They must, however, take careful note of the onerous conditions. The proviso to Section 140 (3) of the Central GST Act (CGST) says the benefit of deemed credit must be passed on to the recipient. This also applies under State GST (SGST) laws. Rule 3 of the Transitional Provisions Rules restrict this facility to persons registered under the GST laws but not registered under the existing laws (i.e the central and state tax laws prior to commencement of GST laws).
The Rules allow such credit at 40 per cent of the central and state tax applicable on supply of such goods.
However, it will be so acknowledged in the electronic credit ledger only when the goods are sold on payment of CGST/SGST. This sale must be within six tax periods (i.e six months) from the appointed date. Of course, traders already registered under state tax laws but not under central tax laws will get only CGST credit.
Assume goods worth Rs 1,000 are in stock as the appointed day commences, and CGST and SGST are both nine per cent. Then, after these goods are sold, on payment of CGST and SGST, 40 per cent of the nine per cent of Rs 1,000 — that is, Rs 36 — will be available as credit of CGST and Rs 36 as credit of SGST. Traders already registered under state tax laws will get credit of Rs 36 CGST only. Only if, that is, if they pass on these benefits by way of price reduction to buyers.
The Rules say the person availing of this scheme must have documents showing procurement of such goods, must furnish the details of stock held by him on the appointed day and a statement in the prescribed form at the end of each of the six tax periods the scheme is in operation. Indicating the details of supplies of such goods effected during the tax period.
A condition, rather difficult to follow, is that for the purpose of CGST credit, the goods in stock were not wholly exempt from duty of excise or were not nil-rated. Similarly, for the purpose of SGST credit, such goods should not have been wholly exempt from the Value Added Tax (VAT) laws of the relevant state. Now, it is very difficult for a trader to know whether the stocks he holds were exempted from central excise duty or VAT. The goods might be subject to excise duty but a small manufacturer could have cleared these without duty payment, under exemption based on value of domestic clearances. The trader might have procured the goods from another trader, who in turn might have done so from another. Where the goods pass through several hands after they are cleared from the factory of a manufacturer, the trader ultimately holding the stocks might have no idea as to whether excise duty or VAT had been paid on the goods or not.
So, traders who cannot meet the stipulated conditions should not opt for deemed credit.
E-mail: tncrajagopalan@gmail.com
