Many small traders are happy that they can take deemed credit on their stocks the day the Goods and Services Tax (GST) laws come into effect, even if they do not have duty or tax paying documents.
They must, however, take careful note of the onerous conditions. The proviso to Section 140 (3) of the Central GST Act (CGST) says the benefit of deemed credit must be passed on to the recipient. This also applies under State GST (SGST) laws. Rule 3 of the Transitional Provisions Rules restrict this facility to persons registered under the GST laws but not registered under the existing laws (i.e the central and state tax laws prior to commencement of GST laws).
The Rules allow such credit at 40 per cent of the central and state tax applicable on supply of such goods.
However, it will be so acknowledged in the electronic credit ledger only when the goods are sold on payment of CGST/SGST. This sale must be within six tax periods (i.e six months) from the appointed date. Of course, traders already registered under state tax laws but not under central tax laws will get only CGST credit.
Assume goods worth Rs 1,000 are in stock as the appointed day commences, and CGST and SGST are both nine per cent. Then, after these goods are sold, on payment of CGST and SGST, 40 per cent of the nine per cent of Rs 1,000 — that is, Rs 36 — will be available as credit of CGST and Rs 36 as credit of SGST. Traders already registered under state tax laws will get credit of Rs 36 CGST only. Only if, that is, if they pass on these benefits by way of price reduction to buyers.
via Get to know the fine print in GST | Business Standard Column
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