ITC Transition Provisions under Goods and Service Tax

Ashish M. Shaji

16 Mar, 2023

The entrepreneur community has been waiting for the implementation of the GST so that trade can be organized by the maximum use of technology. Legal compliance should be hassle-free. The GST has been introduced with the objective of one tax one nation. However, some confusion about the ITC Transition provisions under GST is still there.

Large enterprise companies have been preparing themselves for GST implementation, but the small and medium enterprise was largely unprepared for GST implementation on 1st July 2017. The carried forward of the input tax credit is the first step under the GST Act.

In accordance with section 140 of GST act, taxpayers who have opted for GST registration in India shall be entitled to carry forward the un-utilized input tax credits under VAT/ Excise/ SAD/ Service tax i.e. on the basis of the last tax returns filed under the respective tax laws.

ITC Transition provisions specified under Section 140(3) of GST Act^[1], a registered person who was not registered under the old tax laws ( Excise/ Vat/ Service tax) shall be entitled to claim the credit of CEN VAT of goods held in the stock for making taxable supplies under this act. This was not allowed under the current VAT laws. In this article, we will discuss the preparation and checklist for SME for the effective transition of Input Tax Credit under GST Laws.

How Can You Avail Input Tax Credit under GST Law?

ITC Transition provisions state that a taxable person can accumulate the credit of taxes paid before the implementation of GST and unutilized CENVAT/ Input tax credit can be carried forward in the GST. For taking the benefits of the input tax credit, you have to furnish proof of last tax return filed under the old tax laws.

The taxpayer should make sure that whatever inventory lying as on 30th June 2017 should be properly accounted for as a claim of an input tax credit.

What will be the Treatment for Unutilized Input VAT Credit?

A taxable person who is registered under the respect vat laws is mandatorily required to file gst returns on a monthly or quarterly basis. The input VAT Credit in the return forms shall be carried forward as SGST input tax credit.

Input Credit on Capital Goods

As per ITC Transition provisions, an input tax credit on capital goods is allowed to the extent of 50% in a financial year under the current tax laws. However, any unutilized tax credits against capital goods can be carried forward to GST.

What will be the process for the transfer of excise duty or additional customs duty?

In the current excise laws, traders / whole sellers are not in coverage of excise laws. However, in the GST Laws, all taxpayers are covered with the objective of one nation one tax.

The traders are not allowed for CEN VAT credit of excise duty or additional customer against the excusable purchase of goods. However, due to change in the laws, a supply of such goods will fall under GST, but the credit excise shall not be allowed. This may lead to an increase in the price of consumable goods. If any goods will be sold from 1st July, full GST shall be paid by the taxpayer. If the taxpayer has an input tax credit, then he can adjust or else he will have to pay the applicable GST. This may result in double taxation for the goods purchased under the old tax laws. It is also expected that traders may return goods to the manufacturer so that the manufacturer can reverse the output tax paid on the transfer of goods. This situation may lead to disturbance in the business of manufacture and in turn affect their profits returns.

Composition Scheme

A taxpayer can avail the composition tax scheme if the turnover of goods is less than 1.5 Crore in a year, he is eligible for composition scheme under the GST Act. The taxpayer should be aware of the implication of migration from old tax laws to the GST act. We expect that a large number of taxpayers will move from the regular taxpayer to pay taxes under the composition scheme.

The transfer from composition scheme under the old tax laws to new tax laws is subject to GST Laws.

There may be a case wherein an existing taxpayer under the composition scheme may prefer to register/migrate under the GST Act. This may happen if the goods they are dealing with do not qualify under the exemption list of the new regime.

Conclusion

As stated earlier, GST has been introduced with the objective of one tax- one nation. It’s essential that entrepreneurs are well versed to its provisions and laws.

Do you wish to register for GST? Or are you looking for a GST Implementation advisory? Would you like to know about the GST Impact on your industry under GST? How ITC Transition provisions will be implemented? Please feel free to contact Enterslice, India’s leading online legal and tax advisory firm.

Read our article: Composition scheme under GST & Presumptive Taxation Scheme