Daily Dose of GST update on FAQ in seminar with Industries

GST Update on Industry wants to know-Part-II

INDUSTRY WANTS TO KNOW – PART 2

Here is the 2nd installment to the series where we try to find answers to the unanswered questions and queries coming from the trade and industry.

Question: How will the transitional provisions operate in the new regime? Whether credit will be available on finished goods which were exempted earlier but taxable under GST?

Answer: Transitional provisions have been prescribed in section 141 to section 162E of Model GST law. In brief, it facilitates availment of cenvat credit which will be carried forward from the old regime to the new regime. Primarily the cenvat reflecting as closing balance in the last excise/service tax/VAT returns will be carried forward as opening balance of cenvat under GST. Simultaneously, stock of such goods which were earlier exempted under old regime but are taxable in the new law shall also be considered for availing cenvat. The credit on stock of inputs for such finished goods will be allowed under GST. One important thing to note here is that the cenvat on exempted goods shall be eligible only if the goods are chargeable to GST under the new regime of GST. In cases where they are still exempted goods in the new regime then no credit will be admissible. Even if after a certain period they are declared as taxable goods, no enabling provision is there to avail cenvat of stock of such goods.

Question: Can a particular factory practice different transitional provision for different goods manufactured in that same factory? It means that if a factory has taxable final product as well as exempted taxable goods under old regime and these are both chargeable to duty under the new era of GST then credit on both of them will be available under transitional provisions?

Answer: This is a question which is subject to a lot of interpretation. Suppose a factory manufactures both taxable and exempted goods. In the transitional phase, section 143(Amount of CENVAT credit carried forward in a return to be allowed as input tax credit) will be applicable on taxable goods and section 145(Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations) will be applicable on exempted goods. Now the question is that whether both the sections can be applicable simultaneously for a single factory on both type of products. Going by a logical view and looking at the assessee friendly intention of the law, there should not be any bar on simultaneous application of these provisions but still it will be open to interpretation of the law.

Question: How the new registration norms for business verticals will have to be implemented? To be specific, even if an assessee having two factories with two separate registration number is operating within a state and he is required to obtain only one registration under new GST law then how his registration will be migrated under the new law?

Answer: It is proposed that business verticals within a state can opt for single registration based on individual discretion. Although it is a choice given to the assessees but still it should be noted that if a person opts for single registration then it is to be seen how the GSTN allows him to migrate under the new GST law as a single registration. No procedure has been prescribed but we hope that the GSTN will come with a solution and it is not difficult also becuase registration is PAN based.

Question: How the different units of same person having same registration will operate under GST? How they will maintain accounts as well as issue invoices?

Answer: No procedure is prescribed for units having single registration will have to issue a common invoice or can maintain different set of invoices. If the start same serial number of invoices for both the units then they will face difficulty in filing of return. Such problem will also arise for keeping records of stock. Whether there will be consolidated books of accounts which will be very difficult unless and until they have a software which allows such maintenance. If they maintain the separate invoice, separate inventory then how to file the returns. If the audit or anti evasion comes, how they will reconcile the things. These questions are to be answered and the GST authorities will prescribe the procedure for the same.

Question: How the transitional provisions will apply when an assessee had two different registration under earlier law but now have a single registration under GST. On the contrary, if he had single VAT registration and now decides to have separate registration then how he will distribute the credit of VAT under separate units.

Answer:- No provision has been prescribed for the same. Logically we can say that the credit of units registered separately should be clubbed together. Even there is no procedure for separation of VAT. Such practical problems should be represented before the appropriate authorities so that timely solution can be obtained in this regard.

Question:-what are the consequences of an invalid return and are there any remedies to it?

Answer: If a supplier fails to pay the taxes due then the return filed by him will be deemed to be invalid and the grave consequence of it will be that the buyer/receiver of the goods and services will not be able to avail the cenvat of the taxes paid by him on procurement of such goods and services. The credit paid by supplier will be added in his liability and buyer has to pay the tax.

The only remedy provided in the law is that if the supplier pays his dues then the return will again gain validity but this not without its own ifs and buts. A whole lot of communications will have to be gone through to rectify the mismatch and then only such cenvat will be eligible. The new law in this regards seems regressive rather than being progressive as it puts the burden of default of supplier on the buyer which is actually unjust enrichment.

Question: If to avail the cenvat, the buyer pays the dues of the supplier, what will be the consequences of the same? To be more specific, can a buyer pay the amount of GST directly in Government account in the name of supplier? In that case, whether the credit passed on by the supplier will not be added to buyer?

Answer: As such there is no provision facilitating this kind of arrangement. It would need a well designed mechanism to track these kinds of adjustments. But overall, resorting to this kind of mechanism will prove to be non-practical in the long run. This is because the supplier must have supplied material to other buyers. Even if a single buyer pays his amount then also he will be defaulter for other buyers. In that case also, the amount will be added in the liability of buyer and credit will be disallowed to him.

Question:- Whether the buyer withhold the amount of supplier till the time valid return is filed by him and credit is passed on to him?

Answer:- There is no such provision in draft GST law. But it seems to be more practical solution to this problem. But it will not operate when supplier is in commanding position. Sometimes we have to make advance payment for procurement of inputs. The most feasible position is that we should represent to the government to bring a much more practical mechanism.

Question: Whether reverse charge mechanism will continue on the good transport agents? What will the treatment of cenvat? Whether the credit will be available of GST paid on freight outward?

Answer: Another question being constantly raised is that if the GTA will continue to be taxed under RCM scheme. If we look at the draft law there is provision of RCM but the goods or services covered under the same is not specifically mentioned. However draft procedure for the invoice format, the situation may look contradictory. The invoice format has separate column to mention if the tax is to be paid by the consignor or the consignee which implies that reverse charge is applicable on transporter under GST also.

Another big question is that of the cenvat credit of GST paid on the GTA outward. Currently it has been under a lot of litigation with decisions flowing in both in favor and against. Will its cenvat be eligible under the new regime or not is also subject to interpretation but as of now, there is no restraining provision in the new law to bar such cenvat. The current definition of input services uses terms like place of removal in Cenvat credit Rules that has generated a lot of litigation. But the new definition is free from use of such terms. Still it has to be waited and seen that what the new provisions will have to offer.

We will carry some other questions in our next update.

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GST Update on Industry wants to know-Part-II

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