GST Transition- Input Tax Credit of Excise Duty to VAT Dealers

The First step towards the transaction of GST will be the carry forwarding of the Inputs held in stock on the appointed day and its quantification thereof. Sections 139 to 142 of the GST Act, 2017 deals with transition provisions.

 Section 140 of the CGST Act, 2017 provides that a registered person shall be entitled to take the credit of CENVAT carried forward in the last return furnished under the existing law in such manner as may be prescribed.

Section 140(3) of the Act provides that a registered person who was not registered under the existing law or who was engaged in manufacture of exempted goods or providing exempted services shall be entitled to take the credit of eligible duties in respect of inputs held in stock, semi-finished goods or finished goods subject to certain conditions.

Existing law is defined under Section 2 (48) of the Act which reads as under:

“any law, notification, order, rule or regulation relating to levy and collection of duty or tax on goods or services or both passed or made before the commencement of this Act by Parliament or any Authority or person having the power to make such law, notification, order, rule or regulation.”

By going through Section 140(3) a registered person under the CGST Act, 2017 who was not registered under the existing laws (Central Excise Act, Service Tax, Central Sales Tax Act) say a trader of goods– VAT Dealer shall be entitled to claim the credit of the CENVAT of goods held in stock subject to certain conditions which was not allowed in the present VAT regime.

Conditions prescribed are as under:

(a) Such inputs or goods are used or intended to be used for making taxable supplies under this Act

— the goods/services on which ITC is to be claimed should be taxable under the CGST Act.

(b) The said registered person is eligible for input tax credit on such inputs under this Act

— the inputs shall not fall under the negative list of the inputs on which the ITC is not available under the CGST Act (Section 17).

(c)     The said registered person is in the possession of invoices or other prescribed documents evidencing payment of duty under existing law in respect of such inputs

 — that the dealer must be having  excise/ service invoice prescribed under the Central Excise Act / Service Tax.

(d) Such invoice or other prescribed documents should were issued not earlier than twelve months immediately preceding the appointed day

—- the Invoices should not be old than 12 months.

Condition (c) prescribes that the registered dealer must be in the possession of invoice/ other documents evidencing payment of duty. Traders registered under the VAT Acts of the state will not be in position to comply with this condition as they will not be having Excisable Invoices evidencing the payment of Central Excise duty. In such like circumstances the proviso to Section 140(3) will come into picture. The Proviso reads as under:

“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.”

The proviso provides that subject to certain conditions including that the benefit of such credit shall be passed on to the recipient the registered person shall be entitled to claim the Input even if he is not having the invoice/ documents evidencing payment of duty.

Rule 3 of the Draft Transition Rules provides the conditions fulfilling which a registered person who was not registered under the existing law and is availing credit in accordance with the proviso to sub-section (3) of section 140 shall be eligible to take credit at the rate of forty per cent of the central tax (CGST) applicable on supply of such goods after the appointed date and same shall be credited after the central tax (CGST) payable on such supply has been paid. The time period for claiming such credit will be 6 tax periods (6 months).

Other conditions which need to be fulfilled to take the credit of CGST are:

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

(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.

So a VAT Dealer registered under the State Law can by fulfilling the above conditions within 6 tax periods can claim the credit of 40% of the CGST Paid on the said goods after the appointment day after making the taxable supply of the same and paying tax thereon.

(Author: Varun Chadha (Advocate), Taxation Consultant Off: 3, Shastri Market-II, Jalandhar City. Ph: +91-9872200724 E-mail: [email protected])