Background:
In India many states do not require VAT registration, if the turnover does not cross certain threshold. For example in Karnataka, there is no need to get VAT registration, if the turnover does not cross INR 10 Lakhs.
In such a scenario question arises, whether input credit can be availed on goods lying in stock under GST Law?
Similarly if you are service provider and providing exempt services or a manufacturer who produces exempted goods, then again the question arises whether input credit can be availed on goods lying in stock under GST Law?
Specific Provisions under GST Law
The above scenarios are covered by Section 169 of GST Law which says that
A registered taxable person, who was not liable to be registered under the earlier law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated 20.06.2012 or a first stage dealer or a second stage dealer or a registered importer
Shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in
Respect of inputs held in stock and inputs contained in semi-finished or finished
Goods held in stock on the appointed day subject to the following conditions:
- Such inputs and / or goods are used or intended to be used for making taxable supplies under this Act;
(ii) The said taxable person passes on the benefit of such credit by way of reduced prices to the recipient;
(iii) The said taxable person is eligible for input tax credit on such inputs under this Act;
(iv) The said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law in respect of such inputs;
(v) Such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day;
And
(vi) The supplier of services is not eligible for any abatement under the Act:
Practical Application of the Provisions
Lets Say ABCD is a dealer who was not liable to register under KVAT, as his turnover was below INR 10 Lakhs. In Financial year 2017-2018, he is expecting his turnover to be INR 40 Lakhs. Therefore wants to get registered under GST Law. Let’s assume GST is effective 1st April 2017.
ABCD has stocks worth INR 2.5 Lakhs on which VAT paid was INR 20,000. In this case ABCD can claim input of INR 20000 under GST, provided that conditions as prescribed in section 169 are met