GST Transition provisions – The devil is in the fine print

March 02,2017
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Niraj Bagri, Partner, Dhruva Advisors LLP
Pankit Shah, Principal

It is a cliché to suggest that detailed analysis of the provisions of any law would throw up some surprises – often unexpected ones! Various issues have been brought to the attention which need redressal by the Goods and Service Tax (‘GST’) Council. This article highlights one of these issues which has not received the attention it deserves.

Section 167(1) of the revised Model GST law states that the credit of VAT / Entry tax amount (‘input tax credit balance’) appearing in the last return filed under the current VAT / Entry tax laws would be entitled to be carried forward in the GST regime provided the same also satisfies the definition of input tax credit as per the GST law. Similar provisions existed in the draft Model law released earlier in June 2016. However, the revised Model GST law prescribes additional caveats to the amount of input tax credit balance that can be carried forward.

A closer look at the second and third proviso to Section 167(1) of the revised GST law reveals that the carrying forward of the entire amount is subject to certain restrictions which would disturb the calculus of most companies.

According to the second proviso, the credit of input tax which is attributable to any claim related to Section 3, Section 5(3), Section 6 or Section 6A of Central Sales Tax Act, 1956 that is not substantiated in the manner and period as prescribed under Rule 12 of Central Sales Tax (Registration and Turnover) Rules, 1957 (CST Rules) should not be eligible to be credited to the electronic credit ledger.

Let us understand the transactions which are covered by the said proviso:


Statutory Provisions

Particulars of the transaction

Section 3

Inter-state sale of goods from one state to another

Section 5(3)

Penultimate sale of goods preceding the export of those goods

Section 6

In-transit sale, sale to officer, personnel, consular or diplomatic agent of any foreign diplomatic mission or United Nations or a similar body

Section 6A

Inter-state branch transfer, transfers between principal and agent, job-work transactions  

The implications of the second proviso would be that the entire amount of input tax credit balance would be allowed to be carried forward only when the dealer produces / holds corresponding forms (i.e.


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Punjab and Haryana High court in the case of R S Cotton Mills v. State of Punjab has ruled that C forms could be filled even at the appellate stage and same could be taken cognizance of.

second proviso to sec 167(1) is contrary to the settled law.

CA. V. Sundararajan Sivakasi.