GST Update on Complexities In Transitional Provisions

The Complexities in transitional provisions seems to be never ending.The Rule (3) (a) of Draft Transition Rules state that
“(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.”

Thus the problem that arises here is that 40% credit shall be available only once the central tax on such goods has been paid after their supply takes place.

For example, (Assuming July 1, 2017 to be the appointed date)
A trader has stock of goods for which he does not possess any duty paying document on appointed day. He uploads the stock statement in July itself but sale of such goods takes place on September 10, 2017.
The problem will arise here is that now the central taxes on supply for the month of July 2017 and August 2017 will have to be paid from his pocket as he was unable to take input credit on his stock of goods due to unavailability of duty paying document. The credit of 40% on stock will be available only when the GST on stock have been paid.

Further we know that the central taxes payable on supply of goods is considered to be paid only when it gets reflected in the return. Thus another issue that arises here is that though the goods have been sold in September 2017 still he will not be eligible to avail input credit on the same until he files the return of September 2017. Hence the person will only be eligible to take the input credit of such goods in month of October 2017 and that too after filing all third return i.e. GSTR-3 where the payment of supplies made in September 2017 is reflected. Hence, he will get the credit only on October 20.
The story does not end here. The interpretation of Rule 3(a)(ii) leads us to the fact that the said person will also have to maintain one to one relationship between goods in stock and when the said good is supplied. This is however practically impossible for a trader who sells a variety of products and not just one.

The said Rule has been brought to benefit those persons who do not possess duty paying documents of stock held by them on appointed date, however the loopholes in the language of the rule will not reap real benefits in practical scenario. Thus the rule calls for amendment so as to practically be fruitful to the assesses.

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GST Update on Complexities In Transitional Provisions

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