CA Nayan Jain (Associate member of Team GST Cornor)

Transition provision is one time provision which shall be applicable at the time of migration to GST on the appointed day which is likely to be 1st July, 2017. This topic is very much relevant at this stage for all existing assessee, professionals & other stakeholders to understand the transition provisions under GST & restructure their business functions in light of stocks holding, input tax credit, long term contracts, litigations etc. To understand this topic in detail, we are trying here to make attempt to consolidate/summarize all provisions relating to transition phase under GST at one place.

Let’s understand the transition provisions under GST in simple terms:

MIGRATION OF EXISTING TAXPAYERS IN GST

– On and from the appointed day, every person registered under any of the existing laws and having a valid PAN shall be issued a certificate of registration on provisional basis.

– Provisional certificate shall be replaced by a final certificate of registration if the prescribed conditions are compiled (not yet prescribed)

– If the registration is cancelled in pursuance of an application filed by the person that he is not liable to registration under Section 22 or Section 24 then it is deemed that provisional certificate has not been issued.

TRANSITIONAL ARRANGEMENT FOR INPUT TAX CREDIT IN GST

1. CARRIED FORWARD OF CENVAT CREDIT OF EXISTING LAW INTO GST

– A registered person other than a person opting to pay tax under composition scheme shall be entitled to take credit of the amount of CENVAT credit forward in the return of last period before the appointed day.

– The registered person shall not be allowed to take credit in the following circumstances:

– Where credit is not admissible as input tax credit under this Act; or

– Where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or

– Where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government i.e. where final products are exempted.

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 which shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

POINTS TO BE REMEMBER

– Where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004 (this proviso only in CGST rules)

– The application shall also specify separately (this proviso only in SGST rules)

– The value of claims under section 3, sub-section (3) of section 5, sections 6 and 6A and sub-section (8) of section 8 of the Central Sales Tax Act, 1956 made by the applicant during the financial year relating to the relevant return, and

– The serial number and value of declarations in Forms C and/or F and Certificates in Forms E and/or H or Form I specified in rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 submitted by the applicant in support of the claims referred to in above.

2. CARRIED FORWARD OF UNAVILED CENVAT CREDIT OF EXISTING LAW INTO GST

– A registered person other than a person opting to pay tax under composition scheme shall be entitled to take credit of UNAVAILED CENVAT CREDIT* in respect of capital goods not carried forward in a return of last period before the appointed day.

* UAVAILED CENVAT CREDIT

Particulars Amount (Rs.)
Aggregate amount of CENVAT credit to which the said person was entitled XXXX
Less: Amount of CENVAT credit already availed under existing law XXXX
UNAVAILED CENVAT CREDIT XXXX

– The registered person shall be allowed to take credit of UNAVAILED CENVAT CREDIT if the said credit is admissible under the existing law and is also admissible as input tax credit under this act.

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 which shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

– Every application shall specify separately the following particulars in respect of every item of capital goods on the appointed day

The amount of tax or duty availed or utilized by way of input tax credit under each of the existing laws till the appointed day.

The amount of tax or duty yet to be availed or utilized by way of input tax credit under each of the existing laws till the appointed day.

3. A registered person:

– Not liable to be registered under the existing law;

– Engaged in the manufacture of exempted goods;

– Engaged in provision of exempted services;

– Who was providing works contract service and was availing of the benefit of notification No. 26/2012—Service Tax, dated the 20th June, 2012;

– First Stage Dealer or Second Stage Dealer;

– Registered importer or depot of a manufacturer

shall be entitle to take credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day. (Not Capital Goods)

– The registered person shall subject to following condition is eligible to avail the above credit:-

– Such inputs or goods are used or intended to be used for making taxable supplies under this Act

– The said registered person is eligible for input tax credit on such inputs under this Act;

– The said registered person is in possession of invoice or other prescribed documents* evidencing payment of duty under the existing law in respect of such inputs;

– Such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and

– The supplier of services is not eligible for any abatement under this Act

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 which shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

*Prescribed Rule in case of not registered person under existing law and want to avail credit but not in possession of any document evidencing payment of excise duty

– Such credit shall be allowed at the rate of 40% of the central tax applicable on supply of goods after the appointed day.

– Such credit shall be credited after the central tax payable on such supply has been paid.

– The scheme shall be applicable for six tax periods from the appointed day.

– Such credit of central tax shall be availed if the following conditions are followed:

– Such goods were not wholly exempt from duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 or were not nil rated.

Document for procurement of such goods is available with the registered person.

– Registered person availing this scheme submits a statement in FORM GST TRAN-1 at the end of each of the six tax periods during which the scheme is in operation indicating therein the details of supplies of such goods effected during the tax period.

– The amount of credit allowed shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the Common Portal.

– The stock of goods on which the credit is availed is so stored that it can be easily identified by the registered person.

– Note:- Above rule is also applicable in case when registered person holding stock of goods which have suffered tax at the first point of their sale in the State and the subsequent sales of which are not subject to tax in the State and avail input tax credit on goods held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of value added tax. (In SGST Rules of States offering tax on MRP scheme)

Note:- The amount credited above may be verified and proceedings under section 73 or, as the case may be section 74 shall be initiated in respect of any credit wrongly availed, whether wholly or partly.

4. PAYING TAX AT A FIXED RATE OR FIXED AMOUNT UNDER EXISTING LAW (OPT FOR COMPOSITION SCHEME UNDER EXISTING LAW)

– A registered person shall be entitle to take credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day. (Not Capital Goods)

– The registered person shall subject to following condition is eligible to avail the above credit:-

  • Such inputs or goods are used or intended to be used for making taxable supplies under this Act
  • Registered person is not paying tax under section 10e. composition scheme.
  • The said registered person is eligible for input tax credit on such inputs under this Act;
  • The said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
  • Such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

5. ENGAGED IN TAXABLE AS WELL AS EXEMPTED GOOD OR SERVICE UNDER EXISTING LAW

– A registered person engaged in the manufacture of taxable as well as exempted goods or provision of taxable as well as exempted service under the earlier law but which are liable to tax under this act shall be entitled to take in his electronic credit ledger:

  • The amount of CENVAT credit carried forward in a return as per point (1).
  • The amount of CENVAT credit of eligible duties in respect of stock relating to such exempted goods or services as per above point (3).

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 which shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

* Eligible Duties in respect of inputs held in stock and inputs contained in semi-finished or finished good held in stock on the appointed day (pl. refer point 3, 4 & 5)

– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;

– The additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;

– The additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;

– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;

– Te duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;

– The duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;

– The National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001.

6. INPUT OR INPUT SERVICES RECEIVED ON OR AFTER APPOINTED DAY

– A registered person shall be entitled to take credit of eligible duties* or taxes in respect of inputs or input service received on or after appointed day but the duty or tax in respect of which has been paid by the supplier under the existing law.

– Invoice or any other taxpaying documents of the same was recorded in the books of account within a period of 30 days from the appointed day.

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 which shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day and in addition to above following details also require to be included in statement:-

– The name of the supplier, serial number and date of issue of the invoice by the supplier or any document on the basis of which credit of input tax was admissible under the existing law,

– The description, quantity and value of the goods or services

– The amount of eligible taxes and duties or as the case may be, the value added tax [or entry tax] charged by the supplier in respect of the goods or services,

– The date on which the receipt of goods or services is entered in the books of account of the recipient.

* Eligible Duties in respect of inputs and input services received on or after the appointed day:

– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;

– The additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;

– The additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;

– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;

– Te duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;

– The duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;

– The National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001; and

– The service tax leviable under section 66B of the Finance Act, 1994.

7. SERVICES RECEIVED PRIOR TO APPOINTED DAY BY INPUT SERVICE DISTRIBUTOR

– The input tax credit on account of any services received prior to appointed day by an ISD shall be eligible for distribution as credit under this act even if the invoices are received on or after the appointed day.

DISTRIBUTION

Input Tax Credit on account of Recipient located in same state of ISD Recipient located in other than state of ISD
Integrated Tax IGST IGST
Central Tax CGST CGST
State Tax SGST CGST

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 which shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

8. CENTRALISED REGISTRATION UNDER EXISTING LAW

– A registered person shall be allowed to take credit of the amount of CENVAT credit carried forward in a return furnish under the existing law in respect of the period ending with the day immediately preceding the appointed day.

– In case of credit claim earlier is reduced then such registered person shall be allowed to take credit if the registered person furnishes his return for the period ending with the day immediately preceding the appointed day within 3 months from the appointed day subject to condition that the said return is either an original return or a revised return.

– The registered person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act.

– The registered person shall be allowed to transfer the credit to any of the registered person having the same PAN for which the centralised registration is obtained under the existing law. (Transfer of credit by centralised registered unit under existing law)

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 which shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

9. CENVAT CREDIT CLAIMED UNDER THE EXISTING LAW REVERSED DUE TO NON PAYMENT OF CONSIDERATION IN RESPECT OF INPUT SERVICES RECEIVED BEFORE APPOINTED DAY

– Such credit can be reclaimed if the registered person has made the payment of the consideration for that supply of services within a period of three months from the appointed day.

TRANSITIONAL PROVISIONS RELATING TO JOB WORK IN GST

1. INPUTS SENT TO JOB WORKER PRIOR TO APPOINTED DAY UNDER EXISTING LAW

– Any inputs received at a place of business had been removed as such or removed after being partly processed to a job worker for further processing, testing, repairing, reconditioning or any other purpose in accordance with the provisions of existing law prior to appointed day (no condition of 6 months)

No tax shall be payable if such inputs after completion of job work or otherwise are returned to the said place within 6 months from the appointed day

– The Said period of six months can be extended by the commissioner for further period not exceeding than 2 months.

– If such inputs are not returned within 6 months from the appointed day then input tax credit shall be liable to be recovered in accordance with below point no.8

2. SEMI FINISHED GOODS SENT TO OTHER PREMISES PRIOR TO APPOINTED DAY UNDER EXISTING LAW

– Any semi finished goods had been removed from the place of business to any other premises for carrying out certain manufacturing processes in accordance with the provisions of existing law prior to the appointed day (no condition of 6 months)

No tax shall be payable if such goods returned to the said place within 6 months from the appointed day. The Said period of six months can be extended by the commissioner for further period not exceeding than 2 months.

– If such inputs are not returned within 6 months from the appointed day then input tax credit shall be liable to be recovered in accordance with below point no.8

– The manufacturer may in accordance with the provisions of the existing law, transfer the said goods to the premises of any registered person for the purpose of supplying there from on payment of tax in India or without payment of tax for exports within 6 months from the appointed day.

3. EXCISABLE GOODS MANUFACTURED HAD BEEN REMOVED PRIOR TO APPOINTED DAY WITHOUT PAYMENT OF DUTY UNDER EXISTING LAW

– Where any excisable goods manufactured at a place of business had been removed without payment of duty for carrying out tests or any other process not amounting to manufacture, to any other premises, whether registered or not in accordance with the provisions of existing law prior to the appointed day.

No tax shall be payable if such goods returned to the said place within 6 months from the appointed day . The Said period of six months can be extended by the commissioner for further period not exceeding than 2 months.

– If such inputs are not returned within 6 months from the appointed day then input tax credit shall be liable to be recovered in accordance with below point no.8

– The manufacturer may in accordance with the provisions of the existing law, transfer the said goods from said other premises on payment of tax in India or without payment of tax for exports within 6 months from the appointed day.

Note:- The tax shall not be payable only if the manufacturer & job worker declare the details of inputs or goods held by the job worker on behalf of the manufacturer on the appointed day

MISCELLANEOUS TRANSITIONAL PROVISIONS IN GST

1. GOODS RETURNED AFTER APPOINTED DAY ON WHICH DUTY HAS BEEN PAID UNDER EARLIER LAW

– Where any goods on which duty have been paid under the existing law at the time of removal thereof (not being earlier than 6 months prior to appointed day) and such are goods are return to any pace of business within 6 months from the appointed day.

Return by a person other than a registered person Return by a registered person
The registered person shall be eligible for refund of the duty. The return of such goods shall be deemed to be a supply.

2. PRICE REVISION IN RESPECT OF CONTRACT ENTERED INTO PRIOR TO THE APPOINTED DAY BUT THE PRICE IS REVISED AFTER APPOINTED DAY

Price of goods or service revised upwards on or after appointed day Price of goods or service revised downwards on or after appointed day*
Issue a supplementary invoice or debit note to a recipient within 30 days from the date of price revision Issue a credit note to recipient within 30 days from the date of price revision.
Supplementary invoice or debit note shall be deemed to have been issued in respect of an outward supply under this act. Credit note shall be deemed to have been issued in respect of an outward supply under this act.

*The registered person shall be allowed to reduce his tax liability on account of issue of credit note if the recipient of the credit note has reduced his input tax credit.

3. CLAIM FOR REFUND OF CENVAT CREDIT, DUTY, TAX INTERST OR OTHER AMOUNT PAID UNDER EARLIER LAW

– Every claim for refund filed by any person before on or after appointed day shall be disposed off in accordance with the provision of existing law.

– Any amount eventually accruing to him shall be paid in cash.

– Any claim for refund is fully or partially rejected, the amount so rejected shall lapse.

No refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this act.

4. REFUND FILE AFTER APPOINTED DAY IN RESPECT OF GOODS OR SERVICES EXPORTED

– Every claim for refund filed after appointed day for refund of any duty or tax paid under existing law shall be disposed off in accordance with the provision of existing law in respect of goods or services exported before or after appointed day.

– Any claim for refund is fully or partially rejected, the amount so rejected shall lapse.

No refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this act.

5. REFUND OF TAX IN RESPECT OF SERVICES NOT PROVIDED AFTER APPOINTED DAY

– Every claim filed by a person after the appointed day for refund of tax paid under existing law in respect of service not provided shall be disposed of in accordance with the provision of existing law.

Any amount eventually accruing to him shall be paid in cash.

6. PROCEEDING OF APPEAL, REVIEW OR REFERENCE RELATING TO CLAIM/RECOVERY FOR CENVAT CREDIT

– Every proceeding initiated before, on or after appointed day relating to claim for CENVAT credit under existing law shall be disposed off in accordance with the provisions of existing law.

Any amount found to be admissible to the claimant shall be refunded to him in cash.

  • No refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this act.

Any amount of credit found to be recoverable as a result of such proceeding shall be recovered as an arrear of tax under this act. (GST)

  • The amount so recovered shall not be admissible as input tax credit under this act.

7. PROCEEDING OF APPEAL, REVIEW OR REFERENCE RELATING TO ANY OUTPUT DUTY OR TAX LIABILITY

– Every proceeding initiated before, on or after appointed day relating to any output duty or tax liability under the existing law shall be disposed off in accordance with the provisions of existing law.

– Any amount become recoverable as a result of such proceeding shall be recovered as an arrear of tax under this act. (GST)

  • The amount so recovered shall not be admissible as input tax credit under this act.

– Any amount found to be admissible to the claimant shall be refunded to him in cash.

  • The amount so rejected shall not be admissible as input tax credit under this act.

8. ASSESSMENT OR ADJUDICATION PROCEEDINGS INSTITUTED BEFORE, ON OR AFTER APPOINTED DAY UNDER THE EXISTING LAW

– Any amount of tax, interest, fine or penalty becomes recoverable from the person the same shall be recovered as an arrear of tax under this act (GST) if it is not recovered under existing law.

  • The amount so recovered shall not be admissible as input tax credit under this act

– Any amount of tax, interest, fine or penalty becomes refundable to the taxable person shall be refunded in cash

  • The amount so rejected shall not be admissible as input tax credit under this act.

9. RETURN FURNISHED UNDER THE EXISTING LAW IS REVISED AFTER APPOINTED DAY

– In pursuant to such revision any amount is found to be recoverable or any amount of CENVAT credit is found to be inadmissible

  • Unless recovered under existing law, the same shall be recovered as an arrear of tax under this act.
  • The amount so recovered shall not be admissible as input tax credit under this act

– In pursuance of such revision any amount is found to be refundable or CENVAT credit is found to be admissible

  • Such return should be revised within time limit specified for such revision under the existing law
  • The same shall be refunded to him in cash under the existing law. The amount so rejected shall not be admissible as input tax credit under this act.

10. CONTRACT ENTERED INTO PRIOR TO THE APPOINTED DAY

– The goods or services or both supplied on or after the appointed day in pursuance of contract entered into prior to the appointed day shall be liable to tax under this act.

11. GOODS SENT ON APPROVAL BASIS

– Where any goods sent on approval basis (not earlier than 6 months before appointed day) are rejected or not approved by the buyer and returned to the seller on or after the appointed day.

No tax shall be payable if such goods are returned within six months from the appointed day.

– The Said period of six months can be extended by the commissioner for further period not exceeding than 2 months.

– If such goods are not returned within period of 6 months from the appointed day then

– The tax shall be payable by the person returning the goods if such goods are liable to tax under this act (GST)

– The tax shall also be payable the person who has sent the goods on approval basis if such goods are liable to tax under this act (GST)

– Every person having sent goods on approval under earlier law shall within 60 days of the appointed day submit details of such goods in FORM GST TRAN-1.

12. TAX REQUIRED TO BE DEDUCTED AT SOURCE RELATING TO VALUE ADDED TAX

Where a supplier has made any sale of goods in respect of which tax was required to be deducted at source under any law of a State or Union territory relating to Value Added Tax and has also issued an invoice for the same before the appointed day.

No deduction of tax at source under section 51 shall be made by the deductor where payment to the said supplier is made on or after the appointed day.

13. OTHER PROVISIONS

No tax shall be payable on goods, due to provision of time of supply of goods under this Act; to the extent the tax was leviable on the said goods under the Value Added Tax Act of the State.

No tax shall be payable on services, due to provision of time of supply of service under this Act; to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994.

– Where tax was paid on any supply both under the Value Added Tax Act and under Chapter V of the Finance Act, 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.

Feedback/Suggestions are invited at gstcornor@gmail.com or admin@gstcornor.com or whatsapp at 8989077616.

We are going to prepare our next article on practical challenges in transition phase relating to stock holding, input tax credit etc and what are the preparations is require for this mega transition on the appointed day under GST. We are welcoming questions on transition phase from everyone so that every Cornor of these aspects can be cover in our upcoming next topics.

Disclaimer: The views expressed in this article are of the CA. Nayan Jain, Nyn (Associate member of Team GST Cornor). The information cited in this article has been drawn from various provision of GST Act, rules and other various sources. While every effort has been made to keep, the information cited in this article error free, team GST Cornor does not take the responsibility for any typographical or clerical error which may have crept in while compiling the information provided in this article.

This article includes general information about legal issues and developments in the proposed law of GST in India. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances.

We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this article to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.

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