In GST laws, transitional provisions have been provided to mitigate the differences in earlier laws and in GST. In this article, we will discuss various situations and its corresponding law in GST Act in respect of Central Taxes.
Situation 1: Where goods sold in earlier law, returned after applicability of GST
- If goods are returned by a registered person, return of goods will be deemed as Supply. It means registered person (under GST) will charge appropriate taxes as per GST law and at rates defined in GST tax rate schedules.
- If goods are returned by a person not-registered in GST, amount of duty/taxes paid in earlier laws will be refunded in GST laws subject to satisfaction of following conditions:
- Goods should be sold in a period of six months just before the appointed day for applicability of GST; and
- Goods should be returned at a place of business within six months from the appointed day for applicability of GST; and
- Such goods are identifiable to the satisfaction of the proper officer.
- In any other case, such return of goods will be considered as normal purchases and, the GST to be paid under reverse charge mechanism. So, a businessman have to very careful before accepting sale returns from unregistered persons after six months from the appointed date.
Situation 2: Revision in price of goods and/or services for contract executed before appointed date
Case 1: Where price increases after appointed date
The registered person who had removed or provided such goods or services or both shall issue to the recipient a supplementary invoice or debit note within 30 days of such price revision under this act. It means registered person (under GST) will charge appropriate taxes as per GST law and at rates defined in GST tax rate schedules.
Case 2: Where price decreases after appointed date
The registered person who had removed or provided such goods or services or both shall issue to the recipient a credit note within 30 days of such price revision.
However, in this case, such supplier will be allowed to reduce his tax liability on account of issue of the credit note only if the recipient of the credit note has reduced his input tax credit corresponding to such reduction of tax liability.
So, in case of credit note is issued to unregistered person, then such supplier must ensure that he has deducted the amount of tax which he is going to loose due to such credit note.
Situation 3: Refund of CENVAT Credit, duty, tax or any other amount paid under existing law before GST
- Refund claim can be filed for CENVAT Credit, duty, tax, interest or any other amount paid under the existing law.
- Every refund claim of above said amount, filed before or after the appointed day, shall be disposed in accordance with the provisions of existing law.
- Any amount approved as refund shall be paid in cash.
- Where any such claim for refund is fully or partially rejected, amount of CENVAT Credit so rejected shall lapse.
- No refund shall be allowed where balance of such CENVAT Credit has been carried forward under GST law.
Law has clearly mentioned that refund claim will be processed only as per previous laws. Moreover, it should be carefully noted that refund application should be lodged only for those credits which are not carried forward in GST at the time of Transition.
Situation 4 : Refund of duty and tax paid under existing law in respect of export of goods/services
- Refund claim in respect of duty or tax paid under the existing law in respect of the goods or services exported before or after the appointed day, shall be disposed of in accordance with the provisions of the existing law.
- Where any such claim for refund is fully or partially rejected, amount of CENVAT Credit so rejected shall lapse.
- No refund shall be allowed where balance of such CENVAT Credit has been carried forward under GST law.
Situation 5 : Refund of tax paid under existing law in respect of services not provided
Every claim filed by a person after the appointed day for refund of tax paid under the existing law in respect of services not provided shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944.
Situation 6 : Proceedings of Appeal, review or reference in respect of existing laws
Proceedings of Appeal, review or reference under existing law initiated whether before or after the appointed date, shall be disposed of in accordance with the provisions of existing laws and if any amount recoverable (by government) shall, unless recovered under the existing law, be recovered as arrears under this act.
In this situation, Proceedings of Appeal, review or reference under existing law should be in relation to:
- a claim for CENVAT Credit
- recovery of CENVAT Credit
- any output duty or tax liability
Situation 7: Returns furnished under previous law revised after appointed day
Where a registered person revises his Excise/Service Tax returns after appointed day, he should be very careful about this provision.
As per law, if due to such revision, any amount recoverable (by government), shall, unless recovered under the existing law, be recovered as arrears under this act
However, if due to such revision, amount becomes refundable; such refund shall be issued in cash under previous law. One more condition is here that such revised return shall be furnished within time specified for such revision under the existing law to claim refund.
Law clearly shows his intent that no credit will be admissible under GST which occurred due to Tax Returns being revised after appointed day. Such credits can only be claimed as refund under previous law.
Situation 8 : Goods sent on approval basis before appointed date and returned after appointed day for GST
Case 1 : Where goods returned within 6 months from appointed date
No tax will be payable under GST by any person where:
- Goods sent on approval basis not earlier than six months before the appointed day; and
- Goods returned within six months or the extended period (prior approved) from the appointed date
Case 2: Where goods are not returned within six months from appointed date
If goods are not returned within six months or the extended period (prior approved), and such goods are liable to tax under this act, then, tax shall be payable by person who has sent the goods on approval basis.
Case 3: Where goods are returned after six months from appointed date
If goods are returned after six months or the extended period (prior approved), and such goods are liable to tax under this act, then, tax shall be payable by the person returning the goods
After reading Case 2 and Case 3, it is being advised that if goods are not possible to return within 6 months, the seller should issue an invoice. It will create output liability for seller, however, buyer could claim ITC against such invoice. When such buyer return the goods later, he will raise debit note and reverse his ITC. By doing this, liability occurred in Case 2 and Case 3 could be avoided.
Situation 9: Contract for supply of goods/services entered before 01.07.2017 and supplied on or after 01.07.2017
Goods or services or both supplied on or after the appointed day (01.07.2017) in pursuance of a contract entered into prior to the appointed day (01.07.2017) shall be liable to tax under the provisions of this Act.
Situation 10: Where Tax leviable under State VAT on supply of goods
Where the tax was leviable on the any goods under the State VAT; no tax shall be payable on such goods under this Act to that extent.
Situation 11: Where Tax leviable under Service Tax on supply of services
Where the tax was leviable on the any services under the Finance act 1994; no tax shall be payable on such services under this Act to that extent.
Situation 12: Where both State VAT and Service Tax paid under existing law and some supplies made on or after 01.07.2017
Where tax was paid on any supply both under the Value Added Tax Act and under Chapter V of the Finance Act, 1994 and some of supplies are made after appointed day, then:
- tax shall be leviable under this Act on the supplies made after appointed day and
- the taxable person shall be entitled to take credit of value added tax or service tax paid under the existing law to the extent of supplies made after the appointed day.
For Transitional Provisions in relation to Input Tax Credits, please refer our various articles at:
https://ca-sunilkumar.com/category/gst/translational-provisions-gst-india/
