GST: Understanding Transitional And Return Rules, Formats
The speedy efforts of the government for implementing the metamorphic Goods and Services Tax (GST) reform are quite evident. In its latest meeting held on June 3, 2017, the GST Council finalised almost all the rules. Amongst the various rules, two most important rules finalized by the council are the GST Return Rules and the GST Transition Rules. In addition to the finalization of the rules, the council has also released GST Return Formats, GST Mismatch Formats, GST Transition Formats so that the business fraternity has a fair idea about the compliances to be done.
With the finalisation of two important rules, it is expected that the business fraternity would move into the fifth gear and get prepared for GST. The need of the hour for the business fraternity, as a whole, would be to gear up the readiness of the technology systems.
Some of the key provisions in relation to the GST Transition Rules and GST Return Rules are detailed in this article.
Transitional Rules
Time Limit For Submission Of Declaration In FORM TRAN-1
In the following scenarios, the transitional rules have prescribed that the person would be eligible to avail the transitional credit by submitting a declaration in FORM GST TRAN -1 within a period of 90 days (it was 60 days earlier) from the appointed day:
- Carry forward of CENVAT credit under Section 140 of the CGST Act, 2017;
- Carry forward of CENVAT credit, input tax credit in respect of the goods held in stock with the job-worker – Section 141 of the CGST Act, 2017;
- Certain supplies wherein both VAT and service tax was paid earlier, however, supply is made post appointed date – Section 142 (11) (c) of CGST Act, 2017;
- CENVAT credit pertaining to the goods sent on approval basis – Section 142(12) of CGST Act, 2017.
The declaration would be required to be filed online. The amount of credit specified in the application in FORM GST TRAN-1 would be credited to the electronic credit ledger of the applicant in FORM GST PMT-2 on the common portal.
The increase in the time limit from 60 days to 90 days is a welcome provision and would help the business in filing the transition form correctly. However, during this period, the business fraternity should ensure that the entire pool of transitional credit, the closing balance of input tax credit (state as well as central) are appropriately calculated, documented and correctly filed in the transition form so that there is no loss of credit and there is no dent on the working capital of the business.
Availability Of Ad-Hoc Credit As A Percentage Of The CGST Liability/SGST Liability
Rule 1(4) of the transitional rules prescribe that ad-hoc CENVAT credit (relating to Central Excise duty and/or state VAT) would be available to a person on the fulfillment of following conditions:
- The person should not be registered under the existing law;
- The person should have the stock in hand as on the appointed day;
- The person should not be in possession of any document evidencing payment of Central Excise duty/Value Added Tax.
The ad-hoc credit would be credited to the electronic credit ledger once the goods are sold under the GST regime and the central tax and/or state tax is actually paid to the government. The scheme of availing a certain percentage of the ad-hoc credit would be available for a period of 6 tax periods from the appointed date.
The Council has prescribed certain percentage of ad-hoc credit which is tabulated as under:
The percentage of ad-hoc credit would be subject to the following conditions:
- The goods in stock should neither be exempt nor NIL rated under the Central Excise Tariff Act, 1985;
- The person availing such scheme should have a document to prove that such goods are received by him;
- The person availing such scheme should submit a statement in FORM GST TRAN-2;
- The goods in respect of which the above scheme is availed should be stored and be separately identified.
The increase in the percentage of availability of ad-hoc credit is a welcome step because effectively the loss of input tax credit is reduced. This would reduce the effect of business disruption to such an extent.
Segregation Of State VAT Input Tax Credit
On a closer look of the FORM GST TRAN-1 released by the GST Council, it appears that the businesses would have to bifurcate the state input tax credit to be carried forward into the following parts:
- Input tax credit pertaining to the stocks as on the appointed date;
- Input tax credit pertaining to the goods which are sold against every declaration forms individually (C FORM, F FORM, H FORM, I FORM).
The concept of sale of goods against declaration forms would no longer be relevant under the GST regime. However, virtually, it would still remain since the availability of input tax credit would depend on the declaration forms obtained. It would be advisable to maintain correct and accurate reconciliation of declaration forms received and pending against the total goods sold. While the transitional credit would be self-assessed by every assessee, the GST Council may, however, come up with a provision to assess it.
Transfer Of Credit Through Credit Transfer Document
The GST Council has released a draft rule which provides for the transfer of CENVAT credit in respect of certain specified goods (value exceeding Rs 25,000) on the basis of issue of the Credit Transfer Document. This document can be issued only by a manufacturer who was registered under the Central Excise Act, 1944 to a person who was not registered under the Central Excise Act, 1944.
The Credit Transfer Document would prove beneficial for the trader community since it would now ask their manufacturer vendor to pass on the credit through the document. This would give traders leverage in doing their business which did not exist earlier.
Return Rules
Filing Of Returns
The entire procedure in respect of filing of returns and crystallisation of the input tax credit is divided into the following 5 phases:
Under every phase as mentioned above, the return rules have prescribed for various types of forms to be filled by the person registered. With an increase in the number of returns to be filed, the government has shifted the onus of availing the input tax credit on the business. The concept of revised returns is not provided in the GST return rules and accordingly, the businesses would have to avail, re-avail, and avail the mismatched credit by way of credit notes, debit notes, and supplementary invoices. This would ultimately lead to an increase in compliance.
Disclosures To Be Made In The Return
While the required details to be mentioned in a particular return are mentioned in the respective return format, every registered person would be required to disclose the following details electronically in their GSTR-1:
Requirement Of HSN Code In The Returns
The return rules prescribe that the Harmonized System of Nomenclature code pertaining to every invoice would not be required to be submitted. The disclosure of the HSN code would depend on the annual turnover of the taxpayer.
Given this requirement, there would be some ease for small taxpayers and dealers for the maintenance and disclosure of the HSN code in the GST return. However, medium and large taxpayers would be mandatorily required to maintain and disclose the HSN code details in their GST returns.
Other Important Points
The invoice series would be required to be maintained in respect of every type of supply (outwards supply, inward supply, credit note, debit note, etc.)
Pursuant to the submission of details of outward supplied and inward supplies, every registered person would be required to submit a monthly return in FORM GSTR-3 and an annual return in FORM GSTR-9. However, FORM GSTR-3 and FORM GSTR-9 would not be required to be furnished by the following persons:
- Supplier of online information and database access or retrieval services;
- Input Service Distributor;
- Non-resident taxable person;
- Composition dealers;
- Persons required to deduct TDS under Section 51 of CGST Act, 2017;
- Persons required to collect TCS under Section 52 of CGST Act, 2017.
The persons paying tax under composition scheme would be required to file a quarterly return.
Rule 9 of the return rules has prescribed that a notice would be sent to the persons who fail to file a return under Section 39 or Section 44 of Section 45 or Section 52 of the CGST Act, 2017.
Rule 10 of the return rules provides that where the time limit for furnishing FORM GSTR1 and/or FORM GSTR 2 is extended, the date of matching the claim relating to the input tax credit would also be extended accordingly.
Rule 24 of the return rules provides that an application would be required to be made in FORM GST PCT-01 electronically for enrollment as goods and service tax practitioner. A goods and services tax practitioner can undertake any or all of the following activities on behalf of the registered person:
- Furnishing the details of outward and inward supplies;
- Furnishing the monthly, quarterly, annual or final return;
- Make deposit for credit into electronic cash ledger;
- File a refund claim;
- File an application for amendment or cancellation of registration.
Conclusion
It is a good step that the government has finalised the compliance and administrative rules. However, it is pertinent to note that there are a lot of changes in the return formats. The business fraternity would have to strive to meet the requirements of this technology-led reform.
Jigar Doshi is an indirect tax partner and Harshal Fifadra is a senior executive at SKP Business Consulting LLP. Views are personal.
The views expressed here are those of the authors’ and do not necessarily represent the views of BloombergQuint or its editorial team.