CHAPTER XX

Transition Provisions under GST

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Centre and States have been replaced by one tax called
Goods and Services Tax (GST). GST is a multi-stage value
added tax on consumption of goods or services or both.

As GST sought to consolidate multiple taxes into one it
was 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 existing regime are lost. The transition provisions can
be categorized under three heads:

a) relating to input tax credit

b) Continuance of existing 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 ex-
isting laws filed before, on or after the appointed day.

A. Transitional arrangements for ITC

Elaborate provisions have been made to carry forward the
ITC earned under the existing law. Such credit should be
permissible under GST law. However, the taxable person
opting for composition scheme would not be eligible for
carry forward of existing ITC. ITC of various taxes under
the existing laws (CENVAT credit, VAT etc.) would be
carried forward as under:

a) Closing balance of the credit in the last returns

The closing balance of the CENVAT credit /VAT in
the last returns filed under the existing law can be taken
as credit in electronic credit ledger. Such credit would be
available only when returns for the previous last six months
have been filed under the existing law. In order to claim this
credit, declaration in form GST TRAN 1 is required to be
furnished on the common portal within ninety days from
the appointed day i.e. 1 st July, 2017 or within such extended
time.

b) Un-availed credit on capital goods

The balance instalment of un-availed credit on capital goods
credit can also be taken by filing the requisite declaration in
the GST TRAN 1.

c) Credit on duty paid stock

A registered taxable person, other than manufacturer or
service provider, may have a duty paid goods in his stock
on 1 st July, 2017. 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 that
the credit of the duty/tax paid earlier would be admissible
as credit. Such credit can be taken as under:

• credit shall be taken on the basis of invoice evidencing payment of duty of excise or VAT.

• such invoices should be less than one-year old.

• declare the stock of duty paid goods within pre-
  scribed time on the common portal.

d) credit on duty paid stock when registered persondoes not possess the document evidencing paymentof excise duty/VAT.

For such traders who do not have excise or VAT Invoice,
there is a scheme to allow credit to them on the duty paid
stock. The features of this scheme are as under:
The scheme is operative only for six months from
1 st July, 2017. It is not available to manufacturer or
supplier of service. It is available to traders only.

• Credit @ 60% on such goods which attract central
  tax @ 9% or more and @ 40% for other goods of
  GST paid on such stock cleared after 1 st July, 2017
  would be allowed. However, such goods should not
  be unconditionally exempted goods or taxed at nil
  rate under the existing law. It has also been provided
  that where integrated tax is paid on such goods, the
  amount of credit shall be allowed at @ 30% and 20%
  respectively of the said taxCredit would be allowed after the GST is paid on
  such goods subject to the condition that the benefit
  of such credit is passed on to the customer by way of
  reduced prices.

• A statement of supply of such goods in each of six
  tax period has to be submitted

• Stocks stored should be easily identifiable.

e) Credit relating to exempted goods under the existinglaw which are now taxable.

Input Tax Credit of CENVAT / VAT in respect of input,
semi-finished and finished goods in stock attributable to
such exempted goods or services which are now taxable can
also be taken in the same manner.

f) Input /input services in transit

There might be a scenario where input or input services are
received on or after the appointed day but the duty or tax
on the same was paid by the supplier under the existing law.
Registered person (RP) may take credit of eligible duties
and taxes, provided the invoice has been recorded in the
books within 30 days from 1 st July, 2017. The period can be
extended by the Commissioner GST by another 30 days. A
statement of such invoices have to be furnished. ISD can
also distribute such credit.

g) Tax paid under existing law under compositionscheme

Those taxpayers who paid tax at fixed rate or fixed amount
in lieu of tax payable under the existing law but are working
under normal scheme under GST can claim credit on
his input stock, semi-finished and finished stock on the
appointed date subject to the following conditions: –

• Such Input stock used for taxable supply under this
  Act.

• Registered person is not covered under section 10
  (composition scheme) of this Act.

• Registered person is eligible for ITC under this Act.
  Registered person is in possession of such Invoice or
  other duty payment documents.

• Such Invoices are not more than twelve months old
  on appointed day.

h) ITC in case of Centralized Registration under service tax

Such registered person can take credit of the amount of
CENVAT carry forwarded in return furnished under the
existing law, if the original / revised return under the existing
law has been filed within three months. Such credit may be
transferred to any of the registered persons having the same
PAN for which the centralized registration was obtained.

i)Reclaim the reversed Input Service credit

CENVAT credit reversed on account of non-payment of
consideration within three months can be reclaimed if
payment is made to the supplier of service within 3 months
from 1 st July, 2017

j)Where any goods or capital goods belonging to theprincipal are lying at the premises of the agent on theAppointed Day

This provision is specific to SGST law. In such cases, agent
shall be entitled to take credit subject to the following
conditions:
the agent is a registered taxable person

• the invoices are not earlier than twelve months

• both the principal and the agent declare the details
  of stock

• the principal has either reversed or not availed of the
  input tax credit.

B) Transition provisions relating to job work, goods returned/ sent on approval etc.

a) Job work

Inputs, semi-finished goods or finished goods were sent to
the job worker or any other premises without payment of
duty/VAT under the existing law. No GST is payable by the
job worker when such goods are returned by him within six
months after 1 st July, 2017. The period can be extended by
the Commissioner, GST by another two months.

If not returned within the prescribed period, then ITC shall
be liable to be recovered from the principal as per second
proviso to section 141(1) of the Act. In addition, the job
worker will have to pay the GST on such supplies. In case
of semi-finished goods, the manufacturer may transfer the
goods to premises of a registered person without payment of
tax within the prescribed period. In case of finished goods,
the manufacturer may transfer the goods on payment of tax
or clear for export within the prescribed period.

b) Goods removed before 6 months of the appointedday i.e. 1 st July, 2017 but returned within 6 monthsfrom 1 st July, 2017

If such goods are returned by an unregistered person, then
refund of the duty/VAT paid under existing law can be
claimed

If returned by a registered person, then return of goods shall
be treated as supply of goods (ITC can be claimed)

c) Goods sent on approval basis before 6 months of theappointed day i.e. 1 st July, 2017 but returned within 6months from 1 st July, 2017

No tax is payable by the person returning the goods.
Commissioner may extend the period by 2 months. If
returned after that, tax is payable if the supply is taxable
under GST (by the recipient. If not returned, tax is payable
by the person who sent the goods on approval basis.

d) TDS deducted in VAT

Where a supplier has made any sale of goods and tax was
required to be deducted under VAT Act and Invoice was
issued before the appointed day, however, the payment was
made on or after appointed day. In such cases no TDS under
GST is to be deducted.

e) Price revision in respect of existing contracts

In case of upward price revision, a registered person will
issue a supplementary invoice or debit notes within 30 days
from the date of revision and such revision shall be treated
as supply under GST and tax is payable under this Act.

In case of downward revision, registered person may issue
credit note within 30 days from such revision and credit
note shall be deemed to have been issued in respect of
outward supply made under this Act. A registered person
will reduce his tax liability for such credit note subject to
reversal of credit by the recipient.

f) Proceedings under the existing laws

GST law has become operational w.e.f. 1 st July, 2017 and
existing laws have been repealed. Elaborate provisions have
been made to save the pending as well future claims relating
to existing law made before, on or after the appointed day
i.e. 1 st July, 2017. Such proceedings may pertain to refund
claims of CENVAT credit/VAT or export related rebate or
service tax, such proceedings may either result in recovery
of tax or refund.

All such cases would be disposed of under the existing
law. If any claim for refund of CENVAT credit is fully or
partially rejected, the amount so rejected shall lapse. Refund
of CENVAT credit shall be paid in cash. There will be
no refund of CENVAT if already carry forwarded. If any
amount becomes recoverable, the same shall be recovered as
arrear of tax under GST Act.

Statutory provisions relating to transition are contained in
chapter XX (section 139 to 142) of the CGST Act, 2017,
SGST Act(s), 2017 and Rule 117 to 121 of the CGST Rules, 2017.