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Transitional Provisions under GST

Transitional Provisions under GST

1. What are the inputs taxes that can be carried forward by a manufacturer paying excise duty or a service provider paying service while transitioning to GST?
  • A manufacturer or service provider can carry forward the balance of CENVAT as per the return submitted for the last month/half year preceding the date of transition as the case may be. A manufacturer or service provider opting for composition levy under GST is ineligible for this benefit.
    Conditions:-

    1. the input credit must be permitted both under the existing law as well GST
    2. Returns required under the existing law for the preceding six months should have been furnished
    3. The manufacturer should not have been clearing finished goods claiming excise exemption
  • A manufacturer or service provider can take credit of un-availed CENVAT credit relating to capital goods. A manufacturer or service provider opting for composition levy under GST is ineligible for this benefit.
    Condition:- the credit must be permitted under the existing law as pertaining to capital good and also under GST as input tax credit.
2. How can a registered person other than manufacturer or service provider already paying excise duty or service tax, as the case may be, avail transitional benefits under GST?

Eligibility:- Section 140(3) of CGST enumerates the type of registered taxable person who are eligible for transitional benefit. They are as follows:-

  • A registered taxable person who was not liable to be registered under existing law
  • A registered taxable person manufacturing exempted goods or rendering exempted service
  • A registered taxable person who was providing works contract service and availing abatement under Notification no. 26/2012 of Service Tax
  • A registered taxable person who is first stage dealer or second stage dealer
  • A registered taxable person who is registered importer
  • A registered taxable person being a manufacturer with regard to goods lying in depot

Section 140(6) of CGST is applicable for a registered taxable person who was either paying tax at fixed rate or paying fixed amount under the prevailing tax laws but is required to pay GST under GST law.

A common feature in the all the above is that the person was not required to remit excise duty or service tax under the earlier tax laws or was enjoying some concession but became liable to GST.

Similarly, a manufacturer who is having finished goods at the depot or registered importer who is having stock on the date of transition and will, therefore, would be required to pay GST on the supply are also being covered.

Benefit:- Eligible duties on inputs as well as inputs contained in semi-finished and finished goods lying on the last date preceding GST can be carried forward. The law is silent on input credit with regard to capital goods and therefore cannot be carried forward. 

Conditions:-

  1. Inputs must be intended to be used for making taxable supplies under GST
  2. Inputs ought to be eligible inputs under GST for availing ITC
  3. Documents evidencing payment of tax should be available and it should not be earlier than twelve months from the date of transition. If GST law is applicable on 1st July 2017, then inputs, where the invoice is dated 1st May 2016, is ineligible
  4. the supplier should not avail any abatement under GST law

However, a registered taxable person who does not meet condition (c) above but fulfills other three conditions may be permitted to avail input tax credit at such rate and manner as may be prescribed subject to additional conditions like the requirement to pass on the benefit of input tax credit to the recipient on further supply. Eligible Duties:- are

  1. Counter-vailing duty
  2. additional duty of excise both special importance and applicable for textiles
  3. SAD under Customs
  4. Excise and
  5. National calamity contingent duty

These are under Central GST while details are awaited with regard to State GST

3. How does transitional provisions impact a manufacturer who was manufacturing both excise exempt and taxable goods and a service provider who was providing both taxable services and services exempt from Service Tax?

A registered taxable person who belongs to this category but is required to pay GST on further supply of goods or services is permitted to

  • carry forward the CENVAT credit as per the last return of the month/half year as the case may be by fulfilling certain conditions. This is as far as goods or services taxed under Excise or Service tax is concerned
  • With regard to exempt goods and services, the registered person is allowed to take credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished and finished goods as on the date of transition subject to fulfillment of certain conditions

Eligible Duties:- are

    1. Counter-vailing duty
    2. additional duty of excise both special importance and applicable for textiles
    3. SAD under Customs
    4. Excise and
    5. National calamity contingent duty

These are under Central GST while details are awaited under State GST.

4. How to avail GST on goods/services in transit on the date of transition?

A registered taxable person can avail credit of eligible duties in respect of input or input services that are received either on or after the date of transition but the respective taxes were already remitted by the supplier before the date. 

Conditions:- Invoice or any other tax paying document must be recorded within 30 days from the date of transition and the registered person is required to furnish a prescribed statement. 

Eligible Duties:- are

  1. Counter-vailing duty
  2. additional duty of excise both special importance and applicable for textiles
  3. SAD under Customs
  4. Excise
  5. service tax and
  6. National calamity contingent duty

These are under Central GST while details are awaited under State GST.

5. How does the transition provision impact an Input Service Distributor?

Input service distributor can distribute input tax credit in respect of services received prior to the transition date though the invoice is received on or after that date.

6. What are some of the benefits provided by transitional provisions for a taxable person with centralized registration under the existing law?

It is worth noting that existing service tax required centralized registration. However, the service provider would be required to be registered in more than one state under GST depending on the location of the supplier and place of supply rules. 

The transitional provision permits carry forward of the amount of CENVAT as per the return for the period ending with the date of transition. The credit can also be transferred to any of the registrations of the taxable person. 

Conditions:-

  1. The input credit should be admissible under GST
  2. The return under the existing law to be furnished within 3 months of the date of transition
7. How does the transition provision impact an Input Service Distributor?
  • Inputs has been removed to a job worker for further processing, testing, repair or reconditioning or any other purpose under the existing law before the date of transition; or
  • Semi-finished goods removed for manufacturing from place of business under the existing law before the date of transition; or
  • Excisable Manufactured goods removed without payment of duty from a place of business for carrying out tests or any other process not amounting to manufacture before the date of transition

In the all three circumstances mentioned above, if either the inputs or semi-finished goods or manufactured goods are returned after the date of transition but within a period of six months, then it would not be subject to GST. The period of six months can be extended for further period of two months by the Commissioner. 

If they are not returned within six months, then Input tax credit availed under the existing law would become payable. 

In circumstances (ii) and (iii) the manufacturer can supply the goods after paying GST or export it without taking it back.

8. What are the other implications of transition provisions?

1 Excise duty suffered goods returned after the date of transition- Refund of duty under the existing law

  • Date of removal from factory not earlier than 6 from the date of transition
  • Return to the factory alone from where it was removed
  • Returned by a person other than registered person under GST
  • Received in factory within 6 months from the date of transition
  • Goods are identifiable

2Upward revision in price of any goods or service or both after the date of transition in pursuance of contract entered into prior to the date of transition for which invoice is issued before that dateUpward revision would be subject to GST.

Supplementary invoice to be issued for the upward revision to the recipient within 30 days of such revision

3 Downward revision in price of any goods or service or both after the date of transition in pursuance of contract entered into prior to the date of transition for which invoice is issued before that dateThe registered person shall be allowed to reduce his GST liability only if the recipient of credit note has reduced his input tax creditCredit note to be issued for the downward revision to the recipient within 30 days of such revision4Claim for refund of CENVAT credit other than that carried forward, duty, tax, interest paid under existing law and refund claim made on or before the transition date under the existing lawRefund shall be granted in cash subject to unjust enrichment as per existing law. Any rejection either full or partial would result in the amount to lapse5Supply of goods or services on or after the date of transition in pursuance of contract enter prior to that dateWill be subject to GST6Return of goods sent on approval basisNo GST on such return if conditions are met. Otherwise, if it is not returned within 6 months, the seller has to pay GST and if it returned after six months then the buyer has to pay GST

  • Sent on approval basis not earlier than 6 months from the date of transition
  • Rejected and returned to the seller within six month from the date of transition. This six months can be extended for further two months by the Commissioner

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