be allowed to be carried forward in the return furnished for the period ending on the previous day of appointed day as input tax credit, to a registered taxable person(except the composition dealer in GST law). The credit of VAT will be allowed to be carried forward not later than 90 days from the appointed day.

The amount carried forward shall be available as balance in electronic credit ledger of the taxpayer as CGST, SGST.

Further, as per the BGM released by ICAI on revised MGL, the existing tax payer shall be allowed to carry forward the Education cess and Secondary higher education cess as per the return filed in the earlier law. Cenvat credit of KKC shall not be allowed to the manufacturer and Cenvat credit of SAD shall not be allowed to the service provider. However, this may require more clarity from the CBEC.

Issue 3: Carry forward of Cenvat credit on Capital goods

Section 168 of MGL provides for un-availed CENVAT credit on capital goods, not carried forward in return, to be allowed in certain situation. It provides that a registered taxable person shall be allowed to carry forward the un-availed cenvat credit in respect of capital goods which has not been carried forward in return furnished under earlier law. However, the said credit should be admissible under the earlier law as well as under provisions of revised MGL. Un-availed cenvat credit means the cenvat credit amount remains after reducing the amount of cenvat credit claimed in the return for earlier period. Same is the case for VAT dealers.

For eg. In case a service provider is having Rs. 50,000 of CVD 3(1) as unclaimed cenvat credit as on 01-07-2017, the amount of Rs. 50,000 shall be allowed to carry forward in his electronic credit ledger.

Please also note that in case of any excess claim found then it shall be recovered under the GST law.

Issue 4 – Carry forward of cenvat credit if not claimed in return filed under earlier law

This is the situation which has not yet been addressed. For eg. If a registered taxable person does not claim the cenvat credit in the return filed for the period ending on day immediately proceeding the appointed day, then such credit shall not be allowed to carry forward in electronic credit ledger. Therefore, it is advised to claim the cenvat credit in the return and loose no benefit.

Issue 5 – Cenvat credit of excise duty paid and State VAT paid in respect of inputs

The CGST law provides that the following persons shall be allowed to get the credit on inputs-

  • A person not liable to be registered under earlier law(eg. Service tax, Excise, law, VAT)
  • A person manufacturing or providing exempted goods or services respectively,
  • A person availing the benefit of abatement notification,
  • First stage dealer or Second stage dealer,

These persons shall be entitled to take credit of eligible duties and taxes in electronic credit ledger. The credit shall be allowed on inputs held in stock, inputs contained in semi-finished or finished goods held in stock as on appointed day. (Most likely 01-07-2017)

1. Such inputs and / or goods are used or intended to be used for making taxable supplies under his Act–SUCH INPUTS ARE USED FOR SUPPLYING TAXABLE OUTPUT;

2. The said taxable person passes on the benefit of such credit by way of reduced prices to the recipient – REDUCTION IN PRICE CORRESPONDINGLY;

3. The said  taxable  person  is  eligible  for  input  tax  credit  on  such  inputs under this Act – ELIGIBLE FOR INPUT TAX CREDIT UNDER GST;

4. The said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law in respect of such inputs – POSSESS A VALID DOCUMENT EVIDENCING PAYMENT OF DUTY. THIS CONDITION IS APPLICABLE ON SUPPLIER ON MANUFACTURER AND SUPPLIER OF SERVICES. FOR OTHER SUPPLIERS, CONDITIONS AND SAFEGUARDS SHALL BE PRESCRIBED;

5. Such invoices and /or other prescribed documents were issued not earlier than 12 months immediately preceding the appointed day. – DOCUMENT SHOULD NOT BE OLDER THAN 12 MONTHS ON APPOINTED DAY i.e. if input purchased vide invoice dated 01-07-2016 is available in stock then it will be eligible document.;

6. The supplier of services is not eligible for any abatement under the Act – THE SUPPLIER IS NOT A SUPPLIER OF SERVICE WHICH COVERED UNDER ABATEMENT PROVIDED IN GST LAW;

Please also note that Eligible duties and taxes means excise duty, service tax, CVD 3(1), CVD 3(5), etc.

The SGST law provides that a person who:-

  • was not liable to be registered under the earlier law or
  • who was engaged in the sale of exempted goods under the earlier law but which are liable to tax under this Act,

shall be entitled to take, in his electronic credit ledger, credit of the Value Added Tax(VAT) in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions:

1. Such inputs and / or goods are used or intended to be used for making taxable supplies under his Act – SUCH INPUTS ARE USED FOR SUPPLYING TAXABLE OUTPUT;

2. The said taxable person passes on the benefit of such credit by way of reduced prices to the recipient – REDUCTION IN PRICE CORRESPONDINGLY;

3. The said  taxable  person  is  eligible  for  input  tax  credit  on  such  inputs under this Act – ELIGIBLE FOR INPUT TAX CREDIT UNDER GST;

4. The said inputs are not specified in schedule, rules or notification (as provided in earlier law) as inputs on which credit is not admissible – SPECIFIED INPUTS ON WHICH CREDIT IS NOT ELIGIBLE

5. The said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law in respect of such inputs – POSSESS A VALID DOCUMENT EVIDENCING PAYMENT OF DUTY. THIS CONDITION IS APPLICABLE ON SUPPLIER ON MANUFACTURER AND SUPPLIER OF SERVICES. FOR OTHER SUPPLIERS, CONDITIONS AND SAFEGUARDS SHALL BE PRESCRIBED;

6. Such invoices and /or other prescribed documents were issued not earlier than 12 months immediately preceding the appointed day. – DOCUMENT SHOULD NOT BE OLDER THAN 12 MONTHS ON APPOINTED DAY i.e. if input purchased vide invoice dated 01-07-2016 is available in stock then it will be eligible document.;

FAQs:

1 When will the provisional registration be converted into final registration?

Ans.  A  person  holding  the  provisional  registration  certificate  shall  submit  the  prescribed information  and  documents  as  per  the  GST  rules  within  6  months  or  the  extended period.  On  furnishing  the  information  and  documents  the  final  registration  will  be issued.

2 Can a person who is registered under the earlier law opt out of GST voluntarily?

Ans.  Yes, by making an application a person can opt out of GST but only after getting the provisional registration.

3 What happens where  distinct  registrations  are  obtained  under  the  Central  Excise/Service Tax law for distinct units/ business premises in one State?

Ans.  All units/ business premises registered either under Central Excise or Service Tax law would  be  consolidated  into  a  single  CGST  registration  for  that  State,  unless  they qualify as distinct business verticals under the GST law. Even if they qualify as distinct business verticals then also taxable person has option to opt for single registration for all such business verticals.

Q.4 Will a person registered in a State say Delhi be eligible to claim credit if he does  not  take  registration  in  that  State  under  GST  for  any  reason  say  closure  of operations etc.?

Ans.  The  credit  claimed  in  the  return  of  a  particular  State  will  ordinarily  be  eligible  to  be carried  forward  only  in  terms  of  the  SGST  law  of  that  State,  in  the  instant  case, Delhi and cannot be availed as credit under any other State GST Law. 

Q.5 Is there a provision to claim credit if not carried forward in the return for capital goods? 

Ans.  Yes.  Section  168 of revised MGL provides  for  claiming  un-availed  credit  in  respect  of  capital  goods only.  However  similar  provisions  do  not  exist  for  inputs  and  input  services,  except inputs in transit as on the appointed day.

Q.6 How will the condition of reduced price to recipient be satisfied?

Ans.  The component of eligible duties and taxes should be reduced from the ordinary sale price to pass on the benefit of reduced prices.  This is illustrated by way of a comparative example in respect of a trader –

Particulars Earlier law GST Law
Basic cost 1,00,000 1,00,000
Excise duty @ 12.50% 12,500 -(Since cenvatable)
Total cost 1,12,500 1,00,000
Selling price 1,50,000 1,37,500
Profit markup 37,500 37,500

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 info@rapg.in, 9999836182/9818449179)

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