Transitional provisions-Credit of tax paid in relation to unsold stock [Section 140(3)] - Actual Credit as well as Notional Credit - Part-II

[CASanjay Kumawat]

Trader’s eligibility to claim credits on unsold stock on stock- Transitional Provision – Section 140(3)

State Levies

Taxpaying document available

Q. Whether a person can claim the 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 SGST Act, 2017, a registered person under GST who was-

• not liable to be registered under the existing law, or
• sale of exempted goods or tax-free goods, or
• goods which have suffered tax at the first point of their sale in the State and the subsequent sales of which are not subject to tax in the State under the existing law but which are liable to tax under this Act, or
• where the person was entitled to the credit of input tax at the time of sale of goods 

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

Q. What is the ‘eligible duty’ for which credit can be taken?

Ans. A registered person can claim credit in relation to VAT paid.

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

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

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 the 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, and
• such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.

Notional Credit @40%

Taxpaying document not available

Q. Whether a person can claim the 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 SGST Act, 2017 read with Rule 1 (3) of the Transition Rules, 2017, a registered person under GST can claim credit in relation to goods which have suffered tax at the first point of their sale in the State and the subsequent sales of which are not subject to tax in the State under the existing law but which are liable to tax under this and such goods are 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-

• not liable to be registered under the existing law, or
• engaged in the sale of exempted goods or tax-free goods, or a depot of a manufacturer.
• entitled to the credit of input tax at the time of sale of goods.

Q. What is the ‘eligible duty’ for which credit can be taken?

Ans. Credit in relation to VAT can be claimed.

Q. Whether credit in relation to 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 respect of capital goods cannot be claimed.

Q. What will be the eligible credit amount that a person can claim in the case where the 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 SGST paid on the supply of such unsold stock.

For example, a person is having the stock worth of ₹ 50,000/- as on appointed date. Such person has supplied goods for ₹ 60,000/- and on which he has paid SGST @28% i.e., ₹ 16,800/-(Rs. 60,000@28%). Now, in accordance with the provisions of Transition Rules, he can claim credit to the extent of 40% of SGST paid, i.e., ₹ 6,720/- (Rs. 16,800@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 tax under the Value Added Tax Act,…..
• 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 SGST Act, 2017, only a trader can avail credit under this scheme.

Discussions to this article

[Ganeshan Kalyani]

Please check "credit is eligible on 40% of SGST payable ". In my 40% of central GST payable would be available as credit.

[CASanjay Kumawat]

For the credit of excise duty - 40 percent of CGST

[Legal reference : proviso to section 140(3) of the CGST Act, 2017 read with Rule 1(3) of the Transitional Rules, 2017 (For CGST only)]

For the credit of VAT -40 percent of of SGST

[Legal reference : proviso to section 140(3) of the SGST Act, 2017 read with Rule 1(3) of the Transitional Rules, 2017 (For SGST Only) ]

In the present case, I have discussed about credit in relation to VAT , accordingly , 40 percent of SGST payable shall be allowed​ as credit.

[Krishna Murthy]

Purchases made from outside the state (CST purchases) and tax paid to the seller and issued 'C' form to the seller. Such purchase is lying as stock as on appointed date. Can ITC of such CST tax (2% against 'C' form ) be claimed for carried forward under GST.

[ankit shah]

There are stock with us which we had purchases from a manufacturer who was not liable to levy excidse duty(turn over lessthan 1.5 Cr.) and product was also vat exempted.Now under gst regime the goods are taxable @ 18%.wether i can get any input credit or deemed or notional credit?

[SARAVANAKUMAR BALASUBRAMANIAN]

Whether the deemed credit of 40% is on cost price or sale price.

[CASANJAY AITHAN]

Purchases made from outside the state (CST purchases) and tax paid to the seller and issued 'C' form to the seller. Such purchase is lying as stock as on appointed date. Can ITC of such CST tax (2% against 'C' form ) be claimed for carried forward under GST.

By: Krishna Murthy Dated: 07/06/2017

Reply : Credit of CST cannot be claimed or carry forward.

[CASANJAY AITHAN]

There are stock with us which we had purchases from a manufacturer who was not liable to levy excidse duty(turn over lessthan 1.5 Cr.) and product was also vat exempted.Now under gst regime the goods are taxable @ 18%.wether i can get any input credit or deemed or notional credit?

By: ankit shah Dated: 29/06/2017

Reply: You cannot get any ITC. If you havn't paid any tax then you cannot claim the credit.

[CASANJAY AITHAN]

Whether the deemed credit of 40% is on cost price or sale price.

Reply: Not on sale value or cost value. You can claim the credit of GST paid on supply of goods under GST.

For ex. Goods value ₹ 50,000/- , GST on sale of goods ,lets say , ₹ 10000 , then in this case you can claim the credit 60/40 percent of ₹ 10000/-