TRANSITIONAL PROVISIONS-TREATMENT OF CLOSING STOCK AS ON 31ST MARCH 2005

1. Whether tax paid on closing stock as on 31.3.05 is eligible for Input tax credit?
   
   The White paper has clearly stated that such a credit will be allowed at equivalent to the rate at which the stocks were purchased, or at the VAT schedule rate, whichever is lower.
   States have broadly adhered to this view and it is provided that credit can be availed in 6 months ending 31st December 2005.
   
   

2.  Can a dealer claim input tax credit for all goods lying in stock as on 31.3.05?
   
   No. Only goods purchased after 1.4.04 are to be considered for this purpose. Some States have also distinguished between finished goods manufactured and kept in stock, and other goods. Further no set off under the previous enactments should have been taken in respect of such stocks.
   
   

3. What are the formalities to be complied by the dealer if he wants to avail the above credit?
   
   The most important thing is to take an inventory of all stocks lying on the last date of the previous Act and make a declaration within 30 days to the Department. The Department verified the Declaration with 3 months, and either grants or disallows the tax based on the process of verification.
   
   

4. Are resellers also entitled to the Input tax credit?
   
   Yes. Some states have provided for a formula to compute the tax element.
   
   

5. What is the tax element has not been separately mentioned in the invoice during the year of purchase?
   
   Some States have provided for a formula to deal with determination of the tax to be carried forward for set off.
   

STATE-WISE ANALYSIS:

WHITE PAPER: TREATMENT OF OPENING STOCK

2.7 All tax-paid goods purchased on or after April 1, 2004 and still in stock as on April 1, 2005 will be eligible to receive input tax credit, subject to submission of requisite documents. Resellers holding tax-paid goods on April 1, 2005 will also be eligible. VAT will be levied on the goods when sold on and after April 1, 2005 and input tax credit will be given for the sales tax already paid in the previous year. This tax credit will be available over a period of 6 months after an interval of 3 months needed for verification.

DELHI [ SEC 14, RULE 8]

• Input tax embedded on 

• trading stock, 
  

• raw materials and 
  

• packaging materials 

is eligible for credit if such stocks

• are located in Delhi, 
  

• have suffered tax in Delhi under the DST Act, 
  

• have not been subjected to Last Point Sales tax
  

• purchased from a registered dealer in Delhi.

Finished goods manufactured out of tax paid raw materials are not eligible for input tax credit.

• The statement claiming credit in DVAT 18 should be filed within 4 months of the commencement of the Act. This is not available for goods that have suffered tax at the Last Point. This is also not available for finished goods manufactured out of tax paid raw materials and capital goods.
  
  

• Where tax embedded in such stocks is not determinable, it is computed with the following formula;

• Credit is to be availed in a single statement.
  

• Where the amount of credit exceeds Rs. 1 lac, the declaration of stock has to be accompanied by a CA certificate.

MAHARASHTRA[ SEC 48; RULE 51 ]

• Tax paid under the earlier law (Bombay Sales Tax Act, 1959, Maharashtra Works Contract Act, Maharashtra Transfer of Right to use any property Act, Bombay Sales of Motor Spirit Taxation Act, 1958) can be taken credit for set off according to prescribed formula. Please refer Rule 44D of the Bombay Sales Tax Act if the goods fall under BST Act. 
  

• Tax paid under Entry of Motor Vehicles Act and Entry of Goods Act is also available for set off to the extent of tax so paid.
  

• Time within which declaration is to be made has not been specified. This should be taken as 30 days in accordance with other State VAT Acts.
  

• But credit taken cannot in any situation exceed the actual taxes paid on the materials except when the claimant dealer pays purchase tax.
  

• Credit of taxes paid is possible only upto 31.12.05.
  

• Where the tax component is not clearly mentioned in respect of purchases made prior to this Act, the rate as per Schedule will be applied.
  

• Where the dealer was under a Deferral Scheme, the taxes so deferred shall be treated as having been paid for the purpose of granting credit or set off.
  

• Where the dealer is a composition dealer, no credit can be taken in respect of the opening stock.
  

• According to a Circular issued by the Maharashtra Sales Tax Department in March 2005, where the tax embedded in the Stocks is not identifiable, it is to be determined by the following formula:

WEST BENGAL[RULE 21, 22]

• Goods in stock after 1.4.2004 will be eligible for input tax credit to the extent of actual tax paid. 
  

• Declaration of Opening stocks to be made within 30 days.
  

• No credit will be given in the first 3 months and then credit will be given equally over the next 6 months.
  

• Where the tax component of the opening stock is not evident from the invoices, and if the rate of tax of the stock/stocks is not exceeding 10%, then the tax will be computed by applying the rate on 80% of the full value of stocks. If the rate of tax exceeds 10%, the computation will be on 70%.
  

• No input tax credit is available on opening stock of goods manufactured using raw materials purchased from outside the State and on goods which were procured from outside the State. Also ITC is not available on tax free goods and on capital goods.
  

• If the value of Input Tax Credit exceeds Rs. 10 lacs in the case of a manufacturer or Works Contractor, and Rs. 20 lacs in the case of resellers, a Chartered Accountants’ Certificate of the Inventory declaration will be required.

PUNJAB[ SEC(14), RULE 20]

• Input tax paid on stocks lying as on 31.3.05 is eligible for credit provided:
  

  1. A Stock of such taxable items is submitted within 30 days of the appointed day.
     

  2. No deduction under the repealed law was claimed from the gross turnover in respect of such goods.
     

  3.  Proper invoices, vouchers and entries in books of accounts are available in respect of such stocks.
     

  4. Proof that the stocks have suffered tax is proved by the dealer.
     
     

• The extent of credit available will be lower of the actual tax paid, or tax applicable as on the last day of the repealed Act or the tax applicable under this Ordinance.
  

• Where the whole or part of such stocks has suffered tax at the First point, but the tax amount is not mentioned separately in the bill, the following formula shall be used to determined the input tax therein;

• Where the taxable person in a tax/return period has made any branch/consignment transfer of goods, the input tax credit shall be reduced by the formula:

• Credit shall be verified and determined within 60 days of submission.
  

• Credit can be availed over a period of one year commencing from the end of the third month.
  

• Where any goods were purchased from a dealer exempted from payment of tax, no credit shall be taken.

SUMMARY:

There is conformity with the provisions of the White Paper. States have provided for different mechanisms for determining the tax available for set off, where the document does not clearly reflect the tax portion.