Credit of unsold stock [Section 140(3)] - Actual Credit as well as Notional Credit - Part-I - GST Transitional provisions

[Sanjay Kumawat]

Central Levies

Q. Whether a person can claim a credit for taxes paid in relation to goods lying in the stock where such person is having taxpaying documents?

Ans. As per section 140(3) of CGST Act, 2017, a registered person under GST who was-

• not liable to be registered under the existing law, or
• engaged in the manufacture of exempted goods or provision of exempted services, or
• providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated 20.06.2012, or
• a first stage dealer or a second stage dealer, or
• a registered importer, or
• a depot of a manufacturer

can claim a credit of eligible duties paid in relation to goods lying in stock or semi-finished goods or finished goods held in stock on appointed date.

Q. What are the ‘eligible duties’ for which credit can be taken?

Ans. Following are the eligible duties for which credit can be claimed:

• the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985(5 of 1986);
• the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985(5 of 1986);
• the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978);
• the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957(58 of 1957);
• the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001(14 of 2001)
• the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975 (51 of 1975);
• the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975).

Q. Whether credit of CST and Service tax paid can be claimed?

Ans. No. As per section 140(3) of the CGST Act, 2017, the only credit of eligible duty can be claimed accordingly, CST and Service Tax is not covered under the category of eligible duty. Therefore, a person cannot claim a credit of CST as well as Service Tax.

Q. Whether credit in relation to input services and capital goods can be claimed?

Ans. As per section 140(3) of the CGST Act, 2017, credits in relation to inputs only can be claimed. Accordingly, credits in relation to input services and capital goods cannot be claimed.

Q. What is the meaning of ‘input',  ‘input services’ and ‘capital goods’?

Ans. The meaning of aforesaid terms is as follows:

• As per section 2(59) of CGST Act, 2017,  ‘input’ means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
• As per section 2(60) of CGST Act, 2017, ‘input service’ means any service used or intended to be used by a supplier in the course or furtherance of business.
• As per section 2(19) of CGST Act, 2017, ‘capital goods’ means goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

Q. What will be the eligible credit amount that a person can claim?

Ans. If a registered person is having taxpaying documents (like tax invoice, bill of entry etc.) then a person can claim the credit equivalent to the actual amount of duty or tax paid which is mentioned in the taxpaying documents.

Q. What are the conditions to avail credit of tax/duty paid in relation to unsold stocks as on appointed date?

Ans. Following are the conditions to claim a credit under GST in relation to unsold stock:

• such inputs and/or goods are used or intended to be used for making taxable supplies under this Act,
• the said registered person is eligible for input tax credit on such inputs under this Act,
• the said registered person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs,
• such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day, and
• the supplier of services is not eligible for any abatement under the Act.

Notional Credit- @40%

Q. Whether a person can claim a credit for taxes paid in relation to goods lying in the stock where such person is not having taxpaying documents?

Ans. As per proviso to section 140(3) of CGST Act, 2017 read with Rule 1 (3) of the Transition Rules, 2017, a registered person under GST who was not liable to be registered under the existing law can claim credit of eligible duties paid in relation to goods lying in stock on appointed date.

It may be noted that the credits in relation to semi-finished or finished goods held in stock are not available in this case.

It may further be noted that the person, not having taxpaying document, cannot claim credit in the following situations where such person was-

• engaged in the manufacture of exempted goods or provision of exempted services, or
• providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated 20.06.2012, or
• a first stage dealer or a second stage dealer, or
• a registered importer, or
• a depot of a manufacturer.

Q. What are the ‘eligible duties’ for which credit can be taken?

Ans. Following are the eligible duties for which credit can be claimed:

• the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985(5 of 1986);
• the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985(5 of 1986);
• the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978);
• the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957(58 of 1957);

It may be noted that a person cannot claim credit in relation to the following duties in the case where such person is not having taxpaying documents, are as follows:

• the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001(14 of 2001)
• the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975 (51 of 1975);
• the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975).

Q. Whether credit in relation to input services and capital goods can be claimed?

Ans. As per Rule 1 (3) of the Transition Rules, 2017, credits in relation to inputs only can be claimed. Accordingly, credits in relation to input services and capital goods cannot be claimed.

Q. What will be the eligible credit amount that a person can claim in a case where a person is not having taxpaying documents?

Ans. If a registered person is not having taxpaying documents (like tax invoice, bill of entry etc.) then a person can claim the credit equivalent to the 40% of CGST paid on the supply of such unsold stock.

For example, a person is having a stock worth of ₹ 50,000/- as on appointed date. Such person has supplied goods for ₹ 60,000/- and on which he has paid CGST @14% i.e., ₹ 8,400/-(Rs. 60,000@14%). Now, in accordance with the provisions of Transition Rules, he can claim credit to the extent of 40% of CGST paid, i.e., ₹ 3,360/- (Rs. 8,400@40%).

Q. Is there any time period to avail this scheme?

Ans. Yes, to claim benefit under this scheme, a person has to claim credit within 6 tax periods.

Q. What are the conditions to avail credit of tax/duty paid in relation to unsold stocks as on appointed date?

Ans. Following are the conditions:

• Such goods were not wholly exempt from the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 or were not nil rated.

• Document for procurement of such goods is available with the registered person.

• Registered person availing this scheme and having furnished the details of stock held by him in accordance with the provisions of clause (b) of sub-rule (2) of rule 1, submits a statement in FORM GST TRAN--- at the end of each of the six tax periods during which the scheme is in operation indicating therein the details of supplies of such goods effected during the tax period.

• The amount of credit allowed shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the Common Portal.

• The stock of goods on which the credit is availed is so stored that it can be easily identified by the registered person.

Q. Whether a service provider or manufacturer can avail this scheme?

Ans. No. As per proviso to section 140(3) of CGST Act, 2017, only a trader can avail this scheme.

Part -II State levies................................................................................................To be continued.............. 

Discussions to this article

[CA.Tarun Agarwalla]

In case a dealer of VAT having also a service tax registration for the rental output services. Can in this case proviso to section 140(3) still not avilable?

[piyush agarwal]

Reply to Mr. CA.Tarun Agarwalla questiom:-

Yes, he will be entitled for input tax credit on inputs held in stock in accordance with the provisions of section 140(3). Being a VAT dealer means you are engaged in exempted service.

[Arun kumar]

 

We are textile manufacturer.

 

At present we have opted Central Excise exempted route and we are not charging excise duty for yarn sales and we have not claimed the Excise duty paid for our purchases so for . Also we have not mentioned our Excise duty portion in our ER1 Return.

 

As per GST regime can we claim ITC of Excise duty for our Existing purchases available in the closing stock of Polyster. Viscose , Spares & Capital Goods as on 30.06.2017

 

Please clarify.

[piyush agarwal]

Dear Arun Ji,

I have marked the line in bold and underline. Since you are a exempted manufacturer till date hence you are liable to claim cenvat only in respect of INPUTS and NOT CAPITAL GOODS provided you have bills of inputs of last 12 months.

As per sec 140(3) of CGST ACT, A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:

1. such inputs or goods are used or intended to be used for making taxable supplies under this Act;
2. the said registered person is eligible for input tax credit on such inputs under this Act;
3. the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
4. such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and
5. the supplier of services is not eligible for any abatement under this Act:
6. Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed.

[CASANJAY AITHAN]

In case a dealer of VAT having also a service tax registration for the rental output services. Can in this case proviso to section 140(3) still not avilable?

Reply : In relation to services, you cannot claim the credit, as section 140(3) specifically says about the eligible duties and eligible duties does not include service tax.

[CASANJAY AITHAN]

We are textile manufacturer.

At present we have opted Central Excise exempted route and we are not charging excise duty for yarn sales and we have not claimed the Excise duty paid for our purchases so for . Also we have not mentioned our Excise duty portion in our ER1 Return.

As per GST regime can we claim ITC of Excise duty for our Existing purchases available in the closing stock of Polyster. Viscose , Spares & Capital Goods as on 30.06.2017

Please clarify.

By: Arun kumar Dated: 28/06/2017

Reply : Yes, you can claim the 100% credit of excise on the basis of excise paying documents. If you dont have excise paying documents then you may claim 60/40 percent credit.

It is to be noted that the you need to pass on the benefit of the credit to the customers.

[Santosh shetty]

Dear Sir,

We have imported Goods in June 17 and in stock as on 30.06.2017. we have paid both CVD and SAD on import . whether we are eligible for Credit and under which section in trans 1

[CASanjay Kumawat]

Yes, Credit of CVD and SAD would be allowed and same can be claimed in Table 7(a) of the GST TRAN-1. Such availment of credit is subject to section 140(3) of the CGST Act, 2017.

[Kunal Harshvardhan]

Hi

I am a dealer of Godrej Security product like safes, lockers etc. I have input stock as on 30.06.17 for safes & lockers with proper invoices with excise and vat bifurcation. How ever since I am not registered under excise I have paid the taxes to the manufacturer. How and where can I claim the excise tax paid by me in trans 1. I am registered under vat and balanced my vat. But I am unable to claim tax input for excise.

[UTTAMKUMAR JAIN]

Hello Sir,

After taking ITC, how to pass on the benefit to the customer.

it should be in the form of Discount or decrease in selling price.

[Amar P]

VAT dealer can get the credit of Excise duty paid on unsold stock which is specified in the tax invoice. But he is not registered under excise Act.

[SHYAMSUNDER AGARWAL]

Dear Sir

Sir We are cooler manufacturer have turnover less then 1.50 Crore, hence not registered under Excise. We have filled Tran-1 (Table-7A) and declared stock of input (Raw Material) like. cooler body, Fan Blade,Cartoon, Electric Motor as on 01.07.2017.

Some of these raw material are used in manufacturing of cooler and some item has been sold as it.

Now while filing Tran-2, which goods were sold directly without manufacturing of cooler, I have taken the value of goods sold at which it was sold at selling price.

Now I am in confusion that some raw material are used in manufacturing of cooler, and cooler has been sold before 31.12.2017. now what value should be taken in tran-2 as value of goods sold for above raw material.

Thank You

CA Shyam sunder Agarwal