GST Transition- Input Tax Credit of State VAT allowed on Closing Stock as on 30.06.2017 even if dealer was not a registered VAT Dealer


The objective of this provision is to provide benefit of Input Tax Credits paid under State VAT laws to dealer (registered under GST), on stock in hand as on 01.07.2017 (which is liable to tax under GST), where such input tax credits were not claimed before 01.07.2017 because he was not allowed to claim Input tax credits under that laws due to various reasons like:

  • He was not liable to registered under State VAT laws; or
  • He was dealing in goods which were exempted or tax free under State VAT laws; or
  • He was dealing in goods which have suffered tax at first point of their sale in the State and subsequent sale of which are not subject to tax in the state; or
  • He was entitled to claim Input Tax Credits at the time of sale of goods.

In GST, he shall be entitled to take credit of VALUE ADDED TAX in respect of:

  • inputs held in stock; and
  • inputs contained in semi-finished goods held in stock; and
  • inputs contained in finished goods held in stock;

and such stock shall be counted as available in stores on appointed day (i.e. 1st of July, 2017) for GST.


However, law has provided some conditions to claim such credit. There are two different situations:

  1. Where such dealer has invoices evidencing payment of VAT on purchases
  2. Where such dealer has NOT invoices evidencing payment of VAT on purchases

We will discuss in detail about both situations and conditions associated to these situations to claim the credit:

Situation 1 : Where such dealer has invoices evidencing Excise Duty paid on purchases:

Where such dealer purchases goods from a dealer registered under VAT and such vendor issues him an invoice in which amount of State VAT paid is clearly mentioned, it will be considered that dealer has invoices evidencing amount of VAT paid on purchases. To claim input tax credits in this case, following conditions must also be complied with:

  1. such inputs or goods are used or intended to be used for making taxable supplies under SGST Act;
  2. the said registered person is eligible for input tax credit on such inputs under SGST Act;
  3. the said registered person is in possession of invoice or other prescribed documents evidencing payment of VAT under the existing law in respect of such inputs; and
  4. such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.
Situation 2 : Where such dealer has NOT invoices evidencing payment of State VAT on purchases

Where a dealer has not invoices or other documents evidencing State VAT paid on purchases, he is also allowed to avail the credit of State VAT subject to the following conditions. However, this benefit would be available only for the stock of goods on which tax is paid at first point of their sale in the State and subsequent sale of which are not subject to tax in the state.

  • He should not be a manufacturer of goods or a supplier of services
  • Goods should not be wholly exempt under State VAT laws.
  • Document for procurement should be available with the registered person.
  • Detail of stock held on appointed day shall be declared in FORM GST TRANS-1
  • The stock of goods on which the credit is availed under this scheme should be stored in such manner that it can be easily identified by the registered person.
  • He shall pass on the benefit of such credit by way of reduced prices to the recipient of goods.

Manner of claiming Credits under this situation :

  • Such credit shall be allowed at the rate of 60% of State GST (i.e. of half portion of whole tax rate) applicable on supply of such goods where Gross Tax Rate (i.e. CGST+SGST) is 18% or more.
  • In case, gross tax rate is lower than that of 18%, then credit will be allowed only @40% of SGST portion.
  • Such credit shall be allowed only after the payment of State GST or IGST (payable on such supply) being made to government.
  • This scheme will be available for six tax periods from the appointed date (1.7.2017). {It means dealer must consume its whole of opening stock as on 01.07.2017 within six months from this date}.
  • Details of supplies made in each month (out of such stock) to be filed in Form GST TRAN 2 at the end of  each month upto six tax periods during which the scheme is in operation.

 

Leave a comment

Your email address will not be published. Required fields are marked *