As per the Central Excise Act and Rules, a manufacturing unit is required to register if its aggregate value crosses Rs 1.5 Crores, and needs to discharge the duty liability.

Similarly, under VAT, a manufacturer is liable for registration if his turnover during the financial year crosses the threshold limit. The threshold limit differs from state to state. Given the fact that VAT threshold limit ranges from Rs 5 – 20 Lakhs, let’s assume that most manufacturers will be registered under VAT.

On the date of transitioning to GST, there will be manufacturers who are:

Unregistered Manufacturers

Should an unregistered manufacturer be worried since he is not registered today?

Yes, today he is not liable for registration since the threshold limit does not exceed the prescribed limit. However, he will be liable to register under GST, if his threshold limit exceeds Rs 10 Lakhs for North East India and Rs 20 Lakhs for the rest of India.

Scenario 1

Tax Registered?
Excise No
VAT Yes

You may have a question-

Today, I am not registered under Excise as Manufacturer, but in GST I am liable to register. Will I be allowed to take input tax credit on stock held with me?

Since the threshold limit for VAT registration ranges from Rs 5 Lakhs to Rs 20 Lakhs and you being a manufacturer, it is certain that you have already registered under VAT. Please read this blog post to understand carry forward of Input VAT credit.

As a manufacturer, if you are liable for registration under GST, you can carry forward the CENVAT credit held in the closing stock of inputs (raw- materials), semi- finished goods and finished goods. However, there are conditions that you need to meet to be eligible to avail and carry forward the credit held in your closing stock.

Eligibility conditions to carry forward credit held in your closing stock

You can carry forward the credit held in your closing stock if these conditions are met.

  • The closing stock held either in the form of raw materials, semi-finished goods, or finished goods must be used or intended to be used for taxable supplies.Conditions for availing GST ITC on closing stock
  • You were eligible for CENVAT credit under current law, but not being liable for registration, you could not claim input tax credit.
    What does this mean?
    You must be a manufacturer. As you were not liable for registration under Excise (as your turnover was less than the threshold limit), you could not claim CENVAT.
  • You are eligible for input tax credit under GST . You are eligible for input tax credit if you are a regular tax payer only. A composition payable is not allowed to claim input tax credit.

How to claim GST ITC on closing stock

  • You should have invoices or any other prescribed duty/tax paying documents in respect to closing stock of inputs (including semi-finished goods and finished goods).Tax documents needed for claiming GST Input tax credit
  • The date of invoices or any other prescribed duty / tax paying documents must be within 12 months from the date of transitioning to GST.

Carry forward Input tax credit to GST

Scenario 2

Tax Registered?
Excise No
VAT No

In any case, if you as a manufacturer was not liable for registration under Excise and  VAT (since the turnover was less than the prescribed threshold limit) but liable for registration under GST,  the CENVAT and  input VAT credit held on closing stock will be available subject to below conditions :

  • The closing stock held either in the form of raw materials, semi-finished goods, or finished goods must be used or intended to be used for taxable supplies.
  • You were eligible for CENVAT and VAT credit under current law, but not being liable for registration, you could not claim input tax credit.
    What does this mean?
    You must be a manufacturer. As you were not liable for registration under Excise and VAT (as your turnover was less than the threshold limit), you could not claim CENVAT and VAT credit.
  • You are eligible for input tax credit under GST.
    In GST, you are eligible for input tax credit if you are a regular tax payer only. A composition payable is not allowed to claim input tax credit.
  • You should have invoices or any other prescribed duty/tax paying documents in respect to closing stock of inputs (including semi-finished goods and finished goods).
  • The date of invoices or any other prescribed duty / tax paying documents must be within 12 months from the date of transitioning to GST.

Manufacture and Sale of Exempted Goods

So, on the date of transition to GST, what happens to a manufacturer who is registered under excise, and is engaged in the manufacture and sale of exempted goods which are taxable in GST. Will he be allowed to claim input tax credit?

Such a manufacturer is entitled to carry forward the CENVAT and input VAT credit held in the closing stock of inputs (raw- materials), semi- finished goods and finished goods.

The eligibility conditions to carry forward the CENVAT credit under this scenario are  similar to the eligibility conditions discussed for unregistered manufacturers above.

Coming soon:

Blogs on transition provisions for

  • Trader
  • Service Provider