GST Basics
Classification of GST
GST Benefits
Provisions for Migrating to GST for businesses (2017 Transition)
GST is a comprehensive tax structure that was introduced on 1 July 2017 to eliminate the cascading effect of various taxes like Central Excise Duty, Service Tax, Sales Tax, Entertainment Tax, Luxury Tax, Additional Customs Duty etc. This page describes the one-time migration process that businesses followed in 2017 and is kept for historical reference.
Taxpayers who were already registered under VAT or service tax were required to migrate to GST. Every entity that was registered under the previously imposed indirect taxes received a certificate of registration on a provisional basis. This certificate was valid for a period of 6 months. At the time of the transition, GST registration was mandatory for businesses whose turnover was more than Rs. 20 Lakhs per annum. Businesses whose turnover was less than Rs. 50 Lakhs could opt for the Composition Scheme or could voluntarily register themselves under GST.
According to the GST model law, all invoices had to be uploaded online. Under GST, the process of deduction, payment, and refund of indirect taxes was to be processed entirely online.
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Input Tax Credit
As per the GST law, taxpayers who had filed returns under the previous law for the period prior to July 1, 2017, could claim transitional input tax credit. The amount claimed was transferred to the Electronic Credit Ledger.
The following conditions had to be satisfied by the existing dealers for claiming CENVAT Credit for the input held in stock, semi-finished or finished goods:
- Such inputs or goods had to be used for making taxable supplies under GST.
- The taxable person had to pass the benefits of such credit by way of reduced prices to the recipients.
- The taxable person had to be eligible for input tax credit on inputs under GST.
- The supplier of services was not eligible for discount or abatement under GST.
Input Tax Credit could only be claimed by manufacturers or dealers upon those goods on which tax had already been paid under the previous law. Credits were only available if the tax paying documents had been recorded in the accounts of the taxpayer within 30 days of the appointed day. The 30-day extension could only be authorized by the competent authority, on provision of genuine reasons for the cause of the delay.
There were a few conditions which had to be met to avail input output tax credit. The conditions as required were:
- If GSTR-3 (Return) has been filed.
- If the tax charged by the supplier has been deposited with the government.
- If the dealer is in possession of tax Invoice or supplementary invoice which has been issued by a supplier registered under GST law.
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Claiming for Refunds
Any pending refund on claims which is due from the amount of CENVAT credit, tax or any interest paid before the appointed day was disposed-off as per the previous goods and service taxation law.
Taxability Factors of Inputs and Semi-Finished Goods
If some inputs or semi-finished goods had been removed from the factory before the appointed date for further processing, repairing, testing or for similar purposes and were received on or after the appointed date then no tax was levied.
The non-taxation criteria applied if the following conditions were satisfied:
- The underlying goods were returned to the factory within six months from the appointed date, extendable by a maximum period of 2 months.
- Declaration of goods held by the job worker was done in a specified form and manner.
- Goods were exported within 6 months from the appointed date, extendable by no more than 2 months.
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Taxability Factors for Finished Goods
In case any finished goods had been removed without payment of duty for carrying out tests or other processes like repairing etc., no tax was payable if the following conditions were satisfied:
- The underlying goods were returned to the factory within 6 months from the appointed date, extendable by a maximum period of 2 months.
- Goods were exported within 6 months from the appointed date, extendable by no more than 2 months.
- Declaration of goods held by the job worker was done in the specified form and manner.
Credit Distribution by ISD
Transition provisions were applicable if the services were received prior to the appointed date and invoices were received on or after the appointed date. The Input Service Distributor (ISD) was eligible to distribute input output tax credit under GST. Taxpayers who were registered with the composition scheme under the pre-GST tax regime were allowed to take credit of input held in stock, semi-finished goods or finished goods on the day immediately preceding the date from which they opted to be taxed as a regular taxpayer, subject to various conditions.
