GST Update on Transitional Arrangements For Input Tax Credit

Analysis On Section 140(3) And Transition Rule (3)(a)

As per Section 140(3) a registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012—Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the certain conditions, one of which is the registered person should possess invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs and such invoices or other prescribed documents were issued should not be older that 12 months prior to the appointed day.

However, it is proposed in draft transitional rules, 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 be allowed to avail credit under at the rate of 40% 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, as prescribed in Transition Rule (3)(a).
A point to be raised here is that for traders whose margin on goods being traded is mere 7-10%, this 40% benefit isn’t actually beneficial. The traders who play at meager margins will have to pay 60% of GST in cash from his pocket. This burden cannot be shifted to customer also as the customer won’t be willing to pay more price.

However, the credit on next supply of goods will be available to all dealers and they have to pay on value addition only. Thus, the customer will purchase from this stock. Hence, old stock will become dead stock for traders and they will be compelled to sale at same price and pay 60% of GST from his pocket. Hence, the percentage of GST credit should be increased to 80% looking to value additions by traders.

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GST Update on Transitional Arrangements For Input Tax Credit

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