Moving to GST: For Registered Business

By Registrationwala

2nd May 2017

 

With the implementation of the GST regime, the first and foremost task for any business registered under the prevailing law, is to transit itself to GST. While the elementary ingredients are a must to be known by the businesses also refereed as fundamentals of GST, it is also mandatory to understand the feasible provisions while taking significant actions to ensure a smooth transition to GST along with leverage on transition benefits. One needs to review the accounting and reporting procedure, manufacturing, logistic decisions and other things on a prior basis so as to avail the appropriate GST input tax credit.

Talking about the current tax framework- the manufacturing, sales and service activities are administered by an indirect tax system. Central Excise covers manufacturing activities, while sales are governed by State VAT/CST and the service activities attract Service Tax.

 To make it clear and easy to comprehend, the transition provisions have been bracketed for the below enumerated taxes:

  • Central Excise
  • VAT
  • Service Tax

What comes to the mind of a reader are a few questions which have been dealt in here, these are:

  • What will happen to the balance input tax credit available on the last day, before GST gets in the going or is to be implemented?
  • What will happen to the input tax credit on capital goods which is yet to be availed?

To answer the above outlined questions, let’s comprehend them while taking up an instance.

Instance 1: Availed CENVAT and Input VAT Credit

Manufacturer

A manufacturer can take ahead the balance CENVAT credit available on the last day, prior to date on which GST is implemented, as input credit.

This implies:

  • The closing balance of CENVAT credit should reflect in the last return filed by you, and
  • It should be acknowledged as input tax credit under GST.

Today, a producer other than the Small Scale Industries (SSI-whose turnover does not surpass 4 crores) ought to record their month to month returns in Form ER-1, and SSI quarterly returns in Form ER-3. The measure of CENVAT conveyed forward in Form ER-1 or Form ER-3 as on the most recent day i.e., the day preceding GST is actualized will be permitted to be conveyed forward as CGST as input tax credit.

To illustrate,

Ibex Motors Pvt Ltd, a car manufacturer located in Karnataka is registered under Excise and Karnataka VAT. As on 31st March, 2017, the Form ER-1 of Ibex MotorsPvt Ltd is as given below:

 Now, the question arises whether Ibex Motors Pvt. Ltd. carry forward the CENVAT credit?

Since, Ibex Motor satisfies all the conditions enumerated below, it is eligible to carry forward the CENVAT balance of Rs. 25,000.

The conditions making Ibex Motors eligible are:

  • The CENVAT of Rs.25, 000 should reflect in the return, and
  • GST allows the same as Input Tax Credit.

Forthwith, for Ibex Motors, CENVAT will be a CGST credit which can be utilized to set off the liabilities in the prescribed manner.

Excise Dealer

If one deals and trades excisable goods, he/she is liable to register under Central Excise as a dealer. Presently, the excise duty one pays is not available as credit. The excise duty paid is added to the price of the product as a first or a second stage dealer. The excise duty passed on will be claimed as CENVAT credit by the credit by buying manufacturer, once it is sold to a manufacturer.

At the time of transactingto GST, the excise duty paid in terms of closing stock one holds, will be allowed to be carried forward as CGST Input Tax Credit.

VAT

A business registered under VAT has to obligate month to month or quarterly VAT return forms as prescribed by its respective State. The input VAT credit in VAT return forms is to be carried forward as SGST input tax credit.

To make it more clear, an illustration has been given below:

Ibex MotorsPvt. Ltd, a car manufacturer located in Karnataka is registered under Karnataka VAT.As on 31st March, 2017, the VAT Form 100 (monthly return form for Karnataka) of Ibex MotorsPvt. Ltd is as given below:

As per the VAT Form 100 of March 2017, Ibex MotorsPvt. Ltd has an input VAT credit balance of Rs 5,000.

The next question in line is whetherIbex Motors Pvt. Ltd.  Can carry forward the input VAT credit?

Yes, the closing input VAT of Rs. 5,000 can be taken aheadby Ibex MotorsPvt. Ltd. Since,Ibex MotorsPvt. Ltd. satisfies all the conditions explained below:

  • The input VAT of 5,000 is reflected in the return, and
  • In GST, the same is acknowledged as Input Tax Credit.

Now, for Ibex MotorsPvt. Ltd, the input VAT will be carried forwarded as SGST credit which can be utilized to set-off  the liabilities in the manner prescribed.

SERVICE TAX

If the aggregate value of taxable services rendered by a service provider exceeds the threshold of 10 lakhs, the service provider is liable for registration.

Below enumerated are types of service tax levied on the taxable services:

Tax input credit will be taken ahead as CGST Input Tax credit.

To illustrate,

Ibex MotorsLtd is a car procurement unit in Karnataka. They also have service units situated in

Karnataka. As on 31st March, 2017, ST-3 return form of Ibex MotorsLtd is given below:

According to Form ST-3 of March 2017, Ibex MotorsPvt. Ltd has a closing CENVAT (Service Tax Input Credit) balance of Rs 30,000.

v  The next question that arises is whetherIbex Motors Pvt. Ltd can carry forward the CENVAT credit?

Yes, the closing CENVAT balance of Rs. 30,000 is fully eligible to be taken ahead by Ibex MotorsPvt. Ltd. As it satisfies all the conditions outlined below:

  • The CENVAT of Rs 30,000 is reflected in the return and
  • In GST, the same is acknowledged as Input Tax Credit

Now, for Ibex MotorsPvt. Ltd, CENVAT will be a CGST credit which can be used to set off the liabilities in the manner prescribed.

Instance 2: Unavailed CENVAT credit and Input VAT on capital goods

In the prevailing scenario, under Central Excise, CENVAT credit should be availed to the extent of 50% in the current year, and the remaining should be availed in the consecutive year.

Likewise, VAT paid on purchase of capital goods will not be fully assessible as Input VAT promptly. Reckoning to the State VAT laws, and the type of capital goods purchased, the Input VAT can be availed,

  • In installments expanding over distinctive financial years
  • As credit after commencement of commercial production and so on.

Due to this current constraint for availing CENVAT credit on capital goods, there could be some unavailed CENVAT and Input VAT at the time of transitioning to GST.

To illustrate,

Ibex MotorsPvt. Ltd purchased machinery on the 1st February, 2017. The details of the transaction are shown below:

According to the current CENVAT provisions, Ibex Motors Pvt. Ltd is acknowledged to avail CENVAT up to 50% in the prevailing year, and the remaining during the consequent years.

Pertaining to the VAT provisions of Karnataka input VAT credit can be availed only after the commencement of commercial production.

 To say, let’s take a hypothetical situation:  that commercial production was to begin in the month of June’17.

Given the scenario – Ibex MotorsPvt. Ltd availed

  • 50% CENVAT i.e. Rs 6,250 in the prevailing year (2016-17).
  • Remaining CENVAT of Rs 6,250 in the consequent year (2017-18).
  • Input VAT credit after commencement of commercial production, eligible in 2017-18.

 Will Ibex Motors Pvt. Ltd. be acknowledged to take ahead the Unavailed CENVAT of Rs 6,250 and input VAT credit of Rs 16,313 on transition to GST?

Yes, Ibex MotorsLtd. Will be permitted to take forward the Unavailed CENVAT credit on capital goods, provided the below enumerated conditions are satisfied:

  • Under the present statute, CENVAT and input VAT are allowed as input tax credit.
  • It is admissible as input tax credit in GST.

Since, Ibex MotorsPvt. Ltd fulfills all the conditions they are eligible to carry forward the CENVAT and input VAT credit.

 

Moving to GST: For Registered Business

2017-05-02