Up to 40% GST Credit for Excise Paid on Stocks

Credit to be given once Central GST is paid on supply and companies give proof of purchase

Companies can get credit of up to 40% of their goods and services tax liability against excise duty already paid on stocks lying with traders or retailers when GST is rolled out.
According to the latest set of rules put out by the government, credit would be given once the central GST has been paid on the supply and the applicant has provided evidence of purchase of these goods.The company would not need to provide any duty paid document.

The new set of rules defines transition for companies, dealers and retailers that will have stocks, with taxes paid under the previous regime, when the country switches to GST.

Experts, however, said the amount of deemed credit of 40% of tax payable could be quite low in a few cases, particularly for sectors where the existing rate of excise duty is high, like automobile.

Further, for products that attract a higher GST rate of 28%, the loss due to this deemed credit could be significant, they said.

“While rules for transition stock provide some clarity, deemed credit of only 40% of CGST liability might be lower than expected for many sectors including automobile and aerated beverages, which currently attract higher excise duty or would have a higher GST rate of 28%,“ said Pratik Jain, leader, indirect taxes, at PwC. “There is a need for reconsideration of this percentage, at least for few industry segments,“ he said.

Bipin Sapra, partner at EY, said industry now has an opportunity to provide feedback and raise its concerns. “While the valuation rules prescribe a simple mechanism for self-supplies, there would be challenges where credits are not available,“ he said.

In keeping with the momentum of work on GST, the government has put out draft of four sets of rules dealing with the issues of valuation, transition, composition scheme, and input tax credit rules.

Final drafts of rules dealing with registration, invoice, payment and refund have also been issued. The GST Council, the apex decision making body for the new tax, had in its last meeting approved these sets of rules. The council will approve changes, if any following industry representation, to the four sets of new rules on May 18-19 along with fitment of goods and services in rate slabs.

The rules provide clarity on several critical aspects such as mechanism of credit of tax paid on opening stock across the distribution chain, valuation of inter-state stock transfers, and certain specific services that currently enjoy lower service tax incidence such as airlines and insurance.

Principles for taxation on airlines and insurance sector is similar to existing service tax laws. Specific provision for valuation for trading in second-hand goods provide clarity for industry, particularly for used car sales.

“There is an indication that insurance companies, banks and telecom operators would get some relief in case of self-supplies as they can issue the invoice on a quarterly basis,“ said Rajat Mohan, directorindirect taxation at Nangia & Co.

The Economic Times New Delhi,03rd April 2017