Transition to GST

Last Update Date : September 24, 2018

transition to gst

With introduction and implementation of GST, our Indian tax structure for goods and services has become a comprehensive one. Under GST, multiple taxes are amalgamated into one. Transition from traditional tax structure to GST needs careful exercise. Hence, it is vital to have rules ensuring smooth transition to GST in place.

GST Transition Rules and Transitional Provisions

The ease of transition to GST largely depends upon the effectiveness of the GST transitional provisions followed.

GST Registration Transition

  • Any registered dealer (under VAT, service tax or central excise) shall be issued a provisional registration certificate of transition in Form GST REG-25
  • For final registration, on receipt of such certificate, within 90 days, required documents need to be submitted in Form GST REG-24
  • If the details provided are satisfactory and complete, final registration certificate is issued in Form GST REG-06
  • In case, a taxable person was previously registered under central law and state law, and is not required to register under GST, an option to cancel the provisional certificate is available to them within 30 days of transition to GST by submitting Form GST REG-28

GST Transitional Provisions

The main purpose of the GST transitional provisions is to help a registered taxable person through a smooth transition from the existing laws to the GST regime without compromising on any benefits.

Quick Note: Any input credit under Central Excise and Service Tax Act will be carried forward as CGST / IGST as applicable and input credit under state VAT Acts will be carried forward as SGST.

Periodic Supplies and Transition to GST

In case, the supply contract is agreed on a piecemeal basis, the pro-rata treatment is applied.

  • Value of goods and/or services received in respect of goods and/services received before 1st July 2017 – amount subject to tax under the existing (current) tax laws
  • Value of goods and/or services received in respect of goods and/services received after 1st July 2017 – amount subject to tax under GST laws

[ Read: Transitional Provisions in Certain Cases under GST ]

Input Tax Credit of last returns filed in the current regime

  • The balances of credit CENVAT, VAT and entry tax can be carried forward to electronic ledger of registered taxable persons.
  • However, ITC can only be claimed by a dealer if he furnishes all returns required under the existing law. These returns need to be filed for at least 6 months preceding the date of GST implementation i.e. from January 2017 to June 2017.

VAT or excise paid on capital goods

  • In the Pre-GST scenario, ITC against inward supplies of capital goods is not available immediately.
  • In most of the states, ITC on capital goods can be claimed in instalments and that too only when those capital goods are taken into business use.
  • In order to claim input credit, the credit should have been admissible under the current laws. The unavailed credit would be the difference between Total input credit on the Capital Goods and Credit already availed under the Pre GST law.
  • For example, if ITC is INR 12,000 on the purchases of capital goods in the year 2016-17, only 50% i.e. INR 6,000 can be claimed as ITC in the same year and balance INR 6,000 in the next year.This credit can be carried forward to GST by providing details in Form TRAN-1.

Credit of excise paid on goods held-in-stock

  • If excise invoice is available, registered dealers who have purchased goods from manufacturers will be able to take 100% credit of excise paid
  • Registered dealers who have purchased goods from other parties if been issued a Credit Transfer Document by the manufacturer, will act as an evidence of excise duty paid
  • In case none of the excise invoice or credit transfer documents are available,
    (i.e., there is no invoice available) Then,

Case-Intra State Supply

Interest rate Percentage of ITC
More than 18% 60% Intra State credit to CGST
Less than 18% 40% Intra State credit to CGST

 

Case-Inter State Supply

Interest rate Percentage of ITC
More than 18% 30% Intra State credit to CGST
Less than 18% 20% Intra State credit to CGST
  • In order to avail input credit for goods held-in-stock,
    • the entire returns should have been filed for a period of 6 months preceding 1 July 2017
    • registered person should not be opting for Composition Scheme under GST

Quick Note: The credit is not applicable on either exempted goods manufactured or sold or exempted services provided. Further, only the amounts of taxes are being carried forward. It implies that the cess amounts paid under the pre- GST law shall lapse.

Credit on goods in transit

A registered taxable person is allowed to claim ITC on goods in transit provided the invoice is recorded in the books of accounts within 30 days of GST implementation

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

Arrears and refunds

  • In case any appeal or claim is pending for the refund on due CENVAT credit or interest paid or tax paid prior to 1st July 2017, the same needs to be disposed of in line with the provisions of previous laws.
  • Such pending refunds are treated as GST arrears and gets recovered as per provisions of GST laws.

Works Contracts and Transition to GST

The total value of the contract invoiced after 1st July 2017 shall be subject to tax under GST and value invoiced prior to 1st July 2017 would be subject to tax under previous laws. Here, the tax paid under previous tax laws can be claimed as an ITC under GST.

Situation 1 – when contracts are settled on a monthly basis

Example

The annual maintenance contracts are invoiced and settled on a monthly basis on the last day of each month. Accordingly, the invoice raised on 30th June 2017 for the month of June will be settled on 10th July 2017 and invoice raised on 31st July 2017 for the month of July will be settled on 11th August 2017.

In this scenario, the invoice raised for the month of June 2017, the taxes will be discharged under the laws of Service Tax Act since GST was not implemented till then. Similarly, the invoice raised for the month of July 2017 will be taxed under GST regime.

Situation 2 – when contracts are settled on a quarterly basis

Example

The annual maintenance contracts are invoiced and settled on a quarterly basis on the last day of each quarter. 40% of the amounts are settled within a week of invoice date and the balance 60% is settled on the last day of the quarter.
Accordingly, the billed amount of INR 1,000 raised on 22nd June 2017 for the month of June will be partially settled on 29th June 2017 with INR 400 and the balance INR 600 would be settled on 30th September 2017 (end of quarter).

In this scenario, the invoice amount raised in the month of June 2017 of INR 400, the taxes will be discharged under the laws of Service Tax Act since GST was not implemented till then. Similarly, the invoice of INR 600 settled on 30th September 2017 (in the quarter of July to September) will be taxed under GST regime.

Job Works and Transition to GST

In case, prior to 1st July 2017, if any raw materials, semi-finished goods or finished goods is sent for further processing to the job worker, there shall be no tax to be paid on the same. However, the following conditions need to be satisfied:

  • The details of inputs held-at-stock should be declared on 1st July 2017by both the Principal and Job Worker on behalf of the sender
  • Latest by 31st December 2017, such inputs held-at-stock should be received back by the Principal or the buyer from the Job Worker. Failure to receiving back goods shall result in payment of tax by the Principal under the current laws. Reversal of ITC

Long-term Contracts and Transition to GST

If the contract is finalised prior to 1st July 2017 but the goods and/or services are provided on or after 1st July 2017, GST would be applicable and payable.

Return of Goods and Transition to GST

If goods are sold between the period of 1st January 2017 and 30th June 2017 and on which tax was paid under the pre GST laws and the buyer returns these goods, the treatments will be as follows:

Buyer

 

Transaction will be treated as Impact on Buyer Impact on Seller
Within 31st Dec 2017 After 31st Dec 2017 Within 31st Dec 2017 After 31st Dec 2017 Within 31st Dec 2017 After 31st Dec 2017
Unregistered  person under GST Returns Supply NA NA Refund of tax paid under the pre GST laws Pay GST on the value of goods returned under reverse charge mechanism and claim input of such tax paid
Registered Person under GST Supply Supply GST to be paid by the buyer on the value of goods returned Input credit of GST paid by the buyer

Goods sent on approval basis and Transition to GST

As mentioned in the above scenario, sometimes goods are returned by the buyer. In case, goods are sent by the supplier on approval basis and buyer returns it on account of disapproval, the same will be treated as below:

  • If goods are approved and not at all returned, the transaction would be treated as supply. On such transactions, GST will be paid by the supplier (seller) on the value of goods sent. And, input credit of GST paid will impact the buyer.
  • If goods are returned to the supplier prior to 31st December 2017, the transaction would be treated as returns and no tax would be payable on such goods by either seller or buyer.
  • If goods are returned to the supplier after 31st December 2017, the transaction would be treated as supply. On such transactions, GST will be paid by the buyer (who disapproves) on the value of goods sent. And, input credit of GST paid will impact the seller (supplier who has sent goods on approval basis).

Price Revisions and Transition to GST

Sometimes after the approval and acceptance of contracts, there can be either upward or downward price revisions. If such revisions take place after 1st July 2017 and the contract is finalised prior to 1st July 2017, within the 30 days of such revisions, the supplier of such goods and/or services shall issue a debit note for upward revisions and credit note for downward revisions stating the difference amount and impact on GST.

  • In upward price revisions, there will be additional GST.
  • However, in downward price revisions the tax liability reduces only if the recipient of the goods and/or services reverses ITC to that extent.

Credit Distribution and Transition to GST

1. Input Service Distributor (ISD) under the current laws

ITC available to ISD as on 1st July 2017 can be distributed as CGST and IGST to the recipient in the same state and the different state respectively. If goods and/or services were delivered prior to 1st July 2017 but invoice was received by the buyer on or after 1st July 2017, input credit to be carried forward CGST (in the same state) or IGST (in different state).

[ Read: Types of GST ]

2. Centralized Registration under the current laws

CENVAT credit can be carried forward by a registered person based on the returns filed, for the period ending 30th June 2017, with the respective authorities. The below are the conditions to claim input credit.

  • The input credit should be admissible under GST
  • The input credit available as on 1st July 2017 can be distributed to a recipient as either CGST in the same state or IGST in a different state.
  • The return for the period ending 30th June 2017 is filed latest by 30th September 2017 (Note: the last day to file such returns as notified by the Government was15th August 2017)