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GST – Transitional Provisions

As the GST is 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 Revised GST Model and their impact are as follows:

 

  • Amount of unutilised CENVAT credit/ITC relating to Input/Input services carried forward in a return to be allowed as input tax credit
The conditions to carry forward the Cenvat Credit/ ITC belonging to the ‘Old Tax Regime’ to the ‘GST regime’ are as follows:

 

  • For unutilised Cenvat Credit relating to Input/Input Services
  1. The balance of unutilised Cenvat credit (under Cenvat Credit Rules, 2004 like Excise duty, Service Tax, etc) must have been shown in the Return (Excise returns, Service Tax returns, etc) relating to the period immediately before GST comes into existence.
  2. Such credit should be eligible both under the old law and GST law. The above Cenvat Credit will be known as CGST (Central GST) and will be transferred to electronic ledger through online mechanism.
  • For unutilised credit of Value Added Tax and Entry Tax
  1. The credit for VAT and Entry Tax must have been shown in the VAT/Entry Tax Returns relating to the period immediately before GST comes into existence.
  2. Such credit should be eligible both under the old law and GST law. The VAT and Entry Tax will be known as SGST (State GST) and will be transferred to electronic ledger through online mechanism. Such SGST should be utilised within 90 days from the date when GST comes into existence.
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 unutilised credits shown in the returns:-

 

  1. unutilised Excise Cenvat credit – Rs 100000
  2. unutilised VAT – Rs 75000
  3. unutilised Entry Tax – Rs 12000
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:

 

  1. Unutilized Cenvat Credit for Excise duty for Rs 100000 will become CGST and will be transferred to electronic ledger. There is no time limit for utilisation of such CGST.
  2. VAT and Entry tax will be clubbed and Rs 75000 plus RS 12000, i.e., Rs 87000 will become SGST and will be transferred to electronic ledger. Such SGST of Rs 87000 will have to be utilised within 90 days starting from 01.07.2017
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 unutilised credits shown in May’s return will be considered under GST regime. Since return has not been filed for June 2017, any unutilised 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 unutilised 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 Old Tax regime.   

 

  • Unutilised Cenvat credit/Input Tax Credit on capital goods, not carried forward in a return of earlier law, will be allowed under the GST law. The conditions are –
  1. Capital Goods are those goods that have been defined under Cenvat Credit Rules 2004 or under the respective State Value Added Tax laws
  2. Such Cenvat credit/Input Tax Credit on Capital Goods should be eligible both under the old law and GST law.
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 unutilised Cenvat Credit/ITC on capital Goods is eligible under GST even if they are not carried forwarded 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 comes to Rs 1,00,000 & Rs 50,000 respectively. As per Assam VAT, Input Tax credit on Capital Goods to be allowed on time-proportionate basis. For the sake of simplicity, assume no other taxes or abatement’s. Assume that GST enrolls on 01.07.2017

 

Solution:
The machinery has been purchased on 01.04.2017
  • Cenvat Credit (Excise duty) to be utilised upto 30.06.2017 (old act) is 50% (as per Cenvat Credit Rules 2004)
Excise Duty Liability                                                             = Rs 100000
Less: Cenvat Credit utilised (50% of Rs 12000)              = Rs (6000)
Net Excise duty Liability                                                      = Rs 94000 (pay in cash)

 

Unutilised Cenvat Credit = remaining Rs 6000 as on 01.07.2017 as per Excise Return of June 2017                

 

  • Input Tax credit (VAT) to be utilised in 1st Year is time proportionate as per Assam VAT (the rules are different for every state)
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:
  1. unutilised Excise Cenvat credit – Rs 6000
  2. unutilised VAT – Rs 7500
  3. unutilised Entry Tax – Rs 8000
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:

 

  1. Unutilized Cenvat Credit for Excise duty for Rs 6000 will become CGST and will be transferred to electronic ledger. There is no time limit for utilisation of such CGST.
  2. Unutilised VAT and Entry tax will be clubbed – Rs 7500  plus RS 8000, i.e., Rs 15500 will become SGST and will be transferred to electronic ledger. Such SGST of Rs 15500 will have to be utilised within 90 days starting from 01.07.2017

 

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 unutilised credits on capital goods as per above will be allowed under GST regime.