SECTION 146. CREDIT OF ELIGIBLE DUTIES AND TAXES ON INPUTS HELD IN STOCK TO BE ALLOWED TO A TAXABLE PERSON SWITCHING OVER FROM COMPOSITION SCHEME

GST Update 26.07.2016

GST DAILY DOSE OF UPDATION:-

TRANSITIONAL PROVISIONS

SECTION 146. CREDIT OF ELIGIBLE DUTIES AND TAXES ON INPUTS HELD IN STOCK TO BE ALLOWED TO A TAXABLE PERSON SWITCHING OVER FROM COMPOSITION SCHEME

CGST LAW

A registered taxable person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the earlier law (hereinafter referred to in this section as a “composition taxpayer”), shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed date subject to the following conditions:

(i)           such inputs and / or goods are used or intended to be used for making taxable supplies under this Act;

(ii)         the said person is not paying tax under Composition Scheme in GST;

(iii)       the said taxable person was eligible for cenvat credit on receipt of such inputs and/or goods under the earlier law but for his being a composition taxpayer under the said law;

(iv)       the said taxable person is eligible for input tax credit under this Act;

(v)         the said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty / tax under the earlier law in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock on the appointed day; and

(vi)       such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.

The amount of credit under shall be calculated in accordance with generally accepted accounting principles in such manner as may be prescribed.

The amount taken as credit shall be recovered as an arrear of tax under this Act from the taxable person if the said amount is found to be recoverable as a result of any proceeding instituted, whether before or after the appointed day, against such person under the earlier law.

Similar provisions are there for SGST Law.

Presently, under compounded levy scheme, there is restriction as to availment of cenvat credit by assessee. Consequently, the assessees do not procure raw material against cenvatable invoices. However, at the time of conversion to GST regime, the provision has been made for availment of credit of tax contained in inputs, work in progress and finished goods. At present, there is no express provision as regards availment of cenvat credit when assessees shift from compounded levy scheme to normal cenvat credit scheme. This dispute has been resolved and in GST regime, cenvat credit will be admissible. However, at the same time, credit will have to be reversed on shifting from normal cenvat credit scheme to compounded levy scheme. Hence, the contention made by the assessee that only mode of duty payment is being changed and there is no requirement to reverse the cenvat credit will not hold good in proposed GST taxation regime.

Another point that needs consideration is the condition regarding possession of invoices for availing credit which may be difficult to be fulfilled as assessee will not preserve invoices and not ensure that invoices contain all relevant details so as to avail credit.

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GST Update 26.07.2016

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