GST Transition: How to Migrate Existing Input Credits?

Narendra Kumar

30 Mar, 2021

GST has wrapped multiple taxes into its arm. It is very important to have rules in place to ensure that a registered business smoothly transitions to GST. There are mainly three types of GST Transition provisions that are discussed later in this article briefly.

Types of GST Transition

There are following three types of GST Transitions-

• Input Tax Credit
• Refunds and arrears
• Other cases like Job work, Input service distributor, composition scheme

Let’s discuss each of these cases in brief-

A. Input Tax Credit

There are many provisions that are only made for the smooth transitions of the input tax credit available under VAT, Excise Duty or Service Tax to GST. Registered dealers opting for the composition scheme are not eligible to carry forward ITC available in any of the previous regime. Following are the cases where the Input tax credit GST transitions provisions are applicable:

1. The closing balance of credits on inputs

The closing balance of input tax credit as per the last return filed before GST would be getting credit in the GST regime.  The credit is only available only if the return for the last few months i.e. 6 months like from January 2017 to June 2017 were filed in the previous regime. The previous regime like VAT, excise and service tax returns had been filed.

FORM TRAN 1 is to be filed by the 27^th December to carry forward the Input tax credit. Addition to this, TRAN 1 can be rectified only once.

2. Credit available on capital goods

Before GST, only that part of the input tax paid that is paid on capital goods could be available as credit.  For example-  if ITC on capital goods purchased in the year 2016-17 is Rs 20000 then 50% i.e. Rs 10000 could be claimed as the ITC in the same year and the balance Rs10000 could be claimed in next year.

In those cases, there could be some amount that is known to be unutilized credit available on the capital goods. This credit is carried forward to GST Transition by just filling the details in Form TRAN 1.

3. Credit available on Stock:

A manufacturer or a service provider that has goods lying in the closing stock, in which duty has been already paid could also take the credit for the same. The dealer has to provide the list of such goods on the GST portal^[1]. The dealer should have to invoice in their hand for claiming the credit. Also, invoices should be less than 1 year old.

But what if you are empty-handed?

In case, manufacturer or service providers who do not have an invoice or any evidence of payment of the duty. They cannot claim it with the credit under the GST transition regime. Only those traders can claim the credit in case invoice is unavailable that falls under the following-

• The stock should be separately identified
• The credit could be taken by the trader only if the benefit of the same is passed to the last customer.

Now, how will Credit be taken in case of no Invoices?

4. The registered person that was not registered under any previous law

Who can enjoy the Input Tax Credit in Stock?

Every person who is –

• Registered dealer and was unregistered under previous law
• Engaged in the manufacturing or exempted goods or provisions of exempted services
• Providing works contracts service and was availing the abatement
• First stage dealer or second stage dealer
• Registered importer
• can only enjoy the Input tax credit on stock held until 1^st

But to enjoy under Input tax credit under GST Transition that following conditions must be fulfilled-

• Goods or inputs are used for making taxable supplies
• Such benefits are passed on by way of reduced prices to the recipient ‘
• The taxable person that is eligible for an input tax credit on those inputs
• The person should be in possession of invoices evidencing payments of duty under the earlier the law
• The invoices are not older than 12 months
• The supplier of the services are not eligible for any abatement under GST

5. Input tax Credit sent before 1^st July

The input tax credit is claim by the manufacturer or dealer for those goods received after the appointed day, the tax on which he has already paid the tax under the previous laws. Therefore, the above-discussed credits would only be allowed if the invoicing or taxpaying documents kept in the accounts of such person within 1^st August 2017. A 30 days extension may be granted by the competent authority on the grounds of sufficient cause for delay.

B. Refunds and Arrears

Any appeals or claims pending for the amount of refund on the due amount of CENVAT credit, tax or any interest paid before 1^st July shall be disposed of according to the previous laws. Any amount found to be payable under the previous tax regime law will be treated as the arrears of GST and will be recovered according to the GST Provisions under GST transition.

C. Other cases

1. Job Work

No tax is going to pay on inputs, semi-finished goods that are removed for job work for carrying certain processes and then returned on or after 1^st July.

What are the conditions where no tax is payable?

The following are the conditions where no tax will be paid-

• When goods are returned to the factory within 6 months from July (extendable for a maximum period of 2 months)
• Goods held by job worker are declared in Form TRANS-1
• Supply of semi-finished goods is done only on the payment of tax in India or the goods that are exported out of India within 6 months from 1^st July (extendable by not more than 2 months).

The taxes are not applicable if the finished goods were removed before1st July for carrying certain processes and then are returned within 6 months from 1^st July. An input tax credit is recovered if the goods are not returned on time i.e. 6 months.

2. Credit Distribution by Input Service Distributor

Transition provisions are applied in cases where the service was received prior to 1^st July and the invoices received on or after 1^st July. ISD (Input Service Distribution) is only eligible tax credit under GST.

3. Composition Dealer

When the registered dealer paying tax under composition scheme previously but is a normal taxpayer under GST could claim credits of inputs available as on 1^st July by satisfying certain conditions-

• Such invoices are not more than twelve months old
• The registered person is eligible for ITC under GST
• Input is used for the taxable supply
• Invoice or other duty payment documents are available

Hence, the above discussed are the areas where a user can transit its Input tax credit, revenues or another leftover under GST act in the terms of GST Transitions.

In Conclusion

GST Transition is one of the appreciated areas introduced by GST. As, GST Transition gives the opportunity to a user to transit their Input tax credit, revenues, and others leftovers to their account by filling a simple form. We have shared the complete knowledge of GST Transition with you to know more about it or for GST Registration kindly contact us.

Read our article:A Sigh Of Relief For MSMEs: GST Exemption Limit Increased By The Council