Understanding Transitional Provisions in GST and Legal Framework
This content discusses the transitional provisions in GST, including Circular No. 180/2022, filing of TRAN-1/TRAN-2, key sections of the CGST Act, and the Herculean Task faced by officers in verifying transitional credit claims. It also touches upon the Supreme Court orders in UOI vs. M/s. Filco Trade Centre Pvt. Ltd., the role of the SC in clarifying questions of law, and the importance of Forms GST TRAN-1/TRAN-2 in the transition process.
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Transitional Provisions in GST Transitional Provisions in GST Circular No. 180/2022 dated 09.09.2022 Filing of TRAN 1/ TRAN2 Deepak Mata, Deputy Commissioner, CC Office, Mumbai
Presentation Plan Presentation Plan Some important Transition Provisions in CGST Act/ Rules Hon ble Supreme Court order dated 22.07.2022 & 02.09.2022 in UOI vs M/s. Filco Trade Centre Pvt. Ltd., SLP(C) No. 32709-32710/2018 A few questions of Law not decided by SC, and still pending Circular No. 180-GST dated 09.09.2022 and GSTN Advisory dated 01.10.2022 on Transition Credit
Legal Framework CGST Act: Sections 139, 140, 141, 142 GST Transition Rules 117 to 121 Forms GST TRAN 1/ TRAN 2 / TRAN 3 Hon ble Supreme Court order dated 22.07.2022 & 02.09.2022 in UOI vs M/s. Filco Trade Centre Pvt. Ltd., SLP(C) No. 32709-32710/2018 Circular No. 180-GST dated 09.09.2022 and GSTN Advisory dated 01.10.2022 on Transition Credit
Herculean Task? Herculean Task? Officers, within ninety days, will be required to verify the veracity of the claim/transitional credit and pass appropriate orders thereon on merits after granting appropriate reasonable opportunity to the parties concerned. Verify Take comments from the counterpart officer Give Notice . Give PH Decide . Order Before 28.02.2022 Hon ble SC in Misc Application No. 1545-46 of 2022 clarified that all questions of law decided by the respective High Courts concerning Section 140 of the CGST Act, 2017 read with the corresponding Rule/Notification or direction are kept open.
Honble SC orders dated 22.07.2022 & 02.09.2022 in UOI vs M/s. Filco Trade Centre Pvt. Ltd Kept all questions of law open Not allowed to revise return under existing laws Forms GST TRAN 1/ TRAN 2
CGST Act: Sections 140 Transitional Arrangement for Input Tax Credit
Forms and table for transition credit Form Table Legal Provision Transition Credit Component 5a Closing balance of credit from the last legacy returns C, F, H/I Forms Un-availed credit on capital goods- Central Tax TRAN 1 Section 140(1) & 140(4)(a) 5b & 5c 6a TRAN 1 Section 140(2) 6b Un-availed credit on capital goods- State Tax 7(a)A Credit on duty paid stock with invoices 7(a)B 7b Credit on duty paid stock without invoices Credit on duty paid goods with invoices- State taxes Credit on duty paid goods without invoices- State taxes Section 140(3), (4), (5) & (6) TRAN 1 7c
Forms and table for transition credit ( Contd) TRAN 18 Section 140(8) Transfer of credit by centrally registered units 9(a) Details of goods sent as principal to the job worker TRAN 1 Section 141 9(b) Details of goods held in stock as job worker on behalf of the principal Details of goods held as agent on behalf of the principal 10(a) TRAN 1 Section 142(14) 10(b) Details of goods held by the agent TRAN 111 Section 142(11)(c) Section 142(12) Details of goods sent on approval basis six months prior to 1st July 2017 Credit afforded on stocks claimed without invoices VAT paid Taken as SGST Credit or Service Tax paid as Central Tax Credit TRAN 112 TRAN 24
Explanation 1 : Eligible Duties[For sub-sections (1), (3), (4) and (6)] (In respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on appointed day) Sr. Type of Duty Leviable Under Remarks Section 3 of Additional Duties of Excise (Goods of Special Importance Act) 1957 (i) Additional Duty of Excise AED (GSI) (ii) Additional Duty Section 3(1) of Customs Tariff Act , 1975 CVD (CE) (iii) Additional Duty Section 3(5) of Customs Tariff Act , 1975 CVD (VAT) 4% (iv) Omitted --- --- (v) Duty of Excise First Schedule of Central Excise Tariff Act, 1985 BED (vi) Duty of Excise Second Schedule of Central Excise Tariff Act, 1985 SED (vii) National Calamity Contingent Duty Section 136 of Finance Act 2001 NCCD
Explanation 2 : Eligible Duties and Taxes[For sub-section (1) and (5)] (in respect of inputs and input services received on or after appointed day) Sr. Type of Duty Leviable Under Remarks Section 3 of Additional Duties of Excise (Goods of Special Importance Act) 1957 (i) Additional Duty of Excise AED (GSI) (ii) Additional Duty Section 3(1) of Customs Tariff Act , 1975 CVD (CE) (iii) Additional Duty Section 3(5) of Customs Tariff Act , 1975 CVD (VAT) 4% (iv) Omitted --- --- (v) Duty of Excise First Schedule of Central Excise Tariff Act, 1985 BED (vi) Duty of Excise Second Schedule of Central Excise Tariff Act, 1985 SED (vii) National Calamity Contingent Duty Section 136 of Finance Act 2001 NCCD (viii ) Service Tax Section 66B of the Finance Act 1994 ST
Explanation 3: Exclusion of Cess The expression eligible duties and taxes excludes any cess which has NOT been specified in (i) Explanation 1 or Explanation 2; and (ii) any cess which is collected as additional duty of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975. .
Eligible Tax? Discrepancies Examples Eligible Tax? Discrepancies Examples (i) Irregular Credit availed by the taxpayers in respect of KrishiKalyanCess, Education Cess, (i) Irregular Credit availed by the taxpayers in respect of KrishiKalyanCess, Education Cess, Higher Education Cess, Swachh Bharat Cess and Clean energy cess. Higher Education Cess, Swachh Bharat Cess and Clean energy cess. (ii) Credit availed by the taxpayers on Documents more than one year old. (ii) Credit availed by the taxpayers on Documents more than one year old. (iii) ISD Credit pertaining to other unit. (iii) ISD Credit pertaining to other unit. (iv) Credit availed on RCM. (iv) Credit availed on RCM. (v) Excess/double credit availed by the taxpayers. (v) Excess/double credit availed by the taxpayers. (vi) Credit availed by the taxpayers without invoices. (vi) Credit availed by the taxpayers without invoices. (vii) Credit availed without showing closing balance in the Service Tax and Central Excise June (vii) Credit availed without showing closing balance in the Service Tax and Central Excise June 2017 Return. 2017 Return.
Eligible Tax? Discrepancies Examples Eligible Tax? Discrepancies Examples Credit of duty paid on coal held in stock under section 140(3) of the CGST Act, amounting to Credit of duty paid on coal held in stock under section 140(3) of the CGST Act, amounting to 3.07 crore 3.07 crore Clean Energy Clean Energy Cess Cess of 2.56 crore on coal in Table 7(a) A of Tran 1 return of 2.56 crore on coal in Table 7(a) A of Tran 1 return Cenvat Cenvat credit of Education credit of Education Cess Swatch Bharat Swatch Bharat Cess Cess and Clean Energy Cess, Secondary and Higher Education , Secondary and Higher Education Cess and Clean Energy Cess Cess were not eligible duties for transition were not eligible duties for transition Cess, Krishi Kalyan , Krishi Kalyan Cess Cess, , Claims under Section 140(3) of the Act require that the invoices or other prescribed documents Claims under Section 140(3) of the Act require that the invoices or other prescribed documents were issued not earlier than twelve months immediately preceding 1 were issued not earlier than twelve months immediately preceding 1st st July 2017 July 2017 ECL credited from both Tran 1 and Tran 2 or credit afforded in ECL without filing Tran 2; credit ECL credited from both Tran 1 and Tran 2 or credit afforded in ECL without filing Tran 2; credit claimed on stocks not declared or more than that declared in Tran 1 claimed on stocks not declared or more than that declared in Tran 1 Credit on invoices not accounted for within the prescribed time limit; transitioning ineligible or excess credit; and irregular credit claimed on capital goods.
Carry forward of CENVAT Credit Carry forward of CENVAT Credit Sec 140(1) Sec 140(1) Registered taxable person other than composition dealer Registered taxable person other than composition dealer Allowed carry forward of Input tax/ CENVAT credit Allowed carry forward of Input tax/ CENVAT credit through a return through a return Such credit Such credit must be eligible must be eligible under GST law under GST law He should have He should have furnished all the returns furnished all the returns required under the existing law for the period of required under the existing law for the period of six months months immediately preceding the appointed day immediately preceding the appointed day Credit should not relate to goods manufactured and cleared under such exemption Credit should not relate to goods manufactured and cleared under such exemption notifications as are notified by the Government notifications as are notified by the Government six Credit can be taken in the electronic credit ledger (CGST) Credit can be taken in the electronic credit ledger (CGST) Excess credit taken will be recovered as arrears of tax under GST law Excess credit taken will be recovered as arrears of tax under GST law
Unavailed CENVAT Credit on Capital goods Unavailed CENVAT Credit on Capital goods Sec 140(2) 140(2) Sec A registered taxable person, other than composition dealer, shall be A registered taxable person, other than composition dealer, shall be eligible to take the credit eligible to take the credit In the electronic credit ledger In the electronic credit ledger Unavailed Unavailed Credit on Capital Goods (as per Rule 2(a) CENVAT Credit Credit on Capital Goods (as per Rule 2(a) CENVAT Credit Rule, 2004) not carried forward in a return Rule, 2004) not carried forward in a return Unavailed Unavailed Credit = (Total Credit = (Total eligible credit earlier law earlier law eligible credit credit availed) under the credit availed) under the Such credits must be eligible under the existing law AND under GST Such credits must be eligible under the existing law AND under GST law law
Credit of eligible duties and taxes on input held in stock Credit of eligible duties and taxes on input held in stock Sec 140(3) 140(3) Sec Person eligible for input tax credit Conditions Credit available on Goods must be used or intended to be used for taxable supplies Inputs held in stock and contained in semi- finished goods or finished goods held in stock as on appointed day Above benefit not available for services Such credit can be taken electronic ledger Person not liable to be registered existing law ; Person engaged manufacture / sale of exempted provision of services; Person providing works contract service availing abatement under notification no. 26/2012; First / Second dealer, importer, or depot of a manufacturer. inputs under the Reg person eligible to take the credit under GST law in Such person should be in possession of invoice or other prescribed document evidencing payment of duty under the existing law in respect of such inputs goods, exempted Invoice or other document should be within months months from the appointed day S. 140(3)(iv) within 12 12 and input the supplier of services is not eligible for any abatement under this Act stage in the credit Excess claims will be recovered as arrears of tax under GST law
Section 140(3)(iv) Section 140(3)(iv)- - FILCO Trade Centre P Ltd case FILCO Trade Centre P Ltd case Invoice or other document should be within 12 months within 12 months from the appointed day S. 140(3)(iv) Filco Filco Trade HC Order Trade HC Order Section140(3)(iv) set aside as unconstitutional Section140(3)(iv) set aside as unconstitutional Appeal filed by Dept Appeal filed by Dept SC Order silent on the issue; SC only gave directions to GSTN to open the portal for two months SC Order silent on the issue; SC only gave directions to GSTN to open the portal for two months enabling all aggrieved registered persons to file enabling all aggrieved registered persons to file TRAN 1/2 TRAN 1/2 as a as a last opportunity last opportunity Issue remains open; Issue remains open; Course of Action Course of Action? ?
Credit of eligible duties and taxes on input held in stock Credit of eligible duties and taxes on input held in stock - - no documentary evidence documentary evidence Sec 140(3) Sec 140(3) no Person eligible for input tax credit Credit available on Amount of Credit that can be availed Inputs held in stock and contained in semi- finished goods or finished goods held in stock appointed day Above benefit available for input services Such credit can be taken electronic ledger a registered person, other manufacturer or a supplier of services( e.g Trader). not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs 60% of the CGST paid if Rate under CGST is 9% or more inputs than a 30% of the IGST paid if Rate under IGST is 18% or more 40% of CGST paid if in rate under CGST is less than 9% as on 20% of IGST paid if in rate under IGST is less than 18% (Ref Rule 117(4) of CGST Rules, 2017) not Similar provisions have been notified under SGST Act(s) for the credit of VAT to be allowed to trader in case of MRP based valuation where tax is paid at first point only. in the Statement Statement in in Form each each of of 6 6 tax operation operation. . Form GST tax periods periods during GST TRAN TRAN 2 2 to to be during which be submitted submitted at at end which such such scheme end of of credit scheme is is in in
Credit of duties on inputs held in stock on switching over from Credit of duties on inputs held in stock on switching over from composition scheme composition scheme - - Sec 140 (6) Sec 140 (6) Person eligible for input tax credit A person who was paying tax under composition scheme. Credit available on Conditions Person not paying taxes under composition scheme under GST law Goods must be used for taxable supply Otherwise eligible to take the credit under GST law Such person should be in possession of invoice / other prescribed document Invoices / other prescribed document was not issued earlier than 12 months preceding appointed day Inputs held in stock and inputs contained in goods or finished goods held in stock as on appointed day Above available services Such credit can be taken in the electronic credit ledger registered semi-finished benefit for not input Rule 117 of CGST Rules, 2017- FORM TRAN-1 to be filed specifying eligible ITC amount. Scheme available upto 6 tax periods
Credit distribution of service tax by ISD (CGST) Credit distribution of service tax by ISD (CGST) Sec 140(7) Sec 140(7) Input service distributor shall be eligible for distribution of credit Invoices for such services are received on or after 1st July 2017 Services are received prior to 1st July 2017
Credit distribution of service tax by ISD (CGST) Credit distribution of service tax by ISD (CGST) Sec 140(7) Sec 140(7) SGST
Nuvoco Vistas Corporation Ltd- WP No. 437/2020; BHC Order dated 17.11.2022 Department Stand ISD registration under the GST regime does not enjoy the status of an assessee obtaining registration under GST for carrying out its business; ISD registered under GST is not eligible for ITC under Section 16 as it is not using the inputs in the course of or furtherance of its business for making taxable supplies as ISD can neither be transitioned directly into the Electronic Credit Ledger (ECL) maintained under the GST regime Petitioner has erred in comparing the erstwhile ISD with the normal Service Tax assessed in light of Section 140
Nuvoco Vistas Corporation Ltd- WP No. 437/2020; BHC Order dated 17.11.2022 BHC Order The GST TRAN-1/revised GST TRAN-1 filed by the units/offices will be basis the manual ISD invoices issued/to be issued by ISD of petitioner subject to aggregate credit cumulatively not exceeding the ISD credit available with petitioner of Rs.13,43,92,019/- Department Stand Department Stand Appeal being filed before SC
Credit distribution of service tax by ISD (CGST) Credit distribution of service tax by ISD (CGST) Sec 140(7) Sec 140(7) ISD can only distribute credit through Returns in the older regime ISD cannot transition the tax to GST ISD not allowed to migrated in GST; Identity finished; No functionality needed; No role of GSTN; No technical glitches sort of; BHC relying on FILCO case simply allowed the appeals; Whether an ISD be allowed to transition the tax to GST is a question of law pending in Supreme Court; Various cases pending in High Court; Appeals filed in SC Issue still pending; Question of law to be decided by SC
Transfer of unutilised CENVAT credit by a person having centralised registration Sec 140(8) Allowed to take credit of CENVAT c/f in return furnished under existing law in electronic credit ledger Taxable person has centralised registration under existing law Obtained registration under GST Act For the period ending with the day immediately preceding the appointed day If the taxable person files an original / revised return within 3 months of the appointed day Credit will be allowed if credit amount is reduced from that claimed earlier Note: 1. 2. Only those credits which are admissible under GST laws will be allowed Credit may be transferred to any registered person having the same PAN for which centralised registration was obtained under earlier law Application in Form TRAN-1 within 90 days from appointed date 3.
Taxability of supply of goods and Taxability of supply of goods and services in certain cases services in certain cases Sec 142(11) 142(11) Sec Goods - No tax payable under CGST Act, to the extent tax leviable under VAT Act of the state Services - No tax payable under CGST Act, to the extent tax leviable under Service Tax Law If tax paid under VAT and Service tax law Tax leviable under GST and taxable person shall be allowed credit of VAT and Service tax, in the manner to be prescribed
Goods sent on approval basis returned on or after the Goods sent on approval basis returned on or after the appointed day appointed day Sec 142(12) Sec 142(12) Goods sent on approval basis under existing law not earlier than six months from the appointed day; Such goods Such goods are returned within six months or within the extended period from the appointed date Tax not to be payable when Goods are liable for payment of taxes under GST; and Such goods Such goods are returned after six month or within the extended period from the appointed day Tax shall be payable by person returning the goods, if the goods are returned after a period of six months or extended period of time from the appointed day Tax shall be payable by person who has sent goods on approval basis person who has sent goods on approval basis, if the goods are not returned within the six months returned within the six months or extended period of time from the appointed day Tax to be payable when and by whom not Note Note The appointed appointed day The details details of of goods day goods sent sent on on approval approval basis basis to to be be submitted submitted in in FORM FORM GST GST TRAN TRAN 1 1 within within 90 90 days days of of
Circular No. 180/2022 Circular No. 180/2022- -GST dated 09.09.2022 dated 09.09.2022 GST Guidelines for filing/revising TRAN-1/TRAN-2 in terms of order dated 22.07.2022 & 02.09.2022 of Hon ble Supreme Court in the case of Union of India vs. Filco Trade Centre Pvt. Ltd Maharashtra Trade Circular No. 11T of 2022
Honble Supreme Court in the case of Union of India vs. Hon ble Supreme Court in the case of Union of India vs. Filco Filco Trade Centre Trade Centre Pvt. Pvt. Ltd Ltd GSTN to open the portal for filing TRAN 1 /2 GSTN to open the portal for filing TRAN 1 /2 Any aggrieved registered assessee is directed to file the relevant form or revise the already filed form irrespective of whether the taxpayer has filed writ petition before the High Court or whether the case of the taxpayer has been decided by ITGRC. The concerned officers are given 90 days thereafter to verify the veracity of the claim/transitional credit and pass appropriate orders thereon on merits after granting appropriate reasonable opportunity to the parties concerned. It is clarified that all questions of law decided by the respective High Courts concerning Section 140 of the CGST Act, 2017 read with the corresponding Rule/Notification or direction are kept open. (Order dated 2nd September 2022)
Guidelines for filing/revising TRAN-1/TRAN-2 (1/4) File or revise TRAN 1 / 2 Declaration in Annexure A Credit in table 7A (CTD documents) -Upload TRANS 3 No claim for transitional credit shall be filed in table 5(b) & 5(c) of FORM GST TRAN-1 in respect of such C-Forms, F-Forms and H/I-Forms which have been issued after the due date prescribed for submitting the declaration in FORM GST TRAN-1 i.e. after 27.12.2017
Guidelines for filing/revising TRAN-1/TRAN-2 (2/ 4 ) Entire claim in one consolidated FORM GST TRAN-2, instead of filing the claim tax-period-wise Rule 117(4) (b) (iii) of the CGST Rules, 2017. In such cases, in the column Tax Period in FORM GST TRAN-2, the applicant shall mention the last month of the consolidated period for which the claim is being made Download a copy of TRAN 1/2/3, if any and submit it to the jurisdiction officer within seven days
Guidelines for filing/revising TRAN-1/TRAN-2 (3/4 ) Keep all the requisite documents/records/returns/invoices, in support of his claim of transitional credit, ready for making the same available to the concerned tax officers for verification. NOT a dispute settlement mechanism; Rejection cases; Pending adjudication / appeal cases Pursue the litigation
Guidelines for filing/revising TRAN-1/TRAN-2 (4/4 ) Verification by Jurisdictional officer Interaction / Report from Counterpart officer, if required May ask documents/ records/ invoices / returns from applicant Personal Hearing Appropriate Order ITC to get credited in the Electronic Credit Ledger
Guidelines for filing/revising TRAN-1/TRAN-2 Annexure A Details of TRAN 1/ 2 filed earlier Details of notice and order, if any issued in this behalf Details of appeal u/s 107 or petition before HC, if any and orders therein, if any. Transitional credit claim made now. Act wise details of Notice or order, if any under existing law wrt credit claimed as transitional credit. Declaration of taxpayer that he - Has furnished 6 months returns under existing law ; Is in possession of all documents, evidences, invoices, accounts, statutory declarations and other records; Has not claimed such credit in GSTR-3B. If claimed, details thereof, details of its reversal, if any ; Refund of c/f credit is not claimed/refunded as refund under existing law ; Has not utilized or adjusted any amount of credit under the existing law
Herculean Task? Herculean Task? Officers, within ninety days, will be required to verify the veracity of the claim/transitional credit and pass appropriate orders thereon on merits after granting appropriate reasonable opportunity to the parties concerned. Physical copies to be submitted within 7 days of TRAN 1 / 2 Verification by Jurisdiction officer Take comments from the counterpart officer Call for documents from the registered person for verification Give Notice . Give PH Decide . Order Before 28.02.2022
