Impact of GST on Closing Stock


One of the major concerns of the businesses on advent of GST is its effect on closing stocks held by them. It is very crucial to understand the rules and regulations in this regard to ensure smooth transition. An important aspect is provisions on availing input tax credit (ITC) on closing stock. Closing stock can be in the form of raw material, semi-finished goods or finished goods, which must be used or intended to be used for taxable supplies.



Following are major categories of traders – 

Dealers
Input Tax Credit Allowable
Where excise invoice is available 
[Registered under the existing Excise or ST]
100% of Credit paid on stock lying on 30/06/2017 
(Excise Invoice to be not older than 01/07/2016)
Where Tax Paid invoice is not available  
[This option is available only for persons who are not registered under present laws (ST & Excise)]
Case 1: Where registered person is liable for 14% CGST 

Credit Available is 60% on CGST or 30% on IGST
Case 2: Where registered person is liable to pay CGST at rates other than 14%  

Credit Available is 40% on CGST or 20% on IGST
Who is opting for Composition Scheme under GST
Nil

The following illustrations will throw some light on the impact of GST on overall closing stock: 

Illustration 1: 
All tax registered dealer who has purchased excisable goods from manufacturers/1st stage dealer/2nd stage dealer and holds an invoice for tax paid and invoice is not older than 01/07/2016

Let us assume that Sun Ltd., a dealer has purchased a product from a manufacturer for Rs. 5,00,000 on 18th June 2017. Invoice under the old system would be: 

Invoice
Cost
5,00,000
Add: Excise Duty @ 12.5%
62,500
Cost (Including Excise)
5,62,500
Add: VAT @ 5%
28,125
Total
5,90,625

If on 1st July 2017, the product is lying as closing stock with Sun Ltd. It can avail full input tax credit on VAT as well as Excise duty, since it has proof of excise duty payment in the invoice.
Now if Sun Ltd. sells the same product to another company Mars Ltd. on 10th July 2017, for 
Rs. 5,00,000 (say at no profit), assuming covered under GST @12%. Invoice in the new system would be:

Invoice
Cost
5,00,000
Add: CGST @ 6%
30,000
Add: SGST @ 6%
30,000
Total
5,60,000

Manner of utilization of CENVAT & VAT Input Credit

a.      Excise Duty credit can be set off against CGST

Particulars
Amount
Excise Duty Paid
62,500
Less : CGST collected
30,000
Balance Credit available
32,500

b.      VAT Input can be set off with SGST

Particulars
Amount
SGST Collected
30,000
Less : VAT Input available
28,125
Balance SGST Payable after Set Off
1,875


Illustration 2: 
VAT registered dealer purchased excisable goods from wholesaler and tax paid invoice not available

Suppose Tiger Ltd. Has prepared Statement of Stock as on 30th June, 2017  as below:

Statement of Stock
Particulars
Cost
VAT Paid
Commodity 1
5,00,000
25,000
Commodity 1
5,00,000
25,000
Total
10,00,000
50,000

Case 1 – In case of Intra-State Sale

Suppose Commodity 1 is liable to GST @ 28% [i.e. CGST 14, SGST 14]

Invoice
Cost
5,00,000
Add: CGST @ 14%
70,000
Add: SGST @ 14%
70,000
Total
6,40,000
And Commodity 2 is liable to GST @ 12% [i.e. CGST 6, SGST 6]

Invoice
Cost
5,00,000
Add: CGST @ 6%
30,000
Add: SGST @ 6%
30,000
Total
5,60,000


Manner of utilization of CENVAT & VAT Input Credit

a.      In case of CGST

Particulars
Commodity 1
Commodity 2
CGST Collected
70,000
30,000
% of CGST allowed as Credit
60%
40%
Credit allowable on  such commodities
42,000
12,000
Balance CGST to be paid
28,000
18,000

Note: Since Commodity 1 has CGST rate of 14%, it is eligible for credit of 60% CGST collected and since commodity 2 is not subject to CGST at 14% the same if eligible for a credit of 40% of CGST collected.

b.      In case o f SGST

Particulars
Commodity 1
Commodity 2
SGST Collected
70,000
30,000
VAT paid on such commodities
25,000
25,000
Balance SGST to be paid
45,000
5,000

Case 2 – In Case of Inter-State Sale

Suppose Commodity 1 is liable to IGST @ 28%

Invoice
Cost
5,00,000
Add: IGST @ 28%
1,40,000
Total
6,40,000

Suppose Commodity 1 is liable to IGST @ 12%

Invoice
Cost
5,00,000
Add: IGST @ 12%
60,000
Total
5,60,000



Manner of utilization of CENVAT & VAT Input Credit

Particulars
Commodity 1
Commodity 2
IGST Collected (A)
1,40,000
60,000
% of IGST allowed as Credit
30%
20%
Credit allowable on  such commodities (B)
42,000
12,000
VAT Input Available (C)
25,000
25,000
Balance CGST to be paid
73,000
23,000

Note: Since Commodity 1 has IGST rate of 28%, it is eligible for credit of 30% IGST collected and since commodity 2 is not subject to IGST at 28% the same if eligible for a credit of 20% of IGST collected.

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