Transition Provisions under CGST Act & Transition Rules 2020
Transition Provisions under CGST Act, 2019 & Transition Rules 2019. The section numbers referred to in the Chapter pertain to CGST Act, unless otherwise specified. The expression ‘the Act’ refers to CGST Act, unless otherwise specified. For the sake of brevity, the term input tax credit has been referred to as ITC in this Chapter. Transition provision is one time provision which shall be applicable at the time of migration to GST on the appointed day. These provision may be said as most crucial because of migration of existing law in to GST and may face many challenges as well. Provisions have been well laid down in CGST Act, 2018 and Rule of Transition.
Transition Provisions under CGST Act
GST is a significant reform in the field of indirect taxes in our country. Multiple taxes levied and collected by the Centre and States, have been replaced by GST. GST is a multistage value added tax on consumption of goods or services or both. As GST seeks to consolidate multiple taxes into one, it is very essential to have transitional provisions to ensure that the transition to the GST regime is very smooth and hassle-free and no ITC (Input Tax Credit)/benefits earned in the earlier regime are lost. The transition provisions can be categorised under three heads:
- A. Relating to ITC
- B. Continuance of earlier procedures such as job work for a reasonable period without any adverse consequence under GST law
- C. All claims (pending as well as future) pertaining to earlier laws filed before, on or after the appointed day.
Appointed day has been defined in section 2(10) to mean the date on which the provisions of this Act shall come into force.
The various sections of the CGST Act have come into force as under:
|Section Nos. of CGST Act||Date of coming into effect|
|1, 2, 3, 4, 5, 10, 22, 23, 24, 25, 26, 27, 28, 29, 30, 139, 146 and 164||22.06.2017|
|Sections 6 to 9, 11 to 21, 31 to 41, 42 except the proviso to section 42(9), 43 except the proviso to section 43(9), 44 to 50, 53 to 138, 140 to 145, 147 to 163, 165 to 174||01.07.2017|
|Section 51(1) with respect to persons specified under clauses (a) and (b) and the persons notified under clause (d) of sub-section (1) of section 51|
The said persons shall be liable to deduct tax from the payment made or credited to the supplier of taxable goods and/ or services with effect from a date to be notified subsequently.
The transitional provisions relating to job work have been discussed in Chapter 15: Job Work. The remaining provisions have been discussed in the subsequent pages of this chapter.
MIGRATION OF EXISTING TAXPAYERS [SECTION 139]
Section 139 of the Act prescribes the procedure for migration of existing taxpayers to GST. It provides that on and from the appointed day, every person registered under any of the earlier laws and having a valid Permanent Account Number shall be issued a certificate of registration on provisional basis on fulfillment of certain prescribed conditions. The final certificate of registration shall be granted on fulfillment of certain additional conditions. The provisional registration shall be cancelled if such conditions are not complied with.
The provisional registration certificate issued to a person shall be deemed to have not been issued if the said registration is cancelled in pursuance of an application filed by such person that he was not liable to registration under section 22 or section 24.
TRANSITIONAL ARRANGEMENTS FOR INPUT TAX CREDIT [SECTION 140]
(i) Closing balance of the credit in the last returns [140(1)]
A person may have unutilized CENVAT/VAT credit when migrating to GST. Sub-section (1) provides the mechanism for allowance of such CENVAT credit in the GST regime.
A registered person, other than a person opting to pay tax under the composition scheme, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the earlier law. In other words, CENVAT credit balance shall be carried forward as CGST credit under CGST law.
However, the registered person shall not be allowed to take credit in the following circumstances, namely
- where the said amount of credit is not admissible as ITC under the CGST Act; or
- where he has not furnished all the returns required under the earlier law (service tax and/or central excise 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.
Procedure for claiming carry forward of credit Every registered person entitled to take credit of input tax shall, within ninety days of the appointed day, submit a declaration electronically in GST TRAN 1. The last date for submission of GST TRAN 1 has been extended till October 31, 2017.
(ii) Unavailed credit on capital goods [140(2)]
Under the earlier law i.e., CENVAT Credit Rules, 2004, CENVAT credit on capital goods was allowed only to the extent of 50% in the financial year in which they were received. The balance CENVAT credit could be availed in any financial year subsequent to the financial year in which the capital goods were received. Under VAT Laws, the credit was generally allowed over a period of 2-3 years
Such balance installment of unavailed credit on capital goods can also be taken by filing the requisite declaration in the TRAN 1. Both the amount of credit availed and the amount of credit yet to be availed, under the earlier laws till the appointed day, need to be specified in GST TRAN 1.
Sub-section (2) of section 140 provides that a registered person, other than a person opting to pay tax under the composition scheme, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the earlier law by him, for the period ending with the day immediately preceding the appointed day.
The credit shall be allowed only if it was admissible as CENVAT credit under the earlier law and is also admissible as ITC under the CGST Act.
|Aggregate amount of CENVAT credit to which the said person was entitled to in respect of the capital goods under the earlier law||XXX|
|Less : Amount of CENVAT credit already availed in respect of said capital goods under the earlier law||XXX|
|Unavailed CENVAT credit||XXX|
(iii)Credit on duty paid stock [Section 140(3)]
A registered person, who was not liable to be registered under the earlier law, may have duty paid goods in his stock on the appointed day. GST would be payable on all supplies of goods or services made after the appointed day. It is not the intention of the Government to collect tax twice on the same goods. Hence, in such cases, it has been provided vide section 140(3) that the credit of the duty/tax paid earlier would be admissible as credit.
1. 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).
Form TRAN 1 has to be filed by 27th December 2017 to carry forward the Input Tax Credit. Also, TRAN 1 can be rectified only once.
2. Credit on Capital Goods:
Before GST, only a part of input tax paid on Capital Goods could be taken as credit.
For example, if ITC on a Capital Good purchased in the year 2016-17 is Rs 10,000,
50% i.e. Rs 5,000 can be claimed as ITC in the same year and balance Rs 5000 can be claimed in the next year.
In such cases, there could be some amount of un-utilized credit available on the capital goods. This credit can be carried forwarded to GST by entering the details in Form TRAN 1.
3. Credit on Stock:
A manufacturer or a service provider who has goods 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.
What if you don’t have invoices?
Manufacturers or service providers who do not have an invoice evidencing payment of duty, cannot claim the credit under the GST regime.
Only traders can claim credit in case invoice is unavailable, subject to the following conditions:
- The stock should be identified separately
- The credit can be taken by the trader only if the benefit of the same is passed on to the final consumer
How will credit 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%|
4. Registered persons who were not registered under previous law
Every person who is
- A registered dealer and was unregistered under previous law
- Who was engaged in the manufacture of exempted goods or provision of exempted services
- Who was providing works contract service and was availing abatement
- A first stage dealer or a second stage dealer
- A registered importer
can also enjoy ITC of inputs in stock held on 1st July.
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 the law
- The invoices are not older than 12 months
- The supplier of services is not eligible for any abatement under GST
5. 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.
1. 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
2. Credit Distribution by ISD
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.
3. 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