As we are nearing to July 1, 2017 GST will be a reality soon. For the transition from existing law to the GST law the government has made the transitional arrangements to carry forward the input tax credit under the existing laws to the GST law. To avoid the loss of input tax credit to the businesses and for the smooth transition to GST the government has tried to cover all the possible business scenarios. Chapter XX i.e. Section 139 to 142 of CGST act read with transition rules talks about the transitional provisions. As now the final transition rules and GST TRAN 01 format is in public domain, the following article talks about the transitional provisions for input tax credit.

Transitional arrangements for input tax credit (section 140)

Carry forward of CENVAT credit [140(1)]

A registered person can claim the CENVAT credit carried forward in his return relating to the period immediately preceding the July 1st furnished under the existing law and the credit will be given in electronic credit ledger

The registered person shall not be allowed to take the credit-

1. Where the said credit is not admissible under GST act

2. Where the registered person has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date

3. Where the credit relates to goods manufactured and cleared under exemption notification

4. Where such registered person opts to pay tax under composition scheme in GST

Unavailed Input tax credit on Capital goods [140(2)]

As under current excise law the credit on capital goods is allowed 50% in the 1st and balance 50% in the subsequent years. Credit of Unavailed CENVAT credit in respect of capital goods not carried forward in return furnished for the period immediately preceding the appointed date

A person shall be allowed to take credit only if such credit is allowed under existing as well as GST act. The person opting to pay tax under composition scheme shall not be allowed to claim credit.

Example: If the aggregate CENVAT credit available on capital goods is 100 and one has availed credit of 50 in first year and out of that 40 being utilised now one can claim 100-40 i.e. 60 under this subsection.

Credit to Unregistered dealer now registered under GST [140(3)]

A registered person-

  • Not liable to be registered under existing law
  • Who was engaged in manufacture of exempted goods or provision of exempted services
  • Who was providing services of works contract and claiming benefit of notification 26/2012 of service tax
  • First stage dealer
  • Second stage dealer
  • Registered importer
  • Depot of a manufacturer

Shall be allowed to take credit of INPUTS held in stocks and INPUTS contained in Finished or semi-finished goods held in stock: Subject to certain conditions-

1. Such inputs are used or intended to be used to provide taxable supplies under this act

2. Input tax credit is allowed on such inputs under GST act

3. Such person has the invoices or other prescribed documents evidencing payment of duty and such invoices or other prescribed documents were not issued earlier than 12 months immediately preceding July 1st

4. The supplier of service is not eligible for any abatement under this act.

Relief under proviso to section 140(3)

Where a registered person is not in possession of an invoice or any other documents

(Words used here are any other documents not other prescribed documents) evidencing payment of duty in respect of INPUTS (Word used here is only inputs not inputs contained in Semi-finished goods or finished goods) shall be allowed to take credit of central excise duty or additional duties of custom u/s 3(1) of customs tariff act (central Tax) at the rate of –

1. Sixty percent on such goods which attract central tax at the rate of nine percent or more

2. Forty percent on other goods

Of the central tax applicable on supply of such goods after the appointed date and shall be credited after the central tax payable on such supply has been paid:

In case where integrated tax is paid on such goods the amount of credit shall be allowed at the rate of thirty percent and twenty percent respectively of the said tax

State Tax:

A 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 shall be allowed to avail input tax credit on goods held in stock (state tax) at the rate of –

1. Sixty percent on such goods which attract state tax at the rate of nine per cent or more

2. Forty percent on other goods

Of the State tax applicable on supply of such goods after the appointed date and shall be credited after the state tax payable on such supply has been paid:

In case where integrated tax is paid on such goods the amount of credit shall be allowed at the rate of thirty percent and twenty percent respectively of the said tax

This scheme is available for six tax periods from the appointed date.

The important thing to note here is that the relief of this proviso is not available to the manufacturers and supplier of services.

This scheme is subject to some conditions –

1. Such goods were not unconditionally exempt from the excise duty or were not nil rated /VAT

2. Documents of procurement of such goods shall be available (though documents not evidencing payment of duty are available but some documents has to be there which proves procurement)

3. Such registered person shall submit a statement in FORM GST TRAN 02 at the end of each six tax periods

4. Amount of credit will be credited in electronic credit ledger maintained in GST PMT-2.

5. Such goods shall be stored in a way so that it can be easily identified by the registered person

Manufacture of exempt as well as taxable goods or provider of exempt services and taxable services [140(4) (b)]

The amount of CENVAT credit of eligible duties in respect of

– Inputs held in stock

– Inputs contained in semi-finished or finished goods held in stock

On the appointed day, relating to such exempted goods or services will be allowed

Inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the existing law [140(5)]

A registered person will be able to claim credit of eligible duties and taxes on

1. INPUTS or INPUT SERVICES

2. Received on or after July 1

3. Tax on which has been paid by the supplier under existing law

To avail this option registered person shall have invoice or any other duty or tax paying document and the same to be recorded in the books of account of such person within a period of thirty days from the appointed day:

Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding thirty days:

To take credit under this sub section registered person shall furnish a statement, in such manner as may be prescribed.

Statement has to be furnished for this sub section not GST –TRAN 01

Registered person paying tax on fixed rate or Fixed amount [140(6)]

A registered person, who was either paying tax at a fixed rate or paying a fixed amount under the existing law can take credit of eligible duties in respect of

1. Inputs held in stock and

2. Inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:––

  • Such inputs or goods are used or intended to be used for making taxable supplies under GST Act;
  • the said registered person is not paying tax under composition scheme
  • the said registered person is eligible for input tax credit on such inputs under GST 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 inputs; and
  • Such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.

Input service distributor [140(7)]

An ISD will be able to distribute the credit of any services received prior to the appointed day even if the invoices relating to such services are received on or after July 1.

Person having centralised registration under existing law [140(8)]

A registered person with a centralised registration under the existing law has obtained a registration under this Act, such person shall be allowed to take, Credit of the amount of CENVAT credit carried forward in a return, furnished under the existing law by him, in respect of the period ending with the day immediately preceding the appointed day in such manner as may be prescribed:

Registered person has to furnish his return for the period ending with the day immediately preceding the appointed day within three months of the appointed day to claim credit under this sub section

Such credit shall be allowed subject to the condition that the said return is either an original return or a revised return where the credit has been reduced from that claimed earlier:

Such credit will allowed only if such credit is also allowed under GST Act

Such credit may be transferred to any of the registered persons having the same Permanent Account Number for which the centralised registration was obtained under the existing law.

Reversal of credit due to non-payment [140(9)]

Where any CENVAT credit availed for the input services provided under the existing law has been reversed due to non-payment of the consideration within a period of three months, such credit can be reclaimed subject to the condition that 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.

For Subsection (3),(4),(6) Eligible duties means

(i) The additional duty of excise leviable u/s 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;

(ii) The additional duty leviable u/s 3(1) of the Customs Tariff Act, 1975;

(iii) The additional duty leviable 3(5) of the Customs Tariff Act, 1975;

(iv)The additional duty of excise leviable u/s 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;

(v) The duty of excise specified in the First Schedule to CETA

(vi)The duty of excise specified in the Second Schedule to CETA

(vii) The National Calamity Contingent Duty leviable u/s136 of the Finance Act, 2001,

For Subsection (5) Eligible duties and taxes means

(i) The additional duty of excise leviable u/s 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;

(ii) The additional duty leviable u/s 3(1) of the Customs Tariff Act, 1975;

(iii) The additional duty leviable 3(5) of the Customs Tariff Act, 1975;

(iv)The additional duty of excise leviable u/s 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;

(v) The duty of excise specified in the First Schedule to CETA

(vi)The duty of excise specified in the Second Schedule to CETA

(vii) The National Calamity Contingent Duty leviable u/s136 of the Finance Act, 2001,

(viii) The service tax leviable under section 66B of the Finance Act, 1994,

To claim the credit under section 140 the registered person is required to submit a declaration in form GST TRAN 01 within 90 days of the appointed date. On the basis of this the credit will be allowed in electronic credit ledger maintained in form GST PMT 02. This is very crucial to fill the GST TRAN 01 correctly as it may be subject to verification and if any credit is wrongly availed the proceedings may be initiated u/s 73 or 74 of the act.

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Qualification: CA in Job / Business
Company: Atul Limited
Location: Udaipur, Rajasthan, IN
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Tags : cenvat credit (42) goods and services tax (3088) GST (2675)

One response to “Goods & Service Tax (GST) transition simplified”

  1. Atul V. Bedekar says:

    We are manufacturers of Pickles and Spices. We are registered under Central Excise. For Pickles we are paying Excise duty @2% without availing CENVAT credit and Spices are exempt under Central Excise. I am having Packing matarial in stock as on 30th June,2017 such as Laminated Plastic Pouch, Glass Bottles, Closures etc which are excise paid. But as I was under above mentioned scheme I was not availing CENVAT Credit.Now my question is That am I entitled for credit of such excise duty amount under transitional provisions u/s 140. kindly reply

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