Skip to main content

Transitioning tax credits under GST

Transitioning tax credits under GST
Clarity is required for assessees to take necessary steps — in terms of readying supporting documentation where credits can be transitioned, and also negotiating with counterparties on who will bear sunk costs where credits can’t be transitioned

With the goods and services tax (GST) looming, one of the biggest challenges that businesses are grappling with is the transition of existing tax credits. Such credits, once transitioned, can be used to pay GST on outward supplies. Credits that cannot be transitioned become a sunk cost for businesses, given that outward supplies will attract GST at the prescribed rates, but at the same time, a corresponding credit will not be available for offset.

The GST law contemplates two broad scenarios in which credits can be carried forward. The first is a currently registered assessee under the central/state laws, who can transition 100 per cent of the credit shown in his returns. The second is a currently unregistered assessee, who can transition 100 per cent credit for inputs in stock or inputs contained in semi-finished goods/finished goods in stock on the date of transition, on the basis of a duty-paying document issued within one year preceding the GST. Where such document is unavailable, the transition credit is limited to 40 per cent of CGST/SGST paid on the supply of the goods under GST (60 per cent where the collective rate of GST is 18 per cent or more, as in the case of mineral water, computers, cameras etc.). In both scenarios, transition of credits is permitted only in respect of goods/services which satisfy the dual condition of being eligible for credit under the existing rules, as well as being eligible for credit under the GST law.

Industry input on the transition provisions has already resulted in some relaxations — (i) the credit allowance was increased from 40 per cent to 60 per cent where the collective GST rate is 18 per cent or more; (ii) the time limit for declaring transition credits was increased from 60 to 90 days; (iii) traders will also be able to avail of credit basis a Credit Transfer Document (CTD) issued by manufacturers within 30 days of GST for distinctly identifiable goods above ~25,000 (such as televisions, refrigerators, car chassis, engines etc.).

The government must be complimented on having been responsive to the changes that industry has sought. However, certain ambiguities and open issues remain. To begin with, there may be some assessees who fall into a gap between the two credit transition scenarios contemplated under the GST law. For instance, there may be excise-registered manufacturers who pay duty at a concessional rate on the condition that they do not avail of CENVAT (Central Value Added Tax) credits. There is no contemplation of how such persons can carry forward their existing credits, as they do not reflect the credit in their current returns, nor can they transition 100 per cent credits under the second scenario which is available only to unregistered persons.

Another major issue is for traders who had not obtained the optional first stage/second stage dealer registrations under excise (a not uncommon practice in the auto sector, among others). A number of these traders have recently applied for these registrations so that manufacturers can issue them excise invoices to enable a 100 per cent credit transition. Apart from the ground level challenges in obtaining these registrations in time, it is also unclear if traders can transition 100 per cent credits even for stock received by them prior to being granted the dealer registration, presuming that they are able to belatedly obtain a (revised) excise invoice from the manufacturer which the tax authorities accept.

Under the GST law, there is also no provision which speaks to a situation of pending disputes concerning the eligibility of credits under the current law. For instance, an assessee may have received an adjudication order or appellate order (subject to further appeal) ruling against his eligibility to avail of certain credit(s). Similarly, some assessees will have reversed credits under protest under the existing law, or reversed credits to pay mandatory pre-deposits required for filing an appeal. These credits may become available in the future if the outcome of the dispute is favourable to the assessee. The recoverability of such amounts under the GST, either in the form of input tax credit, or by way of refund, is unclear.

Given the proximity to the transition, complete clarity is required for assessees to take necessary steps at this stage — not only in terms of readying supporting documentation where credits can be transitioned, but also negotiating with counterparties on who will bear the sunk cost where credits cannot be transitioned.

The importance of addressing these open issues under the transition provisions is escalated by the fact that there is a single-window opportunity for assessees to properly harvest existing tax credits on the crossover to GST. Concomitantly, the right to credits which are not transitioned as part of this one-time exercise may potentially be extinguished.

The Economic Times ,New Delhi,19th september 2017


Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Coffee-Toffee, the GST Debate Continues

Hundreds of crores of rupees in the form of taxes ride on the exact categorisation of products Is Parachute hair oil or edible oil? Is KitKat a chocolate or a biscuit? Is a Vicks tablet medicament or confectionery? For the taxpayer and the tax collector, this is much more than an exercise in semantics -hundreds of crores of rupees ride on the exact categorisation.
As the government moves closer to rolling out the goods and services tax (GST) on July 1, many such distinctions are being debated so that no ambiguity remains. Not just that, the government is revisiting old tax cases that were lost over product categorisation, according to people with knowledge of the matter, presumably with a view to making sure that revenue collections can be maximised. “In the past, several tax officers had challenged some of the product categorisations, including those in the retail segment, but lost out in court or at appellate level,“ said one of the persons. “Now we have a chance to go ahead with speci…

Deposit gush:-CA Institute Bats for Special Audit