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Query on ITC on closing stock on which CST has been paid

July 13, 2017

Query : Our Valuable client has the given question – “Can the opening stock of  purchase made against 2% CST, be declared and input tax credit can be taken upto 60% of the stock value”.

Answer:

You will be allowed to avail the Input Tax credit (only on taxes detailed below) held in the closing stock of inputs (raw- materials, semi- finished goods, and finished goods). However, certain conditions need to be fulfilled in order to avail Input Tax credit held in your closing stock (details given below). ITC will not be available for CST. Explanation has been given as under.

Duties and taxes eligible for claim of credit:

CGST

SGST

Excise Duty

Service Tax

Additional excise duty

Value Added Tax

National Calamity Contingent Duty

Entry Tax

Additional Custom Duty

 

 

ITC will not be available for CST paid @ 2% i.e inter-state sale substantiated with Form C.

In view of second proviso to Sec 140(1), the amount of credit that is attributable to any claim related to Section 3 of CST Act,1956 which deals with inter-state sales which is to be substantiated with “C” Forms, shall not be eligible to be credited to the electronic credit ledger. However, third proviso to Sec 140(1) stipulates that such credit shall be refunded in accordance with the provisions of existing law when such claim shall be substantiated in the manner prescribed under Rule 12 of Central Sales Tax (Registration and Turnover) Rules, 1957.

In view of reputed professionals and experts, the intention behind inserting the aforesaid proviso is to keep a check on the credit which is attributable to such specified sales. This is due to the fact that such sale is substantiated by furnishing specific form ie. Form C within specified time period. Accordingly, the tax credit attributable to such a sale is linked with the furnishing of Form C i.e. if the Form C has been already furnished before the appointed date, credit attributable to such specified sale shall be credited in the electronic credit ledger and if such forms have not been furnished, credit attributable to such specified sale shall be refunded as and when Form C shall be furnished in the manner prescribed under Rule 12 of Central Sales Tax (Registration and Turnover) Rules, 1957.

Conditions for availing ITC on closing stock – on CENVAT, input VAT, entry tax and Service Tax.

  1. The closing stock is held either in the form of raw materials, semi-finished goods, or finished goods, and must be used or intended to be used for taxable supplies. ITC credit will not be available in case the closing stock will be used for exempted supplies.

 

  1. The benefit of such credit is passed on, by way of reduced prices, to the recipient. In current tax regime, duty/tax is added as product cost since the Input Tax Credit is not allowed. On transition to GST, ITC will be allowed, and this should naturally result in the reduction of base cost, and subsequently reduced final price to customers.

 

  1. In GST, one is eligible for Input Tax credit if he is a regular tax payer only.

 

  1. Invoices or any other prescribed duty/taxpaying documents evidencing tax payment in respect of the closing stock of inputs (including semi-finished goods and finished goods), should be available in order to avail 100% ITC.

 

  1. In case , the above documents are not available, the credit will be allowed as under:
  1. For products with GST rate – 18% and 28% - 60% (CGST/SGST) and 30% (IGST)
  2. For products with GST rate – 5% and 12% - 40% (CGST/SGST) and 20% (IGST)

 

  1. The date of invoices or any other prescribed duty / taxpaying documents is within 12 months from the date of transitioning.

 

  1. The supplier of services is not eligible for any abatement under the act.

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