Transition Credit

[Vamsi Krishna]

We are into construction of residential flats and in the month of June'17 we have entered into JDA ( Joint development Agreement) with the land owners where in out of the total flats to be constructed few of them are ear marked/allocated.

This has taken place on 23rd Jun'17 and as per Rule 3 of point of taxation of ST, the liability arises on the services provided to the land owner at the time of receipt of advance in the form of Land/Development rights.

Since we have received the consideration (land/development rights) before construction of the flats, this is treated as ' Advance' and ST has been paid accordingly @ 4.5% (considering 70% abatement, 26/2012).

My query is As per sec.142(11)(c) of CGST act (Transition Provisions), is it mandatory to avail this ST paid as transition credit and pay GST @ 18% on the total value under GST.

The actual supply ie. construction of flats and sharing the final flats ( as agreed in JDA) to land lord will happen after 2-3 years.

Can any expert give clarity ?? If we have pay under GST 18% it will be huge outflow....

[Rajagopalan Ranganathan]

Sir,

Section 142 (11) (c) of CGST Act, 2017 states that "where tax was paid on any supply both under the Value Added Tax Act and under Chapter V of the Finance Act, 1994, (32 of 1994.) tax shall be leviable under this Act and the taxable person shall be entitled to take credit of value added tax or service tax paid under the existing law to the extent of supplies made after the appointed day and such credit shall be calculated in such manner as may be prescribed."

Rule 118 of CGST Rules, 2017 states that "every person to whom the provision of clause (c) of sub-section (11) of section 142 applies, shall within a period of ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1 furnishing the proportion of supply on which Value Added Tax or service tax has been paid before the appointed day but the supply is made after the appointed day, and the Input Tax Credit admissible thereon."

In my opinion the use of the word 'shall' indicates the mandatory nature of the provisions.

[KASTURI SETHI]

In my view, advance is always subject to Final Assessment. In this case GST is applicable. Moreover, Section 12 does not come into play in the situation depicted by you.

AI Summary

Transition credit requires claiming service tax paid for supplies made after the appointed day via prescribed TRAN-1 within set period. Where service tax was paid on advances received as land or development rights for supplies made after the appointed day, the taxable person is entitled to take transition credit of that service tax to the extent of post-appointed-day supplies. The prescribed mechanism requires an electronic declaration in the prescribed form specifying the proportion of such supplies and the admissible input tax credit, and the statutory language makes submission of that declaration mandatory within the prescribed period.