Model GST Law – Transitional Provisions

This article was written by Avni Sharma, a student of GGSIP University, New Delhi.

The introduction of Goods and Services Tax (GST) is one of the landmark fiscal reforms in Indian history. At present, a number of indirect taxes are levied on goods and services by both Central and State governments. With the advent of GST, only a single tax will be levied and all other indirect taxes will be abolished. The government has released the draft model GST law (Model GST law) in June 2016 which gives a glimpse of what lies ahead.

The Government of India is committed to replace all the indirect taxes levied on goods and services by the Centre and States and implement GST by April 2017. Once implemented in its right form, the GST can accelerate the growth of Indian economic development, enhance operational efficiencies, ease procedural compliances, increase the overall taxpayer base and ultimately lead to the reduction in the overall effective tax rate burden on consumer.

The tax authorities are already gearing up for a timely roll out of this one-nation one-tax regime. Thus, it is essential that the businesses and the taxpayers are also well prepared for it.  To ensure the actual delivery of all the intended benefits of the new law, it is imperative that the transition from existing indirect tax regime to the new regime is smooth, hassle-free and effortless. The Model GST law contains detailed provisions to effectuate this historic transformation into GST framework. In essence, these provisions will ensure, inter alia, continuation of CENVAT credits and deal with pending claims disposal under new law.

• In Sec 142 of Model GST Law, every registered taxable person shall be issued a provisional certificate of registration (COR).

• CANVEAT credit and VAT credit will be carried forward in a return furnished under earlier law. A person who was (a) not liable to be registered under the earlier law or (b) engaged in manufacture of those goods which were exempted under the earlier but liable to tax under new law, shall be entitled to take CANVEAT credit and VAT credit in respect of (i) inputs held in stock (ii) inputs contained in semi furnished or furnished goods.

No tax is payable in respect of exempted goods returned on/ after the appointed day if such goods were – (a) exempt under earlier law at the time of removal or sale (b) such goods were removed/sold not earlier than 6 months prior to appointed day. (c) indientifiable to the satisfaction of tax officer.

Tax consequences in respect of inputs, semi-furnished goods (SFG), finished goods (FG) which were removed for job work and returned on/ after the appointed day

• No tax shall be payable if such inputs are returned to the factory within 6 months from the appointed day. The manufacturer and worker will be required to declare details of inputs.

• The tax payer may, within, 30 days of such price revision, issue supplementary invoice/ debit note or supplementary invoice credit note. Though in case of downward revision, the Model GST Law provides that the tax payer can reduce his tax liability only if the recipient of such invoice/credit has reduced his corresponding ITC; there is no such provision in case of upward price revision to provide that the recipient of invoice/debit note can claim ITC for the upward price revision.

Implications in respect of the goods sent on approval basis but returned on or after the Appointed Day

No tax shall be payable under he new GST Law in respect of such goods provided

• Goods were not sent earlier than 6 months before the Appointed Day; and
• The goods are returned to the seller within 6 months from the appointed day.

Case Laws

FEDERATION OF HOTELS AND RESTAURANTS ASSOCIATION OF INDIA AND ORS. vs. UNION OF INDIA AND ORS.

High Court of Delhi, Aug 12, 2016

Parliament was vested with power to enact s.65 (105) (zzzzv) of 1994 with view to bringing service component of composite contract of supply of food and drinks by air-conditioned restaurant within service tax net.

MAGMA HDI GENERAL INSURANCE COMPANY LTD. vs. UNION OF INDIA & ORS.

High Court of Calcutta, Jul 14, 2016

Revenue were restrained from taking recourse to Rule 5A(1) against assessee, and assessee should also not be under any liability to place books/accounts, etc, if any demand was made.

JAPAN AIRLINES INTERNATIONAL CO. LTD. vs. C.S.T., NEW DELHI

CESTAT New Delhi, Jul 08, 2016

This appeal has been filed against the Order-in-original dated 1.10.2009, in terms of which service tax demand of Rs.72,33,753/- was confirmed along with interest and penalty on the ground that appellant paid service tax under transport of passengers embarking in India for international journey by air service only on the basic air fare and did not include the charges mentioned at Sl.No.(ii) to (xx) below: i. Total Basic Fare ii. Fuel Surcharge

M/S. CINEYUG WORLDWIDE vs. THE UNION OF INDIA

High Court of Bombay, Jan 22, 2016

Settlement Commission ought to give Petitioner opportunity to respond to Revenue’s observations and Report, but denial of opportunity by short circuiting settlement case was not in accordance with statutory mandate.

GOPALA BUILDERS vs. DIRECTORATE GENERAL OF CENTRAL EXCISE INTELLIGENCE & 1

High Court of Gujarat, Jun 09, 2015

Section 73C of the Finance Act, 1994 allows department to make provisional attachment of Assessee’s properties during pendency proceedings but such provision cannot be activated for seeking recovery even before adjudication.

Conclusion

While the Model GST Law contains a specific chapter on transition provisions for the new GST law, it is also necessary that the tax payers devote a substantial amount of time and resources on understanding the finer nuances of this new indirect tax regime so that the transformation and transition process is both smooth and hassle free.

References

https://www.gst.cchtaxonline.com/web/gst/cases?p_p_id=categorydisplay_WAR_CTRportlet

http://www.careerride.com/view/gst-key-issues-for-debate-21636.aspx

www.icai.org

http://lawrato.com/indian-kanoon/tax-law/understanding-the-gst-goods-and-service-tax-526

http://www.finmin.nic.in/reports/ModelGSTLaw_draft.pdf