GST impact on stock available till 30th June

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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. GST will be implemented from 1st July, 2017. Many taxpayers have huge stock lying. So what should be done for stock lying on 30th June? 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.
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Up to 30 June,2017 there are VAT, Excise, Service Tax laws but from 1st July, 2017, GST will be implemented so what about the stock as on 30th June is the biggest question which everybody facing and it has created confusion among many.
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Understanding the problem
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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.
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VAT credit and GST liability
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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.
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Way ahead for the taxpayers
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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.
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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.
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The goods on which VAT is levied as per existing law, in GST VAT will be transformed to SGST.
Similarly, now excise duty is levied on manufacture, in GST excise duty will be transformed to CGST.
Whether taxpayer will get credit of stock lying on 30th June 2017 in GST or not, let's Read the Following FAQs

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The Following Question emerges in every mind :

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Q1.If the taxpayer is registered under VAT Act, then how he will get set-off of the stock in GST?
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Ans:- The following two thing should be considered to avail the credit of stock:
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1. If VAT is payable in the VAT return of 30th June 2017 i.e. taxpayer have taken the credit of inputs, then there is no question of taking credit.
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2. If VAT is carry forward in the VAT return of 30th June 2017 i.e. excess tax credit is available, then taxpayer will get credit of that carry forwarded amount in SGST.
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Ex. If the taxpayer has credit of Rs. 10,500 then it can be adjusted against SGST liability.
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Q2. If any taxable person is registered under excise law, then how can he take set-off of stock in GST?
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Ans :- It is also similar like VAT. If the taxpayer is registered under Excise Law then if in the Excise return of 30th June 2017, excise duty is payable then no question of set-off. But if excise duty is carry forward then taxpayer will get set-off against CGST. The taxpayer can also take the credit of not availed excise duty on capital goods in GST.
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Q3. if any taxable person is not registered under excise law, then can he get set-off of stock in GST?

Ans:- If taxpayer is not registered under Excise law but he is registered in VAT law, then credit of VAT can be taken against SGST but what about CGST. In this case, if the taxpayer have the excise invoice which are in stock, then in GST 100% credit is available. But if no excise duty charged on that bill, then credit will be given as per GST rates in following manner:
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1. If that stock covered in 18% or 28% in GST, then 60% of CGST can be availed as credit of stock. Ex. If there is 18% rate of GST on Spare parts, then 5.4% credit (60% of 9% of CGST) is available against the stock held on 30th June.
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2. If that stock covered in 5% or 12% in GST, then 40% of CGST can be availed as credit of stock. Ex. If there is 12% rate of GST on any commodity, then 2.4% credit (40% of 6% of CGST) is available against the stock held on 30th June.
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In GST taxpayer can use the above credit at the time of sale of goods. Further the taxpayer will have to use this credit within six months..
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Q4. What the taxpayer should do if he have to take credit of stock in GST?
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Ans:- Taxpayer will have to file TRAN 1 & TRAN 2 form for claiming credit of stock. In this form HSN wise details, its quantity, its rate, total value will have to be given. This information should be given to the government within 90 days. Credit of previous stock i.e. more than one year old stock is not available. It means if goods are purchased after 30th June 2016 then only credit can be taken.
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CONCLUSION

Every trader should carefully understand these provisions of stock. Everyone should file revised return of VAT for financial year 2016-17 if necessary after checking all books of accounts and then return of April to June to be filed.
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Taxpayer should reconcile the VAT, Excise returns with books of accounts.
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Regards
ACA SOURAV BAGARIA