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TMI BlogVerification of Transitional Credit (TRAN-1) claimed under GST in Electronic Credit Ledger.X X X X Extracts X X X X X X X X Extracts X X X X ..... Transitional Credit is to be taken under the GST law. 1.2. For verification of the Transitional Credit taken to the Electronic Credit Ledger, Economic Intelligence Unit (EIU) has already shared the data with the respective Joint Commissioner of State Tax who in-turn must have shared this data with the respective Nodal Officer(s). The instructions issued earlier clearly stated that the verification of the TRAN-1 credit is to taken in a time bound manner and to be taken to the logical end. This exercise should have been completed at earliest. However, no feedback is received from concerned Joint Commissioner(s) about the outcome of the verification of the TRAN-1 credit so undertaken. 1.3. It is hereby clarified that the MGSTD (State Tax) authorities should only verify the Transitional Credit in respect of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Zone and where declarations or certificates i.e. Form-C, Form-F, Form-H, and Form-I as provided under the Central Sales Tax Act, 1956 has not been received then to such extent, the tax payer is not entitled to take credit of ITC into Electronic Credit Ledger. This can be explained with the help of the Example given below: Example-A (1) Say tax payer "A" has filed the return for the period ending June-2017 and disclosed the excess credit carried forward at ₹ 10,00,000/-. The said tax payer is entitled to take credit into Electronic Credit Ledger upto ₹ 10,00,000/-. It should be kept in mind that in no circumstances the said tax payer could claim such credit in the Electronic Credit Ledger in excess or ₹ 10,00,000/-. (2) Needless to state that such credit is further subject to the reduction on account of non-receipt of declarations or Certificates under CST Act, 1956 Viz. Form-C, Form-F, Form-H and Form-I etc. In case the aforesaid forms are partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 communicated by EIU, the Nodal Officer has noticed that the tax payer has claimed excess credit in the Electronic Credit Ledger visà-vis amount in the return for period ending June-2017, then the Nodal Officer, shall call for the information about the credit taken under each Table of TRAN-1. For this Nodal Officer shall issue the notice in FORM-603 and ask the tax payer to submit the requisite details in support of the claim made in the TRAN-1. 3.8. The Nodal Officer shall also verify as to whether the said tax payer has taken the ITC in the Electronic Credit Ledger in breach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of which are not 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 Invoices relied upon this purpose pertains to period between the period July-16 and June-17. 5.3. The Input Tax Credit eligible to be taken to Electronic Credit Ledger is mentioned in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the month in which the tax free sales or exempted sales takes place. In other words, under MVAT Act, there is no prohibition to claim set-off in the month in which purchases are made. (c) Hence, under MVAT Act, the tax payer is entitled to claim set-off in respect of the inputs held in the stock or the inputs contained in the semi-finished or finished goods held in the stock in the return filed for the month 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subsequent month for which the return is pending. 8. This part of the Internal Circular explains the credit entitlement of a Builder and Developer under GST: Sub-sections (1) and (6) of section 140- The Transitional Credit Entitlement of a Builder and Developer is explained below: 8.1. The provisions of this sub-section are applicable to a registered taxable person who was paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under MVAT Act. Thus, tax payers paying taxes under composition scheme @ 1% as per provisions of section 42(3A) of MVAT Act, will be entitled to take the credit of VAT in respect of inputs held in stock as on 30th June 2017. 8.2. The tax payer shall be entitled to take into his Electronic Credit Ledger the credit of VAT in respect of inputs held in stock 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 the inputs contained in semi-finished goods i.e. contained in work in progress; and inputs contained in finished goods, it is necessary to examine the provisions relating to the "Inputs", "Goods" and section 140(6) of the MVAT Act. (c) Thus, the provisions of section 140(6) of the MGST Act reads as under: "(6) A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:-- (i) such inputs or goods are used or intended to be used for making taxable supplies under this Act; (ii) the said registered person is not paying tax under section 10; (iii) the said registered person is eligible for input tax credit on such inputs under this Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 MGST Act. Due to the aforesaid reasons the tax payer shall not be entitled to claim the VAT credit in that respect. 8.7.7. To explain this, the provisions contained in SCHEDULE-II Paragragh-5(b) are reproduced below. It reads as under: 5. Supply of services The following shall be treated as supply of services, namely:- (a) -------------------------------------; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent held in the stock as on 30th June 2017, may be availed 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 contained in work in progress, and the said goods are purchased within one year from the 1st July 2017 i.e. on or after 30th June 2016. (3) For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or finished goods which are immoveable property. 8.7.9. To conclude that the tax payer that is Builder and Developer shall be entitled to claim the transitional Credit as per the provisions of section 140(6) of the MGST Act, only in respect of the inputs held in the stock and shall not be entitled to take credit of VAT into Electronic Credit Ledger under GST in respect of the inputs contained in the semi-finished or finished goods held in the stock i.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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law to the extent of supplies made after the appointed day and such credit shall be calculated in such manner as may be prescribed". (3) Thus aforesaid section provides that where the tax was paid on any supply both under the MVAT Act and under Chapter V if the Finance Act, 1994 then the tax is leviable under MGST Act, in respect of the supply of services that takes place on or after the 1st July 2017 and therefore, the works contracts which are continued on or after the 1st July 2017 i.e. after the commencement of MGST Act, the said supplier would be liable to pay tax (GST) irrespective of the fact that the said Developer has discharged the liability under MVAT Act, on the value stated in the registered agreement or has paid the tax in respect of the advances received or on billed amount, on or before the 30th June 2017. (4) It may also be 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the transitional credit in that respect, the developer was required to file FORM-GST-TRAN-1 on or before the due date i.e. 27th December 2017 and give the details in the column 7(c) of the TRAN-1. 8.8.4. Verification of the TRAN-1 Credit taken into Electronic Credit Ledger by the Developer: (1) For verification of the TRAN-1 credit that pertains to scenario where the construction activity is continued after the GST and the payment of tax under Composition Scheme of 1% is paid, it is necessary that the Nodal Officer shall first ascertain as to whether the Developer has filed TRAN-1 and has claimed the credit in column 7(c) of the TRAN-1. (2) The credit taken by the Developer into Electronic Credit ledger and entitlement for the same may be determined in the light of the aforesaid discussion. To better explain it an example is given below: Example: * Transactions on or before 31st May 2017 and where the agreement for sale is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the revised return then then the excess credit so taken under GST need to be reversed. The Nodal Officer for this purpose may issue notice in FOMR-603 under MVAT Act and ascertain the aforesaid factual aspects. (4) On the basis of the data provided by the EIU and that is available on the SAP portal under BI Launch pad under various reports, the Nodal officer shall take into account the available information and in case there is a mis-match then issue the notice in FORM-603 and call for the information in this respect. On receipt of the inf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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