GST – Newly Registered Taxpayers ITC Provisions

In this article we will talk about tax provisions relating to dealers who were not registered under any of the previous laws like Central Excise Act, 1944, Central Sales Tax Act, 1956, Value Added Tax, etc. but have applied for registration under Goods and Service Tax laws.

Under old laws, registration thresholds were different, under Excise laws this limit was set at 1.5 crores, and under VAT laws this limit was stated at 9 lakhs Rupees. Any person whose turnover exceeded these thresholds were required to get registered under the respective laws and pay taxes under them. Under GST this threshold limit is set at 20 lakh rupees. As GST replaced all these old laws, many suppliers who were not covered under the old laws are now obligated to be registered. After such registration, they gain the right to claim Input Tax Credit on the inputs held by them on the appointed day i.e. 1st July 2017.

Taxpayers who are covered under this category:

  • Any taxpayer not liable to be registered under any old Act.
  • Manufacturer whose goods were exempted from taxes under excise laws
  • Any service provider, who was providing non-taxable services under previous laws
  • Works contractor enjoying abatement
  • A first or A second stage dealer
  • A registered importer
  • A depot of a manufacturer

There are two situations relating to taxpayers who were not registered under any old laws but are now registered under GST who wish to claim Input Tax Credit which they were unable to do under old laws;

  1. If proof of payment of tax or duty is available and
  2. If proof of payment of tax or duty is not available.

Every taxpayer willing to claim such input tax credit must make a declaration of the same in FORM TRAN-01 within 90 days from the appointed day i.e. 1st July 2017. This declaration is to be made irrespective of the fact whether they were registered under any old Act or not, or if they are in possession of any payment proof of taxes/duty paid. Now let’s discuss both these situations and conditions related in detail.

Common procedure to be followed in both these cases

Any taxpayer who was not registered under any previous law and who wants to claim any input credit on any stock held on 1st July 2017 will first have to provide a notification for the same in Form TRAN-01. Following preconditions are required to be fulfilled for claiming this input credit:

  • Such inputs must be used for the production or supply of taxable goods or services.
  • A taxpayer claiming for such credit must be registered under GST and is eligible to claim Input Tax Credit.
  • He must not be registered under composition scheme.
  • He must be in possession of a document evidencing delivery of such goods.
  • Input credit can only be claimed for inward supplies purchased in the last 1 year directly preceding the appointed day i.e. 1st July 2017.

Proof of payment of tax/duty is available

In this case, if the taxpayer is in possession of proof of payment of tax/duty, then he can avail 100% input credit held on inputs held in stock, in semi-finished or finished goods. And no additional procedures are to be followed. Only the common procedure stated above, which requires submission of a notification in FORM TRAN-1 are to be complied with.

Proof of payment of tax/duty is not available

If the registered taxpayer is not in possession of proof of payment of tax/duty, then he cannot avail the full credit for the taxes paid on inputs held in stock on 1st July 2017. Following is the percentage of input credit that can be availed in the given situations:

In case of CGST/SGST

If CGST is imposed at 9% or more – 60% of Input Credit

If CGST is imposed at less than 9% – 40% of Input Credit

In case of IGST

If IGST is imposed at 18% or more – 30% of Input Credit

If IGST is imposed at less than 18% – 20% of Input Credit

Validity of this scheme

This scheme can only be availed for six tax periods from the appointed date.

Additional Conditions to be Satisfied

  • These goods were not unconditionally exempt from the whole of the duty of excise.
  • These goods were not nil rated.
  • The registered taxpayer must be in possession of documents for procurement of these goods.
  • The registered person who is availing this scheme must furnish the details of stock held by him at the end of each of such tax period this scheme is valid for.
  • The stock of goods on which the credit is availed is so stored that it can be easily identified by the registered person.

Amount of credit allowed shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the common portal