CONTENTS DIVISION 1 INPUT TAX CREDIT 1 VAT CONCEPT AND ITS APPLICATION IN GST 1.1 Background of VAT 3 1.2 Basic Concept of VAT 4 1.2-1 VAT to avoid the cascading effect 5 1.2-2 Input Tax credit system to implement concept of VAT 6 1.3 VAT is consumption based tax 7 1.4 Zero rated and exempt transactions in GST 7 1.5 Highlights of scheme of GST 9 1.5-1 Input Tax Credit (ITC) 9 1.5-2 Entire Input tax Credit available even if part of input goes in by-product or waste 9 1.5-3 Credit of tax paid on capital goods 9 1.5-4 Instant credit 10 1.5-5 One to one correlation not required 10 1.6 Broad provisions regarding availability of input tax credit 10 I-5
CONTENTS I-6 2 INPUT TAX CREDIT (ITC) 2.1 ITC is core provision of GST 11 2.1-1 Input Tax 12 2.2 Manner of taking input tax credit 12 2.2-1 Documentary requirements and conditions for claiming input tax credit 13 2.2-2 Input tax credit cannot be taken after one year from date of invoice or filing of annual return 14 2.2-3 No Input tax credit if GST was paid by supplier on advance paid to him 14 2.3 Requirements for availing Input Tax Credit 15 2.3-1 Reversal of input tax credit if payment not made to supplier within 180 days 16 2.3-2 Procedure for reversal of input tax credit in case of non-payment of consideration 17 2.4 Supply of goods and services ineligible for ITC - Negative list - Blocked credit 18 2.4-1 Meaning of plant and machinery 20 2.4-2 Meaning of works contract 21 2.4-3 Meaning of motor vehicle 21 2.5 Input Tax Credit of capital goods 22 2.5-1 Meaning of capital goods for purpose of ITC 22 2.5-2 Input tax credit of tax not allowed if depreciation claimed on tax component 22 2.5-3 Ineligibility of ITC on pipelines and telecommunication tower 23 2.5-4 Removal of capital goods after use 23 2.6 Merger, amalgamation or sale of business 23 2.6-1 Procedure for transfer of credit on sale, merger, amalgamation, lease or transfer of a business 24 2.7 Input Tax Credit when taxable person becomes eligible for first time 24 2.7-1 Credit of input tax at the time of registration 25 2.7-2 Input tax credit when person opts out of composition scheme 26
I-7 CONTENTS 2.7-3 Input tax credit on stock when exemption on goods or services withdrawn 27 2.8 Reversal of input tax credit if goods become exempt or taxable person switches to composition scheme 27 2.8-1 Reversal of ITC if registration is cancelled 28 2.8-2 Reversal of input tax credit if goods or services become wholly exempt or GST registration cancelled 28 2.9 Recovery of ITC wrongly taken 29 3 INPUT TAX CREDIT WHEN EXEMPTED AS WELL AS TAXABLE SUPPLIES MADE 3.1 Proportionate ITC when party used for business or taxable supplies 30 3.1-1 Calculation of value of exempted supply 31 3.2 Special provisions in respect of Banks, FI and NBFC 32 3.2-1 Procedure to claim of credit by a banking company or a financial institution 33 3.3 Determination of input tax credit when partly used for taxable supply and partly for exempt supply 33 3.3-1 Final calculations at end of financial year of eligible ITC 36 3.4 Determination of input tax credit in respect of capital goods used partly for taxable supply and partly for exempt supply 36 3.4-1 Mode of calculations of ITC of tax paid on common capital goods 37 3.5 Reversal of Input Tax Credit means ITC not taken 40 4 INPUT SERVICE DISTRIBUTOR (ISD) 4.1 Purpose of Input Service Distributor 41 4.2 Manner of distribution of credit by Input Service Distributor 42 4.2-1 Meaning of relevant period 43
CONTENTS I-8 4.2-2 Meaning of recipient of credit 43 4.2-3 Meaning of turnover 43 4.2-4 Manner of recovery of credit distributed in excess 44 4.3 Tax Invoice by Input Service Distributor 44 4.4 Monthly return by ISD 44 4.5 Procedure for distribution of input tax credit by Input Service Distributor 45 5 UTILISATION OF INPUT TAX CREDIT 5.1 ITC for payment of output tax 48 5.1-1 Claim of input tax credit and provisional acceptance 48 5.1-2 Matching, reversal and reclaim of input tax credit of invoice and debit notes 48 5.2 Final acceptance of input tax credit and its communication in form GST MIS-1 in respect of invoice or debit note 49 5.3 Utilisation of ITC in electronic credit ledger 49 5.4 Can CGST and SGST paid in one State be utilized for payment of CGST or IGST in another State? 50 DIVISION 2 HOW TO TAKE CREDIT ON CLOSING STOCK & SWITCH OVER TO GST 6 SWITCH OVER TO GST 6.1 Background of GST 55 6.2 What is Goods and Services Tax? 55 6.2-1 Broad definition of service 57 6.2-2 Dual GST for supply of goods and services within State 57 6.2-3 Union Territory Goods and Services Tax (UTGST) 58
I-9 CONTENTS 6.2-4 IGST for inter-state transactions 58 6.2-5 GST is consumption based tax based on VAT principle 59 6.2-6 Input Tax Credit 59 6.2-7 Central Excise duty on petroleum and tobacco products 60 6.2-8 Sales tax on petroleum products and alcoholic liquor within State 60 6.2-9 Tax on entertainment only by Municipalities, Panchayat, Regional council and District council 60 6.2-10 Relief to very small taxable persons 60 6.2-11 GST payable once registered even if turnover less than ` 20/10 lakhs 61 6.3 Rates of GST 61 6.4 Switch over to GST from earlier tax regime 64 6.4-1 Transitory provisions relating to stock with traders on appointed day i.e. 1-7-2017 65 6.4-2 Service tax return for quarter ending 30-6-2017 66 6.4-3 GST Compensation Cess on goods and services 66 6.4-4 Abolition of other duties and taxes 66 6.4-5 Taxation powers of district council 66 6.4-6 Present Area based exemptions 67 6.5 Information Technology Network 67 6.5-1 Huge data processing required 67 6.5-2 GST Suvidha Providers 68 6.5-3 Game Changers in GST 68 6.5-4 Taxes will move with goods 69 6.5-5 Distribution network will be simpler 69 6.5-6 Uniform GST Law all over India 69 6.6 Avoidance of dual control 70 6.7 Changes from earlier regime to be taken note of 70 6.7-1 GST is on supply and not on sale or manufacture 71 6.7-2 Payment of GST on advances received 71 6.7-3 Reversal of input tax credit if payment not made to supplier within 180 days 72
CONTENTS I-10 6.7-4 Reverse charge in some cases 72 6.7-5 Composition Scheme only if all purchases are from registered persons 73 6.7-6 Valuation provisions to be taken note of 73 6.7-7 Post supply discounts and price reductions after supply not eligible for deduction from value 74 6.7-8 Disallowances of Input Tax Credit (ITC) 74 6.7-9 CGST/SGST paid when IGST was payable and vice versa 75 6.7-10 Input Tax Credit after Invoice matching and after payment of tax by supplier 75 6.7-11 e-way Bill for transport of goods of value exceeding ` 50,000 76 6.7-12 Anti-profiteering provisions 76 6.7-13 Accounting challenges 76 6.7-14 System is master - Not human being 77 6.8 Reply to queries 77 6.8-1 Some important and useful websites 77 7 REGISTRATION RELATED ISSUES DURING TRANSITION 7.1 Transition of persons registered under excise, State VAT or service tax 79 7.1-1 Procedure for migration of persons registered under the existing law 79 7.1-2 Application to convert provisional registration into permanent registration 80 7.1-3 Deemed final registration if no query within 15 days 81 7.1-4 Apply for cancellation of GST registration if not liable to be registered under GST 81 7.2 Fresh Registration under GST 81 7.2-1 Registration only from where taxable supply is made i.e. where he has fixed establishment and not where taxable supply is made 82
I-11 CONTENTS 7.3 Persons who not required to register under GST 84 7.3-1 Person not liable to pay GST need not register 84 7.3-2 Agriculturist need not register 84 7.3-3 Persons providing services where service recipient is liable to pay GST under reverse charge need not register under GST 85 7.4 Persons requiring registration without threshold limit of ` 20/10 lakhs 85 7.4-1 Provision of compulsory registration does not apply to persons not required to be registered as per section 23 86 7.5 Requirements and procedure for registration 86 7.5-1 Application for registration 87 7.5-2 Validation of details and temporary number 87 7.5-3 Submission of application after verification of mobile and e-mail address 88 7.5-4 Documents to be attached to application 88 7.5-5 Verification of the application and approval 89 7.5-6 Issue of registration certificate and GSTIN 90 7.5-7 State code and TIN of each State 91 7.5-8 Physical verification of business premises in certain cases 92 7.5-9 Display of registration certificate and GSTIN on the name board 93 7.6 Taxable persons having multiple business verticals 93 7.6-1 Procedure for separate registration for multiple business verticals within a State or a Union territory 94 7.7 Voluntary registration 95 7.8 Issue or rejection of Registration within prescribed period 95 7.9 Amendment of registration 96 7.10 Cancellation of GST registration 97 7.10-1 Application for cancellation of registration 97 7.10-2 Other provisions relating to cancellation of registration under GST 98
CONTENTS I-12 8 INPUT TAX CREDIT WHILE SWITCHING OVER FROM EXISTING TAX STRUCTURE TO GST 8.1 Eligible Cenvat and VAT Credit carried forward 100 8.1-1 Meaning of existing law 100 8.1-2 Conditions for carry forward of central duties as contained in return filed on 30-6-2017 101 8.1-3 Conditions for carry forward of state taxes as contained in return filed on 30-6-2017 103 8.1-4 Procedure to be followed in respect of inputs 105 8.2 Eligibility of central duties and VAT paid on capital goods which was not carried forward 105 8.2-1 Procedure to be followed in respect of capital goods 106 8.3 Eligible duties and taxes on goods which were held in stock on 30-6-2017, if person was not eligible to take Cenvat credit earlier 106 8.3-1 Is it required to pass on the credit to buyer by reducing the price? 107 8.3-2 Meaning of Cenvat, first stage dealer, second stage dealer 108 8.4 Eligible taxes on goods which were held in stock on 30-6-2017, if person was not registered under State VAT 109 8.5 Deemed Input tax credit of tax on stock if invoice of supplier showing tax paid is not available 110 8.5-1 Conditions for deemed credit 111 8.5-2 Are textile products eligible for deemed credit 112 8.6 Credit if taxable person was manufacturing exempted as well as taxable goods and providing exempted or taxable services 113 8.6-1 Credit if taxable person was engaged in sale of exempted as well as taxable goods or tax free goods 113 8.7 Credit of duty and tax paid inputs or service tax paid on input services received after 1-7-2017 but duty or tax was paid on or before 30-6-2017 114
I-13 CONTENTS 8.8 Registered person who was paying tax/duty at fixed rate or paying fixed amount 115 8.8-1 Suppliers of works contract service can take ITC of excise duty on inputs 116 8.9 Credit Transfer Document 116 9 TRANSITORY ISSUES RELATING TO SERVICE TAX 9.1 Payment of service tax when due after 1-7-2017 117 9.1-1 GST payable when service is deemed to be provided after 1-7-2017 118 9.2 Credit of service tax paid on input services received after 1-7-2017 but service tax was paid on or before 30-6-2017 118 9.3 Registered person who was paying tax/duty at fixed rate or paying fixed amount 119 9.3-1 Suppliers of works contract service can take ITC of excise duty on inputs 119 9.4 Distribution of credit by Input service distributor of service invoices received after GST 119 9.5 Taxable persons having centralized registration under service tax 119 9.6 Cenvat credit of service tax if payment was reversed due to non-payment 120 9.7 Provision when supply was partly made before 30-6-2017 and partly after 1-7-2017 120 9.8 VAT and service tax on composite works contract 120 9.9 Refund of service tax on account of service not provided if tax was paid on advance prior to 30-6-2017 121 10 OTHER TRANSITORY PROVISIONS 10.1 Inputs, semi-finished goods and finished goods sent outside for job work or to agent before 1-7-2017 but received after 1-7-2017 122 10.2 Inputs sent outside on approval basis as on 1-7-2017 122
CONTENTS I-14 10.3 No TDS under State VAT law if sale was made prior to 30-6-2017 123 10.4 Transactions occurring during transition period 123 10.5 Provisions relating to adjudication, appeals, revisions, references relating to excise, service tax and Act 124 10.6 Contracts entered prior to 30-6-2017 but supply made after 1-7-2017 125 10.7 Transitory provisions relating to job work and goods sent for testing before 30-6-2017 125 10.8 Relaxation in return filing for July and August 2017 126 11 COMPOSITION SCHEME IN GST 11.1 Relief to very small taxable persons 127 11.1-1 Relief to small and medium size taxable persons 127 11.1-2 Who is eligible for the composition scheme 128 11.1-3 Rates under composition scheme 129 11.1-4 Who is manufacturer 130 11.2 Who is eligible for composition scheme 130 11.2-1 Manufacturers who are not eligible for composition scheme 131 11.3 Conditions and restrictions for composition levy as specified in rules 131 11.3-1 Reverse charge if procurement of supply from unregistered persons 133 11.4 Bill of Supply to be issued and not tax invoice 133 11.5 Procedure for exercising option to avail composition scheme 133 11.5-1 Submission of stock statement by persons opting for scheme on 1-7-2017 134 11.5-2 Intimation while applying for registration is sufficient from fresh registrations 134 11.5-3 Intimation prior to commencement of financial year if person intends to switch to composition scheme 135
I-15 CONTENTS 11.5-4 Intimation applies to all places of businesses of the registered person 135 11.6 Effective date for composition levy 135 11.7 Validity of composition levy opted by registered person 136 11.8 Withdrawal from scheme of composition levy 136 11.8-1 Proper Officer can cancel option to registered person 136 11.8-2 Penalty if tax paid under composition scheme though not eligible 137 11.9 Switching from composition scheme to normal scheme of payment of tax 137 11.10 Switch over from normal scheme to composition scheme and vice versa 138 11.11 Quarterly Return and Annual Return 139 11.12 Disadvantages of composition scheme 140 12 ANTI-PROFITEERING MEASURE 12.1 Background 142 12.2 Procedure to regulate Anti-Profiteering 143