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    Movement Of Credits To GST - Section 167- Certain Issues

    The movement from existing regime to GST regime is gaining certainty with passing of each day. The recent council meetings give a sense of hope that the law shall be made effective from April, 2017. With GST around the corner, we would like to dwell upon on one of the transitional provisions under the revised model GST law made available in November, 2016. Among the set of transitional provisions, the section which is the subject matter of this article assumes highest significance since it is applicable to majority of the assessees and deals with the transition of credit from existing regimes to the GST regime. 

    Section 167 of the revised model GST law deals with ‘Amount of Cenvat Credit carried forward in a return to be allowed as input tax credit’. The salient features of Section 167 are discussed as under. 

    As per Section 167, every person other than who has opted for composition under GST, shall be entitled to take the credit in his electronic credit ledger, the amount of cenvat credit/VAT/Entry Tax carried forward in the returns relating to the period ending with the day immediately preceding the appointed day, furnished, by him under the earlier laws in such manner as may be prescribed. The section has a proviso which states that the credit shall be allowed only if such credit which is being carried forward is eligible also under GST laws.

     

    On a plain reading of the section, it is clear and unambiguous. However, the most disturbing condition is that the credit shall be allowed only if it is carried forward in the returns under the earlier laws. That is to say, for any reason, credit which is eligible under the old laws and GST laws is not shown in the returns under the old laws then such credit shall not form part of the electronic credit ledger under GST except such credit is allowed under any other specific transitional provisions. For example, service provider is eligible to take cenvat credit on capital goods only to the extent of 50% in the first year and the remaining credit can be availed in the next year subject to certain other conditions. However, the service provider while filing the returns for the period ended 31.03.2017 will show only the first 50% credit and the remaining balance will not appear in the returns. In such case, the service provider in the GST regime that is post 01.04.2017 (assuming GST kicks in from April, 2017) can avail the balance credit in light of specific Section 168 which deals with such instances.

     

    In all other cases, where there are no specific sections under the transitional provisions which deal with the movement of credit, then the credit has to be part of the returns under the earlier law, otherwise such credit would lapse. In this article, we shall address certain issues to understand the implications under Section 167.

     

    Issue 1: Our company has eligible credit under the earlier laws. However such credit has been not shown in the VAT/ST/CE returns before the appointed day? Can the company avail credit under the GST laws in the GST returns?

     

    Response: No. On a strict reading of the section, the credit which shall be allowed to carry forward should be from the returns. If the credit even though eligible under GST laws is not shown in the returns furnished under the earlier laws, the same shall not be allowed.

    Issue 2: Our company has credits under the service tax law which are eligible, however on reading of the model GST law, such credits are excluded. Shall I be eligible to carry forward such credit?

     

    No. One of the important condition as per Section 167, the credits shall be eligible under the GST laws.

     

    Hence, such credit shall not be allowed.

     

    Issue 3: Our company has paid service tax to the vendors for certain services for which credit has been availed. An audit party has stated that such credit is not eligible under the definition of ‘input service’ and asked us to reverse the credit and we have reversed for that period. However, our management has a view that such credit is eligible and decided to avail the same for the subsequent period. What should we do?

     

    Since your company is of the view that credit is eligible under the earlier laws, the same can be shown in ST-3 returns and carried forward to GST regime. If the officer interprets otherwise, he will try to recover and your company can approach the authorities for final view. However, if you fail to mention such credit in ST-3 returns, your company shall permanently forego an opportunity to bring that credit to GST regime even though such credit eligibility issue has been settled in favour of assesses.

     

    Issue 4: Our company has paid service tax under reverse/partial charge mechanism. We are not aware that credit of service tax paid on reverse/partial charge mechanism can be availed and hence missed out in the returns for the period ending Sept 16. Can we take the entire credit pertaining to the period prior to Sept 16 while filing the returns for the period ended March 17?

     

    As per Rule 4(7) of CCR, 2004, the credit can be availed before expiry of one year from the date of documents referred in Rule 9(1), one of which is the challan for reverse/partial charge mechanism instances. Hence, credit pertaining to the period where one year of the challan has not been elapsed can be shown in the returns ending March 17.

     

    Issue 5: We are a company engaged in provision of taxable and exempted services using common and exclusive input services. We have opted for Rule 6(3A) of CCR, 2004 for reversal of common credit pertaining to our operations. As per the said rule, the credit can be provisionally availed and reversal has to be done by 30th June of succeeding year when the actual turnover details are available. If the provisionally availed credit is more than the actual eligible, the said credit has to be reversed. However, if the provisionally availed credit is less than the actual eligible, the said credit can be availed in June. So, for the year 2016-17, the due date is 30th June, 17. Suppose we have ended up taking less credit entire year, in June, we shall be eligible to avail. However, our ST-3 returns for the period ended March 17, shall not have such credit. In such case, how shall the credit be availed in June, 17.

     

    The transitional provisions under model GST law does not cover such a situation. We need to wait till the final law come into public space to guide the credit under such a situation. Alternatively, the assessee can revise his return within the time stipulated under the old laws and accordingly claim refund under Section 185(2) of revised model GST laws.

    Issue 6: We have received an invoice for input service on 31.12.2016. The amount of service tax is Rs 5,00,000/-. We have availed the credit of such service tax in Jan 17 on a premise that we will be paying the vendor within 3 months of the date of invoice. However, we have not paid the vendor by 31.03.2017 and such credit has to be reversed in terms of Rule 4(7) of CCR, 2004. We shall pay the vendor in May 17 and in such a scenario, how can the credit be taken in June 17?

     

    The transitional provisions under first model GST law does not cover such a situation. However, the revised model GST law vide Section 197 allows the credit to be taken if the payment is made within three months from the appointed day. Since the payment is made in May, 2017, the credit can be availed under GST laws.

     

     

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