Input Tax Credit

Provisions have been made for the smooth transition of Input Tax Credit available under VAT, Excise Duty or Service Tax to GST.  A registered dealer opting for composition scheme will not be eligible to carry forward ITC available in the previous regime.

Here are some of the cases where ITC transition provisions will be applicable:

1. Closing balance of credit on Inputs:

The closing balance of ITC as per the last return filed before GST can be taken as credit in the GST regime.

The credit will be available only if the returns for the last 6-months i.e. from January 2017 to June 2017 were filed in the previous regime (i.e. VAT, Excise and Service Tax returns had been filed).

Form TRAN 1 has to be filed by 27th December 2017 to carry forward the Input Tax Credit. Also, TRAN 1 can be rectified only once.

2. Credit on Capital Goods:

Before GST, only a part of input tax paid on Capital Goods could be taken as credit.

For example, if ITC on a Capital Good purchased in the year 2016-17 is Rs 10,000,

50% i.e. Rs 5,000 can be claimed as ITC in the same year and balance Rs 5000 can be claimed in the next year.

In such cases, there could be some amount of un-utilized credit available on the capital goods. This credit can be carried forwarded to GST by entering the details in Form TRAN 1.

3. Credit on Stock:

A manufacturer or a service provider who has goods lying in the closing stock on which duty has been paid can also take the credit for the same. The dealer has to declare the stock of such goods on the GST Portal.

The dealer should have the invoices for claiming this credit. Also, the invoices should be less than 1 year old.

What if you don’t have invoices?

Manufacturers or service providers who do not have an invoice evidencing payment of duty, cannot claim the credit under the GST regime.

Only traders can claim credit in case invoice is unavailable, subject to the following conditions:

• The stock should be identified separately
• The credit can be taken by the trader only if the benefit of the same is passed on to the final consumer

How will credit be taken in case of no invoice?

4. 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

5. ITC on Goods Sent Before 1st July

Input tax credit can be claimed by the manufacturer/dealer for those goods received after the appointed day, the tax on which has already been paid under previous law. Above credits would only be allowed if the invoice/tax paying document is recorded in the accounts of such person within 1st August 2017. A thirty-day extension may be granted by the competent authority on grounds of sufficient cause for delay.

Refunds and Arrears

Any claims/appeals pending for the refund on the due amount of CENVAT credit, tax or interest paid before 1st July shall be disposed of according to the previous laws.  

Any amount found to be payable under previous law will be treated as arrears of GST and be recovered according to GST provisions.

Other Cases

1. Job Work

No tax shall be payable on Inputs, semi-finished goods removed for job work for carrying certain processes and returned on or after 1st July

Conditions when there is no tax payable:

• Goods are returned to the factory within 6 months from 1st July (extendable for a maximum period of 2 months)
• Goods held by job worker Is declared in Form TRANS-1
• Supply of semi-finished goods is done only on payment of tax in India or the goods are exported out of India within 6 months from 1st July (extendable by not more than 2 months)

Taxes are not applicable if finished goods were removed before 1st July for carrying certain processes and are returned within 6 months from 1st July

Input tax credit will be recovered if the goods are not returned within 6 months

2. Credit Distribution by Input Service Distributor

Transition provisions will apply in cases where the service was received prior to 1st July and the invoices received on or after 1st July.

ISD will be eligible to distribute input tax credit under GST.

3. Composition Dealer

When a registered dealer who was paying tax under composition scheme previously but is a normal taxpayer under GST can claim credit of inputs available as on 1st July by satisfying certain conditions –

•         The Input is used for taxable supply
•         Registered Person is eligible for ITC under GST
•         Invoice or other duty payment documents are available
•         Such invoices are not more than twelve months old.