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Tax on Go
Budget 2015
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Transition to GST is painful
By CA Vaishali Kharde
Jul 07, 2017

With introduction of GST, many businesses are finding it challenging to address numerous issues being faced by them during the transition phase. In this regard, though GST law contains transitional provisions, they are either not happily worded or in some cases practical business scenarios are not covered therein. Four key challenges related to goods in transit are discussed hereunder:

Whether assessee can avail CENVAT credit if purchase order is raised in Pre-GST regime along with taxes applicable before 30th June 2017, however goods are received after 1st July 2017?

In this regard, Section 140(5)of the CGST Act, a registered taxable person shall be entitled to avail the credit of eligible duties and taxes on inputs and input services received after the appointed day in respect of which tax has been paid before the appointed day, subject to the condition that invoice or any other document evidencing payment of duty was recorded in the books of account within 30 days from the appointed day.

Accordingly, the credit of duties paid on the inputs and input services in transit and received after appointed date is allowed subject to condition that the invoice should be recorded within 30 days (i.e. before 30th July 2017). Hence, it could be construed that where such goods are received after 30 days from the appointed date then taxpayer may not be in a position to avail credit.

Whether assessee can avail CENVAT credit of capital goods- in- transit which are received after 1st July 2017?

It may be noted that Section 140 (5) of the CGST Act gives reference only to input and input services and not to capital goods. Given this', as there is no specific provision enabling availment of CENVAT credit of capital goods in-transit but received after 1st July 2017, availment of credit of capital goods received after the appointed date could be challenging.

In this regard, Twitter reply on this issue is by Governments official Twitter handle is reproduced hereunder:

Query No 84: Would we be eligible for credit on Capital Goods in transit and received post GST?

Reply: No provision for such credit is there in GST law.

Accordingly, it appears that a valid credit, but due to missing enabling provisions,could end up in tax cost to taxpayers.

Whether assessee can avail the cenvat credit on services procured after the appointed date but the part or full value is paid before 30th June 2017?

As per Section 142(11) the CGST Act is not payable on services to the extent the tax was leviable on the said services under Finance Act, 1994.

Hence, if services are procured after 1st July 2017 against the advance paid before 30th June 2017for which there is levy of taxes under Finance Act, 1994 then to that extent vendor is not liable to pay GST. However, the transitional provision does not specifically talk about cenvat credit on the advance payment. Hence, It could be construed that the credit of taxes paid on advance is available only if it available as per current law.

Whether tax paid on goods pre-GST can be availed if the said goods are returned after the appointed date?

As per section 142(1) of CGST Act, if the registered person has returned any goods purchased before 30th June 2017 within 6 months from the appointed date then return of goods is treated as deemed supply and such person is liable to pay the GST. However, where the goods are returned by the unregistered person then the person who sold such goods is required to claim refund taxes already paid.

As far as refund of taxes paid is concerned the taxpayer is required to track the status of vendor who returned the goods and required to claim refund of taxes paid under pre-GST regime- which could be a time-consuming procedure and would not be worthwhile if the amount involved is small.

Which taxes are levied in cases where imported cargo is arrived at the port prior to 1st July 2017 and bill of entry is filed after 1st July 2017?

From 1st July 2017 IGST and GST Compensation cess is levied on import as per Section 3 (7) and (9) of the Custom Tariff Act, 1975. Further GST is levied on the cargo which would arrive at the port on or after 1st July 2017. In this regard, Guidance Note issued to bring clarity for import and export states that where the goods have arrived before 1st July but a bill of entry is filed on or after 1st July 2017 then IGST and GST compensation cess as applicable would be levied on such Cargo. Also, Ex-bond bill of entry filed on or after 1st July 2017 would also attract levy of GST. Further, said guidance note clarifies that, where advance bill of entry is filed before 1st July 2017 along with payment of taxes in the pre-GST regime such bill of entry may be recalled and re-assessed by the proper officer for levy of IGST and Compensation Cess as applicable.

As discussed aforesaid, some of the sensitive issues either not addressed by the transitional provisions or in the way it's worded could become painful in the days to come and add to the already litigious environment.