Understanding GST Transitional Rules for Goods in Movement
This article clarifies the transitional provisions under GST for goods that are in transit during the shift from previous tax regimes. It explains how to determine tax applicability based on the point of taxation rules, providing detailed scenarios for situations where invoices or payments occur before or after GST implementation. Furthermore, it addresses the eligibility to claim Input Tax Credit for goods received post-GST, provided tax was paid under the old law and recorded correctly.
Businesses operate continuously, often with goods constantly moving. For manufacturing sectors, goods in transit are a common occurrence, with products regularly shipped between factories, branches, or to customers. The introduction of GST on July 1, 2017, raised questions about the tax treatment of these goods. Products leaving a seller's premises under the old excise/VAT regime might reach the buyer when GST is active. This article clarifies the transitional rules for goods in movement under GST, detailing tax applicability.
Consider a scenario where Ajay sold goods to Vijay on June 20, 2017, applying VAT at 5%. The delivery occurred on July 5, 2017. Both parties might wonder how to record this transaction and if GST would also apply. The simple answer is no. According to CBEC FAQs, GST is not applicable to such supplies of goods or services if tax was already levied under the previous tax laws.
Is GST Applicable to Goods Already in Transit?
If a supplier sold goods or services where tax was collected under the prior tax system and an invoice was issued before the GST implementation date, GST will not be levied, even if payment is received after GST's introduction. The transitional rules for goods in movement under GST are clarified by the point of taxation principles. If the point of taxation for goods or services falls before the GST implementation date, the transaction will be taxed under the previous law, and GST will not apply. However, if any part of a supply has its point of taxation after GST's effective date, it will be subject to GST.
Scenario 1
Consider Mr. S selling goods to Mr. B, issuing an invoice on June 27, 2017. Mr. B received the items on July 9 and settled the payment on July 10. Does GST apply here? Based on the time of supply rules for goods under GST, the point of taxation is determined by the earlier of the invoice date (June 27) or the payment date (July 10). In this instance, June 27 is the earlier date. As this transaction occurred before GST's introduction, it falls under the previous tax regime, and GST is not applicable.
Scenario 2
In another situation, Mr. S sold goods to Mr. B on June 29. Mr. B received them on July 9. Mr. S issued the invoice on July 12 and received payment on July 15. Is GST applicable? Applying the time of supply rules for goods under GST, the point of taxation is the earlier of the invoice date (July 12) or the payment date (July 15). Here, July 12 is the determining date. Since the point of taxation is after GST's introduction, this transaction will be subject to GST.
Similar principles apply to goods in transit:
Scenario 3 – Payment Pre-GST
Ajay sold goods worth Rs. 1,00,000 to Vijay on June 20, 2017, and applied VAT at 5%. Vijay completed the payment on June 25, 2017. The goods were dispatched on June 21 and reached Vijay on July 5, 2017. In this instance, only VAT will be applied, and GST will not be applicable. This is because VAT was collected under the previous tax legislation, and an invoice was also issued before the GST implementation date.
Scenario 4 – Payment Post-GST
If Ajay sold goods worth Rs. 1,00,000 to Vijay on June 20, 2017, with VAT at 5%, and the goods were delivered on July 5, 2017, with payment made by Vijay on July 10, 2017, then only VAT will be charged. GST will not apply since no GST is payable on goods where VAT was already imposed.
Can Input Tax Credit (ITC) Be Availed for Goods in Transit?
A registered taxpayer is permitted to claim input tax credit for goods or services received after GST implementation, provided tax was paid under the previous law. A key requirement is that the invoice or tax payment proof must be recorded in the books of accounts within 30 days of the GST implementation date. This initial 30-day period may be extended by an additional 30 days if valid reasons are provided. The registered taxpayer is required to submit a statement detailing the credit claimed. Let's examine an additional example.
Suppose Mr. S sold goods to Mr. B on June 29, charging VAT at 5%. Mr. B received the goods on July 9 and made payment on July 15. Is Mr. B eligible to claim input tax credit for these goods under GST? Yes, Mr. B can claim ITC, provided the purchase is recorded in his financial records by July 31.