Transitional Provisions for Special Cases
Under GST

Overview of Special Transitional Provisions

The standard GST transition (via TRAN-1 and TRAN-2) covered the majority of ITC carry-forward cases. However, the GST law recognised that certain business arrangements required specific transitional treatment. Chapter XX of the CGST Act (Sections 139-142) addresses these special situations.

The fundamental principle across all special provisions: goods and services that were part of an existing business arrangement before July 1, 2017 should not be subjected to double taxation, and parties involved should not permanently lose their ITC entitlements due to the tax regime change.

Job Work Provisions Under Section 141

Job work — where a manufacturer sends goods to a third party (job worker) for processing or finishing — was a very common arrangement in Indian manufacturing. The concern at GST transition: goods sent to job workers before July 1, 2017 were already duty-paid, and ITC had been availed on them.

Section 141 Treatment for Job Work Goods

• Inputs sent for job work: If inputs were sent before July 1, 2017 for job work, the principal can retain ITC — provided the goods are returned or supply is made from the job worker's premises within 6 months from July 1, 2017 (extendable by another 2 months with written application)
• Semi-finished goods: If semi-finished goods were sent before July 1, 2017, same 6-month return window applies
• Finished goods: Finished goods sent from the job worker's premises are treated as supply by the principal if the job worker is not registered; if registered, the job worker is the supplier
• If not returned within time: ITC on such goods must be reversed as if the principal had supplied the goods on the date of transition

Goods Sent on Approval (Consignment)

Many businesses operate on "sale or return" or "goods on approval" basis — goods are sent to a buyer who can return unsold goods. These were common in pharmaceuticals, textiles, and FMCG sectors.

GST Treatment for Approval Goods

• Goods sent on approval before July 1, 2017 and returned within 6 months are not subject to GST on return — they are treated as though GST never applied
• If goods are sold (accepted by the buyer) after July 1, 2017, GST is applicable on the supply value on the date of acceptance
• If goods are not returned within 6 months from July 1, 2017, the supply is deemed to have occurred and GST must be paid
• The original supplier may also be required to reverse ITC availed on the goods

Agent-Principal Transition

Agents who hold goods on behalf of a principal (e.g., consignment agents, commission agents) were in a unique position at GST transition — they held stocks that were not legally theirs but were responsible for their tax compliance.

Key Provisions for Agents

• Agents registered under GST must declare goods held on behalf of principals in Table 12 of TRAN-1
• The principal is entitled to ITC on goods held by the agent — even though the goods are not at the principal's location
• Agents must obtain consent from principals to transfer ITC on stocks held by them
• Both agent and principal can agree on who will take the transitional ITC for goods held at agent's premises

Warehoused Goods in Bonded Warehouses

Goods in Customs bonded warehouses at the time of GST transition (July 1, 2017) required special treatment:

• Goods imported and warehoused before July 1, 2017 remain subject to old customs duty and CVD on the date of clearance from the warehouse
• If goods are cleared on or after July 1, 2017, IGST is levied instead of CVD — calculated on the transaction value as on the date of clearance
• ITC of IGST paid on clearance is available to the importer/buyer as regular ITC under GST

Ongoing Works Contracts

Works contracts (like construction, fabrication, erection) often span multiple years. Those ongoing as on July 1, 2017 had special transitional treatment:

• Works contract services fully performed before July 1, 2017 are taxed under old law (VAT + Service Tax)
• Works contract services performed on or after July 1, 2017 are taxed under GST — even if the contract was signed before GST
• For composite works contracts (involving both goods and services), only the services portion not yet performed on July 1 is subject to GST
• For government contracts, invoice revisions may be needed to separate pre-GST and post-GST value portions

Partial Reverse Charge Transition

Under the Service Tax regime, certain services used Partial Reverse Charge (Partial RCM) — where both the service provider and recipient paid portions of the service tax. Under GST, RCM is either 100% on the recipient or not applicable.

• For Partial RCM services performed before July 1, 2017 but invoiced after, the old partial RCM rules continue
• For services performed after July 1, 2017, GST's RCM provisions apply (100% on recipient for notified services)
• Businesses must identify the service date to determine which tax regime applies

Pending Refunds and Appeals

Businesses that had pending refund claims, assessments, or appeals under the old law at the time of GST transition retain their rights under the old law:

• Refund claims pending under CENVAT/VAT on July 1, 2017 are processed by old law authorities
• Appeals and revisions pending on July 1, 2017 continue in the respective forums
• Any tax, interest, or penalty determined under old law post-transition must be paid under old law provisions
• However, refunds arising from old law may be credited to the electronic credit/cash ledger under GST in certain cases