GST Transitional provisions play critical role while moving from service tax/vat tax to GST ( gOODS and service tax.Here, we cover following important points:
- Administration of GST
- Registration under GST regime
- Input tax credit rules under Goods and Service tax
- Penalty and litigation
- Revision of return
- Six month rule
Goods and Services Tax -GST Transitional provisions:
With Goods and Services Tax (‘GST’) looming, it is vital that all stakeholders understand as to how the GST model law is framed to handle transition from the current laws to the new one. This article aims to explain in brief all the provisions built into the model GST law to enable such a transition.
In terms of the model law, the transitional provisions are embedded in Chapter 25. This Chapter identifies exhaustively various scenarios which require explicit legal intervention in aiding the transition.
Administration under GST LAW(Refer Clause 141 of the GST model law) :
- Administration of indirect taxes enacted by the Central Government is currently with the Central Board of Excise and Customs (‘CBEC’), this will continue to be the case in GST also. Until new authorities, ranks and designations are notified, current excise and service tax officers will continue to function as GST officers for administration of Central GST law.
- Administration of indirect taxes enacted by the State Government is currently under respective departments of each state. Such officers will continue to be GST officers unless otherwise notified by respective state governments.
- At the time this article was being written, there is an active debate as to the threshold above which there will be dual (i.e. both state and central) control and accordingly the threshold for single control (i.e. state or central) of GST.
Registration under Goods and service tax (Refer Clause 142 of the GST model law):
- One crucial aspect of any tax administration is the mandate of registration. Registration is the gateway for inducting business entities into any tax system. Currently, indirect tax administration is characterized by registration under every applicable law i.e. Separate Central excise registration, VAT registration, service tax registration and so on.
- On GST coming to effect, all business entities registered under any of the current laws, subsumed by GST, will automatically be registered on a provisional basis so that there is no halt or hindrance to trade and commerce. Such certification will be valid for a period of six months from the date of issue.
- With this provisional certificate in hand trade must apply and obtain final registration from Central and State governments as the case may be with necessary documents and information within six months.
Input tax credits:
- Currently tax paid on the purchase of goods and services are available as credit and can be set off against tax paid under similar law. To illustrate: Service tax paid on purchase of services can be set of against service tax payable on provision of services.
- Similarly, business entities currently avail credit under Excise, VAT and service tax paid on the purchase side. These credits represent tax paid and it is imperative that these are brought over to GST.
- The following table enumerates the transitional provisions with respect to credits:
|I have availed input credits in my tax returns, will it be carried over to GST?||Yes, all legitimate credits declared in the tax returns are automatically carried forward to GST and will immediately be available for set off. (Refer clause 143)|
|Under current laws, I am entitled to avail credit of only portion of the tax paid and balance was to be availed in the next financial year. Can I avail the same under GST?||Yes, all un-availed credits, which are to be availed proportionately under current laws will be automatically eligible to be carried forward to the GST and will immediately be available for set off. (Refer clause 144)|
|I am exempted under current laws, therefore I have not availed any credit. However, under GST I am taxable. Will I be eligible for credit of tax paid on my inventory?||Yes, tax paid under current laws towards purchases made and lying in stock, shall be available as credit under GST. (Refer clause 145)|
|I am under composition scheme in the old law therefore I have not availed any credit. However, I will be under normal tax in GST. Will I be eligible for credit of tax paid on my inventory?||Yes, tax paid under current towards purchases made and lying in stock, shall be available as credit under GST. (Refer clause 146)|
|I am under normal scheme in the current laws and have availed credit for tax paid on purchases. However, under GST I will opt for composition. What will happen to the credits availed?||All credits pertaining to purchases, finished goods and semi-finished goods, lying in stock must be reversed if the entity is switching over to composition scheme under GST. (Refer Clause 147)|
|I distribute goods through agents. Can I avail credit of tax paid on goods lying with my agents?||Yes. Credits pertaining to goods lying with the agents are available as credit under GST. (Refer Clause 162A)|
|My capital goods are lying with agents. Can I avail credit of such goods?||Yes. Credit pertaining to capital goods lying with agents are available as credit under GST. (Refer Clause 162B)|
|I am an exporter. What will happen to my claim of refund of input credits filed under old law?||All refund claims under the old law will be processed under the old law itself and shall be paid as per the old law. (Refer Clause 154)|
|I have a dispute with the department relating to admissibility of input credit, what will happen to such dispute?||All disputes relating to admissibility of credit under current laws shall be dealt as per the same laws only.If the dispute is won – Amount so won will be paid in cash to the assessee.If the dispute is lost – Amount so lost would have to be paid by the assessee in cash.(Refer Clause 155)|
Pending litigation or disputes under goods and service tax:
- Other crucial aspect of transition is disputes and litigations. At the time GST comes into force pending litigation or disputes at the adjudication stage or appeal stage or review, revision stage would have been with various judicial and quasi-judicial authorities. GST model law has inbuilt transitional provisions to deal with such pending litigations and disputes.
- The common theme here is that all such pending disputes or litigations will be disposed in accordance with current laws. However, any recovery arising from such disputes or litigations to the treasury will be collected as arrear of tax under GST law.
- Here, the question may arise as to whether such amounts can be availed as credit in GST. The unfortunate answer to that is No. GST model law is explicit in barring credit of all recovered arrears of tax. This bar of credit may be a subject matter of litigation in the future as there will be significant loss due to such an onerous restriction (Refer Clause 156 and 157).
Revision of returns
- Returns filed under current law can still be revised under that law and additional tax payable as per revised returns will be collected as arrears of tax under GST. If any amount is available as credit or to be refunded as per revised returns, the same will be paid in cash only and it will have no impact on GST credits (Refer 158 of the model law).
Six months rule under GST:
- Under the following scenarios, if the goods are returned within six months from the date of implementation of GST, no tax shall be payable:
- Goods exempted under current law but not under GST, returned to the seller;
- Duty paid goods under current law and taxable under GST, returned to the seller;
- Inputs removed for job work under current law and returned to the principal;
- Semi-finished goods removed for job work and returned to the principal;
- Finished goods removed for carrying out process and returned to the principal; and
- Goods sent on approval basis returned to the principal.
- Construction projects normally have a long gestation period. It is entirely conceivable that construction started prior GST will terminate post GST. In such a scenario, the business entities are required to pay GST for all construction activity done post GST. (Refer clause 159)
- To facilitate smooth transition, if tax is paid under old law and consideration for goods or services is received before implementation of GST, then, even if such goods or services is provided post GST, no tax under GST will be payable (refer clause 160)
- In scenario where, goods or services have been provided before GST and there is a requirement to revise the rate post GST, it has been stated that all such revision will be taxable / refunded under GST law and not under the current laws (refer clause 153)
I hope this article helped you to under GST Transitional provisions. Transition to GST is the earliest of the GST compliance to affect trade and industry. The business entities necessarily have to plan well before the GST implementation date and structure the transition based on their current and proposed businesses such that they would be compliant and operationally ready for GST. You can download PDF of draft GST model law from here. Authored by: Ashish Koppa CA, LLB