Verification of Transitional Credit (TRAN-1) claimed under GST in Electronic Credit Ledger.
23A of 2018 Dated:- 1-9-2018 Maharashtra SGST
GST – States
Office of the
Commissioner of State Tax (GST), Maharashtra State, 8th Floor, GST
Bhavan, Mazgaon, Mumbai-400 010.
INTERNAL CIRCULAR (RESTRICTED CIRCULAR FOR OFFICE USE ONLY)
No. JC/HQ-I/GST/TRAN-1/01/2017-18/ADM-8 Mumbai, Date: 01/09/2018
Internal Circular No. 23A of 2018.
To,
…………………..
–
Subject : Verification of Transitional Credit (TRAN-1) claimed under GST in Electronic Credit Ledger.
Ref. : Internal Circular No. 1A of 2018 dated 1st January 2018
1. Background:
1.1. An Internal Circular cited at Ref. above was issued to explain briefly the methodology to be followed to verify the transitional credit under existing laws taken to GST Electronic Credit Ledger, as per the provisions of section 140 and 142 of the Maharashtra Goods and Services Tax Act, 2017 (hereinafter
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MVAT and Entry Tax. In other words, the State Tax Authorities should not undertake the verification of the CENVAT credit pertaining to the Central Excise Act or, as the case may be, the Service Tax Act.
1.4. As you all are aware that the date for submission or revision of FORM-GST-TRAN-1 at GSTN portal was finally extended to the 27th December 2017. Thus, the tax payers who have taken transitional credit into Electronic Credit Ledger that was pertaining to the MVAT Act or the Entry Tax Act, may have already filed the TRAN-1 and may have adjusted the said credit towards the output liability or may have claimed refund of the same on account of export of goods/services against the payment of Integrated Tax. Therefore, all the Nodal Officer shall forthwith undertake the analysis to identify such tax payers on the basis of the details furnished in FORM-GSTTRAN-1 and collate the same with the information of TRAN-1 credit provided by the Economic Intelligence Unit.
1.5. In case, the verific
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der following circumstances:
(a) that the amount of credit so claimed is admissible as input tax credit under MGST Act;
(b) that the said tax payer has furnished all the returns for the period from January-2017 to June-2017 under existing laws i.e. VAT, Entry Tax, Sugarcane purchase Tax etc.;
(c) that the units under PSI Scheme have not claimed the set-off or, as the case may be, refund under rule 79 of the Maharashtra Value Added Tax Rules, 2005.
3.2. The registered taxable person may take into Electronic Credit Ledger under GST, the amount of excess credit carried forward in the return filed for the period ending June-2017. The Input Tax Credit, taken to the Electronic Credit Ledger, under this contingency shall not exceed the amount of excess credit carried forward shown in the return filed for the period ending June-2017.
3.3. Further, the input tax credit as attributed to the inter-State sales, Branch Transfer/Consignment Transfer, or deemed export, sales to Special Economic
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art amount these declarations/certificates have not been received then the tax payer shall not be entitled to claim the input tax credit as is attributable to such declarations or certificates that have not been received.
(3) In other words, the example given below, the combined effect would be that the tax payer would be entitled to take the credit of such excess set-off claimed in return for the period ending June2017 to the extent of ₹ 3,50,000/- and not at ₹ 10,00,000/- i.e. as credit disclosed in the said return would be reduced by ₹ 6,50,000/- on account of non-receipt of the declarations/certificates against which the transactions are subjected to reduced rate or the NIL rate of tax.
(4) The details of value of transactions and Form-type and amount of ITC attributable to such sales is given in the TABLE-1 below:
TABLE-1
Sr. No.
Category of Sales where Forms are not received (Rs.)
Form Type
Amount of ITC attributable to such sales Amt. in Rs.
(a)
(b)
(
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ver available) i.e. Sales u/s 8(1) i.e. Inter-state sales, deemed Exports and value of Branch Transfers/ Consignment Transfers sent outside the State.
3.6. The Input Tax Credit under this category is claimed in the FORMTRAN-1 TABLE as shown below:
* 5(a)-Amount of credit carried forward to Electronic Credit Ledger as State tax (Section 140(1) and 140(4)(a)];
* 5(b)-Details of statutory forms received for which credit is being carried forward. (It may be kept in mind that the information in respect of Statutory forms and declarations is to be given starting from 1st April 2015 and ending on 30th June 2017.
* 5(c)- Amount of credit carried forward to Electronic Credit Ledger as State tax. The details with regards to turn-over of sales/transfer etc. vis-à-vis form pending is given in this Table.
This information is also required to be given starting from 1st April 2015 to 30th June 2017.
3.7. In case, after verification of the details as aforesaid or from the data communic
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filed for the subsequent month.
3.10. The Nodal Officer will also be required to verify as to whether the said tax payer has filed the application for refund of the MVAT Credit shown excess in the return filed for the period ending June-2017. In case it is noticed so then the refund application need to be rejected. It may be case that the refund is processed and disbursed to the said tax payer, then such tax payer shall be advised to reverse the TRAN-1 credit so claimed, in the return GSTR-3B for the subsequent period.
4. Sub-section (2) of section 140- Unavailed Input Tax Credit in respect of Capital Goods:
4.1. This sub-section provides that the tax payer may take into Electronic Credit Ledger the un-availed credit in respect of Capital Assets. You may recall that under the provisions of Central Excise Act the CENVAT credit relating to the capital goods was allowed in staggered manner.
4.2. However, these provisions are not applicable to MVAT Act as the full set-off/input tax cr
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t subject to tax in the State under existing law but which are liable to tax under this Act or
(4) where the person was entitled to take credit of input tax at the time of sale of goods (Eg. Set-off u/r 52A and 52B of the MVAT Rules, 2005) provided that no set-off in this situation is claimed by the tax payer albeit contrary to the provisions of aforesaid rules.
5.2. Entitlement of such credit to be taken into Electronic Credit Ledger is subject to the following conditions:
(1) such inputs or goods are used or intended to be used for making taxable supplies under this Act;
(2) the said registered person is eligible for input tax credit on such inputs under this Act;
(3) the said registered person is in possession of invoice or other prescribed documents evidencing payment of tax under the existing law in respect of such inputs; and
(4) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the 1st July 2017 i.e. the tax Invoic
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tax payer may be asked to produce the relevant details in respect of the claim of Transitional Credit taken in the TRAN-1. In case, on verification and scrutiny it is noticed that the tax payer has calmed wrong or excess credit of VAT then the tax payer may be advised to reverse the excess credit so claimed, in the return FORM-GSTR-3B filed for the subsequent month.
6. Sub-section (4) of section 140- Registered person engaged in the sale of taxable goods as well as exempted goods or tax free goods but these goods are liable to tax under the MGST Act shall be entitled to tax credit claimed in the Electronic Credit Ledger:
6.1. The sub-section (4) of section 140 is divided into 2 parts i.e. clause (a) and clause (b).
(1) Clause (a): The tax payer is entitled to take the credit that is shown as excess credit carried forward in the return filed for the period ending June-2017. This aspect has already been explained in the preceding para's pertaining to credit claim under section 140(1)
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of June2017 except in the cases where the inputs contained in semi-finished or finished goods are covered under the immoveable property. .
(d) It may be kept in mind that goods that are held in the stock, the sales of which would take place on or after 1st July 2017 and therefore, in respect of the aforesaid goods held in the stock, and there would be no reversal [as required under rule 53(8) of MVAT Rules] of the credit in the subsequent months as the supply of such goods would take place under GST era.
(e) Under GST, in FORM-GST-TRAN-1, the tax payer can claim the credit of the said input tax, if any, in the Electronic Credit Ledger.
(f) The Nodal Officer is required to verify as to whether the tax payer has taken the credit into Electronic Credit Ledger and ask the tax payer to submit the details in this respect.
6.2. On this backdrop, the tax payer shall be entitled to take credit of VAT and Entry Tax in respect of inputs held in the stock and inputs contained in semi-finish
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the appointed day i.e. on or before the 30th August 2017 or within the period extended by the Commissioner of State Tax. The power to extend the said date is delegated to the Joint Commissioner of ST.
7.3. It may be noted that the Nodal Officer need to verify the TRAN-1 details provided in Table 7(b) of FORM-TRAN-1 vis-à-vis invoices on the basis of which such credit is taken and the date of entry of such invoices into books of account. The Nodal officer need to ascertain as to whether the said goods are received within the time limit i.e. on or before 30th August 2017 or within such period as may be extended by the Commissioner of State Tax.
7.4. Any deviation or excess claim of credit which is taken in breach of aforesaid provisions need to be reversed. It may also be confirmed from the office of the concerned Joint Commissioner as to whether an extension is given. The details about such extension, if any, given by the Joint Commissioner, shall be kept on record.
7.5. In th
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as on 30th June 2017, subject to the following conditions:
(1) such inputs or goods are used or intended to be used for making taxable supplies under GST Act;
(2) the said registered person is not paying tax under composition scheme (section 10 of MGST Act);
(3) the said registered person is in possession of invoice or other prescribed documents evidencing payment of tax under the existing law in respect of such inputs; and
(4) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the 1st July 2017 i.e. the tax Invoices relied upon this purpose pertains to period between the period July-16 and June-17.
8.3. The tax payer is required to state the details regarding the inputs held in stock and VAT thereon in Column 7(c) of the Table of FORM GST-TRAN-1 indicating therein the value of the goods, VAT/Entry Tax paid, total input tax claimed under earlier law.
8.4. It may be noted that the builders who have opted for composition sc
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visions of rule 58 i.e. at a normal rate then such builder, shall be entitled to take to GST Electronic Credit Ledger, the credit of VAT shown as excess credit in the return for the period ending June-2017, subject to the fulfilment of conditions provided in the MGST Act.
(2) In other words, under the circumstances given in Para-(1) above, excess VAT credit shown as per the last VAT return i.e. for period ending June-2017 would be allowed to be taken into Electronic Credit Ledger as per the provisions of section 140(1) of the MGST Act.
8.6. Claim of Credit under section 140(6) of MGTS Act:
(a) In case a builder was not paying the taxes as per rule 58 and instead had opted to pay fixed amount in lieu of VAT i.e. under Composition Scheme [Section 42(3A)] then, such builder would
be entitled to take credit of VAT into Electronic Credit Ledger, in respect of inputs held in stock.
(b) In order to determine the credit of VAT availability to the said Builder and Developer in respect of t
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istered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs; and
(v) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day
(d) From the above provisions it is clear that the Builder and Developer is entitled to take the credit of VAT into Electronic Credit Ledger in respect of the inputs held in the stock. However, to ascertain the availability of VAT credit in respect of inputs contained in semi-finished or finished goods one has to examine the definitions of the “inputs” and “goods”.
8.7. For better understanding these terminologies are examined below:
8.7.1. The section 2(59) of the MGST Act defines the term “inputs” meaning thereby any goods other than capital goods used or intended to be used by a supplier in course or furtherance of business.
8.7.2. The section 2(52) of the MGST Act defines the term “Goods” to mean eve
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nnot be treated as “goods” being the immoveable property to the extent inputs contained in semi-finished or finished goods as on 1st July 2017.
8.7.5. The section 2(6) of the Registration Act, 1908 defines the term "immovable property" which includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.
8.7.6. Thus from the above definition the things permanently attached to earth shall mean the immoveable property and hence Building or the work in progress i.e. the inputs contained in semi-finished or finished goods, will not get covered under the term “goods” as defined under the MGST Act and therefore, inputs that are in the nature of work-in progress i.e. contained in semi-finished and finished goods are not “goods” within the meaning and scope of the
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liable to GST. However, the said Builder and Developer, for the reasons stated hereinabove, shall not be entitled to take the credit of VAT into Electronic Credit Ledger under GST. In other words, in the case of building construction, the transitional credit of inputs already used in construction and contained in WIP as on 30.06.2017 is not admissible under the GST.
Example: –
(A) Credit entitlement in respect of inputs held in stock
(1) Say builder 'ABC' has undertaken construction of a residential complex comprising of 50 flats (Costing at about ₹ 50 Cr.), out of which 10 flats are sold to the prospective buyers and as on 1st July 2017 and the balance 40 flats have remained unsold.
(2) The said builder has received the amount of ₹ 12.5 Cr. towards the sale of 10 flats. The bill in respect of an amount of ₹ 12.5 Cr. has also been issued prior to GST i.e. on or before the 30th June 2017. The amount of ₹ 12.5 Cr. received prior to the commencement of GST is
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ed as transitional credit and may be taken into Electronic Credit Ledger i.e. TRAN-1. Provided that the said cement is purchased between the periods starting from the 1st July 2016 to 30th June 2017 i.e. the invoices are not older than a year.
(B) Credit entitlement in respect of inputs contained in semi-finished goods or finished goods held in stock
(1) As explained in the Para-A above, in order to take the credit of VAT pertaining to inputs contained in semi-finished or finished goods held in stock as on 1st July 2017, into Electronic Credit Ledger, it shall be necessary that said credit of VAT pertains to the goods and as such the inputs contained in semi-finished or finished goods are work in progress and therefore are immoveable property.
(2) It is necessary to determine the value that is attributable to inputs contained in semi-finished or finished goods where the VAT credit is not available for taking into Electronic Credit Ledger including the purchases of goods that is cont
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ress.
* On this basis, the figures in the TABLE above can be illustrated as below:
Sr. No.
Details
Qty. in Bags
Amount (Rs.)
VAT @ 13.5% (Rs.)
(a)
(b)
(c)
(d)
(e)
(1)
Opening Stock of Cement as on 1st July 2017 ₹ 300 per Bag
2000
6,00,000
81,000
(2)
ADD:
Cement purchase during the period 01.07.2016 to 30.06.2017 ₹ 300 per
Bag
6000
18,00,000
2,43,000
(3)
LESS:
Cement lying in stock as on 30.06.2017 @ ₹ 300 per Bag.
3000
9,00,000
1,21,500
(4)
Proportionate value of cement contained in Work in Progress for 40 flats.
5000*40/50=4000. Cement pertaining to within one year and beyond one year.
4000
12,00,000
1,62,000
(5)
Cement contained in semi-finished goods or finished goods in the under construction of 40 flats [2-3]
(Where invoice date is within one year period i.e. after 1st June 2016)
2000
6,00,000
81,500
(6)
Cement lying in stock as on 30.06.2017 @ ₹ 300 per Bag.
3000
9,00,000
1,21,500
(5) It is
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e. work in progress.
8.7.10. Therefore, the transitional Credit that may be taken into Electronic Credit Ledger under GST era in respect of the other inputs held in the stock, such as Steel, Bricks etc., it is necessary to apply aforesaid method in respect of each of inputs. Needless to say, the credit so determined would vary from case to case.
8.8. Works Contract activity under GST and liability to pay tax in respect of contracts that are continued on or after 1st July 2017: 8.8.1. Meaning and scope of term “Works contract” under MGST Act:
(1) Before touching the subject of the credit entitlement under section 142(11)(c) of the MGST Act, it would be useful to examine the definition of term “works contract” as defined under section 2(119) of the MGST Act. For better understanding the said definition is reproduced below:
2(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repa
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he date of provision of service etc.
(5) Examined in the light of the aforesaid provisions, the issue of taxation in relation to the “works contract” under GST would arise in respect of the contracts that are continued even after the date of commencement of MGST Act i.e. on or after 1st July 2017. Please see the Chapter XX of the MGST Act [Transitional Provisions], provides for different contingencies and the treatment with regards to the claim of transitional input tax credit.
8.8.2. Credit entitlement as per the provisions of section 142(11)(c) of the MGST Act:
(1) It would be worth to examine the provisions of section 142(11)(c) of the MGST Act vis-à-vis liability to pay tax and credit entitlement under GST in respect of construction contracts that are continued on or after 1st July 2017.
(2) The section 142(11)(c) reads as under:-
“where tax was paid on any supply, both under the Maharashtra Value Added Tax Act, 2002 and under Chapter V of the Finance Act, 1994, tax sh
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necessary to refer to the provisions of section 42(3A) of the MVAT Act where the developer was given an option to pay the composition amount of 1% of the value specified in the registered agreement or value fixed for payment of Stamp Duty.
(5) Subsequently, with effect from 1st June 2017, Composition the Scheme was amended and accordingly, the developer, was liable to pay 1% of the payment received whether advance or otherwise and whether or not the agreement for sale is registered or not.
(6) For more clarity, you are requested to go through Notification No. Finance Department Notification No. VAT-1517/C.R.-57/Taxation-1 dated 26th May 2017 and the Trade Circular No. 18T of 2017 dated 31st May 2017. The Gist of the aforesaid notification and Trade Circular is given below:
(a) the developer was required to compute the 1% composition amount in case of agreement for sale has not been registered till 31st May 2017 but the developer has received the advance. In such scenario the develo
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ies to be taken by the tax payer into his Electronic Credit Ledger. The rule 118 of MVAT Rules reads as under:
“118. Declaration to be made under clause (c) of sub-section (11) of section 142.- Every person to whom the provision of clause (c) of subsection (11) of section 142 applies, shall within a period of ninety days from the appointed day, submit a declaration electronically in FORM GST TRAN-1 furnishing the amount of Value Added Tax that has been paid before the appointed day, on such supplies to which this provision is applicable and the amount of Tax Credit admissible thereon, which is to be carried forward.
Explanation- The amount of tax credit admissible shall be the amount calculated under sub-clause (ii) of clause (b) of sub-section (3B) of section 42 of the Maharashtra Value Added Tax Act, 2002.”.
8.8.3. In the light of the discussion aforesaid, in case of a developer where the contracts are continued on or after the 1st July 2017 and such developer desires to take th
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e of the flat and where the agreement is registered.
3,00,00,000
2.
Amount received to Developer
2,00,00,000
3.
Amount on which Service tax is paid under Finance Act, 1994 (Billed amount).
2,00,00,000
4.
VAT paid 1% of the on value stated in the agreement.
3,00,000
5.
Supply made on or after 1st July 2017
1,00,00,000
6.
Liability under GST 1,00,000,000*12%
2,00,000
7.
Less: Input tax credit available (in respect of inward taxable supply (with tax invoice) made on or after 1st July 2017.
4,00,000
8.
Balance GST payable
8,00,000
9.
Credit that may be taken into Electronic Credit Ledger (33% of 3 Lakh i.e. the supply taking place under GST)
99,000
10.
GST payable
7,01,000
* Transactions on or after 1st June 2017 and where the agreement for sale is not registered or not.
Table-5
Sr. No.
Particulars
Amount in Rs.
(1)
Value of the flat (whether registered or not)
1,00,00,000
(2)
Amount received to Developer
50,00,000
(3)
Bill issued by the Deve
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kh or more.
9.2. In all such cases following shall be verified,-
(1) The Nodal officer shall first ascertain the VAT credit claim vis-à-vis sections i.e. 140 or 142 of the MVAT Act.
(2) Accordingly the return filed for the month of period ending June-2017 and amount of VAT credit carried forward in the said return and that of claimed in the Electronic Credit Ledger. In case the said credit found to be in excess of the credit carried forward in the period ending June-2017, a notice in Form-603 shall be issued stating the discrepancy. The tax payer may be asked to explain the said mis-match. (Where the credit is taken based on the excess credit claimed in return filed for period ending June-2017).
(3) The Nodal Officer shall verify as to whether the tax payer has revised the return and increased the VAT credit amount carried forward. In such cases, the tax payer is entitled to claim the VAT credit that is carried forward in the Original return, In case such credit is as per th
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undertake the recovery action and pass appropriate order under the MGST Act.
(5) In case the mis-match in the VAT Credit taken into Electronic Credit Ledger is due to the non-receipt of the declaration then all such cases shall be brought to the notice of the concerned Joint Commissioner, who in turn through Zonal Additional Commissioner present the cases before the Commissioner and take the permission for assessment in terms of the Notification issued under MVAT Act on 23rd February 2018 empowering the Commissioner to select a particular case for assessment. On assessment in respect of the excess VAT Credit taken to the Electronic Credit Ledger the recovery action shall be initiated.
10. The Economic Intelligence Unit has already forwarded the data pertaining to the Transitional Credit claimed by the tax payer in TRAN-1. On aforesaid background, the Nodal Officer, shall undertake the verification of TRAN-1 credit claimed by the tax payer. For verification of the TRAN-1 credit, inst
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