GST Update on Transitional provisions of credit without receipt of invoice

Provisio to sub section (3) Section 140 states that “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.”

In an update prepared by us earlier we had brought forward the plight of the assessees that the traders whose margin on goods being traded is mere 7-10%, this 40% benefit as provided in Rule 3 of Transition Rules isn’t actually beneficial. The traders who play at meager margins will have to pay 60% of GST in cash from his pocket.

Next issue that arises is that if the traders who sell goods which are not required to be sold at MRP, for example plywood, if they will have to pay this 60% out of their pockets they will tend to increase the cost of the goods they sell which will lead to increased burden on the pocket of ultimate consumer. However traders selling the goods at MRP cannot shift burden to customer as the customer won’t be willing to pay more price than MRP stated on the good. Thus trader will have to pay 60% tax from his own pocket.

As per recent news that has been floating, the traders in all the segments of business environment have started maintaining low stocks of goods. The pharmacists have been keeping a stock of 7 days only so as to avoid any repercussions in case the rate of GST on medical products comes out to be higher than the existing. This will definitely create a negative impact on the economy and might lead to economic slowdown.

Further to aggravate the problems of assesses as per the provisio to Section 140(3) as stated above, the traders who wish to avail the benefit of getting credit of 40% of the central tax applicable on supply of such goods can avail such benefit only if they pass on the benefit of such credit by way of reduced prices to the recipient. Thus firstly the trader will have to pay 60% of taxes from his own pocket and also reduce the prices by 40% to avail the benefit of taking credit.

We are giving one example to clear our point of view. Say, a retail medical shopkeeper sells a medicine of MRP Rs. 100/- from his shop. He does not have the excise duty paying document. So, he opts for transitional credit @40% as per proviso to Section 140(3). Say the CGST payable on these goods is 6%. After selling this medicine, he will get credit @ 2.4% and he has to pay 3.6% from his pocket as he was not paying any excise duty under the earlier regime and this new levy on his product. But to claim credit of Rs. 2.40, he should reduce the MRP by this amount. Hence, he should sell it at Rs. 97.60 rather than Rs. 100. But the retailer is keeping his inventory at minimum as he is thinking that he has to pay Rs. 3.60 from his pocket and this will increase his cost. But the GST Act is saying that since credit is given to you and hence you should reduce the price. This anti profiting measure is taken so that inflation does not rise. The retailers will say that we do not require the credit of 40% from the Government.

As such this provision is put to support the traders is in fact more of a burden. It does not entail any real benefits to traders who lack invoices or documents evidencing duty paid in respect of inputs.

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GST Update on Transitional provisions of credit without receipt of invoice

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