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

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 dutyunder 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 abatementunder 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..............