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Pre GST Stock management, Credit of Cenvat on pre GST stock of dealers and distributors

May 19, 2017

Availability of Cenvat Credit on pre GST stock with dealers/ distributors is creating a lot of anxiety because of legal conundrum in this respect. However, there is nothing to be worried about, if they are in possession of the ‘Central Excise Invoice’ evidencing payment of Central Excise duty, issued by a manufacturer, 1st stage dealer, 2nd stage dealer or importer, because it will enable them to avail 100% credit of Cenvat on pre GST stock.

‘Central Excise Invoice’ means an invoice having prescribed particulars in terms of Central Excise Rules. Such invoice should have been issued within 12 months immediately preceding the date of GST implementation.

However, if they are not in possesion of the ‘Central Excise Invoice’ then credit will be allowed at the rate of 40% of the CGST applicable on supply of pre GST stock within six months only after payment of CGST or IGST. For e.g. let us suppose that there is a pre GST stock of Rs. 100 with a dealer who is not in possession of Central Excise Invoice. Rate of CGST is 10%. If this stock of Rs. 100 is supplied after implementation of GST within six months then Rs. 4 will allowed as input tax credit against a liability of Rs. 10 after payment of tax as CGST/IGST. The credit proportionate to monthly supply of pre GST stock will be allowed every month after payment of CGST/IGST. However, if pre GST stock of only Rs. 50 is supplied within six months then credit of only Rs. 2 will be allowed after payment of CSGT/IGST of Rs. 5.

It is immaterial whether a dealer/distributor is registered under central excise to avail 100% credit. What is material is that they are buying from manuafcturer, importer, 1st stage or 2nd stage dealer who can issue ‘Central Excise Invoice’.

Presently depots/warehouses/super stockists/C&F agents of many manufacturing companies are not registered under Central Excise. Therefore their dealers/distribuors will be not be eligible to claim 100% credit of Central Excise duty on pre GST stock. They will be entitled to input tax credit to the extent of only 40% of CGST paid because they willl not be in a possession of ‘Central Excise Invoice’ evidencing payment of Central Excise duty. Therefore, it is advisable that depots/warehouses/super stockists/ C&F agents are registered under Central Excise as first stage dealer before implementation of GST to enable passing on of ‘Central Excise Invoice’.

However, if it is not possible to register depots/warehouses/super stockists with central excise before GST implementation then stock with dealer/distributors should be minimised and policy of dealing with pre GST stock should be clearly communicated to them.

Procedure for claiming credit.

A dealer in possession of ‘Central Excise Invoice’ will be entitled to allowed credit on pre GST stock subject to filing form GST Tran-1 within sixty days of GST implementation. He will have to specify the details of stock held on the date of GST implementation.

The credit to dealer not in possession of ‘Central Excise Invoice’ on pre GST stock will be allowed subject to following conditions:

i) Credit will be allowed only after CGST is paid on supply of such stock.

ii) The credit will be allowed only for period upto six months.

iii) Document for procurement of such goods must be available with the Dealers/distributors.

iv) Details of stock will have to be declared.

v) A statement in FORM GST TRAN at the end of each of the six tax periods during which the scheme is in operation indicating therein the details of supplies of such goods effected during the tax period.

vi) The stock of goods on which the credit is availed is so stored that it is easily identifiable.

This article was first published on LinkedIn by Vinay Kumar Shraff

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