Products currently exempt but likely to be taxed under GST – Model GST Law takes care of it
By: – Nexdigm IDT
Goods and Services Tax – GST
Dated:- 18-6-2016
Hope for GST being a reality in April 2017 rekindled with a positive meeting of the Empowered Committee of State Finance Ministers on 14 June 2016. Statement of the Union Finance Minister Mr. Jaitley stating a broad consensus have been built over GST bill and all the States barring one – Tamil Nadu are onboard for implementing GST.
The Model GST Law would act as a broad framework and Central GST as well as State GST Acts would be based on the same. In this article we would like to focus on Section 145 of the Model GST Law which enlists provisions in relation to 'Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations' and evaluate whether the same would open up avenues to claim tax credit which is otherwise unavailable in the current indirect tax regime.
Relevant
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invoice and/or other prescribed documents evidencing payment of duty / tax under the earlier law in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day; and
(v) such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.
(2) The amount of credit under sub-section (1) shall be calculated in accordance with generally accepted accounting principles in such manner as may be prescribed.
(3) The amount taken as credit under sub-section (1) shall be recovered as an arrear of tax under this Act from the taxable person if the said amount is found to be recoverable as a result of any proceeding instituted, whether before or after the appointed day, against such person under the earlier law.”
Now, when we decode the aforesaid provision, the following emerges –
* Eligibility of Input Tax Credit of the following:
Tax Credit of
Pertaining to
In
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es likely to get benefitted
* The aforesaid provisions of Section 145 of Model GST law could prove to be of major benefit to the Companies engaged in manufacture of goods which are currently exempt (say Pharma companies engaged in manufacture of medicines or vaccines) and are therefore unable to claim CENVAT credit/ input tax credit of the taxes paid on procurement of inputs.
* Companies which have opted for concessional duty rate of 2% (subject to non-availment of CENVAT credit on inputs) would also benefit from the said provision.
A look at other transitional provisions
* Section 143 of the Model Law provides for carry forward of CENVAT credit and VAT credit lying in the balance in the return furnished under the current tax regime to the GST regime. This is a much needed clarity and shall put to rest the numerous questions of industry and other stakeholders on fate of tax credit balance accumulated under current tax regime.
* A separate Section 144 provides clarity on eligib
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duct cost in the current tax regime. The ERP systems of most of the Companies may not be developed to capture these details and hence are unlikely to generate reports of taxes paid on procurement.
This aforesaid is a welcome provision; however, it would reap benefits only if an assessee ensures that a proper system is in place to record the taxes paid on procurement. One-to-one correlation of inputs used for manufacturing process and units lying in stock or in the stock of semi-finished or finished goods is equally important. The taxpayers may have to retain and maintain invoices and supporting documents evidencing payment of taxes on procurement. Thus, the taxpayers may also review the supporting invoices and check for all the prescribed parameters are present on the invoices to claim input tax credit under the GST regime.
Looking at the pace of activities at backend to roll out GST from April 2017, it would not be an overstatement that the government is ahead with GST preparedness
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