Transitional Provisions For Special Cases Under GST

GST was implemented on 1st July 2017. Most firms were concerned about the procedure and the rules that would apply when switching from the VAT/excise law to the new GST regime. We have discussed a few transitional GST provisions in this post that apply in specific circumstances.

How will long-term construction/works contracts be affected?

GST will be applied to any goods or services provided following the selected day under a work agreement made before the designated day.

Case 1: Mr B entered into a contract with ABC construction Ltd. to build an office building on 1st June 2017. On June 20, 2017, ABC Ltd provided products and services. For which payment was made on June 25, 2017. No GST will be applied to material supplied on 20th June 2017. 

Case2: Would GST apply if ABC Construction Ltd. supplies goods on 20th July 2017?

GST will be applied as supply was after the GST rollout, even though the contract was signed. 

Case 3: ABC Construction Ltd supplied materials and services on 20th June 2017 and issued an invoice for it on 20th June. The payment was made on 27th July 2017. Will GST be applied in this case?

Since the supply was made before the adoption of the GST, no GST would be charged. Also, the time of supply is 20th June 2017, which is before the implementation of GST. 

Transition Provisions For Works Contract to GST

Because a work contract includes both items (such as iron bars and cement) and services (such as labour and engineers), if delivery is made after the appointed day, but the VAT or service tax was paid before the GST implementation date, ITC will be applicable on that portion of the supply.

Continuous Or Periodic Supply Of Goods/Services

When the consideration for the supply has been received before the selected day, and the tax has already been paid under the former law, GST will not be due on the supply after GST implementation. It makes no difference if the supply’s consideration has been paid in whole or part.

Case 1: Mr A supplies goods to Mr B continuously. Mr A sent goods worth Rs. 1,00,000 on 15th July, on which Mr B made an advance payment on 30th June 2022. Will GST be applied in this case?

These products are exempted since payment was made before the adoption of the GST, and tax was charged following the prior law.

Case2: Based on the above scenario Mr B had only Rs. 50,000 as an advance in June. Would GST be applied in this case?

Since the tax was imposed according to the prior law, GST will still not be applicable.  It is irrelevant whether the consideration was partially paid.

Case 3: Mr B made the entire payment of 1,00,000 on 17th July. Would GST apply to this case? 

Following the establishment of GST, it will be applicable whenever consideration is received. However, GST would not be applicable if the tax had been paid under the earlier law. 

Distribution Of Service Tax Credit By Input Service Distributor

The input tax credit for goods/services received before GST by an input service distributor will be eligible as a credit under GST. It is immaterial if the invoices relating to services are received on or after the appointed day. This overrides the GST provision of time of supply of services and applies to both standard goods for sale and capital goods.   

VAT Paid on goods lying with agents to be allowed as a credit 

When any products belonging to the principal are in the agent’s possession on the designated day, the agent will only be qualified to claim credit for the input tax paid on those items after meeting all of the requirements listed below:

• The agent is registered under GST.
• The principal must declare the details of the stock of goods lying with a such agent immediately preceding the appointed day (i.e. 30th June 2017) in the FORM GST TRAN-1. This form must be electronically filed within 60 days of the designated day.
• The input tax credit for these goods has either been reversed by the principal or not used.