Transition provisions under GST

Posted on 10 June 2022 Category : GST terms

Term Transition provisions under GST

This post explains about Transition provisions under GST.

Transition Provisions:

Transition provisions are provisions introduced by government to enable existing taxpayers to migrate to new law of tax administration in a transparent and exact manner.

GST Transition

The key to the success of GST would be when all present tax payers comfortably migrate to GST so that they can continue their businesses without any difficulty. The transition should also enable all to start on a level playing field. In the present act and rules there are a couple of aberrations which treat hitherto exempted manufacturers or taxable and exempted product manufacturers unfairly and unequally.

Some important transition provisions are briefly explained hereunder:

Every person registered under VAT, Central Excise or Service tax etc. having a valid PAN would be provisionally registered. Further particulars to be provided (online) to enable final registration. (Section 139)
The CENVAT Credit (manufacturer/ service provider) or the VAT credit (manufacturer/ Trader) or Entry Tax credit (where allowed to be adjusted – few States enable this) can be carried forward if eligible as input credit under GST. It must be ensured that the last return before switching over to GST is made very carefully after proper reconciliation with books of account. Only eligible credits credit to be carried forward. Capturing the complete credits of VAT, Central Excise and Inputs credit could be a value-added activity. The time limit specified is 90 days from 1st July or another 90 days if Commissioner extends. (Section 140(1))
Capital goods credit is available to a manufacturer/ service provider normally upto 50% in the year of acquisition and balance 50% in the subsequent year/s. Where one has either not availed though eligible or availed 50% pre-GST, the balance can be availed in the subsequent year. However, this credit has not been extended to traders who have capital goods in use as well as area based exempted units. (Section 140(2))
All manufacturers/ traders and to a lesser extent service provider would have stock of goods which may be in the form of raw material/ components, semi-finished goods and finished goods. Taxes (central excise duty, Input tax credit, service tax) paid under the earlier regime which are available in GST should be allowed as credit as now the payment would be under GST. Those not liable to be registered under the earlier law, claiming exemption, providing works contract service or claiming abatement or 1st and 2nd stage dealer would be eligible to avail the credit on closing stock. This again may not be fair. The proof of existence of stock may also be retained such as stock taking, entries in the running stock registers.
The claim for credit of taxes paid on stock can be made for all the above situations along with duty paying documents to maximize the credit. Where no documents are there, Transitional Rules prescribe deemed credit of 60% can be availed in case of supply of goods taxed at 18% or higher and 40% credit can be availed in case of supply of goods taxed at less than 18% within 6 months, subject to certain conditions. If supply is IGST then it would be 30 % and 20% respectively. (Sections 140(3))
The credit for duty/ tax paid for goods in transit can be claimed within a period of 30 days with the condition that the same has been recorded in the books. A statement as prescribed should be submitted. (Section 140(5))
Many dealers and works contractors who are under the composition scheme in the local VAT laws as well as the service tax law are ineligible or may not find it economically viable especially if, they are into Business to Business (B2B). However, if such dealers opt for regular scheme under GST, the credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day is allowed subject to certain conditions. (Section 140(6))
The common input services for services received before GST by an Input Service Distributor would be available for distribution as credit under GST Act even if invoice(s) relating to such services is received on or after implementation of GST. [Section 140(7)].
Where a taxable person having Centralized Registration under the earlier law has obtained a registration under CGST Act, such person shall be allowed to take in his Electronic Credit Ledger, credit of the amount of CENVAT Credit carried forward in a return, furnished under the earlier law by him in respect of the period ending with the day immediately preceding the appointed day. However, the taxable person shall not be allowed to take credit unless the said amount is admissible as input tax credit under the GST Act. Further, such credit may be transferred to any of the registered taxable persons having the same PAN for which the Centralized Registration was obtained under the earlier law. (Section 140(8))
Under the service tax law when one had not paid for services within 3 months, the credit was to be reversed. If payment is made within 3 months of GST such credit can be re- claimed (Section 140(9))
Where any duty paid Goods under the earlier law are sent 6 months prior to the appointed day i.e. introduction of GST date and are returned to any place of business on or after the aforesaid appointed day, the Registered Taxable Person(RTP) shall be eligible for refund of the duty paid under the earlier law where such goods are returned by a person, other than a RTP, to the said place of business within a period of six months from the appointed day when such goods are identifiable to the satisfaction of the proper officer. However, if the said goods are returned by a RTP, the return of goods shall be deemed to be a supply. (Section 142(1))
When inputs/ Semi Finished/ finished Goods sent for job work on payment of duty are returned after GST date within 6 + 2 months of GST date no GST will be payable. If not returned, then the input tax credit would have to be reversed. This provision would apply where the credit on the stock in hand of job worker is claimed by the principal (sender). Enabling provisions have been made for receipt of goods directly by job worker or supply from job workers premises. (Sections 141)
The issue of supplementary invoices, debit/ credit note can be done within 30 days of the date of price revision. In case of credit note, the reversal of the credit by the receiver needs to be confirmed. (Section 142)
The claims for refund of any amount of CENVAT credit, duty, tax or interest paid made and pending as well as claims made after GST date but pertaining to a period prior would be under the earlier law required to be disposed of as per the earlier law and any amount eventually accruing to him shall be paid in cash. In case of a claim being rejected (subject to appeal in the old law) the amount so rejected would lapse (Section 142)
The claim for CENVAT credit or ITC or output duty or tax liability or dispute on Reverse charge mechanism made under the earlier law which is in adjudication etc. would be disposed of under the old law and any amount found to be admissible to the claimant shall be refunded to him in cash. In case of recovery of credit under old law it would be as per the provisions of GST. (Sections 142)
The returns under central excise can be revised before the end of the month, and service tax returns within 90 days; under VAT in most States a 6 months’ time is provided for such revision. If aforesaid revision of returns results in any amount recoverable from the assessee, the same shall be recovered as an arrear of tax under GST Act and the amount so recovered shall not be admissible as input tax credit under GST Act. On the other hand, if pursuant to aforesaid revision of return, any amount is found to be refundable or CENVAT Credit is found to be admissible to any taxable person, the same shall be refunded to him in cash. (Section 142(9))
Contracts entered prior to GST spilling over to GST would be liable to tax under GST. No tax shall be payable on the supply of goods and/or services made on or after the appointed day where the duty or tax payable thereon has already been paid under the earlier law. (Section 187)
The tax in respect of the taxable services /taxable goods paid under earlier law, tax shall be levied under this act, and the taxable person shall be entitled to take credit of taxes paid under the existing law to the extent of supplies made after the appointed day and such credit shall be calculated in such manner as may be prescribed. (Section 142(11))
In many States the stock transfers are after reversal of input tax credit. No such credit reversal is permissible under GST though it was desirable.
Where goods are sent on approval and are returned within 6 + 2 months, then no liability to pay exist under GST. Beyond that tax is payable by the person returning the goods. If not returned, then the sender has to pay the GST of such earlier supplies. (Section 142(12))
Where a supplier has made any sale of goods in respect of which tax was required to be deducted at source under the earlier law and the supplier has also issued an invoice for the same before the appointed day, no tax is to be deducted at source shall be made by the deductor under Section 46 of the CGST where payment to the said supplier is made on or after the appointed day. (Section 142(13))