With the introduction and (Goods and Service tax) GST implementation, the Indian tax structure for goods and services has become much broader. Under GST, multiple taxes are admixed into one. Transition from traditional tax structure to GST needs careful exercise. Hence, it is vital to have rules ensuring smooth transition to GST in place. The 3 types of transitional provisions are:
- Input tax credit (ITC)
- Refunds and arrears
- Other cases : Job work, Input Service Distributor(ISD), Composition scheme
Input tax credit (ITC)
Various provisions are made for the smooth ITC transition under VAT, excise duty or service tax to GST. A registered dealer opting for composition scheme will not be eligible to carry forward ITC available in the previous regime. Below are some of the cases where ITC transition provisions will be applicable:
- Closing balance of credit on Inputs: The closing balance of ITC as per the last return filed before GST can be taken as credit in the GST regime. The credit will be available only if the returns for the last 6-months i.e. from January 2017 to June 2017 were filed in the previous regime (i.e. VAT, excise and service tax returns had been filed).
- Credit on capital goods: Before GST, only a part of input tax paid on capital goods could be taken as credit. There could be some amount of un-utilized credit available on the capital goods.
- Credit on stock: A manufacturer or a service provider whose goods are lying in the closing stock on which duty has been paid can also take the credit for the same. The dealer has to declare the stock of such goods on the GST Portal. The dealer should have the invoices for claiming this credit. Also, the invoices should be less than 1 year old.
In case there is no invoice evidencing payment of duty, manufacturers or service providers cannot claim the credit under the GST regime. However, traders can claim a credit in case invoice is unavailable, subject to the following conditions:
- Stock should be identified separately; and
- Credit can be taken by the trader only if the benefit of the same is passed on to the final consumer.
Credit to be taken in case of no invoice:
|Rate of GST on goods||Intra-state credit to CGST||Inter-state credit to IGST|
|18 % or more||60%||30%|
|Less than 18%||40%||20%|
- Registered persons who were not registered under previous law
Every person can also enjoy ITC of inputs in stock held on 1st July who:
- Is a registered dealer and was unregistered under previous law
- Was engaged in the manufacture of exempted goods or provision of exempted services
- Was providing works contract service and was availing abatement
- Is a first stage dealer or a second stage dealer
- Is a registered importer
The following conditions must be fulfilled –
- Inputs or goods are used for making taxable supplies
- Such benefit is passed on by way of reduced prices to the recipient
- Taxable person is eligible for input tax credit on such inputs
- The person is in possession of invoices evidencing payment of duty under the earlier law
- The invoices are not older than 12 months
- The supplier of services is not eligible for any abatement under GST
- ITC on goods sent before 1st July
Input tax credit can be claimed by the manufacturer / dealer for those goods received after the appointed day, the tax on which has already been paid under previous law. Above credits would only be allowed if the invoice / tax paying document is recorded in the accounts of such person within 1st August 2017. A thirty-day extension may be granted by the competent authority on grounds of sufficient cause for delay.
Refunds and Arrears
Any claims / appeals pending for the refund on the due amount of CENVAT credit, tax or interest paid before 1st July shall be disposed of according to the previous laws. Any amount found to be payable under previous law will be treated as arrears of GST and be recovered according to GST provisions.
Below mentioned are the other cases for transition to GST:
- Job Work: No tax shall be payable on inputs, semi-finished goods removed for job work for carrying certain processes and returned on or after 1st July.
Conditions when there is no tax payable:
- Goods are returned to the factory within 6 months from 1st July (extendable for a maximum period of 2 months)
- Goods held by job worker Is declared in Form TRANS-1
- Supply of semi -finished goods is done only on payment of tax in India or the goods are exported out of India within 6 months from 1st July (extendable by not more than 2 months).
Taxes are not applicable if finished goods were removed before 1st July for carrying certain processes and are returned within 6 months from 1st July. Input tax credit will be recovered if the goods are not returned within 6 months.
- Credit distribution by Input Service Distributor
Transition provisions will apply in cases where the service was received prior to 1st July and the invoices received on or after 1st July. ISD will be eligible to distribute input tax credit under GST.
- Composition dealer
When a registered dealer who was paying tax under composition scheme previously but is a normal taxpayer under GST can claim credit of inputs available as on 1st July by satisfying certain conditions –
- The input is used for taxable supply
- Registered person is eligible for ITC under GST
- Invoice or other duty payment documents are available
- Such invoices are not more than twelve months old
Recently, High Court announced that transitional credit (discussed above) can’t be denied only because Form Tran 1 / Tran 2 couldn’t be filed. Requirement of filing of Trans 1 and Trans 2 returns is procedural in nature and not mandatory. Therefore, right of transitional credit cannot be denied to those taxpayers who could not file such returns.
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