The concept of “tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day” under the GST Act, 2017 pertains to the transitional provisions implemented during the shift from the previous indirect tax regime to the Goods and Services Tax (GST).

Here’s a breakdown:

Existing Law: Refers to the various indirect tax laws that were in place before the implementation of GST in India, such as Central Excise Act, 1944, State Value Added Tax (VAT) Acts, etc.

 Appointed  Day: Refers to July 1, 2017, the date on which the GST Act came into effect.

Tax or Duty Credit: This refers to the amount of tax or duty paid under the previous laws that could be claimed as a deduction against future tax liability.

 Carrying Forward the Credit: Businesses were allowed to carry forward the unutilized tax or duty credit accumulated under the previous laws to the GST regime, subject to certain conditions and limitations. This was done to ensure a smooth transition and avoid businesses losing the benefit of the previously paid taxes.

Credit on Goods Held in Stock: Businesses holding taxable goods in their stock on the appointed day (July 1, 2017) were allowed to claim a transitional input tax credit (ITC) on those goods, even if they couldn’t provide proof of tax payment under the previous laws. However, the ITC available on such goods was restricted to a specific percentage of the value.

EXAMPLE

Scenario:

• A registered business in Tamil Naduwas entitled to claim credit for excise duty paid on raw materials (eligible duties under the previous regime) before the implementation of GST on July 1st, 2017 (the appointed day).
• The business had a stock of raw materials on the appointed day, and these materials were used for making finished goods after July 1st, 2017.

Action:

• The business could claim input tax credit (ITC)under Section 140 of the GST Act, 2017, for the excise duty paid on the raw materials held in stock as of July 1st, 2017.
• To claim this credit, the business had to submit a declaration electronically in Form GST TRAN-1within 90 days of the appointed day, specifying the amount of eligible duty credit they were entitled to claim.

FAQ QUESTIONS

The Goods and Services Tax (GST) Act, 2017, introduced a new tax regime in India, replacing various existing indirect taxes. This transition involved provisions for claiming credit for taxes paid under the previous regime, known as tax or duty credit carried forward.

Here’s a breakdown of the relevant provisions:

1. Credit for Existing Tax Credits:

• Registered personsentitled to claim input tax credit (ITC) under Section 140 of the GST Act can avail credit for eligible duties and taxes paid under the existing laws (pre-GST regime).
• This credit needs to be claimed within 90 daysof the appointed day (July 1, 2017) by electronically submitting a declaration in Form GST TRAN-1 on the GST portal.
• The eligible duties and taxes are defined in Explanation 2to Section 140.

2. Credit for Goods Held in Stock:

• Registered personsholding stock of goods on the appointed day, on which central excise duty or additional customs duties were paid under the previous regime, can claim ITC under certain conditions:
  • Not registered under the existing law:If the person wasn’t registered under the previous regime, they can claim ITC at a rate of 60% of the central tax applicable on the supply of such goods after the appointed day.
  • Documents not available:Even registered persons can claim ITC if they don’t possess documents evidencing payment of the duty, subject to conditions and limitations prescribed by the government.

Key Points:

• Claiming credit requires following specific procedures and timelines mentioned in the Act and Rules.
• The rate of credit and eligibility criteria may vary depending on the specific situation.
• It’s advisable to consult a tax professional for guidance on claiming these credits in your specific case.

CASE LAWS

The Central Goods and Services Tax (CGST) Act, 2017, along with the corresponding CGST Rules, 2017, deals with the carry-forward of tax or duty credit under existing laws and on goods held in stock on the appointed day (July 1, 2017) for GST implementation.

Here’s a breakdown of the relevant provisions and case laws:

Provisions:

• Section 140 of the CGST Act:This section grants the right to claim input tax credit (ITC) on eligible duties and taxes paid under pre-GST laws like Central Excise Duty (CENVAT), Value Added Tax (VAT), etc.
• Rule 117 of the CGST Rules:This rule specifies the procedure for claiming credit carry-forward. It states that a registered person can claim credit for:
  • Eligible duties and taxespaid under pre-GST laws for inputs used in the manufacture, processing, or service provision of goods or services.
  • Input tax involved in the remaining useful life of capital goods held in stock on the appointed day, calculated pro-rata based on a 5-year lifespan.