The major concern in mind of every assesse registered under existing regime is treatment of accumulated credits lying in books of accounts. The transition into new law is always difficult and it’s the responsibility of Government to make transition smooth and easy affair and to ensure that unnecessary burden will not fall during transition phase.
Section 140 of CGST Act is specifically providing transitional arrangements for input tax credit. This section makes provisions not only for transfer of credit shown in the last return before GST rollout but also credit of inputs and input services in transit and credit of stock. The treatment of Cenvat Credit while migrating to GST is summarized below:
- 1.Cenvat credit – Carry Forward
Every registered dealer will be allowed to carry forward the credit shown in the returns furnished under the earlier laws by him for the period ending June 30, 2017 assuming GST will be implemented from July 1, 2017. Thus, it is essential that all assesses should reflect all credits which they intend to avail either in ER-1 returns, ST-3 returns or any other VAT returns. But, credit shall not be allowed to be carry forward unless it is admissible as input tax credit under existing laws.
- 2.Unavailed Credit on Capital Goods
A registered dealer is allowed to take credit of any unavailed Cenvat credit of capital goods. GST Act allows availment of balance credit if such credit of capital goods was available under existing laws. Therefore, credit which has not been taken in existing laws can be taken under GST.
- 3.Deemed Credit on Input held in Stock
A person other than manufacturer or supplier of services shall be allowed to take credit even if they are not in possession of invoice or duty paying document. The deemed credit will be available at the rate of 40% after payment of complete GST as per draft rules. This is mainly for traders who do not possess invoice to claim credit of excise duty. For example – A trader has stock of Rs. 10 lakhs on July 1, 2017. In July, he sold goods worth 7 lakh. Suppose CGST is payable on the goods sold at Rs. 70,000. After payment of this tax of Rs.70000, he will get credit of 40% of 70,000 i.e. Rs. 28,000.
- 4.Credit of Inputs or Input Services in transit
A registered person is entitled to claim credit of taxes paid on input or input services which are received after GST rollout but taxes have been paid before GST rollout. Moreover, the receipt must be accounted within a period of 30 days of GST rollout. For example – If GST is implemented from July 1, 2017, then taxes must have been paid before June 30th and receipt is recorded in books of accounts before July 30th.
- 5. No provision for Credit of Capital Goods in Transit
GST Act does not make any provision for claiming credit of capital goods which will be in transit during GST Rollout.
- 6. Credit on switching over from composition scheme under existing regime
A registered taxable person who was a composition taxpayer under existing laws, is entitled to take the Cenvat credit of eligible duties and taxes in respect of stock. However, he must satisfy these conditions:
- a. Such goods held in stock are used for the purpose of making taxable supplies under the GST Act
- b. He is not option composition scheme under GST.
- c. He is eligible for input tax credit in respect of such inputs under GST.
- d. He is person is in possession of invoices or other duty paying documents which should not be issued earlier than 12 months from GST Roll out.
- 7.Things to be kept in mind
- The credit should be claimed even if payment is not made to the input service distributors. Such credit much be taken prior to June 30, 2017.
- If services are received regularly but invoices are raised at month end, the efforts should be made to receive bills for these input services before June 30 and credit is availed and reflected in returns.
- In case of reverse charge, service tax liability arises on date of payment to service provider, therefore, it is advised to pay service tax under reverse charge before June 30, 2017.
- Deemed credit is not available for manufacturer and supplier of services. It is essential for them to always possess the duty paying documents.
- It is suggested that manufacturer should ensure that there will be no capital goods in transit on June 30th assuming GST is implemented from July 1st.
Author Bio: Vishal Raheja is a Chartered Accountant working at Taxmann Publications. He can be reached via email: firstname.lastname@example.org