Before GST implementation, excise duty registration was mandatory only for manufacturers whose turnover exceeded INR 1.5 crores. With the advent of GST, this threshold was significantly reduced to INR 20 lakhs. Consequently, many businesses previously exempt from excise registration are now required to obtain GST registration. A key concern for these newly registered entities is whether they can claim CENVAT credit on their existing stock as they transition to the GST regime. The straightforward answer is yes. A person or entity who becomes registered under GST, having not been registered under the previous tax laws, is permitted to claim input tax credit on goods held in stock on the GST appointed day.

How Much Input Tax Credit Can Be Claimed?

The amount of Input Tax Credit (ITC) that can be claimed varies based on the availability of proof for excise duty payment.

If Proof of Excise Duty Payment Is Available

When an entity possesses verifiable proof of excise duty payment, it can claim the entire 100% input credit on goods held in stock, including those incorporated into semi-finished or finished goods, as of the appointed day (July 1, 2017). This provision is applicable provided the following conditions are met:

• The taxpayer must demonstrate that the goods will be utilized for making taxable supplies, meaning the final sales must attract GST.
• The registered person must be eligible to claim input tax credit on such inputs; they should not have opted for the composition levy scheme.
• The registered person must hold invoices proving the payment of input VAT.
• The invoices must not be older than 12 months immediately preceding the appointed day (i.e., not earlier than July 1, 2016).
• For service providers, input tax credit cannot be claimed if they are availing abatement benefits under GST.

This provision applies to various types of registered persons, including:

• Manufacturers not liable for registration under previous excise law.
• Manufacturers of goods that were previously exempted but are now taxable under GST.
• Service providers of services that were previously exempted but are now taxable under GST.
• Works contractors who were benefiting from abatement (as per notification No. 26/2012—Service Tax, dated June 20, 2012).
• First stage dealers.
• Second stage dealers.
• Registered importers.
• Depots operated by a manufacturer.

If No Proof of Excise Duty Payment Is Available

A taxpayer who was unregistered under previous tax laws and lacks proof of excise duty payment may still be eligible to claim input tax credit. In such instances, credit will be allowed at a rate of 40% of the GST applicable after the appointed date (July 1, 2017). If the GST rate is 18% or higher, the credit percentage increases to 60% of the applicable GST. This credit is disbursed only after the output GST has been paid on the sale of these goods. For inter-state sales where IGST is paid, an ITC of 30% is available if the IGST rate is 18% or above, and 20% for other rates. This facility is available for a period of six tax periods from the appointed date (i.e., until December 31, 2017, covering six months from July 1, 2017). The following conditions must be satisfied for this provision to apply:

• The goods in question must not have been exempted from excise duty or zero-rated under the excise regime.
• The registered person must possess documentation for the procurement of these goods, such as challans.
• Any registered person availing this scheme is required to submit separate details of their stock on hand as of July 1.
• The registered person must provide details of sales for such goods in FORM GST TRAN-1 at the end of each month during the scheme's operational period.
• The allowed credit amount will be credited to the electronic credit ledger, which is maintained in FORM GST PMT-2 on the Common Portal.
• The stock of goods for which credit is claimed must be easily identifiable by the registered person and must be stored appropriately.

The credit amount specified in the application within FORM GST TRAN-1 will be transferred to the applicant's electronic credit ledger, as maintained in FORM GST PMT-2 on the Common Portal.

It is important to note that these schemes are exclusively for situations where there is no proof of payment for the inputs. If there is absolutely no documentation regarding the goods, such as no challans or goods received notes, then the 40% (or 60%) scheme will not be applicable.

Individuals not registered under VAT can also claim input tax credit by registering under GST.