Transition Era

All Companies dealing with Goods and Services and are eligible for VAT, CENVAT, ST, IEC, Customs and Excise are now registering for GSTIN to get migrated to GST’s Single Window Interface for Facilitating Trade. Converting the entire taxation system of a Company needs a major strategic decision to be taken by the Directors.

In this edition we are going to see in detail about the GST transition by each Company. As usual, the Legal terms and News Bites related to notifications by MCA, SEBI, RBI and IT Department follows the articles.

Saranya Deivasigamani,
CEO

Walkthrough on GST Migration

When any taxation law is substituted by new taxation system, every firm will create a separate provisions to deal with the migration issues called as transitional provisions. They will create transitional provisions with main object to provide a safe cushion to adapt the new legislation without any shock. There is a lot of discussion around Goods and Services Tax (GST) and the impact that it may have on small, medium and large businesses. GST is not a tax reform but a business reform which will impact all kind of taxable & exempted person, intermediaries, job-workers, first & second stage dealers, person assessed under composition scheme. The transitional provisions covered in Section 139 to Section 142 of the CGST Bill, 2017 give clarity relating to events that may not have been finished as on the appointed day like closing balance of CENVAT credit, goods in transit, material sent for job work, stock of exempted goods which have now become taxable, etc. However, at the same time, these provisions also leave certain areas of doubt that would throw up certain challenges. All officers appointed under the Central and State laws shall be deemed to have been appointed as GST officers under the provisions of GST Act. The Article below summarizes the transitional provisions relating to CENVAT credit and input tax credit as per the CGST Bill, 2017 and UTGST Bill, 2017 as approved by the Lok Sabha on 29 March 2017.

Transition can be split into 2 parts:

1. Systematic Transition

2. Regulatory Transition

Systematic Transition

Systemic Transition is about changes in System, process and business structure. Any existing businesses have to revisit their ongoing contracts, internal procedures and go back to their Board room to adapt to new product & marketing strategies which concurs new scheme of Taxation i.e. GST. A deep analysis needs to be undertaken to accommodate any anticipated changes on account of widening tax base, rationalization of tax rates, phasing out of tax exemptions, integrated credit structure and automated compliance system. This will necessitate redesign of Enterprise Resource Planning (ERP) system which is not only an Accounting system but one of efficient ways of managing business. Systemic transition is more of case-to-case process and has to be looked separately for different industry verticals.

Regulatory Transition

Regulatory Transition is governed by GST Law under Sections 139—142 of the CGST Act, 2017 which is detailed below.

Migration of Existing Taxpayers [Section 139]

The migration of existing taxpayers into GST is already undergoing with aggressive push from Government. Provisional IDs have already been issued to taxpayers from State VAT Authorities/ Excise Authorities/Service tax Authorities as the case may be. There would be one Provisional ID for one PAN based registration for each State. That is, if there are multiple locations in single state, only Single Provisional ID is being issued. On and from appointed day, any person registered under any of the existing law and having PAN shall be provided provisional registration subject to certain condition as prescribed. After submission of certain documents as may be prescribed, final registration shall be granted.

For Existing Taxpayer in relation to registration:

Every dealer registered under any earlier laws shall be issued a Registration Certificate (RC) on provisional basis.
Such provisional RC shall be valid for a period of 6 months from the date of issue.
Dealer will submit relevant information as prescribed to the relevant authority.
After furnishing of all information, RC shall be granted on final basis by Central/State Government.
RC may be cancelled if dealer fails to furnish the information within prescribed period.

Amount of CENVAT carried forward in earlier return:

A registered taxable person shall be entitled to take credit of CENVAT credit/VAT credit carried forward in return furnished under earlier laws.
Credit shall be allowed if amount was admissible as credit under the earlier laws or Act.

Unavailed CENVAT credit on capital goods not carried forward in earlier return:

A registered person shall be entitled to take credit of unavailed CENVAT credit on capital goods, not carried forward in earlier return filed under the earlier law or Act.

Credit of duties and taxes in respect of inputs held in stock:

A registered person, who was not liable to registration under earlier law or dealing in exempted goods, but liable to registration under GST laws shall entitled to take credit of eligible duties and taxes in respect of inputs held in stock.

Transition arrangement for input tax credit [Section -140]

Registered Person [RP] other than person opting to pay tax u/s 10, may take credit in electronic credit ledger of amount of CENVAT carry forward in the last return filed before appointed day. Under the following circumstances credit shall not be allowed.
Input credit is not allowed under this act.
He has not filed in last six months all returns proceeding the appointed day.
Where the credit relates to goods manufactured and cleared under exemption notification.

File GST TRAN-1 within sixty days of appointed day and will separately specify the value of claim u/s 3, 6, 6A, subsection 8 of section 8 of the Central Sales Tax Act,1956 during the financial year relating to the relevant return shall specify the detail of stock as on appointed day. Where RP having centralised registration under the existing law has obtained registration under this Act, can take credit in electronic credit ledger, credit of the amount of CENVAT carry forward in return furnished under the existing law.

Transition provision relating to Job work [Section 141]

Where any input received has removed as such or removed after partial processing to a job worker for further processing, repair, testing, reconditioning or any other purpose as per the existing law before appointed day and such input are returned after the appointed day, no tax shall be payable if such goods are received within six months from the appointed day. The said period may be extended for another two months on sufficient cause. If the input is not returned within the stipulated period above then the input shall be recovered with interest, fine and penalty
Where finished goods manufactured had been removed for testing or for any other purpose to any premises weather registered or not prior to appointed day, no tax shall be charged if the goods are returned within six months from the appointed day. The said period may be extended for another two months on sufficient cause. If the input is not returned within the stipulated period above then the input shall be recovered with interest, fine and penalty
No tax shall be payable in above cases, if such goods are declared by manufacturer and job worker as prescribed.
File declaration of stock in GST TRAN-1 detail of stock including capital goods specifying stock held as principal, agent or branch.

Miscellaneous Transition Provision [Section 142]

Where any goods on which duty has been paid is removed not earlier than six months before the appointed date , returned from the unregistered person within six months from the appointed day , the duty of refund shall be paid to registered person under the existing law. But if the goods are returned by registered person, return of goods shall be treated as supply of goods. Where any input goods sent for approval basis as per the existing law, not earlier than six months before appointed day and such input are returned after the appointed day, no tax shall be payable if such goods are received within six months from the appointed day. The said period may be extended for another two months on sufficient cause. If the input is not returned within the stipulated period above then the tax shall be paid by the person sending the goods back or by person to whom the goods was sent for approval. Where any supply of goods made under any law of State or Union Territory where TDS was supposed to be deducted and invoice for the same is also issued before the appointed date. NO TDS can be deducted under section 51 of the Act while making payment to supplier after the appointed date.

Submit application in GST TRAN- 1 mentioning the stock including capital goods within 60 day of appointed day.

Provisions relating to revision of return:

When any return, furnished under any earlier law, is revised and due to such revision any amount is found to be recoverable from the person, the same shall be recovered as arrear.
Amount so recovered shall not be admissible as input tax credit under this Act.

Provision relating to progressive or periodic supply:

No tax shall be payable for supply of goods or service made after the enactment of GST law if consideration for said supply has been received prior to the enactment of GST law.

Provisions relating to retention payments:

No tax shall be payable on supply of goods or services made before the enactment of GST law and part payment received after the enactment of law, provided full tax on such supply has already been paid under the earlier law.

Provisions relating to TDS:

Where supplier has made any sale of goods in respect of which tax was required to be deducted at source under earlier law and also issued the invoice before enactment of GST law.
No tax shall be deducted where payment to the supplier is made on or after the enactment of GST law.

Based on the above analysis the transitional provisions require re-consideration in order to be more rational and indifferent to various industries and taxpayers.

Legal Term

Quantum Meriut

In contract law, a quasi-contractual remedy that permits partial reasonable payment for an incomplete piece of work (services and/or materials), assessed proportionately, where no price is established when the request is made.

MCA Updates

Forms recently revised in MCA Portal—DIR 3C, RD-1, CHG-1, CHG-4, CHG-9, and STK-2.
Companies (Acceptance of Deposits) Amendment Rules, 2017 (315 KB) has been amended.

SEBI Updates

http://siportal.sebi.gov.in has been operationalized for the intermediaries to submit all the registration applications online.
Instant Access Facility and Use of e-wallet has been enhanced for investment in Mutual Funds

RBI Updates

Submission of Statutory returns (SLR-Form VIII) in XBRL platform.
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002- Section 3 (1) (b) – Requirement of Net Owned Fund (NOF) for Asset Reconstruction Companies.

Income Tax Updates

Income-tax (9th Amendment) Rules, 2017 – Amendment of Income-tax Rules, 1962 – Prescribing form & manner of exercise of option by the domestic company for the purposes of section 115BA of the Income-tax Act, 1961-reg