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TRANSITIONAL PROVISION UNDER GST – SEC 140(3)

September 23, 2017

Credit of eligible duties in respect of inputs held in stock allowed in certain Situations

THE LAW:

140(3) - Credit of eligible duties in respect of inputs held in stock allowed in certain situations.

A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of Notification No.26/2012-Service Tax, dated 20.06.2012 or a first stage dealer or a second stage dealer or a registered importer, or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:-

(i) such inputs and / or goods are used or intended to be used for making taxable supplies under this Act;

(ii)   the said registered person is eligible for input tax credit on such inputs under this Act;

(iii) the said registered person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;

(iv) such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and

(v) the supplier of services is not eligible for any abatement under the Act.

PROVIDED that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed.

 

THE LAW SIMPLIFIED

PART-I

Applicability of the provision:

This above transition provision is applicable to the following persons:

  1. who was not liable to be registered under existing law
  2. who was engaged in the manufacture of exempted goods
  3. who was engaged in providing exempted services
  4. who was providing works contract service and was availing the benefit of Notification No.26/2012-Service Tax, dated 20.06.2012
  5. a first stage dealer
  6. a second stage dealer
  7. a registered importer
  8. a depot of a manufacturer.

Availability of credit:

Credit of eligible duties and taxes under the above section is available on:

  1. Inputs held in stock and inputs contained in semi-finished goods or finished goods held in stock as on appointed day i.e 1st July, 2017.
  2. Above benefit is not available for input services.
  3. Such credit can be taken in the electronic credit ledger.

Eligible duties

The expression, ‘eligible duties’ in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day means:

Sl. No

Nature of duty

Act

1

Central Excise duty paid on ‘inputs’

First Schedule to the Central Excise Tariff Act, 1985(5 of 1986)

2

Central Excise duty paid on ‘inputs’

Second Schedule to the Central Excise Tariff Act,1985(5 of 1986)

3

Additional excise duty paid on ‘inputs’

Section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978)

4

Additional excise duty paid on ‘inputs’

Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957(58 of 1957)

5

National Calamity Contingent Duty paid on ‘inputs’

Section 136 of the Finance Act,2001(14 of 2001)

6

Countervailing duty paid on ‘inputs’

Customs Tariff Act

 

Conditions to be satisfied for availing transitional credit when tax paid documents are available:

The following conditions needs to be satisfied for availing credit of eligible duties and taxes under the provisions of the aforesaid section:

  1. The taxpayer is registered under GST
  2. The amount of credit is admissible as ITC under the GST regime.
  3. The inputs or goods on which credit is being availed will be used or are intended to be used for making taxable supplies under this Act.
  4. The registered person is eligible for input tax credit on such inputs under this Act.
  5. The registered person possesses invoice or other prescribed documents evidencing payment of duty under the erstwhile law against such inputs/goods.
  6. The invoices and documents mentioned above should not be older than 1st July 2016.
  7. The supplier of services is not eligible for any abatement (exemptions) under this Act.
  8. The registered person must have filed all returns under the previous laws regularly during last 6 months of the appointed date i.e from 1st January 2017 to 30th June 2017.

 

Conditions to be satisfied for availing transitional credit when tax paid documents are not available:

Rule 117 of the CGST Rules, 2017 states credit may be allowed to a trader even if he is not in possession of such invoice/document disclosing payment of duty/tax.

The above Rule is applicable to a trader who is having an invoice where only VAT/CST has been paid and the amount of excise duty is included in the purchase price. He is allowed to take the credit of such excise duty component forming part of purchase price, subject to certain conditions:

  1. Such conditions, limitations and safeguards as the case may be prescribed as under.
  2. The said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient.

 

Credit of Central Tax

  1. Credit shall be allowed only for CGST/IGST applicable on supply of such goods after the appointed date.
  2. This input tax credit amount shall be credited into the electronic credit ledger only after the CGST/IGST payable on supply of such goods has been paid after the appointed date.
  3. This situation arises when invoice is raised under the erstwhile tax regime and supply happens in a GST regime.

 

Amount of credit, where tax paid documents are not available

Type of Supply from such

Stock

Rate of Tax applicable

Quantum of credit

allowed

Intra-State Outward Supply

CGST @ 9% or more

CGST @ below 9%

60% of the CGST paid

40% of the CGST paid

Inter-State Outward Supply

IGST @ 18% or more

IGST @ below 18%

30% of the IGST paid

20% of the IGST paid

 

PART-II

Transition Rules applicable to states offering tax at the first point of their sale in the state and subsequent sales are not subject to tax.

The SGST Law of respective states also contain similar provisions, providing that a registered person, holding stock of goods which have suffered tax at the first point of their sale in the State and the subsequent sales of which are not subject to tax in the State, can avail credit on goods held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of VAT in accordance with the proviso to sub-section (3) of section 140.

 

Credit of State Tax

  1. Applicable to a registered person other than a manufacturer or a supplier of services
  2. The registered person, is holding stock of goods which have suffered tax at the first point of their sale in the state.
  3. The subsequent sale of the above goods were not subject to further tax in the state.
  4. The registered person is not in possession of any document evidencing payment of VAT.
  5. The input tax credit amount shall be credited into the electronic credit ledger only after the SGST payable on supply of such goods has been paid after the appointed date.
  6. Credit shall be allowed subject to such conditions, limitations and safeguards as may be prescribed including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient.

 

Amount of SGST/IGST credit , where tax paid documents are not available

Type of Supply from such

Stock

Rate of Tax applicable

Quantum of credit

allowed

Intra-State Outward Supply

SGST @ 9% or more

SGST @ below 9%

60% of the CGST paid

40% of the CGST paid

Inter-State Outward Supply

IGST @ 18% or more

IGST @ below 18%

30% of the IGST paid

20% of the IGST paid

 

Procedure for claiming the aforesaid credits under Part-I and Part-II

  1. The above scheme of availing Input Tax Credit shall be available for six tax periods from the appointed date.
  2. Relevant documents substantiating the procurement of such goods must be available with the registered person.
  3. The stock of such goods shall be so stored that they can be easily identified by the registered person.
  4. The registered person shall be allowed to take the credit under the above section only if he submits the FORM GST TRAN-1 electronically on the GSTN portal within 60 days of the appointed date.
  5. Registered person availing this scheme must furnish the details of stock held by him and submit a statement in FORM GST TRAN-2 at the end of each of the six tax periods during which the scheme is in operation indicating the details of supplies of such goods affected during the tax period.
  6. The amount of credit allowed shall be credited to the electronic credit ledger.

 

Time limit for filing Tran-1 Form

Note – The following decisions have been taken in the 21st GST Council Meeting held on  9th September 2017

  1. The due date for submission of FORM GST TRAN-1 has been extended by one month i.e. 31st October, 2017.
  2. FORM GST TRAN-1 can be revised once.

Disclaimer - The information provided in this document is for general information only. It is based on the information available publicly. The user of this document should be aware that the interpretation or implications of relevant GST rules may change/vary depending upon circumstances.

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