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Indian Merchant Chambers

Transitional Provisions –
Was it a smooth ride?

Presentation by
Sushil Solanki
Ex- Principal Commissioner of Service Tax
Partner, TLC Legal

August 23, 2017


TLC Legal
Advocates
TLC Legal
Contents Advocates

Repeal and Saving


Provisions vs. Transitional
Provisions
Fate of transactions not
covered by Transitional
Provisions
Carry forward of credit of
KKC
Construction industry related
issues
Other Transitional Issues

Contradictory Tweets of GoI

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Repeal and Saving vs. Transitional Provisions TLC Legal Advocates

• Sec. 174 of CGST Act provides for repeal and saving provisions
• It is broadly based upon Sec. 6 of General Clauses Act
• Sec. 174(2)(c) provides that the repeal of Central Excise Act or Service
Tax provisions shall not affect any right, privilege, obligation or liability
acquired, accrued or incurred under the repealed Act
• Section 6 of General Clauses Act – Effect of Repeal
“Where this Act, or any (Central Act) or Regulation made after the
commencement of this Act, repeals any enactment hitherto made or hereafter to
be made, then, unless a different intention appears, the repeal shall not
(a) …. (b) ….
(c) affect any right, privilege, obligation or liability acquired, accrued or incurred
under any enactment so repealed, or …”

• Transitional Provisions in GST Laws manifests ‘different intention’ of the


Legislature
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Repeal and Saving vs. Transitional Provisions TLC Legal Advocates

• Gajraj Singh vs. State Transport ……… (1997) 1 SCC 650:


• Vehicle permit granted under old law for a period of 3 years would be
valid even for the period covered by new law as the right had accrued

• Isha Valimihamad v. Haji Gulam Mohammad AIR 1974 SC 2061:


• The right of a landlord to file a suit for eviction against a tenant on
the ground that the tenant had sub-let the premises, a right conferred
by old Act, was held to be an accrued right which survived the repeal
of old Act.

• In right acquired – necessary steps are to be taken by the claimant for


getting a right; In right accrued- it would be a right received merely by
force of the Act

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Repeal and Saving vs. Transitional Provisions TLC Legal Advocates

• Reading of Transitional provisions (Sec. 140 to 142) along with Saving


provisions (Sec. 174) would show that the situations/ activities specifically
not covered by Transitional provisions would be governed by Saving provisions
read with provisions of General Clauses Act.

• Therefore, any right, monetary or otherwise, acquired or accrued or


obligation incurred under old laws would continue to be available to
taxpayer.
• ITC not availed on invoices of past period in June return (original/revised)
– Accrued right
• Transfer of credit for shifting of factory prior to AD - Accrued right
• Dispatch of goods prior to AD on payment of tax but returned back to
factory – taking of credit under erstwhile Rule 16
• Services received in June but Service tax paid invoice received/
accounted for after the period for filing of June return (original/revised)–
Accrued right
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“Taxable Event (Leviability)” occurred under ST TLC Legal
regime but payment of GST without any Transitional Advocates

Provision– Is it legal?
• Issue:
• Consultancy services provided in June but invoice raised in July/Aug.
• Import of service completed in June, but payment made in July/Aug.
• Whether ST or GST payable ? If ST is paid, how to avail credit?
• Whether Saving Provisions permit taking of credit ?
• SC in Wazir Sultan Tobacco (1996 83 ELT 3) held that even though collection of tax is
postponed and the tax law was repealed on the date of liability to pay, still tax under old
law is required to be paid on the last date of old law.
• Sec. 142(11)(a) & (b) provides that if goods/services were LEVIABLE to VAT/ST, no GST is
payable.
• Therefore, if Service was provided prior to AD, service tax liability would fructify on 30th
June irrespective of date of issuing invoice/ making payment.
• Even availment of ST credit would be available in terms of the Saving clause
• However, GOI tweets clarify that GST is to be paid in both cases, perhaps to overcome
drafting lacunae. 6
Repeal and Saving vs. Transitional Provisions TLC Legal Advocates

• Job work – Raw material sent for commercial job work on payment of
excise duty under old law and job worker was allowed to pay excise
duty on full value of material. GST law does not provide for the same.
Is it accrued or acquired right?

• The provisions of the new Act can not infringe or relegate the right of
appeal granted under the old Act (Md. Makibar Rahman v. Islam Ali,
AIR 1994 Gau 4.) – Sec 142(3) & 142(4) provide for lapsing of CENVAT
credit if the refund is rejected without any appeal remedy

• Clean Energy Cess paid on coal produced in June but sold after AD,
liable to Compensation Cess – Can it be argued as a case of Double
levy on same taxable event?

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TLC Legal
Carry forward of credit of KKC Advocates

• Under Section 161 of the Finance Act 2016, Krishi Kalyan Cess (KKC) is a
cess to be levied and collected as Service Tax.

• Rule 3(1a) of the CENVAT Credit Rules, 2004 provides for availment of KKC
as CENVAT Credit – the expression ‘CENVAT Credit’ appears in brackets in
Rule 3(1) at the beginning.

• Explanation at the end of Section 142 of CGST Act, (which applies to the
whole of Chapter XX on Transitional Provisions) defines CENVAT Credit to
mean CENVAT Credit as defined in the Central Excise Act, 1944 or the
Rules.

• Therefore, balance credit of KKC may be allowed to be carried forward


under Section 140(1) of CGST Act as CENVAT Credit
• However, GST GoI Tweet denies such benefit
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TLC Legal
Construction industry related issues Advocates

• As per erstwhile MVAT provisions, VAT was payable @ 1% at the time of


registration of contract.
• By an amendment (dt. 26th May, 2017), VAT payment liability was linked
to actual payment to the builder and payment of VAT already made was
allowed as set-off
• Service Tax law provided Point of Taxation as date of invoice (Demand
notice) or payment, whichever is earlier. Many customers paid Service Tax
based upon demand notices prior to 1st July to avoid higher rate of GST
• However, MVAT liability did not arise as no payment was made.
• Whether only SGST to be paid when payment made to Builders in GST
regime ????

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TLC Legal
Construction industry related issues Advocates

Contradiction between clause (c) and (a)& (b) of Sec. 142(11)


• Sec. 142(11)(a) & (b) provides that if VAT or Service tax was leviable
under the old law, GST would not be payable.
• Sec. 142(11)(c) provides that if both VAT and Service Tax were paid, GST
would also be payable to the extent supply has been made after AD.
However, VAT & ST already paid would be allowed set-off. Objective
appears to cover cases where tax was paid on lower old rate of 4.5% even
when it was not payable.
• E.g. 100% advance payment was made even though only 20% construction
has been completed and VAT along with ST was paid at lower rate prior to
1st July. In that case, in terms of clause (a) & (b), no GST is payable as the
levy had occurred. But, as 80% construction was completed in GST
regime, clause (c) requires payment of GST at higher rate of 12% on
differential amount.

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TLC Legal
Construction industry related issues Advocates

• A works contractor paying Service Tax on service component under Rule


2A of Valuation Rules may not be in the position to take ITC on the inputs
lying in stock as he is not availing benefit of Notification No. 26/2012-ST
(Sec. 140(3))

• A Builder having unsold under construction flats may not be in a position


to take credit of inputs (steel, cement, etc.) forming part of said flats as
Sec. 140(3) provides for taking credit of input contained in semi-finished
or finished goods held in stock

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TLC Legal
Other Transitional Issues Advocates

• No provision for taking ITC on capital goods in transit (Sec. 140(5))


• No provision for taking ITC on capital goods by persons manufacturing
exempted goods/ supplying exempted service under the erstwhile laws
but are taxable under GST (Sec. 140(3),(4) & (6))

• Sec. 140(7) provides for taking of ITC on invoices received after AD by an


ISD but no mechanism provided in GST TRANS- 1

• Provisional assessed Bill of entries and differential custom duties


(CVD/SAD) to be paid in future – how to avail credit?

• In case of post GST price revision for services, there is no provision to pay
SGST on differential price in the State GST laws on the lines of Sec.
142(2)(a) of CGST
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TLC Legal
Other Transitional Issues Advocates

• As per CENVAT Credit Rules, if the payment was not made for the services
within 3 months period, the ITC was reversed and subsequently it was
allowed to be taken whenever payment was made, without any time
limit. However, Sec. 140(9) stipulates a time-period up to 30th September
to take credit. If payment is not made by that time, ITC is lost. Is it
infringement of right accrued to a person in violation in Savings clause?

• RCM tax paid after 6th July – how to avail credit?

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TLC Legal
Contradictory Tweets of GoI Advocates

Q.1: Service tax paid under RCM on 6 July & credit in GST under transitional
provision?
A : If payment for RCM services is after 01/07/2017, GST will be applicable
(not Service Tax). So not under transition [2nd August, 2017]

Q.2: Security services invoice dated 30.06.2017. Payment of invoice in July 17


will attract ST or GST under RCM or nothing is payable
A : As invoice raised before GST and its time of supply is in service tax regime
so service tax will be payable. [26th July, 2017]
Comment: Q1 answer is based on POT and in Q2 answer is based on levy

Q.3: Ser Tax collected after appointed day. Bill and service already served.
Whether to pay as cgst or to be paid as ser tax
A : If point of taxation before 1 July 2017, Service tax will be applicable. If
time of supply after 1 July 2017, GST. [16th July, 2017]
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TLC Legal
Contradictory Tweets of GoI Advocates

Q.1: Under which provision of GST/existing law, ITC would be available of


service tax paid under RCM on July 6, 2017 for June 2017
A. : Pl see section 140(5) [26th July, 2017]

Q.2: Service tax paid under RCM on July 06,17 which will not reflect in June,
17 return are eligible for transition credit or not.
A : Pls see POT Rule 7 for service tax & sec 13 CGST. Payment for RCM
services, made after 01/07/2017 would be under GST [1st August, 2017]

Comment: Sec. 140(5) is applicable only when services are received on or


after AD.

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TLC Legal
Advocates

QUESTION- ANSWER
TIME
Contact details:
E-mail: sushil@tlclegal.in
Tel: 022 – 61708500/400
Tel (Dir.): 022- 22823142

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TLC Legal
Advocates

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