Transition to GST (Goods & Service Tax)

Narendra Kumar

21 Oct, 2020

Chapter XX of the Central Goods and Service Tax Act, 2017 provides the provisions for Transition to GST of taxpayers already registered under any existing indirect tax laws.

The Act states that all the existing taxpayers having a permanent account number are to be migrated to GST and a certificate of GST registration to be issued. However this transition is on a provisional basis, and to make it final, certain required conditions are to be fulfilled. Only after completing all those documentation formalities and providing all other required information, the registration procedure is completed and a distinct GSTIN is issued. Let’s discuss a few items and their transition to GST a little more in detail.

Input Tax Credit & its Transition

Taxes paid on inward supplies can be deducted from the taxes paid on outward supplies to calculate actual tax liability. This deduction is known as Input Tax Credit. Transition arrangements regarding this Input Tax Credit are provided in Section 140 of the Act. Under the GST law, all invoices are required to be uploaded online.

The Act provides that all the registered taxpayers under GST can claim the Input Tax Credit except for those who have opted for the Composition Scheme under Section 10 of the Act. Such taxpayers can transfer input credit claimed under any old law to their electronic credit ledger.

Provisions for Taxpayers Required to Pay Tax under Existing Laws

These taxpayers are entitled to get the credit equal to CENVAT credit carried forward in the return furnished by them for the period ending immediately preceding the appointed date, i.e. 1^st July 2017. However, they will only be allowed to take forward this credit if the following conditions are satisfied:

• The said amount of credit is allowed as input credit under the CGST Act, 2017^[1].
• The taxpayer has furnished all the required returns under the existing laws for a period of 6 months immediately preceding the appointed date.
• The said credit is not related to exempted goods.

In addition to the above carried forward amount, a taxpayer is also allowed to get in their electronic credit ledger the credit of unveiled CENVAT credit in respect of capital goods not carried forward in the return furnished under the existing laws.

Provisions for taxpayers not required to pay tax under existing law

Taxpayers registered under the GST, who were not liable to be registered under the existing laws, or were engaged in manufacture/provision of exempted goods/services, we’re providing works contract service and were availing of the benefit of Notification No. 26/2012—Service Tax, was a first stage or second stage dealer or a registered importer or a depot of a manufacturer can avail the credit for eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods, subject to the following conditions, namely:

• Such inputs are used for making taxable supplied under GST.
• The taxpayer is eligible to receive Input Tax Credit.
• The taxpayer is in possession of invoice or other prescribed documents evidencing payment of duty.
• Such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.
• The supplier of services is not eligible for any abatement under GST.

As of now, we discussed the duty or taxes on input held in stock or input service received on or before the appointed date. But what if they are received after the appointed date, and the duty or tax on them is paid by the supplier under the existing laws. In such a case, the taxpayer will be allowed a credit for such tax or duty under GST only if the invoice or any other duty or tax-paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day.

Transition Provision Relating to Job Work

Section 142 of the Act covers the provisions relating to job work for the transition to GST. First, we have to understand what job work means here. Job work means when any input/ semi-finished goods/ finished goods which were received/ processed/ manufactured are removed from the place of business to any other premises or to a job worker for further processing, testing, repair, reconditioning or any other purpose in accordance with the provisions of existing law, and are returned to the same place after such work is done.

If the said input/ semi-finished goods/ finished goods are removed prior to the appointed day and they are returned to the said place on or after the appointed day, no tax shall be payable if the following conditions are satisfied:

• The said goods or input are returned within six months from the appointed day, and on sufficient cause being shown, this period can be extended by the Commissioner for a further period not exceeding two months,
• The manufacturer and the job worker provide a declaration providing the details of the inputs or goods held in stock by the job worker.

On the other hand, the manufacturer can in accordance with the provisions of the existing law, transfer the said goods to the premises of any registered person on the payment of the tax. He can also export the same without the payment of tax as exports are zero-rated.

Conclusion

However, if the said goods are not returned to the premises within the specified time limit, the ITC will be recovered back by the taxing authority.

Update: The last date of GST Migration and procedures for the transition to GST are long passed, and now anybody required to be registered under the laws will have to go for fresh GST Registration.

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