GST – TRANSITIONAL PROVISIONS
FAQ Based on CGST Act, 2017 and Transition Rules (Draft)

1. Which section of CGST Act, deals with migration of existing tax payers?

Section 139 of the Act deals with migration of existing tax payers.

2. Who is liable to migrate to GST?

⦁ Every person registered under any of the existing laws and having valid PAN shall be issued a certificate of Registration on a provisional basis on and from the appointed day.
⦁ The issue of provisional registration is subject to such conditions and in such form and manner as may be prescribed.
⦁ Provisional registration shall be liable for cancellation unless replaced by final certificate of registration which will be given if the condition prescribed is complied with.
In case provisional registration is cancelled by filing an application stating that he was not liable to registration under section 22 (persons liable for registration) and 24 (compulsory registration in certain cases) It shall be deemed that such registration is not issued.

TRANSITIONAL ARRANGEMENTS FOR INPUT TAX CREDIT (ITC)
1. Who is eligible?

A registered person other than a person opting to pay tax under composition scheme under section 10 [section 140(i)].

2. How much amount he is entitled to take credit in his electronic ledger?

The amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day [section 140(i)]

3. What are the circumstances in which registered persons shall not be allowed to take credit?

i) Where the said amount of credit is not admissible as input tax credit under the Act; or
ii) Where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date;
iii) Where the said amount of credit related to goods manufactured and cleared under such exemption notification as are notified by the government [section 140(i) proviso].

4. Can a registered person entitled to take in his electronic ledger, credit of the unavailed CENVAT credit in respect of capital goods?

Yes. He can avail the balance CENVAT credit i.e, CENVAT credit to which such person entitled in respect of the said capital goods under the existing law after deducting CENVAT credit already availed [section 140(2)]

5. What are the conditions for availing ITC by following class of persons?
i) Manufacturing of exempted goods
ii) Provision of exempted services
iii) Providing works contract service and availing of the benefit of notification 26/2012 Service Tax
iv) First stage or Second stage dealer
v) Registered importer
vi) Depot of a manufacturer existing law
vii) Who is not liable to be registered under existing law

Following conditions needs to be satisfied:
a) Such input or goods are used or intended to be used for making taxable supply UNDER THIS ACT
b) Registered person eligible to take ITC UNDER THIS ACT
c) Such registered person is in possession of invoice or other prescribed documents evidencing payment of duty under existing law in respect of such inputs
d) Such invoice/ documents were issued not earlier than 12 months immediately preceding the appointed day and
e) Supplier of services not eligible for any abatement under this Act. [sec.140(3)]

6. Is ITC available to a registered person who was engaged in manufacture of taxable as well as exempted goods or provision of taxable as well as exempted service which is liable to tax under this Act?

a) The amount on CENVAT credit carried forward in return under existing law (Central Excise/Service Tax)
b) Amount of CENVAT credit of eligible duties in respect of inputs held/contained in stock /semi-finished/finished relating to such exempted goods or services in accordance with provisions of sec.140(3) (refer question 5 above)[sec.140(4)]

7. Can a registered person eligible to claim/tax credit for input/input services received on or after appointed day but duty/tax paid by supplier under existing law?

Yes, the credit can be claimed subject to the condition that the invoice or any other duty paying document was recorded in the books of account of such person within a period of 30 days from the appointed day or such further days extended by commissioner not exceeding 30 days. A statement in form GST TRAN 01 needs to be furnished.[Sec.140(5)]

8. What are the conditions for availing credit of eligible duties in respect of inputs held/conditioned in stock, semi-finished or finished goods held as appointed day by person who are paying fixed amount in lieu of tax under the existing law?

a) Such input or goods are used or intended to be used for making taxable supply UNDER THIS ACT
b) Registered person eligible to take ITC UNDER THIS ACT
c) Such registered person is possession of invoice or other prescribed documents evidencing payment of duty under existing law in respect of such inputs
d) Such invoice/ does were issued not earlier than 12 months immediately preceding the appointed day and
The registered person is not paying tax under composition scheme u/s.10.[ sec.140(6)]

9. Invoices related to services received prior to appointed day are received by the input service distributor after appointed day. Is he eligible to distribute ITC?

The input service distributor shall be eligible to distribute the credit [ sec.140(7)]

10. How CENVAT credit can be claimed in case of a registered person with centralized registration in existing law?

He is allowed to take in his electronic ledger credit of the amount of CENVAT credit carried forward in return(original or revised) furnished under existing law by him in respect of period ending with the day immediately preceding the appointed day within 3 months of the appointed day.
The said amount shall be admissible to take input credit under the ACT and such credit may be transferred to any of the registered persons having same PAN sec.140(8)

11. What is the status of CENVAT credit reversed under existing law due to nonpayment of consideration within a period of three months?

Such credit can be reclaimed subject to the condition that registered person made the payment of the consideration for the supply of services within a period of 3 months from the appointed day. [Sec.140(8)]

12. Whether tax payable on input/semi finished goods/ finished goods/goods removed for test before appointed day returned after appointed day?

No tax payable if goods are returned within 6 months from the appointed day. Commissioner can extend for a further period not exceeding 2 months if sufficient cause is being shown.

If such inputs are not returned within the period specified the ITC shall be liable to be recovered as an arrear of tax under this ACT unless recovered under the existing law [sec.141(1)(2)(3)]

In case of finished goods manufacture can transfer the goods from the premises of job worker in accordance with the provisions of existing law on payment of tax in India or without payment of tax for exports.

The manufacturer and job worker should declare the details of the inputs or goods held in stock by job worker as behalf of the manufacturer on the appointed day in Form GST-TRAN.1 within 60days. The form needs to be submitted electronically [ sec.141(4)].

13. Whether the registered person shall be eligible for refund of duty paid under existing law if goods removed were returned?

Refund can be claimed subject to following conditions
i) Removed of goods happened not earlier than 6 months prior to appointed day
ii) Returned to place of business or within in 6 months on or after appointed day
iii) returned by a unregistered person
iv) such goods are identifiable to the satisfaction of proper officer
In case goods are returned by a registered person, the same shall be deemed to be supply [Sec.142(1)].

14. Procedure & taxability of revision of price of goods/services in pursuance of contract entered into prior to appointed day?
Revision upwards:
The registered person shall issue the recipient a supplementary invoice or debit note containing such particulars within 30 days of such price revision and for the purpose of this ACT such supplementary invoice or debit note shall be deemed to have been issued in respect of an outward supply made under the ACT [sec.142(2)(a)]
Revision down words:
Same as above instead on debit note credit note needs to be issued and such credit note shall be deemed to have been issued in respect of over head supply.
The tax liability can be reduced by the registered person only if the recipient of credit note reduced input tax credit corresponding to such reduction in liability [sec.142(3)]

15. What is the treatment of refund claim made on or after appointed day for refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under existing law?

It shall be disposed in accordance with the provisions of existing law. Any amount eventually accruing to the person should be paid in cash notwithstanding anything to the contrary contained under the provisions of existing law other than the provision of 11B(2) of Central Excise Act 1944. Any claim for refund fully or partially rejected will lapse and no refund shall be allowed for CENVAT credit carried forward under this ACT.

The above conditions will also apply for claim of refund filed after appointed day in respect of goods or services exported before or after the appointed day. Refund of tax paid for services not provided shall disposed in accordance with the provisions of existing law

16. Status of (a) proceeding of appeal review or reference (b) assessment or adjudication proceeding instituted whether before or after appointed day and (c) Revision of return furnished under the existing law after the appointed day but within the time limit specified for such revision under existing law, relating to a claim for CENVAT credit?

The same will be
-disposed in accordance with the provisions of existing law
-refunded in cash notwithstanding anything to the contrary contained under the provisions of existing 11B(2) of CE ACT, 1944
-no refund for amount carried forward under this Act
First two points will apply to amount admissible relating to output duty or tax liability

In case any amount become recoverable as a result of appeal review of reference relating to output duty or tax liability, the same shall, unless recovered under the existing law be recovered as an arrear of duty or tax under this Act and amount so recovered shall not be admissible as ITC under this Act
17. What is the taxability of goods on contract entered into prior to appointed day?
Supply after appointed date taxable under this Act

18. What is the taxability of goods sent on approval basis?

Goods sent not earlier than 6 months before the appointed day are rejected or not approved by the buyer and returned to the seller on or after appointed day, no tax shall be payable if such goods are returned within 6 months from appointed day. Supplier has to file FORM GST TRAN-I within 60 days of the appointed day. Tax shall be payable by returning person if returned after the above period.

19. Applicability of TDS for amounts paid under existing law?

If tax deducted under any law of the state or VAT and invoice for same is issued before appointed day, no TDS is required u/s.51

20. How to apply for tax or duty credit carry forward under the existing law or goods held in stock on the appointed day?

Submit an application in FORM GST TRAN-I duly signed electronically on the common portal within 60 days specifying therein separately the amount of tax or duty to the credit of which said person is entitled under the provision of such section.

21. What is the procedure for availing credit by a registered person who was not registered under the existing law?

1. Such persons shall be allowed to avail input tax credit as goods held in stock on appointed day in respect which he is not in possession of any document evidencing payment of Central Excise duty.
2. The rate of credit shall be (40%) of the Central Tax on supply of such goods after the appointed date. The same shall be credited after the Central Tax payable on such supply has been paid
3. Scheme shall be available for six tax periods from the appointed date
4. The following conditions needed to be satisfied to avail Central Tax credit:
i) such goods were not wholly exempt from duty of excise specified in the first schedule to the Central Excise Tariff Act, 1985 or were not nil rated
ii) document of procurement of such goods is available with the registered person
iii) submit a statement in FORM GST TRAN at the end of each of the 6 tax periods during which the scheme is in operation indicating therein the details of supplies of such goods effected during the tax period
iv) credit availed is credited to electronic credit ledger (FORM GST PMT-2)
v) the stock or goods as which the credit is availed is so stored that it can be easily identified by the registered person
Similar provisions will apply in case of a registered person holding stock of goods which have suffered tax at the first point of their sale in the state and the subsequent sales of which are not subject to tax in the state.

DETERMINATION OF VALUE OF SUPPLY

The Section that deals with value of taxable supply of Goods, Services or both is Section 15 of the CGST Act, 2017. The details are given below:

i) Value of taxable supply goods, services or both shall be transaction value. The Transaction value means:
1) Price actually paid or payable;
2) Supplier and the recipient of supply not related; and
3) Price is the sole consideration. (Sec. 15(1))

ii) Value include
a) Any taxes duties, cess, fees & charges levied under any law other than GST related laws;
b) Amount that the supplier liable to pay in relation to such supply but which has been incurred by the recipient;
c) Interest, late fee, penalty for delayed payment of any consideration for any supply; and
d) Subsidies directly linked to price excluding Government (both State & Central) subsidies (Sec. 15(2)).

iii) Discounts excluded from value, provided
a) If such discount recorded in invoice before or after the time of supply
b) After supply if
(i) Established in terms of agreement entered into at or before the time of such supply; and
(ii) ITC reversed on discount by recipient. (Sec. 15(3))

iv) Value not determined by sub section (1), the same shall be determined in such member as may be prescribed. (Sec. 15(2))

VALUE OF SUPPLY OF GOODS/SERVICES WHERE THE CONSIDERATION IS NOT WHOLLY IN MONEY

The same is explained by way of following chart:

Value of supply of goods or services or both between distinct or related person other than through an agent (Rule 2)

The same is explained by way of following chart:

The meaning of few of the terms used above is described below:

1. DISTINCT PERSON
   A person or establishment has obtained or is required to obtain more than are one or more registration in one or more State or UT.
   Note: Supplier his option to charge an amount equal to 90% of price charged for the supply of goods of like kind and quality, by the recipient to his customer, not being a related person.

2. OPEN MARKET VALUE OF GOODS, SERVICES OR BOTH MEANS:
⦁ full value of money excluding taxes (GST cess, etc.)
⦁ supplier & recipient not related
⦁ price is the sole consideration
⦁ supply at the same time when the supply being valued is made

3. SUPPLY OF GOODS OR SERVICES OR BOTH LIKE KIND AND QUALITY MEANS:
⦁ both made under similar circumstances that in respect of the characteristics, quality, quantity, functional components, materials
⦁ reputation is the same as or closely or substantially resembles

Value of supply of goods made or received through an agent (Rule 3)

In this case two options are available:

OPTION: 1
Open market value of goods being supplied

OPTION: 2
90% of price charged for the supply of goods of like kind and quantity by the recipient to his customer.

Conditions to apply Option 2
i) Customer not a related person
ii) Goods intended for further supply by the recipient

If the value is not determinable by above options rule 4&5 will apply.

Value of Supply of Goods or Services or Both BASED ON COST (Rule 4):
If value of supply of goods or services is not determinable by rule 1 to 3, the value shall be 110% of
i) Cost of production/manufacture
ii) Cost of acquisition
iii) Cost of provision of sub services

RESIDUAL METHOD FOR DETERMINATION OF VALUE OF SUPPLY OF GOODS OR SERVICES OR BOTH:
The value is determined using reasonable means consistent with the principles and general provisions of Sec.15& these rules.

Valuation of few of the transactions as given in the rules is given below:
1. VALUE OF SUPPLY OF SERVICES IN RELATION TO PURCHASE OR SALE OF FOREIGN CURRENCY INCLUDING MONEY CHANGING

a) For a currency, when exchanged from or to Indian currency, the value shall be equal to
⦁ Difference in buying or selling rote as the case may be and the RBI reference rate
⦁ When RBI reference rate is not available 1% of the gross amount in INR provided or received
b) Neither of the currencies exchanged is INR, 1% of the lesser of the two amounts the persons charging the money would have received by converting any of the two currencies to INR on that day at the reference rate provided by RBI.
Option available to supplier of foreign currency including money changing supplier to follow for the entire financial year and the same can’t be withdrawn
GROSS AMOUNT % OF GROSS AMOUNT OF CURRENCY EXCHANGED

Up to Rs. One Lakh 1% Subject to a minimum of Rs.250/-
Rs. One Lakh to Rs. Ten Lakh 1000+0.50% for gross amount exceeding R. One Lakh

Above Rs. Ten Lakh Rs.5500 + 0.10% for gross amount exceeding Rs.10 Lakh
Maximum Rs.60,000/-
Rate of exchange of currency other than INR for determination of value
⦁ reference rate of that currency as determined by RBI on date when point of taxation arises in respect of such supply in terms of section 12 or section 13 of the act as the case may be (Time of supply of goods/services).
2. VALUE OF SUPPLY OF SERVICES IN RELATION TO BOOKING OF TICKETS FOR TRAVEL BY AIR

a) Air travel agent – Domestic – 5% of the basic fare
b) International – 10% of the basic fare
Basic fare means, that part of the air force on which commission is normally paid to the air travel agency by the airline
3. INSURANCE BUSINESS:

a) If the amount allocated for investment or savings an behalf of policy holder is intimated to policy holder
GROSS PREMIUM – AMOUNT ALLOCATED FOR INVESTMENT/SAVINGS
b) Single premium annuityy other the (a) above
10% of single premium charged
c) All other cores
First year premium – 25%
Subsequent years – 12.50%
The above three conditions will not apply where the entire premium paid by the policy holder is only towards the risk cover in life insurance.

4. PERSONS DEALING IN BUYING AND SELLING OF SECOND HAND GOODS:

. Value = Difference between the selling price and purchase price
. No input tax credit is availed
. Only minor processing done after purchase and it does not change the nature of goods
5. VALUE OF TOKEN, VOUCHER, COUPON OR STAMP (OTHER THAN POSTAGE STAMP) REDEEMABLE AGAINST SUPPLY OF GOODS, SERVIES OR BOTH

The money value of goods, services or both redeemable i.e, the value of goods, services or both that can be availed with the token, voucher etc..

6. REPOSSESSION OF GOODS FROM A DEFAULTING BORROWER:
Purchase value = the purchase price of such goods by the defaulting borrower such goods by the defaulting borrower reduced by 5% points for every quarter or part thereof between the date of purchase and date of disposal by the person making such repossession.
7. VALUE OF SUPPLY OF SERVICES IN CASE OF PURE AGENT:
The expenditure or costs incurred by the supplier as a pure agent of the recipient of supply of services shall be excluded from the value of supply if all the following conditions are satisfied namely:-
i) supplier act as pure agent of the recipient of the supply
– when he makes payment to third party for services procured
– the contract of supply is between the third party and recipient of service;
ii) the recipient of supply uses the services so procured by pure agent (by the supplier service provider in his capacity as pure agent of the recipient of supply);
iii) the recipient of supply is liable to make payment to third party;
iv) the recipient of service authorize the supplier (pure agent) to make payment on his behalf;
v) the recipient of supply knows that the services for which payment has been made by the supplier (PA) shall be provided by the third party;
vi) the payment made by the (pure agent) supplier on behalf of the recipient of supply has been separately indicated in the invoice issued by the (PA) supplier to recipient of service;
vii) The supplier (PA) recovers from the recipient of supply only such amount as has been paid by him to the third party; and
viii) the services procured by the supplier (PA) from the third party as a pure agent of recipient of supply are in addition to the supply the provided on his account.

Note: For better understanding substitute “Recipient of Service” as “Principal” and “Supplier/Supplier of Service” as “Pure Agent”.
PURE AGENT means:
i) Entered in to contractual agreement with the recipient of supply to act as his pure agent to incure expenditure or costs in the course of supply of goods, services or both.
ii) neither intends to hold nor holds any title to the goods, service or both so procured or provided as pure agent of recipient of supply
iii) does not use for his own interest such goods or services so procured and
iv) receives only the actual amount incurred to procure such goods or service.