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GST update on adding Clarity to Carry Forward Of Input Tax Credit in the absence of invoices or similar documents.

GST update on adding Clarity to Carry Forward Of Input Tax Credit in the absence of invoices or similar documents.

Adding Clarity to Carry Forward Of Input Tax Credit in the absence of invoices or similar documents.

The proviso to Section 140(3) of CGST Act, 2017 allowed credit to traders who do not possess the duty paying documents. It reads as follows:-
“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”

Thus, the credit was not restricted to condition that duty should have been paid on such inputs. The only condition attached is that the retailers should pass on the benefit of such credit to buyers. But the excise duty was not chargeable on the traders earlier but now the same will be chargeable to CGST. Hence the duty will increase and hence the price will go up. But on the contrary the provision says the price should reduce. There is contradiction in this provision.
However, the Rule 3 (a)(i) of Transitional Rules reads as follows:-

(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.

Hence there is condition in the Rule that such goods were not wholly exempt from duty of excise or were not nil rated. The inference from the same is drawn that the goods should be duty paid but the dealer should not have duty paying document. But this condition was very difficult for the dealers to comply with. He cannot produce the evidence that duty has been paid on these goods.
However, a new angle has been added to this analogy after the statement of Revenue minister Shri Hasmukh Adhia when he was questioned as to whether 40% is fair considering that excise duty paid at the manufacturing stage will be much more. Shri Adhia stated that Government has arrived at the ratio of 40% considering the fact that stock on transition date may also contain goods on which no excise duty would have been paid or very less duty would have been paid. Said ad-hoc formula is to be applied on total stock available on transition date.
Thus, on reading of Revenue Minister’s statement the inference is drawn that the credit of inputs will be allowed even though the duty is not paid on inputs. But there is clear cut provision in the Transitional Rules.
Now reading all three things together, one can reach to conclusion that the credit taken only on those inputs that were conditionally exempted from tax under existing laws however no input tax credit shall be allowed to be taken on the inputs that are unconditionally exempted. For example, the textile is not unconditionally exempt. The exemption notification 30/2004 grants exemption to textile fabrics with the condition that no cenvat credit is taken on inputs.

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