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GST Simplified Series#3 Transitional Provisions

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CA. Nikhil M . Jhanwar

Transitional Provisions

This Series will cover the most important Topic- ‘Transitional Provisions’. This topic is very much relevant at this stage
for all existing assesses who are migrating into GST and wish to have smooth transition.

Update: After a long battle of patience, pursuance and performance, CGST, IGST, UTGST and
Compensation Bills have been accorded presidential assent and has become an Act w.e.f. 12th April, 2017.
However, its applicability will be notified by Government of India. Now ball is in the States’ court who has
to legislate their respective SGST Acts.

What ‘Transition’ is all about ?

Whenever a new levy or new scheme of taxation is introduced, it may completely overwrite the existing tax laws and rewrite rules of
the game. That’s what will happen when GST is introduced. Entire scheme of Indirect Taxation will undergo radical overhaul. So to
cope up with that change, transitional provisions are created in new law to ensure smooth and hassle-free adoption of new scheme of
taxation to safeguard interests of existing taxpayers.

Transition can be split into 2 parts:

1. Systemic Transition

2. Regulatory Transition

Systemic Transition is about changes in System, process and business structure. Any existing businesses have to revisit their
ongoing contracts, internal procedures and go back to their Board room to adapt to new product & marketing strategies which
concurs new scheme of Taxation i.e. GST. A deep analysis needs to be undertaken to accommodate any anticipated changes on
account of widening tax base, rationalization of tax rates, phasing out of tax exemptions, integrated credit structure and automated
compliance system. This will necessitate redesign of ERP system which is not only an Accounting system but one of efficient ways
of managing business. Systemic transition is more of case-to-case process and has to be looked separately for different industry
verticals.

Systemic Transition will embrace following key aspects:

Let’s now move on to Regulatory Transition (‘RT’ in short) which is governed by GST Law. Sections 139-142 of The CGST Act, 2017
read with consequent Draft Rules deal into Transitional provisions which are discussed below

A. Migration of Existing Taxpayers (Section 139)

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The migration of existing taxpayers into GST is already undergoing with aggressive push from Government. Provisional IDs have
already been issued to taxpayers from State VAT Authorities/ Excise Authorities/Service tax Authorities as the case may be. There
would be one Provisional ID for one PAN based registration for each State. That is, if there are multiple locations in single state, only
Single Provisional ID is being issued. Not going into much details on migration, below process explains activities post introduction of
GST:

Note: There is no provision for migration of registration as Input Service Distributor and the same needs to be applied
afresh in GST regime.

B. Transitions- Input Tax Credit (Section- 140)

This is the most important transition because it is where money in form of Credits is involved. This lays down provisions about credits
which can be carried forward in different situations subject to conditions thereto. The basic conditions you will find in each situation
are as under:

Tax paid on such inputs or input services or capital goods is eligible as Credit in both existing laws as well as GST law’.

Assessee is registered person in GST law. If someone applied for cancellation of registration post-migration, no credits will be
allowed.

Which transitional Credits can be availed in GST ?

Credits Available Available to whom Remarks/Conditions

Carried forward in Last Existing Taxpayer

Return before GST Filed returns for last 6 months before
GST
Credit does not relate to goods
manufactured and cleared with
exemption
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Unavailed Cenvat Credit on Existing Taxpayer For e.g. 50% credit pending to be availed in
Capital Goods subsequent F.Y.

Credit of Duties on Registered Person in GST and not eligible

Inputs/WIP/FG in Stock on
Appointed Day
for Credit in existing law like: Such goods used for making taxable
supply
Exempted Taxpayer,
Registered person in possession of
Works Contractor invoice /other prescribed documents
First Stage/Second Stage Dealer evidencing payment of duty under the
existing law
Registered Importer
Such Invoices issued in last 12 months
Depot of Manufacturer from appointed day
Composition Taxpayers Not eligible for abatement in GST

Credits carried forward in Registered Person dealing in exempted and

Last Return & Credit of Duties taxable goods/services in existing law, for
on Inputs/Goods in Stock which no exemptions are there in GST.

Credit on Inputs/input Registered Person in GST Invoice of such inputs/input services recorded
services received post-GST in books within 30 days of appointed day.
but duty/taxes paid before
GST

Credit of input services Input Service Distributor Invoice raised by ISD

received before GST and
invoices received

Credit carried forward in Last Registered person having Centralised Credit can be transferred to any of registered
return before GST Registration in Service tax premises coming under Centralized registration
and now separately registered in GST

Credit on Input services Registered Person Can be re-claimed if payment made within 3
reversed on account of months from appointed day.
non-payment of
consideration

Application is required to be submitted by Every Registered Person availing credit by way of Carry forward in return or credit on
inputs/goods lying in Stock in Form GST TRAN-1, within 60 days of the appointed day.

C. Transition- Job Work

Applicability if:

Inputs/goods/semi-finished goods are sent to job worker by principal before appointed date.

Finished goods are sent outside factory for testing purposes

such goods are lying with job worker or Testing laboratories as on the appointed date.

Provision in Current Laws

As per provision in Central Excise law, Cenvat credit is allowed on such inputs sent to job worker for further processing and not
required to be reversed goods returned back within 6 months or removed form premises of job worker if exemption has been
claimed under Notification No. 214-86- CE.

Benefit in GST Law

Now existing taxpayers can obtain benefit of transition and as per GST law, those 6 months shall be counted from appointed date.
GST Simplified Series#3 Transitional Provisions http://taxguru.in/goods-and-service-tax/gst-simplified-series3-transitional...

This is big relief for Principal Manufacturer who gets job work done on their inputs.

D. Misc. Transitional Provisions

Other key provisions are discussed below:

Situation Provisions Remarks

Duty paid goods returned back in Such Goods are removed not earlier than 6
GST regime Refund can be claimed if returned months from appointed date
from Unregistered person
Shall be Supply if returned by
registered person

Price Revision in pursuance of Issue Supplementary Invoice/Credit Note

contract entered before GST under GST Regime If SI/CN issued within 30 days of
price revision.
Recipient to reverse ITC in case of
Credit Note

Refund claim filed for Duty/Tax To be refunded in cash Refund claim can filed
paid before GST

*Appointed Day/Date: It means the day or date wen GST Law comes into force.

About Author: CA Nikhil M. Jhanwar is practicing Chartered Accountant in Delhi/NCR specialising in Indirect Tax, Start-up Advisory,
Corporate Finance. He is also GST Faculty of ICAI. He can be reached as nmjhanwar@gmail.com/+91-8860876960.

Read Other Related Articles:-

1) GST Simplified Series#1 Concept, Levy, Scope & Applicability

2) GST Simplified Series#2 Levy, Supply & Rates