GST impact on stock available till 30th June
Goods and Services Tax (GST) is considered to be the biggest tax reform in independent India. As the deadline comes closer, small and medium companies as well as large enterprises are working on the transition from VAT era to GST regime. No doubt, this transition won’t be an easy task especially for those who are linked with fast-moving goods, durable, pharmaceuticals. Nevertheless, cutting down inventory levels is not an easy task either. Already inventory correction has started across various sectors. Instead of lifting stocks for two months or so, the companies are taking up stocks for 10- 12 days.
Understanding the problem
The biggest question going around various quarter is – what will happen to the stocks sold after June 30. Incidentally government had already announced that trade across various categories will get 40% reimbursement of the tax paid portion only. In this regard, one can certainly highlight Section 167(1) of the revised Model GST law which clearly states that the credit of VAT / Entry tax amount appearing in the last return filed under the current VAT / Entry tax law regime will be eligible for being carried forward in the GST regime. But it also sets a condition that the definition of input tax credit has to be as per the GST law. Last year too, the draft model law of GST had such provisions. As far as the second and third provisions of Section 167(1) of the revised GST law is concerned, there are additional restrictions of input tax credit which the business houses need to remember on stock availability till 30th June.
VAT credit and GST liability
The adjustment of VAT credit against GST liability is the biggest issue as far as stocks available till 30th June is concerned. The GST council has laid down transition and input credit rules so that the journey to the GST era from current taxes such as VAT, Service Tax, and Excise Duty won’t be hazardous. In either case, tax payer has to declare the complete stock lying with input tax credit. Those goods or services which are in the exempted category or non-taxable, taxpayer won’t be able to carry forward the credit under GST. No doubt, if any tax payer doesn’t use the stock in business after June 30, the particular taxpayer won’t get the GST credit and will need to pay the amount to the authorities.
Way ahead for the taxpayers
For the time being the taxpayers need to do the following. First of all it is important to create a separate file of unsold stock till June 30. Side by side it is important to keep the purchase bill, bill of entry along with excise paid documents. It would be a wise decision to sell a stock which is one year sold. One must remove it and set it to the tax invoice within the state. Although it may imply giving more discount, would be profitable in the long run. Let’s not forget to make separate lists of duty paid and non-duty paid stocks. This specific list will be essential in getting credit in CGST. No doubt, the goods which are purchased in the locality will definitely be input credit in SGST. One simply can’t afford to have any mismatch in Purchase report. Even if there is any mismatch, one has to fix it within the next few days. The statutory forms like C-Form, H-Form, I-Form should also be collected along with.
If invoice is not available for specific input of goods, tax payer needs to submit a statement in Form GST Tran at the end of each of the six tax periods when the scheme is in operation. Let’s not forget that the amount of credit which is allowed to be credited to the electronic credit ledger of the applicant needs to be maintained in Form GST PMT-2 in the GST portal.