A significant concern for businesses registered under the Goods and Services Tax (GST) system involves ensuring they do not forfeit tax benefits and input credits from the previous tax regime. These taxes might have been paid on the acquisition of inputs, raw materials, semi-finished goods, finished goods, or on materials sent to job workers. For many businesses, these taxes were available as input credit up to June 30, 2017. It is crucial to transition these credits to the GST regime to benefit from them. The Central Board of Indirect Taxes and Customs (CBIC) has issued transition rules and formats to facilitate the transfer of old regime credits to GST. A facility for filing or revising previously submitted TRAN 1 and TRAN 2 forms was reopened on the GST portal from October 1, 2022, to November 30, 2022, following a Supreme Court directive. The GST portal also released an advisory detailing the updated procedures for claiming transitional Input Tax Credit (ITC).

How to Claim ITC on Existing Stock: Selecting the Appropriate Form

Any business holding closing stock on the GST transition date, regardless of its registration status under the pre-GST regime, is eligible to claim input tax credit for taxes paid under the old system. This ITC claim is contingent upon fulfilling certain conditions, which will be elaborated further. To assist businesses in a smooth transition and to facilitate the carry-forward of their input tax credit, the CBEC introduced two transition forms: TRAN 1 and TRAN 2.

The following table outlines key aspects of these forms:

Form Type|Who can file|Who cannot file|When to file^---|---|---|---TRAN 1|Registered persons under GST, who may have been registered or unregistered under the old regime|Those registering under GST as a composition dealer|December 27, 2017^TRAN 2|Registered persons under GST who were unregistered or under the old regime; a dealer or trader without duty-paid documents|A manufacturer registered under excise; a service provider registered under service tax|Monthly from July 2017 to December 2017^Note: TRAN 1 can be revised only once, with no further changes permitted after rectification.^Following the Supreme Court’s directive, the GST portal allowed filing or revision of TRAN 1/2 from October 1, 2022, to November 30, 2022.

Key Aspects of the GST Transition

The transition process primarily addresses several critical areas: - Input Tax Credit from the old regime that businesses intend to claim under the new regime (to be reported in TRAN-1).- Preventing disruption to materials dispatched to job workers (to be reported in TRAN-1).- Reporting agent-principal dealings and goods dispatches, as well as works contracts (to be reported in TRAN-1).- Tax refunds and claims under the old regime (not to be reported in TRAN-1 or TRAN-2).

Important Considerations for GST Transition

• Transition forms must be filed separately for each GSTIN.
• Any credit intended for carry-forward from the old regime must also be eligible for credit under GST.
• Accumulated credits from the old regime can be transferred to GST, provided that returns for the preceding six months under the old regime have been filed. Therefore, it is essential to properly file past VAT, Excise, or Service Tax returns.
• Central taxes and duties, such as Excise and Service Tax, will be carried forward as CGST.
• State taxes, such as VAT, will be carried forward as SGST.

Required Information for TRAN 1

Below is an itemized breakdown of the information necessary for TRAN 1:

1. GSTIN: Your GSTIN number.

2. Legal Name of Registered Person: Your full legal name.

3. Trade Name: If applicable, your trade name.

4. Confirmation of Returns Submission: A Yes/No answer confirming that all required returns under the existing law for the past six months have been submitted. The closing balance of CENVAT/VAT credit from previous returns can only be credited to your GST electronic ledger if returns for the preceding six months under the old regime have been filed.

5. Tax Credit Carried Forward from Existing Laws: This section requires details of all CENVAT credit intended for transfer to GST. The specific details include:

• Amount of CENVAT credit carried forward to the electronic credit ledger as central tax (Central Excise and Service Tax) under Sections 140(1) and 140(4)(a).

This applies to registered persons, excluding those under a composition scheme, who were registered under the old regime and have filed returns. It also covers input credit for taxable supplies where the registered person manufactured or provided both taxable and exempted goods/services under the old regime. Such individuals can claim excise and service tax input credit balances reflected in their returns. This table is relevant if you are registered as a manufacturer or service provider and have a CENVAT credit closing balance in your return for the period ending June 30, 2017.

The following details are required:

• Serial Number
• Registration number under existing law (Central Excise and Service Tax)
• Tax period of the last return filed under the existing law
• Date of filing the specified return
• Balance CENVAT carried forward in the last return
• CENVAT credit admissible as ITC of central tax in accordance with transitional provisions.

• Tax credit for C, F, and H/I Forms to be carried forward (for the period April 1, 2015, to June 30, 2017).

A brief overview of these forms:

• C Forms: Issued by a registered purchasing dealer to a registered seller during an interstate sale. Purchases made with a C form incur a 2% Central Sales Tax (CST).
• F Forms: Used for branch transfers without tax payment. Issued by the receiving branch office/consignment agent to the head office/principal sending the goods, proving stock/branch transfer instead of sale.
• H/I Forms: Used for exports for local purchases made without tax payment. Issued by an exporter/buyer for interstate purchases for export, exempting the seller from CST.

For each form, provide:

• TIN of Issuer
• Name of Issuer
• Serial Number of Form
• Applicable VAT Rate

• Tax credit for State/UT Tax for pending C, F, and H/I Forms (for all registrations on the same PAN and in the same State).

If you are registered under any State VAT and have pending C-Form/F-Form/H or I-Form, you must pay the differential tax as you are not eligible for the concessional CST rate. This differential tax payable will be subtracted from the available input tax credit balance in your last filed return, and the remaining credit will be carried forward under the GST Regime.

The required details include:

• Registration number under State VAT (TIN).
• Closing balance of input tax credit in the return filed for the period ending June 30, 2017.
• Turnover for which C-Form, F-Form, and H/I-Form are pending.
• Differential tax on respective turnover (e.g., if concessional CST is 2% and VAT is 14.5%, the differential tax rate is 12.5%). This amount will be deducted from the closing balance of input tax credit.
• ITC reversed by you related to C-Form and F-Form turnovers. This amount is eligible to be carried forward as ITC under GST and will be added to the closing balance.
• Balance ITC of VAT/Entry tax to be transferred to the GST regime (calculated as Closing Balance - (Differential tax on C-Form + Differential tax on F-Form - ITC reversed on C/F-Form + Differential tax on H/I-Form)).

6. Details of Capital Goods with Unavailed Credit (Section 140(2)):

This section requires details of any unutilized input credit related to capital goods. Credit for taxes paid on capital goods is typically spread across multiple financial years. If you could not fully claim input credit by June 30, 2017, the remaining portion can be claimed here. Section 140(2) of the CGST Act refers to carrying forward CENVAT credit for capital goods not carried forward in an old regime return. If CENVAT credit was carried forward in an earlier return, it would be included in point 5a.This information is provided under two sub-sections:

• Central Tax portion of unavailed input tax credit on capital goods.

Amount of unutilized CENVAT credit for capital goods intended for transfer to the electronic ledger as central tax (for CENVAT, Excise, Countervailing Duty, or Special Additional Duty - Central Taxes).

In this table, provide details of unutilized CENVAT credit for Excise Duty, SAD, or CVD on capital goods:

• Invoice number and date of the capital good.
• Supplier’s registration number under the old regime (ECC number).
• Your registration number (service tax registration number or ECC number).
• Value of the capital good.
• Excise Duty or CVD paid.
• SAD paid.
• CENVAT Credit eligible under the old regime (cannot exceed the total of Excise/CVD and SAD).
• CENVAT Credit already availed under the old regime (cannot exceed the eligible credit).
• Balance unutilized CENVAT Credit (eligible credit minus availed credit) as ITC of Central Tax.

• State/UT Tax portion of unavailed input tax credit on capital goods.

Amount of unutilized input tax credit carried forward to the electronic credit ledger as State/UT tax (for all registrations on the same PAN and in the same state).

In this table, provide details of unutilized CENVAT credit for VAT or Entry Tax (State/UT Tax) on capital goods:

• Invoice number and date of the capital good.
• Supplier’s registration number under relevant State VAT (TIN Number).
• Your (recipient’s) registration number (VAT registration/TIN).
• Value of the Capital Good.
• VAT or entry tax paid on the capital good.
• Total VAT and entry tax credit eligible under the relevant State VAT Act (cannot exceed the total of VAT/Entry Tax paid).
• Total VAT/entry tax credit already availed under the old regime (cannot exceed the eligible credit).
• Balance unutilized credit of VAT & entry tax (eligible credit minus availed credit) admissible as SGST/UTGST in the GST Regime.

7. Details of Inputs Held in Stock (Sections 140(3), 140(4)(b), and 140(6)):

This section is for claiming input tax credit by manufacturers or dealers who were previously unregistered or dealt in exempted goods. It requests details of inputs held as stock. This part of TRAN-1 primarily applies to businesses registered under GST that:

• Were not required to be registered under the old regime, or
• Manufactured exempted goods, or
• Provided exempted services, or
• Provided works contract services and availed abatement (builders), or
• Were a first-stage dealer, second-stage dealer, registered importer, or a manufacturer’s depot.

This also applies to individuals who manufactured both taxable and exempted goods or provided both taxable and exempt services, where tax on stock/inputs used for exempted supply under the old regime is now taxable under GST (Section 140(4)(b) of the CGST Act). Furthermore, it applies to persons registered as composition dealers under the old regime but are now normal registered taxpayers under GST.

All such individuals can claim credit for eligible taxes on stocks held by them if they meet these conditions:

• Such stock is or will be used for making taxable supplies under GST.
• The input credit is eligible under GST.
• They possess invoices or other documents evidencing duty payment under the old regime for such inputs.
• These invoices or documents are no older than 12 months from June 30, 2017.
• The service provider is not eligible for any abatement under GST.
• They have not opted for the composition scheme.

In essence, these are persons who held stock as of June 30, 2017, but could not claim credit for such stock through returns already mentioned in 5a, 5b, or 5c of FORM GST TRAN-1.

The following subsections apply:

• Input credit claims other than those claimed in 5a.

Provide the following:

• HSN (at 6-digit level)
• Unit
• Quantity
• Value
• Eligible duties paid on such inputs

Part 7A is for inputs or inputs contained in semi-finished and finished goods, where duty-paid invoices or documents are available, to be filled by manufacturers or service providers to claim input tax credit of excise duty or service tax as input tax credit of CGST.

Part 7B is exclusively for non-manufacturers or service providers who were unregistered under the old regime (dealers or traders) to provide information on inputs where duty-paid invoices or documents are unavailable. Such persons also need to file TRAN-2.

• VAT and entry tax paid on inputs or input services with available tax payment documents, to be carried forward as SGST/UTGST.

Where input or input services are received on or after July 1, 2017, but the duty or tax was paid by the supplier under the old regime, registered persons can claim credit for eligible duties and taxes if the invoice was recorded in the books within 30 days from July 1 (extendable by the Commissioner GST for another 30 days). This situation is covered under Section 140(5) of the CGST Act, and the following details must be submitted:

• Name of the supplier.
• Invoice number and invoice date.
• Details of the supply (description, quantity (if goods), unit of measurement (if goods), and taxable value).
• Eligible duties.
• VAT/Entry Tax on such goods.
• Date on which the entry was made in the books of account for such transaction (if after 30 days or extension from July 1, you are not eligible to claim input credit).

• Amount of VAT and entry tax paid on inputs supported by invoices/documents evidencing tax payment, carried forward to the electronic credit ledger as SGST/UTGST under Section 140(3), 140(4)(b), and 140(6).

The details of stock must include:

• Description, unit, quantity of goods held, value of goods, and State Tax (VAT or Entry Tax).
• Total input tax credit already claimed under the old regime.
• Input tax related to exempt sales (old regime) but taxable under GST. This input tax credit would not have been claimed under the old regime and is now eligible if such goods are taxable, or if a composition dealer in the old regime is now registering as a normal taxpayer.
• The remaining balance will be eligible as input credit of SGST/UTGST.

• Stock of goods not supported by invoices/documents evidencing tax payment (for states with single-point VAT).

This portion applies to traders or dealers unregistered under the old regime who lack invoices or prescribed documents evidencing VAT/Entry Tax payment, which will be claimed as ITC of SGST after filing FORM GST TRAN–2. Manufacturers or service providers cannot fill this table. This also applies to states where VAT is paid at a single point (i.e., tax is paid only by the manufacturer or importer), such as Punjab.

Provide the following details:

• Description
• Unit
• Quantity
• Value
• Tax paid

8. Details of CENVAT Credit Transfer for Registered Persons with Centralized Registration under Existing Law (Section 140(8)):

This is applicable for transferring input tax credit related to service tax. The following details are required:

• Service tax registration number.
• Tax period of the last service tax return ST-3 filed (April to June 2017).
• Date of filing returns for the period April to June 2017 (due date for the return was August 15, 2017).
• Closing balance of CENVAT credit carried forward in the ST-3 return for April-June 2017. Such credit can be transferred to any registered person with the same PAN for whom centralized registration was obtained in the old regime.
• GSTIN of all branches (receivers) that had centralized registration under service tax and the same PAN, to whom the credit is transferred.
• Document number for credit distribution.
• Date of the document.
• Input tax credit of central tax transferred to each branch (total cannot exceed the total closing balance).

9. Details of Goods Sent to Job Worker and Held in Stock on Behalf of Principal (Section 141):

• Sent as principal: A principal who has sent goods to a job worker must provide:

• GSTIN of the job worker (if registered under GST).
• Unique challan number and date issued during transfer.
• Type of goods (inputs/semi-finished/finished goods).
• Further details: HSN Code, description, unit of measurement (e.g., kgs, boxes, tonnes), quantity, and value of stock.

• Held as job-worker: If you are a job worker, you must provide details of goods held for the Principal:

• GSTIN of the Principal (if registered under GST).
• Unique challan number and date issued during transfer to Principal.
• Type of goods (inputs/semi-finished/finished goods).
• Further details: HSN Code, description, unit of measurement (e.g., kgs, boxes, tonnes), quantity, and value of stock.

10. Details of Goods Held in Stock as Agent on Behalf of Principal (Section 142(14) of the SGST Act):

Section 142(14) states that if goods or capital goods belonging to the principal are at the agent’s premises on the appointed day, the agent can claim credit for tax paid on such goods or capital goods if:

• The agent is registered under GST.
• Both principal and agent declare details of stock of goods or capital goods held by the agent on June 30, 2017.
• Invoices for such goods or capital goods were issued no earlier than 12 months before July 1, 2017.
• The principal has either reversed (if any ITC was claimed) or not availed ITC for such goods or capital goods.

• Details of goods held as agent: If you are an agent, provide details of unsold stock held on behalf of the Principal as of June 30, 2017:

• GSTIN of Principal.
• Details of stock: description, unit of measurement, quantity, value of stock, and input tax to be claimed.

• Goods sent as principal held by the agent: If you are a principal, provide details of stock sent to the agent and unsold as of June 30, 2017:

• GSTIN of Principal.
• Details of stock: description, unit of measurement, quantity held, value of stock, and input tax to be claimed by your agent.

11. Details of Credit as per Section 142(11)(c):

This applies to works contractors who paid both VAT and Service Tax on a supply. GST will be leviable, and they will be entitled to claim credit for VAT and Service Tax paid, to the extent of supplies made after July 1, 2017. Details required include:

• Registration number or TIN (State VAT registration number).
• Service Tax Registration Number.
• Invoice number and invoice date.
• GST paid.
• VAT and Service Tax paid (to the extent of supplies made after July 1, 2017) claimed as ITC of SGST and CGST, respectively.

12. Details of Goods Sent on Approval Basis Six Months Prior to July 1, 2017 (Section 142(12)):

This applies to goods sent on approval basis not earlier than six months prior to July 1, 2017. The following details are required:

• Document number for goods transfer.
• Document date (date goods were sent).
• GSTIN of recipient (if applicable).
• Name and address of recipient.
• Details of goods: HSN Code, description, unit (e.g., Kgs/Mtr), quantity, and total value of goods sent.

Filing TRAN 2

Form TRAN–2 can be filed by a dealer/trader who is registered for GST but was unregistered under the old regime. Such a dealer, lacking VAT or excise invoices for stocks held on June 30, 2017, can use TRAN–2 to claim tax credit on their stock. A manufacturer or service provider cannot file Form GST TRAN–2. TRAN–2 must be filed monthly by a dealer or trader to report details and claim input tax credit as stock is sold. The following conditions must be met:

• Such goods were not unconditionally exempt from excise/VAT or nil-rated under the relevant State VAT Act.
• This scheme is effective for six months from July 1, 2017, meaning stock must be cleared by the end of December to claim credit.
• You possess a document confirming the procurement of such goods.
• The stock on which credit is claimed is stored in a way that allows easy identification.

Details Required in TRAN 2

• GSTIN: Your GSTIN.
• Name of Taxable Person: Your name.
• Tax Period: The month and year for which the form is filed.
• Details of Inputs Held in Stock on July 1 for which no Invoice/Document Evidencing Tax Payment is Available, Carried Forward to Electronic Credit Ledger.

If you do not have a document showing Excise Duty payment (Central Tax), you must fill in the following details:

• HSN code of the opening stock for the month.
• Unit of measurement of the opening stock for the month.
• Quantity of opening stock for the month.
• Quantity of goods sold in the month.
• Taxable value of goods sold for the month.
• CGST if goods were sold intra-state.
• IGST if goods were sold inter-state.

Credit of central tax (input credit of CGST) claimed shall be:

• If CGST paid is 9% or more, ITC claimed is 60% of CGST.
• If CGST paid is less than 9%, ITC claimed is 40% of CGST.
• If IGST paid is 18% or more, ITC claimed is 30% of IGST.
• If IGST paid is less than 18%, ITC claimed is 20% of IGST.
• Quantity of opening stock for the relevant tax period, calculated by deducting the quantity sold from the opening stock.

Unutilized ITC Related to Capital Goods

Input Tax Credit (ITC) for capital goods was not entirely available to taxpayers under the pre-GST regime at the time of purchase. If a registered person purchased capital goods and could not claim the full amount of tax paid by July 1, the remaining ITC can be claimed under GST. For each capital good, invoice-wise details of the following must be specified:

• Total CENVAT Credit involved.
• Amount of ITC availed or utilized until July 1.
• Amount of ITC remaining unutilized until July 1.

Stock Sent or Received for Job Work

When a principal manufacturer sends goods for job work, and these goods are held by the job worker as of July 1, this stock is still considered held by the principal manufacturer, for which tax credit will be allowed. Both the principal manufacturer and the job worker must file details for goods:

• Held by a job worker on behalf of the principal.
• Sent to a job worker for job work as principal.

Basic details to be included in the form:

• Challan number and date.
• Type of goods (raw material, semi-finished/finished goods).
• Description of goods (HSN, unit, quantity, value).
• GSTIN of manufacturer or job worker.

Goods Sent to Agent or Consignment Dealer for Sale

If a principal dealer or manufacturer sends goods to an agent or consignment dealer for sale, and the stock remains with the agent or dealer as of July 1, this stock is also considered held by the principal, for which tax credit will be allowed. Both the principal and the agent/dealer must file details for goods:

• Held by an agent or consignment dealer on behalf of the principal.
• Sent to an agent or consignment dealer by the principal.

Basic details to be included in the form:

• GSTIN of principal dealer or manufacturer.
• Description of goods (unit, quantity, value, and ITC to be taken).

Conditions for Claiming ITC

A registered person under GST can claim credit for tax paid on purchased goods held in closing stock as of the appointed date. If an invoice or other document evidencing tax payment under the VAT Act or Central Excise is unavailable, credit will be allowed based on the IGST, CGST, and SGST rates of the closing stock under GST, according to the HSN code. When the taxpayer sells goods from their closing stock as of June 30, they must first pay the appropriate taxes on such outward supply. Subsequently, they will be allowed ITC based on the tax rate paid for that outward supply.

For example, if Mr. Avinash holds 1000 units of umbrellas as closing stock on June 30, and on July 15, he sells 100 umbrellas for Rs. 100 each, with IGST applicable at 12%:

Taxable value: Rs. 10,000/- Tax amount: Rs. 1,200/-

Since the IGST rate is less than 18%, ITC will be allowed at 20%. Therefore, ITC allowed will be 20% of Rs. 1,200/- = Rs. 240/-.

A registered person can claim ITC in this manner for six tax periods from the appointed date (July 2017 until December 2017). For each period, a statement indicating supply details in Form TRAN 2 must be filed by the end of the tax period.

Conditions for Claiming Central Tax and State Tax Credit – Applicable to States Offering Tax on MRP Scheme

• The central tax or state tax payable on such supply has been paid.
• Such goods were not wholly exempt from Excise Duty or Nil rated under the relevant State VAT Act.
• The document for procurement of such goods is available with the registered person.
• Details of stock held at the end of each of the six tax periods, including supply details, must be furnished in FORM TRAN-2.
• The amount of credit allowed shall be credited to the Electronic Credit Ledger.
• The stock of goods on which credit is availed must be stored in a way that allows easy identification by the registered person.

For a summary of Transition Provisions, Rules, and Formats, refer to this PPT.

You can also Download Form Tran 1 and Tran 2.