GST Credit Conundrum for Retailers & Dealers holding stocks

GST Credit Conundrum for Retailers & Dealers holding stocks

RS Sharma Advocate & GST Expert

The Retailers and Dealers who have become liable for payment of CGST on stocks in hand on date of implementation of GST (which can be either 1st July or 1st September 2017) and who are neither registered under Central Excise nor hold the Central Excise duty paid invoices have landed in GST Credit Conundrum as the credit of input tax has been restricted to 40 per cent of CGST payable in their cases as per the Draft CGST Transitional Provisions tentatively okayed by GST Council. Further, the provision of allowing credit equal to even 40 per cent of CGST after payment of CGST has come as a double whammy for Retailers and Dealers who have no option but to go for Pre-GST Stock Clearance Sale and to postpone the receipt of fresh inventory to avoid payment of 60 per cent of CGST from their own pocket on stocks in hand.

Provision to Section 140(3) of the CGST Bill 2017 provides 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.

As provided under CGST Transitional Provisions; every registered person entitled to take credit of input tax under section 140 shall, within sixty days of the appointed day, submit an application electronically in FORM GST TRAN- 1, duly signed, on the Common Portal specifying therein, separately, the amount of tax or duty to the credit of which the said person is entitled under the provisions of the said section.

CGST Transitional  Rules prescribe the following conditions for availing credit on stock in hand by those entities who do not have excise paid bills.

( i) A registered person, who was not registered under the existing law, 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 central excise duty.

(ii) Such credit shall be allowed at the rate of forty per cent. of the central tax applicable on supply of such goods after the appointed date and shall be credited after the central 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 central tax shall be availed subject to satisfying the following conditions, namely,-

(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.

Not only the Retailers, Showrooms, Branches and Dealers but also the Manufacturers will need to frame their business strategy keeping Transitional Provisions in mind as keeping stocks at premises which are  neither registered under excise nor excise paid bill is available at such premises can lead them into transition tangle from pre-GST Regime to GST Regime.

( Writer is a Lawyer based in Gurgaon. He is advising several MNCs, Indian Corporates and PSUs on GST Transition Issues. He can be mailed at )




1 Comment

  1. u shiva shanker said,

    July 1, 2017 at 8:35 am

    sri this is shiva shanker from sri sai industries hyderbad i need sum caralification we are manafucturing furnitures to government schools and instiutions telngana and andhra pradesh government at present we are pay tax 5% on government institutions i have old orders is balance to supply how much tax i pay and delivered the items kindly help me how can transaction on old orders around 80lacks furnitures is balnce to supply.

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