Transitional Provisions to Switch from Existing to GST Law
The Model GST law contains Transitional Provisions from section 141 to section 162E of chapter XXV. The followings are summarized provisions of transitional provision under Indian GST:
- The existing assessee of VAT, Central Excise and Service Tax shall be issued a certificate of registration on provisional basis, which will be valid for a period of six months. Thereafter, upon information being furnished, certificate of registration will be granted on a final basis.
- Credit can be taken of the Cenvat Credit/ Value Added Tax carried forward in a return furnished under earlier law. Unavailed credit in respect of capital goods under the earlier law shall be allowed to be taken.
- Credit can be taken of eligible duties and taxes in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock on the appointed day, in case of a registered taxable person who was not liable to be registered under the earlier law or was engaged in the manufacture of exempted goods, but are taxable under the CGST/SGCT Acts. This is subject to certain conditions including possession of invoices.
- A composition tax payer [paying tax paid at a fixed rate or paying a fixed amount in lieu of the tax payable under the earlier law], is entitled to take credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed date, subject to certain conditions including that the tax payer now makes taxable supplies and is eligible for input tax credits.
- No tax shall be payable on return of the goods within six months from the appointed day in various circumstances such as in relation to exempted goods, duty paid goods, inputs and semi finished goods removed for job work, finished goods removed for carrying out certain processes or goods sent on approval basis.
- Where in pursuance of contract entered prior to the appointed date and wherein the price of any goods and/or services are revised after the appointed date, then the taxable person who has removed/provided the goods and/or service may issue to the recipient a supplementary invoice or debit note/credit note within thirty days of such price revision and such supplementary invoice or debit note/credit note shall be deemed to have been issued in respect of an outward supply made under the CGST/SGCT Acts.
- Proceedings of appeal, revision, review or reference relating to a claim for CENVAT credit/ input tax credit or output duty/tax liability under the earlier law shall be disposed of in accordance with the earlier law.
- Refund claims filed before the appointed day shall be disposed off in accordance with the provisions of the earlier law and shall be paid in cash.
FAQs on Transitional Provisions to Switch from Existing to GST Law
Q 1. Will the CENVAT/ITC carried forward in the last return prior to GST under earlier law be available as ITC under GST?
Ans. Yes, the registered taxable person shall be entitled to such credit and it will get credited to his electronic credit ledger – section 143.
Q 2. A registered taxable person say, purchases capital goods in the last quarter of 2016-17. Though the invoice is received within 31st March but the capital goods are received on 5th April, 2017 (i.e.in GST regime). Will such a person get full credit of CENVAT in 2017-18?
Ans. Yes, he will be entitled to full credit in 2017-18 – explanation to section 144 (1).
Q 3. VAT credit was not available on items ‘X’ & ‘Y’ as capital goods in the earlier law. Since they are covered in GST, can the registered taxable person claim it now?
Ans. He shall be entitled to credit only when ITC on such goods were admissible under the earlier law and is also admissible in GST. Since on the two items credit was not available under the earlier law, the said person cannot claim it in GST – proviso to section 144(1).
Q 4. Assuming such a person wrongly enjoyed the credit, will the recovery be done in GST or earlier law?
262 Ans. The recovery relating to ITC wrongfully enjoyed will be done under GST only – section 143 to 146.
Q 5. Give two examples of registered taxable persons who were not liable to be registered under the earlier law but are required to be registered under GST?
Ans. A manufacturer having a turnover of say Rs 60 lakhs was enjoying SSI exemption earlier, will have to be registered in GST as the said turnover exceeds the basic threshold of Rs 10 lakhs – section 9.
A trader having turnover below the threshold under VAT making sales through e-commerce operator will be required to be registered in GST. There will no threshold for such persons – section 145 read with section 9 and Schedule III.
Q 6. Will ITC be allowed to a service provider on VAT paid inputs held as stock on the appointed day?
Ans. No, VAT does not cover services. Under it, only goods are covered.
Q 7. A registered taxable person has Rs 1000 ITC credited to his electronic credit ledger from the last return under the earlier law. Now, he switches over to composition scheme in GST, will he get refund of that ITC?
Ans. No. He shall have to pay an amount equivalent to the credit of input tax on inputs held in stock on the day immediately preceding the date of switchover. The amount can be paid either through the electronic credit ledger or the electronic cash ledger. Where payment is made through the electronic credit ledger, excess ITC balance lying, if any, will lapse. The relevant section is section 147.
Q 8. Sales return under CST (i.e. Central Sales Tax Act) is allowable as deduction from the turnover within 6 months? If, say, goods are returned in GST by a buyer after 6 months of sales, will it become taxable in CST or GST?
Ans. First, find out whether the goods are taxable in GST or not. Secondly check whether the goods were returned after 6 months from the appointed day. If the answer to both happens to be ‘yes’ then the person returning the goods will have to pay tax in GST.
However, where the goods are returned within 6 months from the appointed day, no tax will be payable by the person returning them if the goods are identifiable and tax was paid under the earlier law at the time of its sale, made not earlier than 6 months from the appointed day.
The relevant section is section 149.
Q 9. Shall a manufacturer or a job worker become liable to pay tax if the inputs or semi-finished goods sent for job work under the earlier law are returned after completion of job work after the appointed day?
Ans. No tax shall be payable by the manufacturer or the job worker under the following circumstances:
- Inputs/ semi-finished goods are sent to the job worker in accordance with the provisions of the
earlier law before the appointed day.
- The job worker returns the same within six months from the appointed day (or extended
period of 02 months).
- Both the manufacturer and the job worker declare the details of inputs held in stock by
the job worker on the appointed day in the prescribed form. The relevant sections being section 150 and section 151.
Q 10. What happens if the job worker does not return the goods within the specified time?
Ans. Tax would be payable by the job worker. Further, the manufacturer will also be liable to pay tax on expiry of the specified time limit – section 150 (1) & section 151(1).
Q 11. Can a manufacturer transfer finished goods sent for testing purpose to the premises of any other taxable person?
Ans. Yes, a manufacturer can as per the provisions of the earlier law transfer the said goods to the premises of any registered taxable person on payment of tax or without payment of tax for exports within 6 months or extended period from the appointed day – section 152.
Q 12. If finished goods removed from a factory for carrying out certain processes under earlier law are returned on or after the appointed day, whether GST would be payable?
Ans. No tax will be payable in GST by the manufacturer or by the Job worker where the goods removed prior to the appointed day for carrying out process not amounting to manufacture
are returned within 6 months from the appointed day (or extended period of 02 months) – section 152.
Q 13. When tax shall become payable in GST on manufactured goods sent to a Job worker under the earlier law?
Ans. The person returning the goods shall become liable to pay tax if the said goods are liable to tax in GST and are returned after 6 months from the appointed day – proviso to section 152.
Q 14. Is extension of two months as discussed in section 150, section 151 and section 152 automatic?
Ans. No, it is not automatic. It shall be extended by the competent authority only on sufficient cause being shown.
Q 15. What is the time limit for issue of debit/credit note(s) for revision of prices?
Ans. The taxable person may issue the debit/credit note(s) or a supplementary invoice within 30 days of the price revision.
In case where the price is revised downwards the taxable person shall be allowed to reduce his tax liability only if the recipient of the invoice or credit note has reduced his ITC corresponding to such reduction of tax liability – section 153.
Q 16. What will be the fate of pending refund of tax/ interest under the earlier law?
Ans. The pending refund claims shall be disposed of in accordance with the provisions of the earlier law – section 154.
Q 17. What will be fate of any appeal or revision relating to a claim of CENVAT/ITC which is pending under the earlier law? If say, it relates to output liability then?
Ans. It shall be disposed of in accordance with the provisions of the earlier law only in both the cases –section 155/156.
Q 18. If the appellate or revisional order goes in favour of the assessee, whether refund will be made in GST? What will happen if the decision goes against the assessee?
Ans. The refund shall be made in accordance with the provisions of the earlier law only. In case any recovery is to be made then it will be made as an arrear of tax under GST.
Q 19. How shall the refund arising from revision of return(s) furnished under the earlier law be dealt in GST?
Ans. The same shall be refunded in accordance with the provisions of the earlier law – section 158.
Q 20. If any goods or services are supplied in GST, in pursuance of contract entered under earlier law, which tax will be payable?
Ans. On such supplies GST will be payable – section 159.
Q 21. If consideration for a particular supply of services was received under the earlier law and tax on it was paid, will GST also become payable where such supply is made in GST regime?
Ans. No tax shall be payable on supply of goods/services on or after the appointed day if the consideration for it has been received prior to the appointed day and the duty/ tax thereon has already been paid under the earlier law –section 160.
Q 22. The supply of goods/services was made under the earlier law but a part of the consideration (say the retention money) is received in GST regime, will tax be payable in GST?
Ans. No, provided the full duty/tax on such supply has already been paid under the earlier law – section 161.
Q 23. If services are received by ISD under the earlier law, can the ITC relating to it be distributed in GST regime?
Ans. Yes, irrespective of whether the invoice(s) relating to such services is received on or after the appointed day –section 162.
Q 24. Where goods (including capital goods) belonging to the principal are lying with the agents on the appointed day, will the agent be able to take ITC on the same?
Ans. The agent can take such credit on fulfilment of the following conditions:-
- The agent is a registered taxable person in GST;
- Both the principal and the agents declare the details of stock lying with the agents on the date immediately preceding the appointed day;
- The invoices for such goods had been issued not earlier than 12 months immediately preceding the appointed day;
- The principal has either reversed or not availed of the ITC in respect of such goods.
This provision is applicable to SGST law only – section 162A and section 162 B
Q 25. Goods were sent on approval before the appointed day but are returned to the seller after 6 months from the appointed day, will tax be payable in GST?
Ans. Yes, if such goods are liable to tax in GST and the person who rejected or not approved the goods returns it after 6 months (may be extended by 2 months) from the appointed day. This provision is applicable to SGST law only – section 162D