transitional credit

What is Transitional Credit?

GST combines multiples taxes into one. Provision have been made for smooth transition of Input Tax Credit available under VAT, Excise Duty or Service Tax to GST. In Transitional credit, the regular registered person can claim the pending credit of stocks provided such stock is purchased 6 months before the appointed day. The registered person can also take credit of capital goods as well.

Transitional provisions enable the taxpayer to carry forward the unutilized input credit under the pre-GST regime and allow the credit of taxes paid on the stock as on 30.06.2017 as GST credit.

This was to ensure a smooth transition from old laws (Central Excise, service tax and VAT) into GST, avoid double taxation by way of cascading of taxes.

Retrospective amendment vide Finance Act, 2020:

Section 128 of Finance Act, 2020 amends section 140, to insert the words ‘within such time’ (w.e.f 01.07.2017). Notification No. 43/2020- Central Tax dated 16.05.2020 was issued notifying the effect of aforesaid retrospective amendment though it was not warranted in terms of Section 2 of Finance Act, 2020 to determine timelines for filing FORM GST TRAN-1.

The instant amendment was made applicable7 on 18th day of May 2020 after much celebrated decision of Delhi High Court. Accordingly, only such registered persons who could not submit FORM GST TRAN-1 by the due date on account of technical difficulties and are recommended by the GST Council can file FORM GST TRAN-1 up till 31.03.2020.

The consequence of the amendment is that the Government has the power to prescribe the time limit for claiming Transitional Credit through the rules.


The retrospective amendment merely validates the timelines prescribed u/r. 117 which was missing previously. It would be incorrect to give the effect of the retrospective amendment beyond this point and is insufficient to nullify the rationale of the High Court decisions, which would still hold the field.

Disclaimer:“Information contained herein is for informational purposes only and should not be used in deciding any particular case. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts have been made to provide authentic information, it is suggested that to have better understanding and obtaining professional advice after thorough examination of particular situation.”

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Prepared By

Rahees P K

Article Assistant

Date: 28/10/2020