DECEMBER 27, 2016

By Shilpa Gupta, CA, CS

IN this article I have tried to cover the transitional provisions given in the draft Model GST law providing the treatment to be given to accumulated CENVAT / VAT credit lying in the books of accounts as on the date before the date of implementation of GST ('appointed day').

- CENVAT Credit lying in the return to be allowed as Input credit under GST, provided last return under the current law is filed within 90 days of appointed day -Sec 167

- CENVAT credit of capital goods not carried forward in the return but lying in the books would be available under GST; provided the same is admissible as input credit under GST as well -Sec 168

Transitional provision under certain situations:

-  Credit of inputs, finished goods and semi-finished goods held in stock will be available as input credit to a person engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated 20.06.2012 or a first stage dealer or a second stage dealer or a registered importer under the current law, under GST; subject to fulfilment of conditions specified under the section – Sec 169

-  Manufacturer manufacturing taxable as well as exempted goods and a service provider providing taxable as well as exempt service under the current law will be eligible to claim input credit of inputs, semi – finished goods and finished goods held in stock on the appointed day and to be used for manufacturing exempted goods and provision of exempted services as per the current law. It is not yet clarified as to how such credit would be carry forwarded under the GST law and how the same would be intimated to the department - Sec 170

-  Credit of tax paid under the current law in respect of inputs and input service not received till the appointed day i.e. credit available on payment of advance; would be available under GST subject to recording of such invoice within thirty days of appointed day – Sec 171

-  Dealer opting to pay tax under composition scheme under the current regime and opting to pay tax on full value under GST regime would be allowed to avail credit of eligible duty on inputs, input service and capital goods lying in stock on the appointed day; subject to fulfilment of all the conditions specified in the section – Sec 172

-  No tax shall be payable by purchaser on goods returned within six month of appointed day provided the same were sold by seller not earlier than six months prior to the appointed day and such goods are identifiable to the satisfaction of the officer – Sec 173

-  Similarly, tax paid on sale would be allowed as refund on its sales return within the factory within six months of appointed day provided the same were sold not earlier than six months prior to the appointed day and such goods are identifiable to the satisfaction of the officer – Sec 174

-  No tax shall be payable on removal of goods received on job work; provided the same is returned to the principal manufacturer within six months of appointed day – Sec 175,Sec 176 and Sec 177

(The above points are on the basis of the revised draft model GST law available in the public domain as on 26 November 2016)

Open Issues:

Though transitional provisions have been provided for availment of credit under current law to GST; but still there are few issues which have remained unanswered. Few of them are:

-  What would be the fate of CENVAT Credit balance lying of Education Cess and Secondary and Higher education cess – will that lapse or be allowed under GST regime?

-  CENVAT Credit i.e. excise duty paid on capital goods not accounted in last return is allowed as input credit under GST (Sec 168). But there are certain states (example-Tamil Nadu) wherein 50% of VAT paid on capital goods would be available in the current year and balance 50% in subsequent years – So will this VAT credit be available under GST.

-  Transitional provisions allow availment of credit of tax paid under earlier law subject to recording of invoice within 30 days of appointed day. But what would be the situation where goods are removed for delivery, invoice is issued with applicable tax under earlier law; however the same are not yet received by the buyer?

-  How to avail CENVAT credit on invoices genuinely missed to be recorded in the last return?

-  Will VAT return last filed would be considered as final for the purpose of transition of credit or VAT audit/ annual return filed in that state would be considered as final.

-  CENVAT Credit related to exempted goods/ services under current regime but taxable under GST is allowed under GST, but question continues as to how to disclose the same in the returns/ intimate the same to department.

-  Current CENVAT Credit Rules, 2004 permit availment of credit of tax paid on input services subject to payment being made within 3 months from date of invoice. In case where payment is not made; CENVAT credit availed will be reversed and credit would be availed on payment being made. So in case where credit is reversed under current law and payment is made post implementation of GST, whether such credit of tax paid would be allowed under GST.

Conclusion:

It is hoped that the Central Government takes care of the above issues to ensure a smooth transition to the GST regime.