As the GST is just a few months away from its much-awaited implementation, the transitional provisions assume special importance for all the concerned stakeholders. Transitional provisions, in general terms, are those rules, methods or procedures that will enable the stakeholders to switch over from the current Indirect Tax regime to the GST regime. A detailed analysis of certain provisions under the Revised GST Model and their impact are as follows:
The conditions to carry forward the Cenvat Credit/ ITC belonging to the ‘Old Tax Regime’ to the ‘GST regime’ are as follows:
Note: Meaning of Electronic ledger – All the input taxes under various major heads i.e. CGST, SGST and IGST shall be credited to an electronic ledger. Any availment of input tax credit will be credited in the ledger and any utilization, refund and reversals will be debited in the ledger. Example of above provisions: Mr. A, dealing in manufacturing of electronic goods, has duly filed the Excise return, VAT return and Entry Tax return for the month of June 2017. Following are the unutilized credits shown in the returns:-
Now, assuming GST rolls out on 01.07.2017 and all such credits are eligible under old law and GST law, the following implications will occur:
Assume in the above case, Mr. A has filed his Tax returns (Excise, VAT and entry tax returns) for May 2017 and not for June 2017. In such a case, the unutilized credits shown in May’s return will be considered under GST regime. Since return has not been filed for June 2017, any unutilized credit for June 2017 will not be eligible under GST regime. A point to remember: The stakeholders need to take due care while filing the last return under old tax regime. All stocks and transactions should be taken into effect so that unutilized credits, if any, are correctly calculated. Recounting and re-evaluating of purchases, sales and stocks must be done to ensure no significant transactions get missed out while filing the last return under the Old Tax regime.
Formula: Unutilised Cenvat Credit/Input Tax credit on Capital Goods = Total Cenvat Credit/ITC on Capital Goods minus the amount of such Cenvat Credit/ITC already availed under the earlier law. It is very important to note that the unutilized Cenvat Credit/ITC on capital Goods is eligible under GST even if they are not carried forward in the last return of the earlier law. Example of above provisions: Mr. A of Assam, dealing in manufacturing of electronic goods, has purchased a Machinery (Capital Goods) on 01.04.2017. Assume Excise duty, VAT & Entry Tax paid on Machinery to be Rs 12,000, Rs 10,000 & Rs 8000 respectively. The excise duty liability and VAT liability come to Rs 1,00,000 & Rs 50,000 respectively. As per Assam VAT, Input Tax credit on Capital Goods to be allowed on a time-proportionate basis. For the sake of simplicity, assume no other taxes or abatements. Assume that GST enrolls on 01.07.2017 Solution: The machinery has been purchased on 01.04.2017
Excise Duty Liability = Rs 100000 Less: Cenvat Credit utilised (50% of Rs 12000) = Rs (6000) Net Excise duty Liability = Rs 94000 (pay in cash) Unutilized Cenvat Credit = remaining Rs 6000 as on 01.07.2017 as per Excise Return of June 2017
VAT liability = Rs 50000 Less: Input Tax credit utilised (Rs 10,000X3/12) = Rs (2500) Net VAT liability = Rs 47500 (pay in cash) Unutilised Input Tax credit = 10,000X9/12 = Rs7500 as on 01.07.2017 as per VAT return of June 2017. Unutilized Entry Tax is also Rs 8000 as per Entry Tax Return of June 2017. To Sum up:
Now, assuming GST rolls out on 01.07.2017 and all such credits are eligible under the old law and the GST law, the following are the implications of the same:
Important note: Assume in the above case, Mr. A has filed his Tax returns (Excise, VAT and entry tax returns) for May 2017 and not for June 2017. Even then, the unutilized credits on capital goods as per above will be allowed under the GST regime.