Transition provisions in GST have undergone significant changes in the Revised Draft Model GST Law published on 26th November 2016. This post has been updated with changes in the revised draft law.
On the date of transitioning to GST, broadly there will be business who fall under any of the following categories:
- Businesses not liable to be registered under the current law, but are liable for registration under GST
- Business which are engaged in the manufacture or sale of exempted goods or services
- First stage dealer or a second stage dealer or a registered importer
1. Businesses not liable to be registered under the current law, but are liable for registration under GST
As per the Central Excise Act and Rules, a manufacturing unit is required to register if its aggregate clearance value crosses Rs 1.5 crores, and needs to discharge the duty. Similarly, under VAT, you are liable for registration if your turnover during the financial year crosses the threshold limit. The threshold limit differs from state to state.
Today, you may not be liable for registration as your threshold limit does not exceed the prescribed limit. However, you become liable to register under GST, if your threshold limit exceeds Rs 10 lakhs for Special Category States (Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand) and Rs 20 Lakhs for the rest of India.
2. Business which are engaged in the manufacture or sale of exempted goods or services
You may be currently engaged in the manufacture, sale of exempted goods or provision of exempted service, but on transition to GST, these are taxable.
3. First stage dealer or a second stage dealer or a registered importer
As a dealer, you are liable for registration under Central Excise if you trade in excisable goods. Today, the excise duty you pay will not be available as credit, as a first stage or second stage dealer adds the excise duty paid to the price of the product. If it is sold to a manufacturer, the excise duty passed on, will be claimed as CENVAT credit by the buying manufacturer.
Similarly, you need to register under Central Excise as an importer if you are importing the goods, and discharge the applicable import duty.
Under above mentioned scenario, the common question every business will have is “Can I avail Input Tax credit on the stock held on the last day prior to GST implementation”?
Yes, you will be allowed avail the Input Tax credit (CENVAT, input VAT, entry tax and Service Tax) held in the closing stock of inputs (raw- materials), semi- finished goods, and finished goods. However, there are conditions that you need to meet to be eligible to avail Input Tax credit held in your closing stock.
Eligibility conditions to avail Input Tax credit held in your closing stock
You can avail Input Tax credit held in your closing stock if,
- The closing stock is held either in the form of raw materials, semi-finished goods, or finished goods, and must be used or intended to be used for taxable supplies.
- The benefit of such credit is passed on, by way of reduced prices, to the recipient.In current tax regime, duty/tax is added as product cost since the Input Tax Credit is not allowed. On transition to GST, ITC will be allowed, and this should naturally result in the reduction of base cost, and subsequently reduced final price to customers
- You are eligible for input tax credit under GST. In GST, you are eligible for Input Tax credit if you are a regular tax payer only. A taxable person opting for composition levy under GST is not allowed to claim Input Tax credit.
- You have invoices or any other prescribed duty/tax paying documents in respect of the closing stock of inputs (including semi-finished goods and finished goods).
- The date of invoices or any other prescribed duty / tax paying documents is within 12 months from the date of transitioning to GST.
- The supplier of services is not eligible for any abatement under the act.