CHAPTER 15

Transition to GST

While We Cross the Bridge

Do you want to transfer the credits of C. Excise, Service Tax, VAT, etc. to
the e-Credit Ledger? Fill in the form GST TRAN-1 online – latest by 29th
September, 2017. This chapter describes how

Topics Discussed

 Introduction

Chapter 15: Part - A

 Form GST TRAN-1

- Last date for filing TRAN-1

- Purpose of TRAN-1

- Is filing TRAN-1 mandatory for everyone?

- What happens till TRAN-1 is not filed?

 Basic conditions for transferring the credits

 Whether credit of Ed. Cess, SHE Cess, and KKC can be

transferred to GST

Chapter 15: Part - B

 Closing Balance of Credits in the returns for the period

ending June 2017 [Sec 140 (1) – Table 5]

- Transferring credits of taxes imposed by Central

Government [Table 5 (a)]

- Transferring Credits under State Law:

Chapter 15 Transition to GST

 Un-Availed Credit on Capital Goods: [Sec 140 (2) – Table 6]

 Credit on closing stock of goods as on 30th June 2017 [Sec 140

(3) – Table 7]

- Persons Covered

- Situations Covered

o Actual Credit

o Deemed Credit

o Example for claiming deemed credit:

- Conditions for allowing credit under section 140 (3)

- Structure of the table 7

 Credit to the person engaged in manufacture of

dutiable/taxable as well as exempted goods or services: [Sec
140 (4)]

 Inputs or Input Services in Transit: [sec 140 (5) – Table 7 (b)]

 Persons working under composition schemes of existing laws:

[Section 140 (6) – Table 7]

 Input service distributor (ISD): [Sec 140 (7)]

 Persons having Centralised Registration: [Sec 140 (8) –Table 8]

 Re-claim of credit reversed due to non-payment: [Sec 140 (9)]

 Transitional provisions relating to job work [Sec 141]

Chapter 15: Part - C

 Rejections and Returns: [Section 142 (1)]

 Price Revision: [Sec142 (2)]

Chapter 15 Transition to GST

 Matters to be disposed in accordance with the existing law

(i.e. in accordance with pre-GST laws) – refunds, appeals,
reviews, etc.

 Supply in GST regime would attract GST even if the contract

was entered into before 1st July, 2017 [Sec 142 (10)]

 Supplies made after 30th June, where VAT or Service Tax or

both were leviable before 30th June

 Sale on Approval: [Sec 140 (12) – Table 12]

 Tax deducted at source: [Sec 142 (13)]

 Goods of Principal lying with Agent [Sec 142 (14) of State GST
Acts – Table 10]

 Legal Provisions

Introduction:

As we know, C. Excise, Service Tax & VAT are the three major taxes
subsumed into GST along with 14 other taxes. It is an obvious
question as to what will happen to the taxes paid under existing
laws1 . How will the credit be taken under GST regime? Where a
person is registered, say, under C. Excise law, his credits are already
recorded in the ER-1 or other returns. The ER-1 for June 2017 will
have closing balance of Cenvat Credit. Similar balances might be
there in other returns (Service Tax, VAT etc.). We need a mechanism
to transfer these balance to GST. And what about those who are not
registered? In fact, it may happen that the person is registered under
one law and not under the other one. Thus, for instance it is possible
that a person is registered under VAT and not registered under C.
Excise. Similarly, the transactions may spill over to the GST regime.

1 Existing laws refer to the laws relating to taxation of goods and services that were in
force prior to 1st July, 2017. Thus, the Acts, Rules, Notifications etc. relating to C. Excise,
Service Tax, VAT are ‘existing laws’. It is defined vide section 2 (48) of the CGST Act,
2017.
Chapter 15 Transition to GST

For example, goods supplied on payment of C. Excise duty & VAT

could be rejected by the customer after GST comes into force. We also
need to understand as to how to deal with the materials lying with
job-workers. What happens to the notices issued under existing laws,
on-going investigations, pending refunds, appeals etc. All such
questions and many more are specifically dealt in this chapter.
Broadly the transition provisions cover three topics:

a. Transferring credits of the taxes & duties paid under pre-GST

law to GST. This would involve the cases where the person
was registered under the previous regime and was already
availing the credits. But, this would also involve the cases
where the person was not registered and had not availed the
credits. Section 140 comprehensively deals with this matter.

b. Ensuring return of goods sent out for job-work latest by

December, 2017. This is dealt by section 141.

c. Establishing mechanism to deal with notices, appeals, refund

claims, recoveries, etc. of the pre-GST regime.

PART – A

FORM GST TRAN-1

We know that an Input Tax Credit is available to us only if it is

recorded in the e-Credit Ledger available on the GST portal. Unless
the credit appears in that ledger, it is not available to us. In regular
course, the credits would reach this ledger via form GSTR-2. But,
how do we transfer the credits available under the existing laws?
Form GST TRAN-1 has been provided for this purpose.

Last date for filing TRAN-1: The form is to be filed on the GST portal
within 90 days from 1st July, 2017. Thus the last date would be 29th
Chapter 15 Transition to GST

September, 2017. If the GST Council approves, then Commissioner

can been empowered to extend this period for further 90 days2.

Purpose of TRAN-1: Following are some of the purposes for which the
form would be used. Please refer the:

i. To transfer the closing balance of returns under existing

law.

ii. To avail the un-availed credit on capital goods

iii. To avail credit on the stocks held as on 30th June 2017 on

which credit had not been availed in the previous regime.

iv. To avail credit of the Duty/ Tax paid under earlier law,
but where the input/ service received after 30th June.

v. To transfer the credits from Centralised Registration to

different states

vi. To continue duty exemption on the goods sent for job-

work

vii. To avail credit on works contract/ specified contracts

viii. To regulate tax on the goods sent for sale on approval

Is filing TRAN-1 mandatory for everyone?

No. It is mandatory only for those who

- Want to transfer the credits from pre-GST to GST regime

- Want to avail credits on capital goods (the un-availed

portion)

- Want to avail credit of duty/ tax paid on the stock of goods

held by them on 30th June (it means they had not availed these
credits under the pre-GST laws).

2 See Rule 117 of the CGST Rules, 2017

Chapter 15 Transition to GST

- Want to transfer credit from Centralised Registration

- Have stock lying with their job-workers (or are holding stock
of their principals as job-worker)

- Had paid service tax and VAT on a contract, but the supply is
being made in the GST regime.

- Are holding stock as agent on behalf of the principal; or

whose agents are holding stock on their behalf.

- Had sent goods for sale on approval basis, before 1st July,
which were not sold before 1st July.

What happens till TRAN-1 is not filed?

The pre-GST credits will not become

We cannot utilise the
available in the e-Credit Ledger unless
pre-GST credits until
TRAN-1 is filed. Therefore, they will not be we file GST TRAN-1.
available for utilisation. May be that the
Government comes out with some other method as an interim
measure. But unless it does so, the credits will not be available.

Suppose you had a closing balance of Cenvat Credit of Rs. 5 lakh as

on 30th June and earned fresh credit of IGST of Rs. 3 lakh during July.
If you file TRAN-1, the closing balance of Rs. 5 lakh would get
transferred to your e-Credit ledger. So the total credit available
would be 8 lakh. If your liability to pay tax for July is Rs. 7 lakh, you
can discharge the entire liability by utilising the credits. On the other
hand if you have not filed TRAN-1, the credit available in the e-
Credit Ledger would be only Rs. 3 lakh (received during July). The
opening balance of Rs. 5 lakh will not be there. As a result you will
have to deposit Rs. 4 lakh in your cash ledger for discharging the
total liability of 7 lakh (by utilising 4 lakh from cash ledger and 3 lakh
from credit ledger).

Basic conditions for transferring the credits

Before we seek to apply any provision for claiming credit, we must

remember that:
Chapter 15 Transition to GST

i. Past credits can be transferred to GST regime only if the

credit was admissible under the existing law as well as
under GST law.

ii. Transfer of credits etc. would be allowed only if the person

has filed all the returns for the period from January to June
2017.

iii. Credits can be availed only if the person is liable to pay GST
on his outward supply. If there is no GST on the outward
supply, there is no question of availing ITC.

iv. A person opting to avail composition scheme under GST, is

not entitled to take credits.

v. We are required to file information in form GST TRAN-1.

The person desiring to avail deemed credit on stocks will
also have to form TRAN-2 for each month.

Whether credit of Ed. Cess, SHE Cess, and KKC can be transferred
to GST

Section 140 contains ten sub-sections covering nine different

situations. All the sub-sections allow credits „in such manner as
prescribed‟. The sub-section (1) allows transfer of the closing balance
of the credits availed under existing laws (balance of the return). Sub-
section (2) permits taking of un-availed credits on capital goods.

Rule 117 requires filing of GST TRAN-1 for availing credits eligible
under section 140. But it says that a registered person can specify in
the form only the eligible duties and taxes, as defined in Explanation 2
to section 140, to which he is entitled. The said Explanation 2 reads “For
the purposes of sub-section (5), the expression “eligible duties and taxes”
means…….”. The list of duties and taxes thereafter do not specify Ed.
Cess, SHE Cess, and KKC as „eligible‟. Therefore, so far as the rule
117 is concerned, it does not permit transfer of credits of these
duties/taxes.
Chapter 15 Transition to GST

However, the provision of

rule 117 itself appears to be
ultra vires the section 140
(i.e. the rule is contrary to
the section). In legal
hierarchy a rule is
subordinate to the Act.
Rule is framed for the
purpose of carrying out
the Act. A benefit
permitted by the Act,
cannot be curtailed by
rules. Let‟s compare the
provisions of the Act and
the Rule now.
 Credit of Swachh Bharat Cess (SBC)
cannot be carried forward. This
credit was not allowed at all under
Cenvat Credit Rules, 2004.
 Credit of Krishi Kalyan Cess (KKC)
can be carried forward only by a
service provider. If a person was not
provider of output service, the credit
was not available to him under the
existing law.
 Credit of C. Excise Duty, Service Tax,
CVD and SAD would be transferred
as CGST.

While the explanation 2  Credit of VAT and Entry Tax would

defines „eligible duties and be transferred as SGST.
taxes‟ only for the
purposes of sub-section (5), the rule seeks to apply the same meaning
to the whole section and thereby curtail the scope of the section. For
instance, sub-section (1) allows transfer of the amount of credit
carried forward in the return for the period ending June 2017.
Nowhere does it say that credits of Ed. Cess or KKC which was
legitimately taken under pre-GST law, cannot be transferred. The
section contains two explanations. Explanation 1 defines „eligible
duties‟ for the purposes of sub-sections (3), (4) and (6), and the
explanation 2 defines „eligible duties and taxes‟ for the purposes of
sub-section (5). Thus, the definitions are not applicable to sub-section
(1), (2) and (7) to (10). So far as these sub-sections are concerned, if
the credit of a duty/ tax was allowed under the existing law, the
same can be transferred (provided the general conditions discussed
earlier are fulfilled). Therefore, the meaning provided in these
explanations cannot be extended to those sub-sections.

Rule 117 seeks to apply the meaning provided in explanation (2) to

the whole section i.e. even to the sub-sections (1), (2) and (7) to (10).
In other words the scope of section 140 is sought to be narrowed
Chapter 15 Transition to GST

down by a rule. This appears to be legally impermissible. Credits are

substantive rights. When the provisions of the Act do not curtail
them, the rule making authority has no power to curtail the same.

Pragmatic Way:

The department may take a view that these credits are not
admissible. Consequently, demand notices could be issued for
recovery of credit along with interest. If the amount of credit is small,
it would not be worth going into litigation. However, if the amount is
large, the right course may be to take the matter to High Court by
way of Writ. The provisions of rule 117 could be challenged on the
ground that it curtails the scope of section 140 (3) by applying the
explanation 2 to the whole section.

Part - B
Transfer of Closing Balance of Credits: [Sec 140 (1) – Table 5]

This section discusses the method to transfer the closing balance of

credits from the returns for the period ending June 2017 to the e-
Credit Ledger.

Closing Balance of
C. Excise Return
Service Tax Return Electronic Credit Ledger
VAT Return
Entry Tax Return

Transferring credits of taxes imposed by Central Government [Table 5 (a)]:

In normal course, we would have brought forward the closing
balance of credit in ER-1 for June 2017 as opening balance in the
return for July. Similarly, we would also have brought forward the
credit balance of ST-3 return to the next return. The same effect can
be achieved through table 5 of TRAN-1. Table 5 (a) is for transferring
Cenvat Credit availed under Central Excise & Service Tax laws. This
Chapter 15 Transition to GST

will include the credits of CVD and SAD availed on imported goods.
All these credits would be
transferred to GST as „Central Tax‟  Table 5 (a) is applicable to
(i.e. CGST) those who were registered
under C. Excise or Service
Those registered under C. Excise as
Tax law. But it‟s not
a dealer/ depot/ importer, cannot
applicable to their
transfer credit through this table.
registrations as dealer/
The returns filed by them under C.
depot/ importer.
Excise law, does not have any table
showing opening or closing  Table 5 (b) and (c) are
balances of credits. It merely shows applicable to those
details of the goods sold and the registered under state laws
corresponding invoices under (VAT/ Entry tax)
which the same had been
purchased.

Similarly, this sub-section does not apply to those who were not at all
registered under the C. Excise or Service Tax law.

Illustration: Suppose following is the credit balance in the returns for

June ending:

Return Input + Capital

Goods + Input
Services

ER-1/ ER-2 for June 2017 5 lakh

(or ER-3 for Apr to June)

ST-3 for Apr to June 1 lakh

2017

Now, firstly, check whether we are really eligible to total credit of Rs.
6 lakh or to a lesser amount. Different practices have been adopted
by persons who are manufacturer as well as a service provider:
Chapter 15 Transition to GST

a. Some persons report the same amount of credit in both the

returns i.e. same figures appear in C. Excise return as well as
Service Tax return.

b. Some persons have a practice of reporting entire credit in C.

Excise return and a fraction of the total credits in ST-3.

c. While in some cases, the credits in the two returns may be

overlapping, in other cases, these may be entirely different
credits.

Therefore, one should determine his actual total credit balance. Take
help of the credit accounts maintained by you. The balance of credit
in the following accounts would be the actual balance.

 The input tax credit account (old RG23A Pt. II)

 The capital goods credit account (old RG23C Pt. II)

 The input service credit account

Credits were a common pool for C. Excise as well as Service Tax.

Therefore, the total credit available as on 30th June would be sum
total of the closing balances in the above three accounts.

Design of the table 5 (a) is as under (the data is just for illustration):

Sl. Registration Tax Date of Balance Cenvat

no. no. period to filing cenvat Credit
under which of the credit admissible
existing the last return carried as ITC of
law (C. return specified forward central tax
Excise and filed in in the in
Service Tax) under the Column said accordance
existing no. 3 last with
law return transitional
pertains provisions
1 2 3 4 5 6

1. XXXXXX123 June 2017 10th July 5 lakh 5 lakh

4.XXM001 2017
Chapter 15 Transition to GST

2. XXXXXX123 April to 14th 1 lakh Nil

4XST001 June 2017 August,
2017

Total 10 lakh 5 lakh

The amount mentioned in the last column (column 6) is transferred

to the e-Credit Ledger. Obviously, the above table is not meant for
those persons who were not registered under C. Excise or Service Tax
law.

Transferring Credits under State Law:

Similarly a person can transfer the credit balances under VAT and
Entry Tax laws. These credits would be carried forward to GST as
„State Tax‟ of the respective state. However, we are not entitled to
transfer so much credit which is attributable to pending forms viz. C,
F, H & I. We are required to list out all the pending forms and
calculate the differential tax arising out of those forms. In case the
available balance is more than the differential tax then we would
transfer the excess credit. If the available balance is lesser than the
differential tax then no amount would be transferred to the e-credit
ledger. If such forms are received subsequently, we will have to seek
refund from the state government.

Following is the list of the forms:

Form Description Provisions of

CST Act,
1956

C Sale in the course of inter-State trade or Sec 3 & 6

Form commerce

F Form Stock transfer to another state Sec 6A

H Penultimate sale for export of goods Sec 5

Form (i.e. sale to the ultimate exporter).

I Form Sale of goods to SEZ Sec 8 (8)

Chapter 15 Transition to GST

We are required to furnish information in tables 5(b) and 5(c) of the

form TRAN-1. In the table 5 (b) we are required to provide details of
all the forms that have been received for the period from 1st April
2015 to 30th June 2017.

In the table 5 (c) details of the pending forms is required to be

provided. The provision says that we are required to provide details
of such forms which have not been received within the period
prescribed under rule 12 of the CST (Registration & Turnover) Rules,
1957. Under that rule, the time limit to furnish such forms is 3
months after the end of the period to which the declaration or the
certificate relates. Thus, for instance for the period from April to June
2017 the due date for furnishing form C and F would be 30th
September. Therefore, if TRAN-1 is filed before 30th Sept, we need
not consider the forms for this period (i.e. we need not consider them
pending, because the due date is not yet over). Off course the
department can raise a demand whenever it undertakes the
assessment proceedings.

Wherever the forms are pending we will have to calculate the

differential tax If after considering the differential amount, if the
balance amount of credit is excess, then we can transfer the excess
amount to e-credit ledger. If the amount is short, then we cannot
transfer anything.

Let‟s understand this by way of an example. Suppose the credit

balance as on 30th June, 2017 is Rs. 8 lakh, then

Case 1 The differential tax Rs. 5 We can transfer Rs.

liability is lakh 3 lakh to GST

Case 2 The differential tax Rs. 10 We cannot transfer

liability is lakh any amount to GST.

Off course, in the 2nd case, we don‟t have to pay the differential
amount before filing the TRAN-1. But the amount to be carried
forward would be Nil. In case we produce the forms later on, we
Chapter 15 Transition to GST

shall be entitled to claim refund upto Rs. 8 lakh from the state
government.

Un-Availed Credit on Capital Goods: [Sec 140 (2) – Table 6]

Under C. Excise law, the credits on capital goods were available in

two instalments. Only 50% credit was available in the year in which
the goods were received. The balance 50% was available only in the
next financial year. In case the capital goods were received in 2017-
18, we might have taken credit of only 50% of the duty paid. This
credit amount had already become part of our return and the closing
balance would be transferred vide table 5 of TRAN-1.

On the other hand, under GST law full credit is available within the
same year in which the capital goods are received. The law allows us
to claim the balance credit through TRAN-1. In fact, if even the credit
first 50% had not been taken we can claim the entire amount through
table 6 of the TRAN-1. In this table we are required to provide
invoice wise list of the capital goods. The table 6 (a) concerns the
Central Taxes (C. Excise Duty, CVD and SAD) while the table 6 (b)
concerns state VAT and Entry Tax. The un-availed credit means the
credit admissible minus the credit already availed i.e. the amount of
balance credit that we are still eligible to avail.

Total eligible credit under existing law 5 lakh

(–) Total credit availed under the existing 2 lakh

law

Amount of un-availed credit 3 lakh

Details of imported capital goods as well as the capital goods

procured from within the country, both are to be reported in the
same table.

Credit on closing stock of goods as on 30th June 2017 [Sec 140 (3) –
Table 7]

Those who were registered under C. Excise and VAT had availed the
credits on their stocks and the closing balance of the credit as on 30th
June, is to be transferred through table 1. But there could be other
Chapter 15 Transition to GST

persons who had not availed the credits earlier, but are now eligible
to avail the same. These credits allowed in respect of the following
stocks as on 1st July 2017 (opening stock):

 inputs held in stock on 1st July 2017 (opening stock)

 inputs contained in semi-finished goods held in stock on 1st

July 2017 (opening stock)

 inputs contained in the finished goods held in stock on 1st

July 2017 (opening stock)

Persons Covered: Section 140 (3) allows credit to following persons:

(1) Those who were not liable to be registered under the existing law:
For example a person availing SSI exemption under C. Excise
law (turnover not exceeding Rs. 1.5 Crores) might not be
registered. Such a person might be holding closing stock as on
30th of June and GST would be payable on the supplies made
after that date. Such persons are allowed to avail credit on the
said closing stock. If the person was registered under VAT
but not registered under Central Excise/ Service Tax, he
would claim only CENVAT credits. He should not claim
credit of VAT under this table because the VAT credit would
form part of his VAT return and the closing balance is to be
claimed. In table 5 (b). Of course if a person was not
registered under both the laws he would be entitled to claim
credit of both the taxes.

(2) Persons whose goods/service were exempted: Irrespective of

whether the person was registered or not, it is possible that
his outward supply was exempted under the existing law but
is taxable under GST. Such persons would also be entitled to
avail credit of the tax paid on their inward supplies that were
in stock as on 1st July 2017.

(3) Those who were providing „works contract‟ service with abatement
(under Service Tax law): Under the existing law such persons
were not allowed to avail credit on inputs. Under GST law.
Chapter 15 Transition to GST

The credits on inputs have been allowed. Therefore, the

person would be entitled credit on the inputs as on 1st July.

(4) The 1st stage or 2nd stage dealer, importer, depot of manufacturer
registered under C. Excise law: although these persons were
registered, their returns did not have any reason to indicate
the opening or closing balances of credits. Therefore, it was
not possible to transfer these credits through table 5 (a).

Situations Covered: Credits have been allowed in all the four cases
discussed above. Two situations are envisaged in each case:

a. Actual Credit: Where the taxable person has documents

evidencing payment of duty/tax. In these cases full credit is
allowed on the stock, as per the document. Off course the
amount of credit would be proportionate to the quantity held
in stock. Thus, for example, if Central Excise duty on 100 kg
of material was Rs. 5000/- and only 50 kg was in stock as on
1st July, then the person would be entitled to credit of Rs.
2500/-. To claim credit on such stock:

o We will have to declare the stock in TRAN-1 [Table

7(a) for C. Excise/ CVD/ SAD and Table 7 (c) for
VAT]

o Credit is to be claimed on the basis of document C.

Excise Invoice/ Bill of Entry (i.e. document which is
evidence for payment of duty/ VAT)

o The document should not be older than one year i.e. it

should not have been issued before 1st July 2016.

b. Deemed Credit: The second situation is where the person does

not have the document evidencing payment of duty/tax. In
such cases credit shall be allowed in the following manner:

o We will have to declare the stock as on 1st July 2017 on

which we wish to avail the credit (in GST TRAN-1).
Chapter 15 Transition to GST

o Although, we don‟t possess document evidencing

payment of duty/ tax, we must possess document
evidencing procurement of the goods.

o The credit shall be allowed after the goods in stock are

supplied and GST is paid.

o Every month we will have to file a statement of the

outward supplies made out of the declared stock (in
form GST TRAN-2).

o If the rate of GST payable on the goods is 18% or

more, then the person would be eligible to avail credit
of 60% of the GST paid.

o If the rate of GST payable on the goods is lesser than

18% then the person would be eligible to avail credit
of 40% of the GST paid.

•TRAN-1: Declare Stock (OB of 1st July 2017)

A

•TRAN-2: Declare the stock supplied & the

deemed credit claimed (every month)
B

•TRAN-2: Can keep claiming credits for

supplies made, till December 2017
C

o Where the supply made by him is inter-State (i.e. he

pays IGST), the available credits would be 30% and
20% respectively.

o The scheme would remain in operation only till

December, 2017. Deemed credit would not be
available on the stock that is left behind on 31st
December (out of the declared stock of 1st July).
Chapter 15 Transition to GST

o The stock should be stored in such a manner that the

same is easily identifiable.

Example for claiming deemed credit: We may take an example to

understand working of the deemed credit system. Suppose a
Trader had 100 kg of material in stock as on 1st July. Out of it,
he sells 25 kg in July for Rs. 2 lakh, 20 kg in August for Rs. 1.8
lakh and pays tax @18% as under:

Month Quantity Value CGST SGST IGST Eligible

Credit
(CGST)

July 5 kg 50,000 4500 4500 NA 60% of

4500 =
2700

July 20 kg 1,50,000 NA NA 27000 30% of

27000 =
8100

August 20 kg 1,80,000 16,200 16,200 NA 60% of

16200=
9720

Since the rate of GST paid by him is 18%, he is entitled to

avail credit of 60% of the CGST component. Where the
transaction was inter-State, the CGST component was taken
as half of the total IGST. If in the above example the rate were
12%, then the person would be entitled to credit of only 40%
of the GST paid (half in case of IGST).

Conditions for allowing credit under section 140 (3): The above
credits are allowed only if all of the following conditions are
satisfied:

(i) Such inputs or goods are used or intended to be used for making
taxable supplies under this Act: This is a basic principle of
value-added taxation. One cannot avail credit on inputs if
Chapter 15 Transition to GST

the output is not

Deemed Credits not available to
taxable. However zero
manufacturer or a service
rated supplies are an provider:
exception. Credits of
remain available even We have noted that the taxable
person would be entitled to avail
if the goods are
credit on the stock held as on 1st
exported or supplied
July, even if he does not possess
to SEZ without
the document of evidencing
payment of tax. payment of duty. Credit of
(ii) The said registered amount equal 40% or 60% of the
GST paid has been allowed.
person is eligible for
However, such benefit is not
input tax credit on such
available to a manufacturer or a
inputs under this Act:
supplier of services.
The credit is not
allowed on the It is possible that a person is
opening stock if the simultaneously engaged into
same is not eligible activity of rendering service as
well as of trading. Similarly a
under GST law.
manufacturer may
However, the situation
simultaneously be engaged into
is rarely possible. trading activity. Section 140 (3) or
Coverage of GST any other provision does not
credit is wider. clarify whether such
manufacturers of service
(iii) The said registered
providers would be eligible to
person is in possession of
avail deemed credits are not.
invoice or other
prescribed documents In my opinion such persons
evidencing payment of would be entitled to avail the
duty under the existing deemed credits. Their status as
law in respect of such manufacturer of service provided
inputs: this condition would be limited to their
manufacturing and service
would apply only
businesses. However, those
when the credit is persons cannot be regarded as
claimed on actual manufacture or service provider
basis. In case of in respect of their trading
deemed credits activities.
although the person must possess the purchase document,
Chapter 15 Transition to GST

that document would not be a duty paying document.

(iv) Such invoices or other prescribed documents were issued not

earlier than twelve months immediately preceding the appointed
day: credits are available only against documents issued on
or after 1st July 2016.

(v) The supplier of services is not eligible for any abatement under
this Act: the person would be eligible to avail credit on the
opening stock of inputs if

- he is a service provider; and

- eligible to avail abatement under GST law

Structure of the table 7: The credits in

Input Services used for
both the situations (i.e. at actuals or on
semi-finished/ finished
deemed basis) have to be claimed by
stock
persons in all the above four
categories by providing information in These provisions do not
table number 7 (a), 7 (c) and 7 (d). The allow credit on input
table 7 (a) relates to credit of Central services that might have
been used to manufacture
Excise Duty, CVD, SAD, etc. and has
the semi-finished or the
been divided into two parts. The part finished goods in stock.
A relates to actual credits and part B to
the deemed credits. The table 7 (c)
relates to credit of VAT on actual basis (i.e. when the tax invoice is
available). Table 7 (d) relates to credit of VAT on deemed basis (i.e.
when the documents are not available). The deemed credit of VAT is
available only in those states where there is a single point VAT.

The following chart explains the structure of the table 7. We have yet
not discussed the table 7 (b). The same is discussed later.
Chapter 15 Transition to GST

Part A - Duty
paying document Full Credit as per
available documents
7(a) Central
Excise, CVD,
SAD
Part B - Duty Credit = 40% or
paying document 60% of CGST paid
not available (also file TRAN-2)

Table 7

7 (c) - Tax Invoice Full Credit as per

available documents

7 (c) and 7 (d) -

VAT & Entry 7 (d) - Tax Invoice
Tax not available Credit = 40% or 60%
(applies only to of SGST paid (also
states with single file TRAN-2)
point VAT)

Credit to the person engaged in manufacture of dutiable/taxable as

well as exempted goods or services: [Sec 140 (4)]

The person who was engaged in manufacture of dutiable as well as

exempted goods was required to follow the provisions of rule 6 of
the Cenvat Credit Rules, 2004. It was possible that he was
maintaining separate record of inputs to be used for manufacture of
exempted goods. Similar could be the case of a service provider.
Now if under GST regime the supply is taxable, then the person
would be entitled to credit of the inputs in stock (as inputs, inputs
contained in semi-finished or finished goods). Of course, so far as the
inputs intended to be used in manufacture of dutiable products are
concerned, the person would already have taken credit; and to that
extent the credit would form part of the closing balance in his return.
In view of this the sub-section (4) allows credit in the following
manner:

a. the amount of Credit carried forward in return furnished for

the period ending 30th June, should be declared in table 5 as
per sub-sec (1) discussed above.
Chapter 15 Transition to GST

b. The amount of Credit on inputs relating to exempted goods

would be claimed in the table 7 as per subsection (3)
discussed above. The person would have to declare such
stock in the table 7 and claim the credit.

Credit
Input Used for Credit Transfer Balance of
dutiable/ Credit Taken return -
taxable in return Through
output Table 5.
Declare the
Used for
Credit not stock and
exempted
taken claim in
output
Table 7

Inputs or Input Services in Transit: [sec 140 (5) – Table 7 (b)]

There could be cases where the goods or services are received in the
month of July, on payment of Central Excise duty or service tax. For
instance, the inputs removed on 27th of June 2017 under a C. Excise
Invoice might have been received in July. The question is how to get
credit against such document. The GST law allows the credit on such
inputs and input services (but not „capital goods‟).

 We are required to declare such receipts in table 7 (b) and

claim the credits. The credit of VAT is also to be claimed in
the same table.

 The credit is available only if the receipt of the input/ input

services is recorded in the recipient‟s books of account latest
by 30th July 2017.

 The provision does not allow credit of duty paid on capital

goods in transit. It refers only to inputs and input services.

Inputs/ Input
Duty/ Tax paid
Services received in
under pre-GST law
July (latest by 30th)
Chapter 15 Transition to GST

There are three scenarios:

i. The inputs were removed under C. Excise invoice dated

27th June and were received in our factory on or before
30th June. We would take credit in the return for June itself
and report in the return for June. Closing Balance of the
June would be transferred to e-credit ledger through the
table 5.

ii. The inputs removed under invoice dated 27th June were
received in our factory in July (on or before 30th July). We
record the receipt in our account books and claim the
credit through table 7 (b).

iii. The inputs were removed under a Tax Invoice dated 1st
July, 2017 issued under GST law. This credit is taken
directly in the e-Credit Ledger. The supplier uploads the
invoice data and we approve the same in our GSTR-2.

We may note that this provision does not take care of delay in
receiving documents. Thus, for instance, this provision won't help if
the goods were received in June itself, but the invoice was not
available to the excise section of the company person before filing of
the ER-1 for June. In fact, in such cases and the only way for the
recipient appears to make a claim for refund.

Further, the provision uses the words input and input services.
Therefore, it does not cover capital goods. This may have been an
inadvertent error in drafting the law, but we have to presume that
use of the words is deliberate; and that it was intention of the
lawmaker to not allow credit on capital goods in transit.

Persons working under composition schemes of existing laws:

[Section 140 (6) – Table 7]

This section allows credit on the opening stocks held as on 1st July
2017 to a person who was either paying tax at a fixed rate or paying a
fixed amount in lieu of the tax payable under the existing law. For
example, under Central Excise law there was a method of payment of
duty based on production capacity. Based on capacity of the
Chapter 15 Transition to GST

machines installed, these persons were required to pay a fixed

amount every month. Similarly, there were products where the duty
was payable on the basis of quantity and not on the basis of value.
For instance, a duty of Rs. 2 per litre on certain goods (irrespective of
its value) is the case of tax at fixed rate.

Credit on the opening stocks (inputs in stock, inputs contained in

semi-finished and finished goods in stock) held as on 1st July 2017
can be claimed by declaring the same in table 7. The credit is
available only on actual basis i.e. as per the invoices available with
the person. The deemed credit facility is not available here. All the
four conditions discussed under the head “Conditions for allowing
credit under section 140 (3)” would apply here as well. The state in
brief:

(i) The goods in stock should be used for making taxable

supplies under GST regime.

(ii) ITC should be admissible under GST law

(iii) Duty paying document should be available.

(iv) The duty paying document should not be older than one
year (i.e. it should have been issued on or after 1st July 2016).

Additionally, it may be noted that the credit would not be available if

the person opts to work under Composition Scheme under GST.

Input service distributor (ISD): [Sec 140 (7)]

Role of an ISD is to distribute credits received under an invoice to

various units. For instance, if a company had three factories and its
head office was registered as an ISD. Now if the auditor‟s Invoice
was received at the head office, the service tax charged in the Invoice
was required to be distributed to the three locations.

Sec 140 (7) says that

“Notwithstanding anything to the contrary contained in this Act,

the input tax credit on account of any services received prior to the
appointed day by an Input Service Distributor shall be eligible for
Chapter 15 Transition to GST

distribution as credit under this Act even if the invoices relating to

such services are received on or after the appointed day".

The phrase “Notwithstanding anything to the contrary contained in this

Act” means that this sub-section has overriding effect over all other
provisions. If there is any conflict between this sub-section and any
other provision, then this sub-section will prevail.

This provision applies when the service was received before 1st July,
but the invoice was received in the GST regime. The ISD can
distribute the credit even if the invoices are received on or after 1st
July 2017. For distributing the credit as credit under CGST Act, the
ISD needs to be registered under GST law. To summarise:

i. The ISD should be registered under GST

ii. The ISD can also distribute the credits in respect of

services received prior to 1st July 2017.

iii. The credit can be distributed even if the invoice in

question was received on or after 1st July.

iv. The credit would be distributed as CGST/ SGST or IGST3.

Persons having Centralised Registration: [Sec 140 (8) – Table 8]

Under Service Tax law it was permissible for a person to have a

centralised registration where tax payments and credits relating to all
locations were handled. The locations could fall within the same state
or in different states. Now, there is no such facility under GST law.
Consequently, a question does arise as to how to deal with the credit
balances available with the Centralised registration. If the person has
locations in different states, he would obtain multiple registrations.
Even in the same state, he can obtain separate registrations for
different business verticals. Each registration under GST will have a
separate e-Credit Ledger.

3Transitional provisions of CGST Act have been adopted by IGST Act as well vide
section 20 (xxiv).
Chapter 15 Transition to GST

Sec 140 (8) provides that the person having centralised registration
can transfer the credit to e-Credit Ledger of any of his registrations
under GST. The transfer is to be effected through entry in table 8. Off
course, if the Centralised Registration and the GST Registration are in
the same state, then there is no need to use table 8. The credit should
then be transferred through table 5 (a).

For example, suppose the person had the Centralised Registration in

Maharashtra and post GST has registered himself in Maharashtra as
well as in Orissa and West Bengal. He has an option to transfer the
credits to either of the states. If he wishes to transfer it to Orissa, or
West Bengal he should provide the details in table 8. If he wishes to
transfer it to Maharashtra itself, he should provide the details in table
5 (a). It is totally left to the choice of the person as to how much credit
he transfers to which state. He can transfer the entire credit to a
single state or can transfer part of the credit to one state and a part to
another or he can transfer to all the three states. Obviously, the total
amount to be transferred cannot exceed the amount available.

The section requires fulfilment of following conditions:

a. The return for the period ending June 2017 should be filed
within three months (i.e. by September 2017). If this return is
revised, and the revision results in reduction of the credit
then only the reduced credit can be transferred. If it results in
increased credit, only the credit shown in the original return
can be transferred. The excess credit amount can be claimed
only through refund application under the Service Tax law.

b. The credit should be admissible under as ITC under GST law.

It is obvious that the credit should have been admissible
under old law as well otherwise the Centralised Registration
would not be in position to claim it.

c. The provision allows transfer of the credit to any of the

registrations. The transferee and the transferor should have
the same PAN.
Chapter 15 Transition to GST

Re-claim of credit reversed due to non-payment: [Sec 140 (9)]

Under Cenvat Credit Rules, 2004 4 the person availing service tax
credit was required to reverse the credit taken by him if he fails to
pay the service provider within three months of the date of the
invoice. Sec 140 (9) allows him to re-claim this credit if he pays the
consideration to the service provider by September 2017.

Credit But, paid on

Re-claim the
Reversed Paid after or before
credit as
due to non- 30th June 30th
CGST
payment September

Transitional provisions relating to job work [Sec 141]

Job-work provisions existed in the pre-GST law and they also exist
under the GST regime. Under the GST regime the time limit to bring
the goods back has been enhanced to one year (one year for inputs
and three years for capital goods).

However, there may be inputs/ semi-finished goods that had been

removed under the pre-GST law, which are lying with the job-
worker as on 1st July. The section 141 allows a period of six months to
get these goods back. No tax would be payable if the goods are
returned within six months. In other words if the goods are received
back latest by 31st December, 2017 then no tax is payable. Else, ITC
would become recoverable under section 142 (8) (a).

The Commissioner has been empowered to extend the above period

of six months by two further months. Application will have to be
made to the Commissioner providing “sufficient cause” for the
delay.

Similar provisions have been made in respect of:

a. Semi-finished goods removed for carrying out certain

manufacturing processes.

4 Please see the 2nd proviso to rule 4 (7) ibid.

Chapter 15 Transition to GST

b. Manufactured goods removed for carrying out tests or any

other process not amounting to manufacture.

The time limit of 6 months and extension of 2 months applies to

above cases as well.

In all the cases the stocks lying with the job-worker are required to be
declared by the principal as well as the job-worker (by those who are
registered).

Rejections and Returns: [Section 142 (1)]

There could be a situation where the goods supplied in pre-GST

regime are returned in GST regime. Suppose „A‟ had sold certain
goods to „B‟ and had paid duty/ VAT under an invoice. Let‟s also
assume that „A‟ is registered under GST:

„A‟ removed goods „B‟ received the

on payment of duty same

„B‟ wants to return the goods

The provisions are as under:

a. Where „B‟ is not registered under GST: If the person, who wishes
to return the goods („B‟), is not registered under GST, he can
return without payment of any tax. The recipient „A‟ (the
original supplier) would be entitled to claim refund of the tax
paid earlier. Following conditions need to be satisfied.

 The goods should not have been removed (by „A‟) earlier
than January 2017 (i.e. the removal should have been
during the period from January, 2017 to June 2017).

 The goods should be returned by „B‟ latest by 31st

December, 2017.

 The goods should be received in any place of business as

declared in the registration application. Obviously, the
place of business cannot be in another state.
Chapter 15 Transition to GST

 The goods are identifiable to the satisfaction of the proper

officer.

Establishing identity of the goods may be a difficult task

because the officers may not be easily satisfied. It would be a
bit easier where the goods have serial numbers, mark and
brand name. But in routine cases it would be discretion of the
officer.

If the above conditions are satisfied then it would amount to

the supply by „B‟ to „A‟. This has two repercussions:

i. Value of the goods would be added to the turnover of

„B‟; and

ii. „A‟ would become liable to pay tax under reverse

charge mechanism (a registered person receiving
supply from unregistered person).

b. Where „B‟ is registered under GST: The return of the goods by

„B‟ to „A‟ would be treated as a supply and GST would
become payable.

Price Revision: [Sec142 (2)]

There can be a situation where the price of goods (supplied before 1st
July) is revised later. If the price is revised upwards the supplier
should issue a supplementary invoice or debit note within 30 days of
such revision. It will be deemed that the supplementary invoice or
the debit note has been issued in respect of an outward supply made
under GST law. Once it is so deemed, then the tax payable under the
supplementary invoice or the debit note would be GST and its credit
would become admissible in terms of ITC provisions.

Example: A contract for supplying certain chemicals was entered in

April 2017. Goods valued at Rs. 10 lakh were supplied during April,
May and June on payment of C. Excise duty and VAT. On 10th July,
the parties re-negotiated the prices and as a result the total value of
Rs. 10 lakh was revised to Rs. 11 lakh.
Chapter 15 Transition to GST

 The supplier is required to issue a „supplementary invoice‟ or

a „debit note‟ containing all the details specified under rule 53,
for Rs. 1 lakh. He should also charge the applicable GST on
this amount of Rs. 1 lakh. The recipient would be eligible to
avail credit of the same. The details of the supplementary
invoice/debit note would have to be uploaded on the portal
in form GSTR-1.

 If in the above example, the price were reduced to Rs. 9 lakh,

then the supplier should issue a Credit Note for Rs. 1 lakh
and GST. The supplier‟s tax liability would get reduced only
when the recipient reduces his ITC.

 The above invoice/ debit note/ credit note should be issued

within 30 days of 10th July i.e. by 9th August, 2017.

Matters to be disposed in accordance with the existing law (i.e. in

accordance with pre-GST laws):

Section 142 provides that various matters relating to activities

undertaken in the pre-GST regime shall be disposed in accordance
with existing law. List of such matters is provided under the heading
after „General Conditions‟.

General Conditions: These conditions apply to all the situations listed

under the next heading:

 All the refunds shall be paid in cash, even if the existing

law did not permit grant of refund in cash. Even where
the duty/tax was paid by utilisation of credit, the same
would be refunded in cash.

 Provisions of section 11 B (2) of C. Excise Act, 1944 (i.e. the

principal of unjust enrichment)5 would apply.

 Wherever claim for refund/ Credits are allowed, the same

would be refunded in cash.

5Section 11B (2) also provides exceptions where the principal of unjust enrichment
would not apply.
Chapter 15 Transition to GST

 Wherever credits are disallowed, or the demands for

duty/ tax are confirmed, the same would be recovered as
arrears of tax under GST law. This amount would not be
allowed as ITC.

 Wherever claim for refund of CENVAT credit is rejected,

the amount so rejected shall lapse. Thus, for instance, in
case of claim for refund of credit accumulated due to
export, if the refund is rejected 6 , the person won‟t be
allowed to take the credit back. This is a departure from
the regular provision in the existing law.

 Refund of CENVAT credit would not be allowed if the

amount has been carried forward to GST

List of matters that are to be disposed in accordance with the existing law:

i. Refer Sec 142 (3): Refund claims for refund of Cenvat Credit,
duty, tax, interest or any other amount paid under the existing
law. This applies to the claims filed before, on or after 1st July.

ii. Refer Sec 142 (4): Claim for refund of any duty or tax paid under
existing law in respect of the goods or services exported. For
example, if goods removed for export on 25th of June 2017 on
payment of Central Excise duty were exported on 3rd August
2017, the refund of the duty would be disposed under Central
Excise Law. Thus,

 Duty/ Tax should have been paid under existing law

 Export may have been done before or after 1st July

iii. Refer Sec 142 (5): Claim for refund of Service Tax on the ground
that services not provided.

iv. Refer Sec 142 (6): Proceedings relating to CENVAT credit: (appeal,
review or reference relating to a claim for CENVAT credit): This

6 Off course his right to appeal/ revision against rejection of refund claim remains
intact. He can file appeal/ revision applications, as provided under the existing law. But
if he ultimately loses the matter, he cannot claim the credit back.
Chapter 15 Transition to GST

is irrespective of whether the proceedings were initiated before,

on or after 1st July 2017. If the assessee succeeds in appeal, the
amount of credit would be refunded to him in cash. As noted
earlier the refund would not be allowed if the balance credit has
been carried forward to GST.

Suppose the Department issues a show cause notice for denial of

CENVAT credit on the matter travels up to Supreme Court. Let's
also suppose that the matter is finally decided in favour of the
assessee. It may happen that meanwhile, the assessee had paid
the amount of credit (partially or fully). Now since the matter
has finally been decided in favour of the assessee, he is entitled
to get the money back. Such claims would be paid in cash.

v. Refer Sec 142 (7): Proceedings relating to output duty or tax

liability: (appeal, review or reference relating to any output duty
or tax liability)

vi. Refer Sec 142 (8):Assessment or adjudication proceedings

vii. Refer Sec 142 (9): Return, furnished under the existing law (such
as C. Excise/ Service Tax/ VAT Returns), and revised after 1st
July

In above three cases (sub-sections 7, 8 and 9) the law provides

for the following:

 It is immaterial whether the proceedings of appeal,

review, reference, assessment or adjudication were
initiated before, on or after 1st July 2017. In either case,
these would be disposed under the existing laws (i.e. pre-
GST laws).

 In case of revision of returns furnished under existing

law (for example C. Excise/Service Tax/ VAT return) the
sub-section applies only if the revision was done after 1st
July, 2017.

 If as a result of the above, any amount becomes

recoverable, the same shall be recovered as an arrear of
Chapter 15 Transition to GST

duty or tax under GST law (unless recovered under

existing law). The customer would not be allowed to
avail credit as ITC.

 If as a result of the above, any amount becomes

admissible to the claimant, it shall be refunded in cash. If
the amount is rejected, in these proceedings, the ITC
would not be available.

Supply in GST regime would attract GST even if the contract was
entered into before 1st July, 2017 [Sec 142 (10)]

Suppose a contract for „manpower supply‟ was entered on 20th June

but was executed on 2nd July. Whether the supplier of the service
should pay Service Tax or GST? Section 142 (10) says that:

- Ordinarily GST would be payable on such supply.

- However, if any provision of Chapter XX7 of the CGST Act,

2017 requires otherwise, then that provision should prevail.

The sub-section reads as under:

Save as otherwise provided in this Chapter, the goods or services or

both supplied on or after the appointed day in pursuance of a
contract entered into prior to the appointed day shall be liable
to tax under the provisions of this Act.

„Save as‟ means „except as‟. Analysis of the above would show that:

i. The provision deals with supply of goods or services or both.

ii. The contract for supply is entered into before 1st July.

iii. The supply is made on or after 1st July.

iv. The supply would be liable to tax under GST law.

v. However, this is subject to exceptions contained in chapter

XX.

7 Chapter XX comprises of sections 139 to 142 and is titled “Transitional Provisions”

Chapter 15 Transition to GST

Supplies made after 30th June, where VAT or Service Tax or both
were leviable before 30th June

This sub-section is closely connected with the previous one. While

the previous sub-section gave a general rule that GST would be
payable if the supply is made on or after 1st July. This sub-section
deals with the situation where – although the supply is made in GST
regime – yet VAT or Service Tax or both had already become leviable
(in part or in full). It says that on a supply:

i. If VAT8 had become leviable9, GST is not payable to that

extent.

ii. If Service Tax had become leviable, GST is not payable to

that extent.

iii. If both had become leviable then:

a. GST would be payable on the supply made on or

after 1st July, 2017.

b. The amount of VAT & Service Tax already paid

would be allowed as credit. This amount is to be
declared in table 11 of the form TRAN-1.

The section 142 (11) reads:

(a) notwithstanding anything contained in section 12, no tax shall

be payable on goods under this Act to the extent the tax was
leviable on the said goods under the Value Added Tax Act of the
State;

(b) notwithstanding anything contained in section 13, no tax shall

be payable on services under this Act to the extent the tax was

8It is notable that the provision does not speak of C. Excise duty. GST is not payable to
the extent VAT was leviable. C. Excise duty was in any case leviable only on the date of
removal of the goods.
9 Once the tax became leviable in June, it becomes payable – even if it is payable or paid
after June. Thus, service tax leviable in June was payable by 6th July. If there is a delay,
interest under service tax law would be payable. Yet, the tax to be paid would be
‘Service Tax’ and not GST.
Chapter 15 Transition to GST

leviable on the said services under Chapter V of the Finance Act,

1994;

(c) where tax was paid on any supply both under the Value Added
Tax Act and under Chapter V of the Finance Act, 1994, tax shall
be leviable under this Act and the taxable person shall be entitled
to take credit of value added tax or service tax paid under the
existing law to the extent of supplies made after the appointed
day and such credit shall be calculated in such manner as may be
prescribed.

Service Tax was payable in accordance with the „Point of Taxation‟ –

which was a concept similar to „Time of Supply‟ under GST. It was
possible that the point of taxation occurred even before the service
was actually provided. If the point of taxation occurred before 1st
July, the service tax would become leviable. A question arises as to
how a supply would be taxed if the actual supply was made after 30th
June but VAT, Service Tax or both had become leviable (in part or in
full) under the existing law.

Example: A contract for Management Consultancy was entered into

for total value of Rs. 2 lakh. Advance payment of Rs. 50,000 was
received on 20th June, 2017. The consultancy was actually provided in
July.

So far as the amount of Rs. 50,000/- received in advance is

concerned, the point of taxation occurred in June itself. Hence Service
Tax was payable on that amount. GST is payable only on the balance
amount.

What would happen if in a case the „Point of Taxation‟ occurred in

June and the „Time of supply‟ occurred in July. Whether we should
pay Service Tax (because POT has occurred in June) or GST (because
TOS has occurred in July)? This dilemma is resolved by the phrase
“notwithstanding anything contained in section 13”10. It implies that this
provision has an overriding effect over section 13. Thus, to the extent
Service Tax was leviable, we have to ignore the provisions of Section

10 Section 13 of CGST Act, 2017 fixes the ‘Time of Supply’ for services.
Chapter 15 Transition to GST

13. The tax to be paid would be „service tax‟. Let‟s once again refer to
the previous example.

Entire supply made in July 2017: Rs. 2 lakh

Point of Taxation occurred in June: Rs. 50,000

Service Tax would be payable on Rs. 50,000/-. We do not have to

compute GST on this value. GST would be payable only on the
balance value of Rs. 1,50,000/-. GST is not required to be paid on the
entire value of Rs. 2 lakh.

Where VAT as well as Service Tax was paid, but supply is made in GST
regime:

Take a case of works contract which is partly executed till 30th June
2017 and part thereafter. Till 30th June VAT and Service Tax both
were payable. Cenvat Credit was not available on the inputs. Credit
has been allowed not only on the inward supplies received in GST
regime, but also on the opening stocks as on 1st July. Here also, it is
possible that the supply is made in the GST regime but VAT/ Service
Tax has already been paid as per the existing law. Here, we are
required to re-calculate the amount of GST payable and adjust the
amounts of tax paid under the existing law. Let‟s understand this by
way of an example. Please see the example given at the next page. It
deals with a works contract where part of the supply was made
before 1st July, 2017.

Please note that so far as the supply was made before 1st July, the tax
liability is not to be re-calculated. GST would apply only to that
portion of supply which is made on or after 1st July.

Also note that the clause (c) does not have any overriding effect over
sections 12 and 13. It means that so far such supplies are concerned,
the Time of Supply would be determined in accordance with CGST
Act.
Chapter 15 Transition to GST

Total value of the Works Contract Rs. 5 Crore

Supplies made before 1st July Rs. 1 Crore

Tax paid on the value of Rs. 1 Crore VAT - Rs. 1 lakh

Service Tax – Rs. 4.5

lakh

Tax paid on further value of Rs. 2 VAT – Rs. 2 lakh

Crore (supply to be made after 30th
Service Tax – Rs. 9 lakh
June)

Total supply to be made in GST regime Rs. 4 Crores

Value on which GST is payable Rs. 4 Crore

GST payable Rs. 24 lakh (@12%)

Credit to be taken through table 11 of Rs. 11 lakh (VAT 2 lakh

TRAN-1 + Service Tax 9 lakh)

The provisions can be summarised as under:

Sec 142 (11) (a) Sec 142 (11) (b) Sec 142 (11) (c)

Taxes leviable Only VAT Only Service Both VAT as

before GST Tax well as Service
Tax

Supply made GST is not GST is not GST is payable

after 30th June payable on payable on even on that
that portion of that portion of portion of
supply on supply on supply on
which VAT which Service which VAT
was leviable. Tax was and Service
leviable. Tax have been
paid.
Chapter 15 Transition to GST

Sale on Approval: [Sec 140 (12) – Table 12]

Since VAT was payable only when the

Goods sent before 1st July,
sale took place, there was no tax
2017 for Sale on Approval
payable when the goods were sent to
customer for approval. If the customer Goods returned after
approves, the sale was made. specified period – GST
Otherwise, the goods were to be payable by the customer
(one who is returning the
returned back to the seller.
goods).
It is possible that goods sent for
Goods not returned at all –
approval were still lying with the GST payable by the seller
customer as on 1st July and the (one who had sent it).
approval was pending. Rule 120
requires us to declare details of all such goods in table 12 of the form
GST TRAN-1. Tax would not be payable on such goods if:

a. The goods had been sent for approval during the period 1st
January 2017 to 30th June 2017.

b. The goods are rejected or not approved by the buyer and are
returned to the seller during the period from 1st July 2017 to
31st December, 2017.

The above period of six months can be extended by the

Commissioner for a further period of 2 months i.e. till 28th February,
2018.

Where the goods were returned before 1st July, the same would have
been accounted in the pre-GST stock. The 2nd and the 3rd proviso to
sec 142 (12) may please be noted:

Provided further that the tax shall be payable by the person

returning the goods if such goods are liable to tax under this Act,
and are returned after a period specified in this sub-section:

Provided also that tax shall be payable by the person who has sent
the goods on approval basis if such goods are liable to tax under this
Act, and are not returned within a period specified in this sub-
section.
Chapter 15 Transition to GST

Thus, where the goods are returned beyond December 2017 (or
beyond the extended period, if any) then the customer who is
returning the goods would be liable to pay GST. He will have to
prepare Tax Invoice and charge GST. However, if the goods are not
returned at all, then tax would be payable by the seller.

The practical way would be that the seller first raises Tax Invoice,
pays GST and the customer takes credit. Subsequently the customer
can raise another Tax Invoice or debit note and returns the goods to
the seller on payment of GST.

We may note that the concept of sale on approval would also apply
to goods sent under regular GST regime. Section 31 (7) contains the
provision for issuance of invoice in such cases.

Tax deducted at source: [Sec 142 (13)]

Section 51 of the CGST Act provides for deduction of tax at source in

certain cases. Now, VAT Act of several states provided for deduction
of tax at source. It is possible that on certain contracts tax might have
been deducted before 1st July 2017. To take care of the situation, the
section 142 (13) provides that TDS under section 51 shall not be
made. This would apply if:

a. Sale was made and tax was required to be deducted at source

under existing VAT law (of State or Union Territory).

b. Invoice had been issued before 1st July 2017.

c. Payment is made to the seller on or after 1st July 2017.

Thus, TDS will not be deducted again under GST Act merely because
the payment is made under GST regime.

Goods of Principal lying with Agent [Sec 142 (14) of State GST
Acts – Table 10]

This provision allows the agent to avail credit of VAT paid on the
goods lying with him as on 30th June 2017 (opening stock). The
provision is contained in the state GST Acts (not under CGST Act).
Chapter 15 Transition to GST

The credit is allowed on the goods sent for sale as well as on capital
goods. The agent shall be entitled to take credit if the following
conditions are fulfilled:

(i) The agent is a registered taxable person under GST;

(ii) The agent should declare the details of stock lying with
him on behalf of the principal (closing stock of 30th June
2017) in Table 10 (a) of TRAN-1. If the agent is holding
stock of several principals, he should declare the stock for
each of the principal separately. GSTIN of the principal
should be mentioned in the first column of the table.

(iii) The principal should declare the details of stock lying with
his agent (closing stock of 30th June 2017) in Table 10 (b) of
TRAN-1. If the stocks are lying with more than one agent,
he should declare the stock with each of the agents
separately. GSTIN of the agent should be mentioned in the
first column of the table11.

(iv) The invoices (on the basis of which credit is to be claimed)

should not have been issued prior to 1st July 2016 (i.e. it
should not be older than one year).

(v) The principal has either reversed or not availed of the

input tax credit.

11Heading of the first column in the format of table 10 (b) provided under the rule is
“GSTIN of the principal”. It’s a typographical error. It should be “GSTIN of the agent”.
Chapter 15 Transition to GST

Legal Provisions:

Sec 16 to 21: contains the basic provisions governing Input Tax Credit

Sec 139: is about migration of persons registered under existing laws.

Sec 140: allows transfer of credits of C. Excise Duty, Service Tax, VAT
etc. as ITC under GST.

Sec 141 deals with materials sent out for job-work and lying with the
job-workers.

Section 142: deals with miscellaneous issues arising out of transition

to GST, such as rejections, price revision, pending claims for refund,
pending appeals, assessments, on-going contracts etc.