All about Transition under GST

CA Vinay Gandhi Billapati

We are in Goods and Services Tax (GST) era. The law is implemented from 01.07.2017 but the procedural aspects are delayed because of various reasons. Many taxation acts have been merged into GST law. In GST, the taxable event is supply of goods or services or both. No more Manufacture, no more sales, no more inter-state sale, no more service. What we talk is ‘Supply’ in GST. One of the challenging aspects of GST is transition provisions, moving from VAT/Central Excise/Service tax to GST era. In this article I tried to analyse the transition provisions relating to Input Tax Credit (ITC) on closing stock as on 30.06.2017 and also about filing of GST TRAN 1 and GST TRAN 2 forms.

Here are some of the questions that will be answered in this article regarding transition.

1. How to claim ITC/CENVAT balance as on 30.06.2017 under previous law (viz VAT, Central Excise, Service Tax, etc.)?

2. What happens to tax already paid on Closing Stock as on 30.06.2017?

3. Who needs to file GST TRAN 1?

4. What is the procedure to file GST TRAN 1?

5. Who needs to file GST TRAN 2?

6. What is the procedure to file GST TRAN 2?

CLAIMING ITC/CENVAT BALANCE AS ON 30.06.2017

No worries. During transition to GST, the closing balance of ITC/CENVAT as per the return filed for period ended 30.06.2017 can be carried forward to GST by filing GST TRAN 1. Questions to be answered before carry forward of closing balance are:-

a. Is the ITC/CENVAT balance will be used to make taxable outward supply?

b. Are the past 6 months returns in earlier law filed?

NO ITC/CENVAT BALANCE AS ON 30.06.2017 BUT POSSESSES CLOSING STOCK

Don’t have balance of ITC/CENVAT as on 30.06.2017 but have closing stocks for which GST needs to be paid. One can claim ITC on closing stocks if not claimed in earlier law since you are non-registered under earlier law.

For example, a VAT dealer who is not registered under Central Excise Act can claim CGST portion of ITC on his stocks as on 30.06.2017.

Situation 1 – I am Trader of goods. I am not registered under Central Excise but deal with Excisable Goods

Trader can claim VAT ITC balance as on 30.06.2017 as per VAT return as SGST credit by filing GST TRAN 1 by filling Table 5 of the form.

Since the trader is dealing with excisable Goods,

If Trader possesses Central Excise Invoices for the closing stock, file GST TRAN 1, fill Table 7(a) and claim ITC of central excise mentioned on the Invoices

If Trader doesn’t possess Central Excise Invoices for Closing Stock, file GST TRAN 1, fill Table 7(a) and Closing stock details in Table 7(d). File GST TRAN 2 for months of July 2017 to month of December 2017 or month till the closing stock is sold, whichever is earlier and claim 60% or 40% of CGST payable on such goods. Here, trader needs to pay the tax on supply of goods and the transition credit will be credited to the electronic credit ledger after filing GST TRAN 2.

Situation 2 – I am Trader of goods. I am not registered under Central Excise but deal with Non-Excisable Goods

Trader can claim VAT ITC balance as on 30.06.2017 as per VAT return as SGST credit by filing GST TRAN 1 by filling Table 5 of the form.

Since he is dealing with non- excisable goods, NO CGST transition credit is available.

Situation 3 – I am Service Provider registered under Service Tax. CENVAT balance as on 30.06.2017 is available

Service Provider can claim CENVAT balance as on 30.06.2017 as per ST 3 filed for period April to June 2017 as CGST Credit by filing GST TRAN 1 by filling Table 5 of the form.

If Service Provider has stock of excisable Goods as on 30.06.2017, even service provider can claim ITC of VAT paid on such goods if he is in possession of VAT invoices. Otherwise, 40% or 60% of SGST payable can be claimed as SGST transition credit depending of rate of tax on such service.

If Service Provider deals with non- excisable Goods, no SGST transition credit will be available.

Situation 4 – I am Service Provider registered under Service Tax. CENVAT balance as on 30.06.2017 is NIL

Since the CENVAT balance as on 30.06.2017 is NIL, there will be NO CGST transition credit for the service provider.

If Service Provider has stock of excisable Goods as on 30.06.2017, even service provider can claim ITC of VAT paid on such goods if he is in possession of VAT invoices. Otherwise, 40% or 60% of SGST payable can be claimed as SGST transition credit depending of rate of tax on such service.

If Service Provider deals with non- excisable Goods, no SGST transition credit will be available.

Situation 5 – I am Manufacturer registered under Central Excise. CENVAT balance as on 30.06.2017 is available.

Manufacturer can claim CENVAT balance as on 30.06.2017 as per Excise Return filed for June 2017 as CGST Credit by filing GST TRAN 1 by filling Table 5 of the form.

If Manufacturer already registered under VAT also,

If ITC balance as on 30.06.2017 under VAT is available, the same can be carried forwarded to GST as SGST transition credit by filing GST TRAN 1 providing details in Table 5 if the said form.

If ITC balance as on 30.06.2017 is NIL, No SGST transition credit for the manufacturer.

Situation 6 – I am Manufacturer registered under Central Excise. CENVAT balance as on 30.06.2017 is NIL.

Since CENVAT balance as on 30.06.2017 is NIL, no CGST transition credit available.

If Manufacturer already registered under VAT also,

If ITC balance is available as on 30.06.2017 under VAT, the same can be carried forwarded to GST as SGST transition credit by filing GST TRAN 1 providing details in Table 5 if the said form.

If ITC balance as on 30.06.2017 is NIL, No SGST transition credit for the manufacturer.

There may be many more situations than mentioned above. The procedure to claim transition credit depends on facts of each case.

ADVISORY ON GST TRAN 2

Regarding GST TRAN 2, an advisory is issued by CBEC which is reproduced here.

Perquisite: TRAN 2 can be filed only if TRAN-1 and GSTR 3B of the relevant tax period is filed.

Step 1: Navigate to the TRAN 2 page of the desired tax period after logging in, Select the < Financial Year> and < Month>

Step 2: Table 4 of TRAN 2 would be enabled if records were declared in Table-7(a), 7(b) of TRAN 1 and Table 5 would be enabled if records were declared in Table-7(d) of TRAN 1.

Step 3: Enter details of opening stock in Table 4 and Table 5 as declared in TRAN 1. Please ensure that all the HSN/goods are declared in TRAN 2, in the opening balance in the month of July, 2017, irrespective of the fact that these have been sold or not in the first i.e. July, 2017 tax period.

Step 4: Declare the details of sold goods from such stock in the first tax period and the Central/State and integrated tax paid on those goods and compute the ITC allowed and state this value in the applicable tables. ITC allowed should be less than or equal to (=) 60% of Central Tax or 30% of Integrated Tax.

Step 5: While filing Tran 2 of subsequent tax periods, the tax payer has to only declare the details of goods supplied/sold and the tax paid and ITC allowed. The opening stock gets auto-populated from the earlier tax period closing stock. And the closing sock is auto computed from the opening stock and the supplied quantity in the tax period.

Step 6: Save after entering each record in tables of TRAN 2.

Step 7: After entering all the records click “Preview” to download the pdf with draft summary values of TRAN 2. Verify the correctness of the entered data. If satisfied click “Submit” to freeze your declaration. Please verify thoroughly before submitting.

Step 8: Download the summary of your submitted TRAN 2 for your record by clicking on “Preview” again.

Step 9: Click on file with DSC or EVC and select the authorized signatory to file TRAN 2 for the tax period.

Step 10: After successful filing the message and email with the ARN number will be sent to the taxpayer.

Step 11: The claimed ITC of central and state tax would be reflected in the ITC ledger of the taxpayer after filing of TRAN 2. It has to be noted that the ledger entries get posted after filing of TRAN 2 and not “Submit” (as is/was the case in TRAN 1).

FREQUENTLY ASKED QUESTIONS

1. What is transition credit?

Credit available under earlier law that can be carried forward into GST and also transition credit on closing stock as on 30.06.2017.

2. Who needs to file GST TRAN 1?

a. Those who have closing ITC or CENVAT balance as on 30.06.2017

b. Those who wish to claim ITC on closing stock as per Section 140(3) of CGST Act, 2017

3. I don’t have VAT ITC balance as on 30.06.2017 and don’t want to avail CGST ITC on closing stock. Do I need to file GST TRAN 1?

No need to file GST TRAN 1.

4. Who needs to file GST TRAN 2?

Supplier NOT registered under earlier law AND not in possession of tax paid invoices and those who wish to claim 40% or 60% of CGST/SGST payable has to file GST TRAN 1 once & GST TRAN 2 monthly till the closing stocks as on 30.06.2017 is sold or month of December 2017, whichever is earlier.

5. I have filed Service tax return for period April to June 2017. Even due date for Revision of such return is also completed. I am in possession of service tax invoice on which ITC can be claimed but missed to be claimed in service tax return. How to claim ITC on that invoice?

Since the Service Tax return cannot be modified now, the eligible CENVAT on the missing invoice in possession now cannot be claimed as ITC under GST. Also since the invoice details are missing in Service Tax return also, the refund under Service Tax also is doubtful.

6. I have already utilized VAT ITC balance under earlier laws but still I have closing stock. Can I avail the taxes paid under earlier law as transition credit?

Since ITC has already been utilized on closing stock under earlier law, benefit of ITC will NOT be available again. If you are not registered under Central Excise and dealing with excisable goods, then you can avail CGST ITC as per provisions discussed in this article. But ITC benefit cannot be availed twice.

REMINDER

Last date for filing GST TRAN 1 is 27.12.2017

One time revision option of GST TRAN 1 is available. The due date for the same is also 27.12.2017.

Don’t miss the due date to file Transition forms. Otherwise, the transition credit may be lost forever under GST and the balances, if any have to be claimed as refund under earlier laws.

Excerpts from a recent press release by CBEC on filing of Form TRAN-I to avail Input Tax Credit dated 12.12.2017 are reproduced here.

It has been noted that some taxpayers have availed extraordinarily high transitional credit of CGST which is neither commensurate with the trend of input tax credit of the industry nor as maintained by the taxpayer himself in the past. Some of these high transitional credits may have a bonafide explanation or may be a case of bonafide mistake. However, it has been noted that high transitional credit has been claimed in many cases for which perhaps no bonafide explanation exists. Analysis to identify such units is underway. Such behavior leads to breach of trust between the taxpayer and the tax-administration, which is the bed-rock of self-assessment regime in GST.

Taxpayers who have claimed transitional credit erroneously are advised to avail of the opportunity to revise Form TRAN-1 by 27th December, 2017 and ensure that only correct and bonafide credit is availed in transition, failing which the tax administration would be constrained to initiate audit and enforcement action against the identified units.

Let us be cautious of the amount claimed as transition credit also since only the eligible credit as per GST only can be claimed under transition by filing the requisite forms in time. Claim eligible credits only so that one can lead a peaceful life.

(The author can be reached at [email protected])