As we gear up for the final move – to GST – it becomes important for all of us to be prepared. Moving to GST is inevitable – whether you are a manufacturer, a trader or a service provider.
As a trader, today you are liable for registration under State VAT, if your turnover exceeds the prescribed threshold limit. You are also liable for registration under Central Excise if you trade in Excisable goods. You are allowed to avail input VAT credit and set it off against the output tax liability. However, the excise duty you pay will not be available as credit, and it will be added to the cost of the product, and subsequently passed on to the buyer.
In the GST regime, it does not matter if you are a manufacturer, a trader or a service provider. Input tax credit is available across the supply chain, until it reaches the end customer.
You may have these questions:
- As a trader registered under VAT, can I carry forward the closing balance of input tax credit?
- Can I claim Input Tax credit on the closing stock if I am registered under Excise?
Let us now answer the questions scenario-wise.
Scenario 1 – A trader registered under both VAT and Excise
- The closing balance of credit should reflect in the last VAT return filed by you
- The credit, as reflecting in the return, should be allowed as credit under current law
- It should also be allowed as input tax credit under GST
The balance credit available on the last day, prior to the date on which GST is implemented, can be carried forward as input credit to GST.
As a trader registered under VAT, can I carry forward the closing balance of input tax credit?
Yes, input VAT is allowed as credit in the current regime as well as under GST. The input VAT credit amount can be fully carried forward as SGST Input Tax Credit.
Can I claim credit on the closing stock if I am registered under Excise?
Excise duty is not allowed as input credit in the current regime. One of the conditions to carry forward the credit on closing stock is that on transiting to GST, the duty/tax should be allowed as credit under the current statute. Today, a first stage or second stage dealer adds the excise duty paid to the price of the product. It is then sold to a manufacturer, who claims the input credit.
Therefore, if you are a trader registered under Excise, you will NOT be eligible to claim credit on closing stock.
Scenario 2 – A trader who is not registered under VAT/CST
You need to be registered under the VAT/CST regime if your turnover exceeds the specified threshold limit. If you are not registered under the VAT/CST regime, but are liable for registration under GST, you can claim input credit if you meet the conditions listed below.
- The closing stock held must be used or intended to be used for taxable supplies.
- You were eligible for input VAT credit under current law, but not being liable for registration (turnover was less than the registration threshold limit), you could not claim input tax credit.
- You are eligible for input tax credit under GST
In GST, you are eligible for input tax credit if you are a regular tax payer only. A composition tax payer is not allowed to claim input tax credit.
- You should have invoices or any other prescribed duty/tax paying documents for the closing stock.
- The date of invoices or any other prescribed duty or tax paying documents must be within 12 months from the date of transitioning to GST.
Scenario 3 – A trader who is registered under VAT, and engaged in the sale of exempted goods
On the date of transition to GST, you are a trader who is registered under VAT and engaged in sale of exempted goods, but tax taxable under GST.
Will you be allowed to claim input tax credit?
Yes. You are entitled to carry forward the input VAT credit held in the closing stock.
You were eligible for input VAT credit under current law, but as a trader engaged in exempted goods, you could not claim input tax credit. Other eligibility conditions applicable are same as discussed in Scenario 2.
Blog posts on transition provisions related to:
Composition Tax payer