Under transitional provisions, if dealers or retailers do not have the excise bills issued by the manufacturer in their name they will get only 40% credit for central GST.
The Goods and Service Tax (GST) regime is just around the corner but the credit input-related transitional provision is likely to have a major impact on dealers’ as well as retailers’ pockets.
In central GST if dealers or retailers do not have the excise bills issued by the manufacturer in their name they will get only 40% credit and rest will have to be paid from their pocket.
The majority of stock lying with dealers, distributors, retailers and showrooms are excise-paid but as per the draft GST Transitional Provisions, which have been tentatively approved by GST Council and circulated by finance ministry, the credit of only 40% of central tax (in case of CGST) payable is admissible to them when they do not have the excise-paid bills issued by the manufacturers in their names.
This anomaly will lead to chaos and litigation, said tax advocate R S Sharma.
“If the draft GST Transitional Provisions is issued as it is, then litigation will start from day one in GST regime and such provision will be quashed by high courts as the tax cannot be levied twice on tax paid goods”.
The GST Council may address or clarify this issue in next meeting which is scheduled on May 18 and 19. This will be a crucial meeting regarding registration to input credits.
As per the draft GST Transitional Provisions, 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.
At present, the goods lying in showrooms and with the dealers are actually cleared from the factory of the manufacturers on payment of 12.5% central excise duty. The point of levy of excise duty is the factory gate. Manufacturers clear the goods to their central warehouse from where they move to dealers and distributors. As retailers and showrooms are at the end of the supply chain, and normally the excise paid bills issued by the manufacturer is not in possession of them, so they may feel the heat.
Confederation of Indian Industry (CII) said, “It would be practically impossible for any dealer to bear the loss of 60% of excise already paid. This will result in unbearable extra cost and loss of genuine input tax paid.”
Dealers, distributors and retailers are first required to pay central tax (CGST) on the stock of goods in hand, even on those goods on which manufacturers have already paid central excise duty. It means they have to pay 60% of CGST from their pockets. Moreover, even the credit of 40% of CGST payable will be admissible to them only after payment of CGST.
To address this anomaly, the government could think of two options — “Either open CGST free window for clearance of stock in hand for a period of six months or allow 100% of CGST payable as a credit on deemed basis subject to giving a declaration of stock and the details of the manufacturer of goods in stock,” said a finance ministry official familiar with the matter.
Why transition provision is important
GST is set to be launched on July 1, which will completely overwrite the existing indirect tax. Transitional Provisions are created in the new law to ensure smooth and hassle-free adoption of GST to safeguard interests of existing taxpayers. Deemed credit @ 40% of tax payable on the outward supply of goods has been provided under transitional provision as per Section 140 and Rule (3)(a) rules for those who are not having the invoice or any other evidence of the payment of tax.
- GST is set to be launched on July 1, which will completely overwrite the existing indirect tax
- Transitional provisions are created to ensure smooth adoption of GST to safeguard interests of existing taxpayers