Provisions for Migrating to GST for businesses

GST is a comprehensive tax structure introduced to eliminate the cascading effect of various taxes like Central Excise Duty, Service Tax, Sales Tax, Entertainment Tax, Luxury Tax, Additional Customs Duty etc.

Taxpayers who are already registered under VAT or service tax are also required to register under GST. Every entity that is registered under the previously imposed indirect taxes will get a certificate of registration on the provisional basis. This certificate issued would be valid for a period of 6 months. GST registration is mandatory for businesses whose turnover are more than Rs. 20 Lakhs per annum. The businesses whose turnover are less than Rs. 50 Lakhs may opt for Composition Scheme or they can also voluntarily register themselves under GST.

According to GST model law, all invoices must be uploaded online. Under GST, the process of deduction, payment, and refund of indirect taxes would be all processed online.

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Input Tax Credit

As per the GST law, returns filed under the previous law for the period prior to July 1, 2017, can claim for income tax credit. The amount claimed will be transferred to the Electronic Credit Ledger.

Following conditions must be satisfied by the existing dealers for claiming CENVAT Credit for the input held in stock, semi-finished or finished goods:

Such inputs or goods must be used for making taxable supplies under GST.
The taxable person should pass the benefits of such credit by way of reduced prices of the recipients.
The taxable person should be eligible for input tax credit on inputs under GST.
The supplier of services is not eligible for discount or abatement under GST.

Input Tax Credit can only be claimed by manufacturers or dealers upon those goods on which tax has been already paid under the previous law. Credits are only available if the tax paying documents have been recorded in the accounts of the taxpayer within 30 days of the appointed day. The 30-day extension may only be authorized by the competent authority, on provision of genuine reasons for the cause of the delay.

There are few conditions which must be achieved to avail input output tax credit. The conditions as required are:

If GSTR-3 (Return) has been filed.
If the tax charged by the supplier has been deposited with the government.
If the dealer is in possession of tax Invoice or supplementary invoice which has been issued by a supplier registered under GST law.

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Claiming for Refunds

Any pending refund on claims which is due from the amount of CENVAT credit, tax or any interest paid before the appointed day was disposed-off as per the previous goods and service taxation law.

Taxability Factors of Inputs and Semi-Finished Goods

If some inputs or semi-finished goods have been removed from the factory before the appointed date for further processing, repairing, testing or for similar purposes and have been received on or after the appointed date then no tax shall be levied.

The non-taxation criteria shall be applicable if the following conditions are satisfied:

The underlying goods are returned to the factory within six months from the appointed date, provided it is not extendable for a maximum period of 2 months.
Declaration of goods held by the job worker is done in a specified form and manner.
Goods are exported within 6 months from the appointed date, provided it is not extendable by more than 2 months.

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Taxability Factors for Finished Goods

In case if any finished goods had been removed without payment of duty for carrying out tests or other processes like repairing etc. no tax shall be payable if the following conditions are satisfied:

Goods underlying are returned to the factory within 6 months from the date of appointment, provided it is not extendable for a maximum period of 2 months.
Goods are exported within 6 months from the appointed date, provided it is not extendable by more than 2 months.
Declaration of goods held by the job worker is done in the specified form and manner.

Credit Distribution by ISD

Transition provisions will be applicable if the services are received prior to the appointed date and invoices are received on or after the appointed date. Input Service Distributor (ISD) will be eligible to distribute input output tax credit under GST. Taxpayers who are registered with composition scheme under the current tax regime are allowed take credit of input which is held in stock, semi finished goods or finished goods on the day immediately preceding the date from which he opts to be taxed as a regular taxpayer, subject to various conditions.

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