1. Transitional Provisions governed by section 139 to 142 of CGST Act,2017 and Form TRAN 1 and Form TRAN 2
Presented by CA Charanjot Singh Nanda
**Not for public circulation

2. 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 has happened when GST is introduced.
Entire scheme of Indirect Taxation has undergone 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.

3. More about Transition…..
Transition can be split into 2 parts: 1) Systemic Transition: It is about changes in System, process and business structure. 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. 2) Regulatory Transition : It is governed by GST Law. Sections of The CGST Act, 2017 read with consequent Draft Rules deal into Transitional provisions.

4. Migration of Existing Taxpayers (Section 139)
The migration of all the existing taxpayers into GST has already taken place.
Provisional IDs have already been issued to taxpayers from State VAT Authorities/ Excise Authorities/Service tax Authorities as the case may be.
One Provisional ID has been alloted 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.

5. Migration of Existing Taxpayers(Section 139)
Migration can be explained with the help of following diagram:
Issue of Provisional registration on appointed day
Migration on GST portal
If liable to be registered
If not liable to be registered
Submission of application within 3 days
Apply for cancellation within 30 days
Issue of final registraion
Cancellation after proper enquiry

6. Transitions- Input Tax Credit (Section140)
This is one of the most important transition because it is where money in form of Credits is involved.
It lays down provisions about credits which can be carried forward in different situations subject to conditions such as:
Assessee is registered person in GST law.
If someone applied for cancellation of registration post- migration, no credits will be allowed.
Tax paid on such inputs or input services or capital goods is eligible as Credit in both existing laws as well as GST law .

7. How to take Input Tax Credit of stock of pre-GST regime
submit your input tax credit acc. to the previous tax regime
claim it under GST provided it is eligible under GST
Details cannot be filed in GSTR-3B for Input tax Credit
Fill the details in form TRAN 1 or TRAN 2 within 90 days from the appointed date 
Sell old stock of which ITC is being carried forward within 6 months from the appointed date i.e
Form GST TRAN-1 will be live from 21st August and thus transitional credit will be allowed.

8. Applicability of Transitional Provisions
Transitional Provisions are applicable for all the existing assesses who have migrated from pre-GST regime to GST regime
Purpose of Transition :
To safeguard the interest of existing taxpayers by ensuring smooth carry forward of the eligible credit of tax paid under pre GST regime.

9. Key Points
As per section 140(8) of CGST Act 2017 read with rule 117 (2) (b), GST TRAN-1 shall be filed to for carry forward of transitional credit. Further for distribution of said credit shall be done by the way of Distribution document /invoice
Credit to be carried forward from the old regime must be eligible credit under GST as well.
Credits are allowed under GST only when you have filed past six months returns(VAT/ Excise/ Service Tax) under the old regime.

10. Form TRAN 1 Every registered person under GST who :
holds Closing stock on the appointed date (i.e. 1st July 2017)
The person may be registered or unregistered
under the pre-GST regime.
Provided:
The credit is being carried forward from the old regime must be eligible credit under GST as well.
Credits are allowed under GST only when you have filed past six months returns.
An unregistered service provider and manufacturer under pre-GST regime can use only Form TRAN 1 for claiming ITC.
The person is not a composition dealer.

11. Form TRAN 2 Every registered person under GST who :
was not a registered person under pre-GST regime.
holds Closing stock on the appointed date (i.e. 1st July 2017)
the person doesn’t possess any document that acts as an evidence of payment of taxes.
is not a manufacturer in Central Excise.
is not a service provider under the Service Tax.
can fill the form TRAN 2 for taking ITC.

12. Conditions to claim input tax credit
The entitlement in case of finished goods will be subject to the following conditions:
The stock is to be used for making supplies that are taxable under this Act
The person is eligible to take ITC on inputs under this Act
The person should have the invoice or the prescribed documents
These documents or invoices should not have been issued earlier than 12 months from 1st July
The supplier of the service is not eligible for abatement under this Act

13. Input tax credit limit on existing stock raised to support transition period sales
In a major relief to traders and businessmen across the country, the GST Council has increased the limit on input tax credit to 60% against excise payments from 40% earlier on items with tax rates at 18% and above without excise payment receipts, bringing some respite on sale of inventories stocked up before the implementation of the new tax regime on July 1.
The input tax credit refund against excise on items with tax rates below 18% would remain at 40% of the total GST liability. Further, the council also ruled that entire 100% input tax credit against excise can be availed on high-value items above Rs 25,000 with a chassis number. It must be noted that the input tax credit refund against is already at the full value in cases where the excise payment receipt is available.

14. Transitional Credits that can be availed in GST
Credits Available
Available to whom
Remarks/Conditions
Carried forward in Last Return before GST
Existing Taxpayer
Filed returns for last 6 months before GST
Credit does not relate to goods manufactured and cleared with exemption
Unavailed Cenvat Credit on Capital Goods
For e.g. 50% credit pending to be availed in subsequent F.Y.
Credits carried forward in Last Return & Credit of Duties on Inputs/Goods in Stock
Registered Person dealing in exempted and taxable goods/services in existing law, for which no exemptions are there in GST.

15. Transitional Credits that can be availed in GST
Credits Available
Available to whom
Remarks/Conditions
Credit of Duties on Inputs/WIP/FG in Stock on Appointed Day
Registered Person in GST and not eligible for Credit in existing law like:
Exempted Taxpayer,
Works Contractor
First Stage/Second Stage Dealer
Registered Importer
Depot of Manufacturer
Composition Taxpayers
Such goods used for making taxable supply.
Registered person in possession of invoice /other prescribed documents evidencing payment of duty under the existing law.
Such Invoices issued in last 12 months from appointed day
Not eligible for abatement in GST
Credit on Inputs/input services received post-GST but duty/taxes paid before GST
Registered Person in GST
Invoice of such inputs/input services recorded in books within 30 days of appointed day.

16. Transitional Credits that can be availed in GST
Credits Available
Available to whom
Remarks/Conditions
Credit of input services received before GST and invoices received
Input Service Distributor
Invoice raised by ISD
Credit carried forward in Last return before GST
Registered person having Centralised Registration in Service tax
Credit can be transferred to any of registered premises coming under Centralized registration and now separately registered in GST
Credit on Input services reversed on account of non-payment of consideration
Registered Person
Can be re-claimed if payment made within 3 months from appointed day.

17. Misc. Transitional Provisions
Situation
Provisions
Remarks
Duty paid goods returned back in GST regime
Refund can be claimed if returned from Unregistered person
Shall be Supply if returned by registered person
If SI/CN issued within 30 days of price revision.
Price Revision in pursuance of contract entered before GST
Issue Supplementary Invoice/Credit Note under GST Regime
Recipient to reverse ITC in case of Credit Note
Refund claim filed for Duty/Tax paid before GST
To be refunded in cash
Refund claim can filed

18. Settlement of GST liability
Last date for payment of GST liability for the month of July,2017 is 20th August,2017.
This date is applicable even for those who have to claim ITC of pre-GST regime.
For payment of GST:-
Taxpayer has to estimate the tax liability after estimating the amount of transitional credit as per form TRAN 1.
Full payment has to be made after adjustment of settlement of tax liability.

19. Settlement of GST liability
Due date for filing return of July,2017 for GST is 20th August,2017.
 However, in the case where transition form has to be furnished:
Assesses have time upto 28th August, 2017 to submit Form TRAN 1 and Form 3B.
In case of shortfall in the amount already paid and the amount payable on submission of Form 3B, the same will have to be paid with 18% for the period between 21stAugust,2017 till the payment of such differential amount. 

20. Certain Practical Issues
Possible answers
Identification of stock on which deemed credits are to be claimed
Carry out inventory count as on , segregate this stock and maintain separate inventory ledger for the same.
Accounting of services in transit
On receipt of invoice ensure invoice is dated prior to and account it within 30 days from in books of accounts.
Non availability of immediate transition credit for payment of taxes under GST
To forecast net taxes liability and make proper working capital arrangements.
Capital goods in transit as on with taxes paid under earlier laws
To avoid receipt of capital goods after on which taxes under earlier laws are paid, as no credit is available on capital goods in transit. – To receive capital goods with GST and avail GST credit.
Attempt can be made to avail the credit u/s 140(2).

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CA Charanjot Singh Nanda