By Harpreet Singh
The goods and services tax (GST) is a value-added tax which mandates payment of tax on the value addition made at each stage of the supply chain. Since the tax is to be paid on the value addition (i.e. profits/margins), deduction of taxes paid on inputs (purchases) stands to become a key feature of this regime. With a view to allowing deduction of input taxes, the GST law has made adequate provisions on ‘transitional credits’. According to the new law, there exists a detailed procedure to be complied with for carry-forward of transitional credits (i.e. value-added tax or VAT, excise, service tax, etc) pertaining to stock, capital goods and services received under the erstwhile regime.
Let’s understand this in detail. In order to carry forward the transitional credit, one needs to file the TRAN-1 return. This is a return that incorporates details of all opening balances of taxes paid on stock lying at a factory, warehouse, or on capital goods and input services. All of this then needs to be captured and uploaded onto the GST Network (GSTN) portal. To this effect, in the 21st meeting of the GST Council on September 9, it was decided that there be an extension of the deadline for submission of TRAN-1 (i.e. the GST return to carry forward the opening balance of tax credits) to October 31. The decision taken by the GST Council was a welcome relief for dealers, as the extension of the due date for filing of the original TRAN-1 meant they had sufficient time to understand the process and the various details involved. However, the government then issued another notification pertaining to the same.
According to this new notification, the due date for filing TRAN-1 is 90 days from the date of implementation of GST, i.e. 90 days from July 1—which is September 28. Additionally, the return can be revised only once till October 31. This is because it refers to Rule 120A, which pertains to revision of TRAN-1 and not to the provision that pertains to filing of the original TRAN-1. In the absence of an extension of first filing deadline of TRAN-1 (which appears to be contrary to the decision made in the Council’s meeting), it appeared the first TRAN-1 needs to be filed by September 28 and the same can be revised once by October 31. This decision raised some important questions. What should the dealers do? Should they accept the decision and the subsequent announcement made post the Council meeting or the notification? Should TRAN-1 be filed before September 28? If so, dealers are now in a race against time and must compile all opening balance credits.
As mentioned earlier, the TRAN-1 form is the basis for transitioning of credits to the GST regime. Credit that is not captured appropriately in this return would be a loss to any business. A delay in filing TRAN-1 could negatively impact the working capital of a business, as till the time TRAN-1 is filed, credits from the earlier tax regime may not be available under GST. Therefore, there is no room for any laxity as far as the filing of TRAN-1 is concerned. A clarification tweet issued by the government on a social media platform with regard to the date of filing the original TRAN-1 as September 28 as opposed to October 31 further escalated the confusion, only for it to be deleted from the platform.
So, the GST puzzle continued till the midnight of September 21—to do or not to do! With confusion still prevailing, the government issued another notification on September 21, amending the relevant rule and, therefore, extended the date of filing of first TRAN-1 to October 31. However, this notification also talks only about amending Rule 117 (which pertains to submitting details of tax paid on closing stock) and does not cover extensions under Rules 118 and 119, which cover other circumstances where VAT or service tax was paid on the portion of supply and transition provisions relating to a job worker. Though unintentional, the tangle on TRAN-1 still remains for certain portions of transitional credits. Hopefully, another notification will be issued soon, which can put the matter to rest.
Writer is Partner, Indirect Tax, KPMG in India