Businesses follow continuity principle which implies that operations and other functions run on an ongoing basis. If we talk about manufacturing industry, goods in transit is one of the most common occurrences. Be it transfer of goods from warehouse to sales office, from head office to branch, from branch to head-office, from sales office to customers’ place, from customers’ place to sales office, etc. These are very common transactions. And, once the goods are sent from one place to another, goods are called ‘goods in transit’ until they reach their destination. This guide focuses on transitional provision for goods in transit under GST regime, which tax to pay and when.
According to previous laws, when goods leave the premises of seller, excise / VAT was applicable. And, if the same goods reach the premises of buyer on or after 1st July 2017, GST should have been made applicable on the same. However, the government took this into consideration as this would create double taxation and provided relaxation as given in the following example.
Arjun sold goods worth Rs 30,000 to Varun on the 18th June 2017 and charged VAT @ 5% i.e. Rs 1,500. The sold goods were delivered on the 4th July 2017. Will Arjun and Varun have to pay GST in this transaction since goods were delivered after GST implementation?
Well, no! GST will not be applicable here. Based on Central Board of Excise and Customs (CBEC) FAQs, there shall be no tax payable on such supply of goods/services under GST to the extent the tax is chargeable under the existing law.
GST on goods in transit is best understood by figuring out point of taxation and applicable rules.
According to the GST law, the point of taxation will be earlier of either invoice issued or payment made according to the time of supply rules of GST for goods.
It means if a supplier sold any goods and / or services for which an invoice was issued before the appointed day i.e. 1st July 2017, GST will not apply even if payment is received by the supplier after GST implementation.
Accordingly, any portion of supply made whose point of taxation falls on or after GST implementation, will be chargeable under GST and tax will be applicable thereon.
Mr Bharat sold goods worth Rs 25,000 to his regular customer Mr Ram. Sales invoice was issued on 25th June 2017 by Mr Bharat. Mr Ram received the goods on the 6th July 2017 and paid the dues on 8th July 2017. Is GST applicable on this?
No, GST will not be applicable because the point of taxation will be earlier of either invoice issued or payment made according to the time of supply rules of GST for goods
Here, since the sale was made before GST implementation, even though payment was made after 1st July 2017, GST will not be applicable.
Let’s, take a look at another possible scenario
Mr Bharat sold goods worth Rs 30,000 to his regular customer Mr Ram on 25th June 2017. The goods reached the premises of Mr Ram on 6th July 2017. The sales invoice was issued by Mr Bharat on 10th July 2017 and payment thereon was received on 15th July 2017. Is GST applicable on this?
Yes, GST will be applicable here because the point of taxation will be earlier of either invoice issued or payment made according to the time of supply rules of GST for goods
Here, both dates fall in the period after GST implementation and hence will be taxed under GST.
We shall take a look at two different scenarios to better understand the treatment and applicability of GST on goods in transit:
Example – When payment is made prior to 1st July 2017 but goods delivered after GST implementation
Arjun sold goods of Rs 80,000 to Varun on 21st June 2017 and charged VAT @ 5%. The dues were paid by Varun on 27th June 2017. The goods left from Arjun’s premises on 23rd June 2017 and were delivered to Varun on 5th July 2017.
In the above-mentioned scenario, only VAT will be charged since payment and invoice both were made prior to GST implementation. Hence, GST will not be applicable.
Example – When goods were sold prior to 1st July 2017 but payment is received after GST implementation
Arjun sold goods of Rs 1,25,000 to Varun on 25th June 2017 and charged VAT @ 5%. The goods reached on Varun’s premises on 5th July 2017. The dues were paid by Varun on 12th July 2017.
In this scenario, only VAT will be charged. There shall not be any GST outstanding on goods to the extent VAT was charged on these goods. And hence, GST will not be applicable.
A registered taxable person is allowed to claim ITC on goods in transit at the time of GST implementation (on which tax as per earlier laws has been charged) provided the invoice is recorded in the books of accounts within 30 days of GST implementation.
Pooja sold goods of Rs 1,10,000 to her regular customer Aarti on 28th June 2017 and charged VAT @ 5%. The goods were delivered on Aarti’s premises on 9th July 2017.
The dues were paid by Aarti on 12th July 2017.
Here, Aarti can claim input tax credit on these goods under GST, provided she records inward supplies in her books by 31st July 2017.
In such cases, the registered taxable person will furnish a statement concerning credit that has been availed.
In order to claim your input tax credit, you need to make sure that you and your vendors file their returns accurately. Therefore, reconciliation of returns is very important. However, reconciling each vendor’s return when you have hundreds can be very tedious and difficult. earlyGST’s reconciliation service can help you reconcile your returns with your vendors’ returns so that you can get the full benefit of input tax credit.