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#5 Things Every Entrepreneur Should Know About GST In the GST era, Input Tax Credit is allowable on purchase of all goods and services used for business purposes

By Vinay Kumar Shraff

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We have ushered in a new era of transparent and simple indirect taxation regime with the implementation of Goods and Services Tax (GST) with effect from July 1, 2017. It has replaced a plethora of existing indirect taxes in the form of Central Excise, Service Tax, VAT, Entertainment Tax, Luxury tax etc.

This article seeks to highlight five things which every entrepreneur should know about GST.

Take Benefit of Cenvat and VAT on Pre-GST Stock

A manufacturer or a service provider will be allowed to carry forward cenvat credit as per return filed for the period ended on June' 2017. Similarly, a dealer registered under VAT will be allowed to carry forward VAT credit as per return filed for the period ended on June' 2017. The carry forward of Cenvat/VAT credit is irrespective of the quantum or age of the stock.

A reseller of goods, manufacturer of exempted goods or provider of exempted services, will be allowed 100% credit of Excise, CVD and SAD on pre-GST stock, provided he is in possession of the invoice or documents evidencing payment of such duties and the stock is not more than 12 months old.

A trader, except a manufacturer or a service provider, who is not in possession of the "Central Excise Invoice', will be allowed transitional credit on pre GST stock @ 60% of CGST, if rate of CGST is 18% or more or 40% of the CGST, if rate of CGST is less than 18%. Such credit will be allowed only after payment of CGST or IGST within six months. In order to claim the benefit of transitional credit in case of (a) and (b) above, Form GST TRAN – 1, will have to be filed by 29th September 2017. However, in order to claim transitional credit in case of (c), FORM GST TRAN 2 will have to be filed for each month up to six months. There is no time limit to utilize the carried forward transitional credit.

Enhanced Benefit of Input Tax Credit (ITC)

Under the old tax system, a variety of taxes paid on the purchase of goods or services were ineligible for set-off against various types of output tax liability. In the GST era, ITC is allowable on the purchase of all goods and services used for business purposes except a few negative list items like a motor vehicle, immovable property etc.

Renegotiate Price with Suppliers of Goods and Services

The cost of the majority of business entities will reduce with the enhanced credit of ITC. Therefore, it is imperative to renegotiate prices with vendors to nudge them to pass on the benefit of reduced costs due to a free flow of credits.

Include Safeguard Clause in Vendors' Contract

The ITC in GST regime is allowed subject to payment of tax and correct filing of return by the supplier. Therefore, it is imperative to intimate GSTIN no. to all the vendors and have an indemnity clause in the contracts with them to ensure that in case of default in the payment of tax or incorrect filing of a return, the loss of ITC can be recouped.

Payment of Tax on Purchase from Unregistered Vendors and Reverse Charge Mechanism

A registered person will be liable to pay GST on the purchase of goods or services of more than INR 5,000/- per day from one or more unregistered suppliers. Further, a registered person will also be liable to pay GST on services provided by a non-resident, goods transport agency, individual advocate or a firm of advocates, directors etc.

Vinay Kumar Shraff started his practice as an Advocate after practicing as a Chartered Accountant for more than 17 years because of his strong desire to take litigation practice beyond Tribunals. He practices as a counsel and advisor in the field of Indirect Taxation viz. Central Excise, Customs, Service Tax, VAT & GST, International Taxation, FEMA & Foreign Trade Policy. Author of numerous articles published in leading professional journals and Shraff has delivered lectures in various seminars. 
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