Contents
Overview: Why Transitional ITC Was Critical
When GST replaced the old indirect tax regime on July 1, 2017, businesses held significant CENVAT credit (on central taxes like Excise and Service Tax) and State VAT ITC on their balance sheets. Without transitional provisions, these credits would have been permanently lost — creating a double tax burden on businesses.
Chapter XX (Sections 139-142) of the CGST Act provided the legal framework for carrying forward these accumulated credits into the GST system. The mechanism: businesses filed TRAN-1 and TRAN-2 forms to declare their eligible transitional ITC.
The Stakes Were High
Industry estimates suggest that businesses across India held over ₹1.5 lakh crore in accumulated CENVAT and VAT credits at the time of GST implementation. Properly claiming transitional ITC directly improved cash flow for millions of businesses in the first year of GST.
Section 140: Carry Forward of CENVAT Credit & VAT ITC
Section 140 of the CGST Act is the primary provision governing transitional ITC. It allowed registered persons to carry forward the closing balance of CENVAT credit (appearing in the last return filed under the old law) as ITC under GST.
Key Conditions for Section 140 ITC
- The credit must have been admissible under the old law (CENVAT Credit Rules or State VAT Act)
- The credit must appear in the last return filed before July 1, 2017
- It must relate to eligible inputs, capital goods, or input services
- The goods or services should be for making taxable supplies under GST
ITC on Closing Stock (Without Central Tax Invoice)
Section 140(3) allowed businesses that were NOT registered under the old central tax law (e.g., traders not liable to Excise Duty) to claim ITC on their closing stock of central tax-paid goods, even without holding central tax invoices. The rate was:
- 60% of the CGST applicable on the taxable supply of such goods on the date of filing TRAN-1
- 40% for goods attracting GST rates of 18% or above
Section 141: Goods Sent for Job Work or on Approval
Section 141 specifically addressed goods that were outside the normal business premises at the time of GST transition — sent to job workers, on approval, or on consignment:
- Goods sent for job work before July 1, 2017 retain ITC with the principal if returned within 6 months (extendable by 2 months)
- Goods sent on approval before July 1, 2017 retain ITC if goods are returned within 6 months
- If goods not returned within the time limit, ITC must be reversed
Section 142: Misc. Transitional Provisions
Section 142 covered several specific transitional scenarios:
- Pending Refunds: Refund claims pending under old law continue to be processed
- Ongoing Appeals: Appeals pending under old law continue in respective forums
- Price Revisions: Supplementary invoices for pre-GST price revisions issued post-July 1 are treated as GST invoices with appropriate adjustments
- Advance Receipts: GST applies on supply made after July 1 even if advance was received before
TRAN-1: The Transitional ITC Filing Form
TRAN-1 was the primary form for declaring transitional ITC. It had multiple tables for different types of credits:
| Table | Purpose |
|---|---|
| Table 5(a) | CENVAT credit shown in last return under old law |
| Table 5(b) | CENVAT credit of KKC (Krishi Kalyan Cess) — not eligible in GST |
| Table 5(c) | State VAT credit from last return |
| Table 6(a) | ITC on inputs held in stock with invoices (for those not required to be registered earlier) |
| Table 6(b) | ITC on goods in transit |
| Table 7(a/b) | ITC on inputs/capital goods for which duty credit not availed under old law |
TRAN-1 Filing Deadlines
Originally September 28, 2017. Extended multiple times due to technical glitches on the GST portal. The Supreme Court later ruled that businesses must be allowed to file or revise TRAN-1, leading to a further extension to March 31, 2020 for those who couldn't file due to technical issues.
TRAN-2: For Stocks Without Purchase Invoices
TRAN-2 was for claiming ITC on closing stock for which Central Tax invoices were not available (typically for goods purchased from unregistered or exempt manufacturers). The deemed credit was:
- 60% of Central Tax payable on supply under GST where GST rate is 18% or more
- 40% of Central Tax payable on supply under GST where GST rate is less than 18%
TRAN-2 had to be filed within 3 months of TRAN-1 filing, with stock details and GST paid on outward supplies made from such stock.
Who Was Eligible for Transitional ITC?
- Manufacturers registered under Central Excise — could carry forward CENVAT credit on inputs, capital goods, and input services
- Service providers registered under Service Tax — could carry forward CENVAT credit on input services
- Traders and retailers registered under State VAT — could carry forward VAT ITC on closing stock
- Traders NOT registered under old central law — could claim deemed ITC on closing stock (40%/60%)
FAQs on ITC Transitional Provisions
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