The most important and the
very first step towards GST is the transition provisions under GST law. The
transition provisions with regard to input tax credit are very important. In
this article I concentrate on how the credit of taxes paid on the goods taxable
at first stage especially under Punjab VAT Act, 2005, would be available under the GST
regime.
Background: VAT although a multi stage tax system, but certain items under
Punjab VAT Act, 2005 were taxable only at their first point of sales and sales
of such goods at subsequent stages is tax free and no input tax credit of tax
paid at the first stage is admissible to the persons selling such goods at
subsequent stages.
Transition of ITC of tax
paid on stock of goods taxable at first stage: The question therefore with regard to such goods is that with the
transition to GST regime, when all the stages would be taxable, whether the
persons selling such goods at subsequent stages as tax free, would get any
benefit of taxes paid on the stock of goods held by them on the appointed
day(i.e. day on which GST becomes applicable)?
The answer to the above
question has been provided under Rule 3 of the Draft Transition rules
introduced recently.
The said Rule runs as
under:
(3) (a) (i) A registered
person, holding stock of 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 availing credit in accordance with the proviso to sub-section
(3) of section 140 shall be allowed to avail input tax credit on goods held in
stock on the appointed day in respect of which he is not in possession of any
document evidencing payment of value added tax.
(ii) Such credit shall be
allowed at the rate of [forty per cent.] of the State tax
applicable on supply of such goods after the appointed date and shall be
credited after the State tax payable on such supply has been paid.
(iii) The scheme shall be
available for six tax periods from the appointed date.
(b) Such credit of
State tax shall be availed subject to satisfying the following conditions,
namely,-
(i) Such goods were not
wholly exempt from tax under the Value Added Tax Act,…..
(ii) Document for
procurement of such goods is available with the registered person.
(iii) 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.
(iv) 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.
(v) The stock of goods on
which the credit is availed is so stored that it can be easily identified by
the registered person.
Analysis: The above Rule clarifies that if the person holding stock of goods
which were taxable at first stage of sales, then he will be allowed input tax
credit at the rate of 40% of the SGST applicable on such goods, if the said
person is not in possession of document evidencing the payment of VAT.
However, if a person is in possession of invoice evidencing payment of
VAT on such goods, then it seems that he shall be allowed full credit of VAT
paid at first stage.
Another important thing is
that the input tax credit of such tax would be available only after the SGST
has been paid on the supply of such goods, that means if appointed day for GST
is 1st July then you would not get credit of VAT paid on stock immidiately in
the month of July, it shall be available in the moth of August i.e. after the
payment of SGST for the month of July and that too only for that much of the
stock which is supplied during the month of July.
Other conditions for
availment is that you must be in possession of invoice showing procuement of
goods and you will have to file a statement for six tax periods during which
the scheme is in operation indicating the details of supplies of such goods
effected during the said periods.Another interested condition is that credit
would be available only if the goods are stored in such a way that these are
easily identifiable.
Overall in my personal view
although the incorporation of provisions with regard to fisrt stage goods in
the transition rules seem to settle the law in this regard but at the same time
the conditions imposed for availment of credit especially the condition with
regard to identification of stock, might give rise to litigation.
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