GST Made Easy - Manner of Charging Tax, Transitional Provisions By CS Gourav Saraf


Introduction: 

GST which stands for Goods and Services Tax is now a very familiar term among the common people of India these days. It has become such a subject which is commonly debated and discussed among all the fraternities in India. The impact of this act is on every person irrespective their income. This act is regarded as the largest reform in India. The slogan of GST is 'One Nation One Tax' which means there should be one tax for the entire nation instead of state levies and central leviesAltogether there were 14 taxes which got subsumed under GST. The historic day of this act coming into effect was 1st July, 2017. The basis of introducing this act is to make the goods and services cheaper to the end consumers as India is regarded as 'Land of taxes' due to its wide spread area and its division into many states which makes the tax structure more complex as the goods and services has to go through different taxes both state levies and central levies before coming to consumers which makes the product very expensive, manufacturing process also gets hit as there are hindrance of many documents to be shown and taxes to be paid for the movement of good within the state in the form of toll tax and outside the state in the form of way bill and entry tax. The most important point is that there was cascading effect of taxes as many taxes were such on which there was no input tax credit available to the manufacturer, first stage dealer, second stage dealer and retailer. There were multiple registrations that were taken as the departments of different taxes levied were different which will not be the case now. In restaurants people used to pay service tax, vat and service charges on the meal they ate earlier but now they will now pay only GST and service charges.

Manner of charging tax: 

As the slogan implies one nation one tax then what will happen to the existing structure of charging tax is a question that will be in the minds of many people be it common man, entrepreneur or professionals. To make things easier let me tell you the basis of charging tax by government Article 246 of the Constitution of India has three Schedules through which tax structure is governed item falling under Schedule I will be taxed by State Government, item falling under Schedule II will be taxed by Central Government and rest of the items falling under Schedule III will be taxed by both Central and State Government. In GST when a taxable event arises when there is three types of taxes that is charged i.e., Integrated Goods and Services Tax (IGST), Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). IGST is charged when there is inter-state supply of goods and services which means supply from one state to another which is equal to CGST and SGST. CGST and SGST are charged when there is intra-state supply of goods and services which means supply within the state. Suppose the tax rate is 18%, if the supply is inter-state then IGST - 18% will be charged and if intra state then CGST - 9% and SGST - 9% will be charged. In reverse charge mechanism the tax is paid by the supplier of the taxable goods or services either from registered person or unregistered person.

Transitional Provisions: 

After having a brief knowledge of what is the tax structure and in which manner the tax will be levied let us understand the transitional provision or just say the transition in the traditional methods of doing business. It can be said without a shadow of doubt that with introduction of GST the new era of taxation has begun which in the times to come will strengthen the position of India in world economy. Today, India is regarded as the most favored nation for investment and many look for skilled IT personnel's in India for their Companies. The recent phase from legal perspective has been very challenging as it has gone under complete revamping which needs some transitional provision to avoid confusion, chaos and ambiguity. Now let’s delve into further details of transitional provision.

The transitional provision is covered in GST Act, 2016 under section 140 to 142, but our focal point of discussion will be section 140 in this first part and section 141 & 142 will be covered in second part.

General provision of availing input tax credit [Transitional provision Rule 1(1)]:

Input tax credit on tax or duty carried forward or on goods held in stock as on the appointed day i.e. the date of GST Act, 2016 coming into effect which is 1st July, 2017 are "Every Registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the Common Portal specifying therein, separately, the amount of input tax credit to which he is entitled under the provisions of the said section

Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.
Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004 which is a) Fifty per cent. of [X multiplied by {(1+BCD/100) multiplied by (CVD/100)}], where BCD and CVD denote ad valorem rates, in per cent., of basic customs duty and additional duty of customs leviable on the inputs or the capital goods respectively and X denotes the assessable value. b)  CENVAT credit in respect of - (i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); (ii) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001); (iii) the education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004); (iv) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under items (i), (ii) and (iii) above; (v) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003); (vi) the education cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and (vii) the additional duty of excise leviable under clause 85 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, shall be utilized only towards payment of only taxes of the same origin respectively.

Specific provision: 

The admissibility of input tax credit depends on case to case basis with some pre conditions to be complied with.
  • Registered person claiming ITC (input tax credit) of the amount of cenvat credit carried forward in return prior to 1st July, 2017[sec 140(1)] - The registered person will not be allowed to take credit in the following circumstances a) The said amount is not admissible as ITC under this act. b) Not furnished all returns required under existing law for the period of 6 months prior to 1st July. c) The said amount of credit relates to goods manufactured and cleared under such exemption notification as notified by Government. Details to be mentioned in GST TRAN -1- a) Amount of Input tax Credit entitled b) Value of claims under Inter - state sale (Sec 3 of Central Sales Tax Act, 1956) c) Value of claims under occasional or in connection of export (Sec 3(5) of Central Sales Tax Act, 1956) d) Tax liability under inter - state sale (Sec 6 of Central Sales Tax Act, 1956) e) Transfer of goods not for sale ex stock transfer from one godown to another or branch transfer (Sec 6A of Central Sales Tax Act, 1956) f) Rate of tax and calculation when sale is to government or registered dealer (Sec 8(8) of Central Sales Tax Act, 1956) rate of tax will be 2% OF TURNOVER OR RATE APPLICABLE IN THE STATE AS PER STATE TAX LAWS OR ANY ACT WHICH IMPOSES VAT WHICH EVER IS LOWER. The calculation will be declared goods - 2 time of the rate of tax applicable other goods - 10% or rate of tax applicable whichever is higher. Purchase exempted - nil. g) the serial number and value of declarations in Forms C and/or F and Certificates in Forms E and/or H or Form I specified in Rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 submitted by the applicant in support of the claims referred in clause (b) to (f).
  • Registered person claiming Cenvat Credit of Capital goods not carried forward in return prior to 1st July [Sec 140(2)] - The registered person shall be able to avail ITC if it is admissible as credit in both existing and this act. Details in respect of every capital goods to be mentioned in GST TRAN -1 - a) Amount of tax or duty availed or utilized by way of ITC under existing laws prior to 1st July and b) Amount of tax or duty yet to be availed or utilized as ITC.
  • Registered person claiming eligible duties in respect of inputs held in stock inputs contained in semi - finished goods or finished goods held in stock before 1st July [Sec 140(3)] - A person who was not liable to register under the existing law or manufacturing exempted goods or services or works contract availing exemption under notification 26/2012 of service tax or first stage or second stage dealer or registered importer or depot of manufacturer are entitled to ITC on eligible duties subject to some pre conditions. Pre conditions are as follows: a) inputs or goods are used or intended to be used for making taxable supplies b) Eligible for input tax credit under this act. c) In possession of invoice or prescribed documents evidencing payment of duty under the existing law in respect of such input. d) Invoice issued not earlier than 12 months preceding 1st July. e) Supplier of invoice is not eligible for any abatement under this act. In GST TRAN - 1 details of stock to be specified separately. Other than manufacturer and service provider - A registered person who was not registered under the existing law shall, in accordance with the proviso to sub-section (3) of section 140, be allowed to avail of input tax credit on goods (on which the duty of central excise or, as the case may be, additional duties of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975, is leviable) held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of central excise duty.
Such credit shall be allowed at the 60% on such goods which attract central tax or State Tax at the rate of 9%. Or more and 40% for other goods of the central tax applicable on supply of such goods after the appointed day and shall be credited after the central tax payable on such supply has been paid:

Provided that where integrated tax is paid on such goods, the amount of credit shall be allowed at the rate of 30% and 20% respectively of the said tax
The scheme shall be available for six tax periods from the appointed day.

Pre - condition for ITC of central and State Tax-

(i) such goods were not unconditionally exempt from the whole of the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 or were not nil rated in the said Schedule or Value Added Tax Act,…...
(ii) The document for procurement of such goods is available with the registered person.
(iii) the registered person availing of this scheme and having furnished the details of stock held by him in FORM GST TRAN - 1, submits a statement in FORM GST TRAN 2 at the end of each of the six tax periods during which the scheme is in operation indicating there in the details of supplies of such goods effected during the tax period.
(iv) The amount of credit allowed shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the Common Portal.
(v) The stock of goods on which the credit is availed is so stored that it can be easily identified by the registered person.
  • Registered person manufacturing taxable as well as exempted service [Sec 140(4) - The goods or services that was exempted under existing law is now taxable in this act. The eligible ITC will be amount of cenvat credit carried forward in a return furnished prior to 1st July and amount of eligible duties in respect of inputs held in stock or inputs contained in semi - finished goods or finished goods held in stock prior to 1st July relating to such exempted goods. In GST TRAN -1 details of stock to be specified separately.
  • Registered person received input or input services on or after the appointed day but duty or tax paid in existing law [Sec 140(5)] - A registered person is entitled to get ITC of eligible duties and taxes subject to condition that the invoice or taxpaying document of the same was recorded in the books of accounts of such person within 30 days from the appointed day. On sufficient cause being shown the time limit of 30 days can be extended by commissioner for a further period of not exceeding 30 days. Details to be mentioned in GST TRAN - 1 - a) the name of the supplier, serial number and date of issue of the invoice by the supplier or any document on the basis of which credit of input tax was admissible under the existing law, b) the description and value of the goods or services, c) the quantity in case of goods and the unit or unit quantity code thereof, d) the amount of eligible taxes and duties or, as the case may be, the value added tax [or entry tax] charged by the supplier in respect of the goods or services, and e) the date on which the receipt of goods or services is entered in the books of account of the recipient.
  • Registered person paying taxes at a fixed rate or paying tax at a fixed amount in lieu of the tax payable under the existing law [Sec 140(6)] - Registered person shall be entitled to credit of eligible duties in respect of inputs held in stock or inputs contained in semi - finished goods or finished goods held in stock prior to 1st July subject to pre condition. Pre conditions are as follows: a) inputs or goods are used or intended to be used for making taxable supplies b) Eligible for input tax credit under this act. c) In possession of invoice or prescribed documents evidencing payment of duty under the existing law in respect of such input. d) Invoice issued not earlier than 12 months preceding 1st July. e) Registered person is not paying tax under composition scheme (section 10). In GST TRAN - 1 details of stock to be specified separately.
  • ITC on account of services received prior to 1st July by Input Service Distributor but invoices relating to such service after appointed day [Sec 140(7)] - Notwithstanding anything to the contrary contained in this act, ITC shall be eligible for distribution as credit even if the invoices relating to services are received on or after the appointed day.
  • Centralized Registration [Sec 140(8)] - Registered person can claim ITC of cenvat credit carried forward in a return furnished before the appointed day. If the registered person furnishes his return prior to 1st July within 3 months from the appointed day i.e. 1st July credit is allowed subject to the condition that whether original return or revised return amount of credit allowed has been reduced from that claimed earlier. The amount of credit should be admissible under this act. Credit may be transferred to any registered persons having the same PAN for which the centralized registration was obtained under existing law. In GST TRAN - 1 details of stock to be specified separately.
  • ITC on Input services provided under existing law has been reversed due to non - payment of the consideration within a period of 3 months [Sec 140(9)] - ITC can reclaimed subject to condition that the registered person has made payment of the consideration for that supply of services within a period of 3 months from the appointed day.
Important Definitions and Notes: 

The words eligible duties have been used on three instances in the article Section 140(3), (4) and (6) the meaning of which is a) Additional Duty of excise Sec 3 of Additional Duties of Excise (Goods of special Importance) Act, 1957, b) Additional duty of custom Sec 3(1) of Customs Tariff Act, 1975 c) Additional duty of customs Sec 3(5) of Customs Tariff Act, 1975 d) Additional duty of excise Sec 3 of Additional Duties of Excise (Textile and Textile Articles) Act, 1978 e) Duty of excise specified in first schedule of the Central Excise Tariff Act, 1985 f) Duty of excise specified in Second schedule of the Central Excise Tariff Act, 1985 g) National Calamity Contingent Duty leviable u/s 136 of Finance Act, 2001 in respect of inputs held in stock and inputs contained in semi-finished goods or finished goods held in stock on the appointed day. The words eligible taxes and duties have been used on one instance in the article Section 140(5) the meaning of which is a) Additional Duty of excise Sec 3 of Additional Duties of Excise (Goods of special Importance) Act, 1957, b) Additional duty of custom Sec 3(1) of Customs Tariff Act, 1975 c) Additional duty of customs Sec 3(5) of Customs Tariff Act, 1975 d) Additional duty of excise Sec 3 of Additional Duties of Excise (Textile and Textile Articles) Act, 1978 e) Duty of excise specified in first schedule of the Central Excise Tariff Act, 1985 f) Duty of excise specified in Second schedule of the Central Excise Tariff Act, 1985 g) National Calamity Contingent Duty leviable u/s 136 of Finance Act, 2001 in respect of inputs held in stock and inputs contained in semi-finished goods or finished goods held in stock on the appointed day. h) Service tax leviable under Section 66B of the Finance Act, 1994 in respect of inputs and input services on or after the appointed day.

Unavailed Cenvat Credit- The words was used on one instance in the article Sec 140(2) which means the amount that remains after subtracting the amount of cenvat credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of cenvat credit to which they said person was entitled in respect of the said capital goods under existing law.

The amount of credit specified in the application in FORM GST TRAN-1 shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the Common Portal.

Author
Practicing Company Secretary
CS Gourav Saraf
Email id: gourav.saraf1989@gmail.com   

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