Question

Facts: 1. One area-based excise exempted unit cleared in June 2017 certain finished goods under cover of excise invoice (without duty) to its Godown within the same State. The clearance of goods was duly reported by exempted factory in its quarterly excise return (Form A) 2. The Godown as referred above was registered under same VAT number as that of factory. This Godown was earlier engaged in manufacturing (under area-based exemption) but had discontinued manufacturing in year 2016 (after expiry of excise exemption) under due intimation to the Central excise department. 3. On GST implementation, the Godown and factory shared same GSTIN where the Godown is ‘additional place of business’ while the factory is ‘Principal place of business’. Query: 1. Please comment on admissibility of transitional ITC (in GST regime) on such finished goods sold from Godown under cover of GST invoice issued from Godown. To be specific, whether the Godown (not doing any manufacturing activity) can file TRAN-2 for goods stored therein while the same GSTIN has factory (manufacturer) as Principal place of business? If answer to above is YES, what is the implication of anti-profiteering provisions

Answer

(a) In the era of Central Excise every premises was registered separately either as manufacturer or as a dealer. The dealer could issue invoice as First stage dealer or second stage dealer. The dealer was exempted from registration if not wanted to pass on excise to their customers. You have rightly mentioned that there was single registration in VAT because in VAT the registration was not premises based but state based.

Now coming to your question you have a manufacturing unit and one warehouse (trading unit) located in same state. In GST the stock as well as the tax component both are to be taken into account. In GST there will be single registration being the unit located in same state.

Now the stock held and tax there on are taken in GST through TRANS-1. The TRANS-2 is needed where you were not registered in Central Excise. So far as Central Excise is concerned you can take tax component of that in TRANS-2 for the goods stored at warehouse on the appointed day.

Suppose you had stock of 10 ton with balance in input account Rs 1 lakh in factory and stock of 1 ton in godown which was not registered in Central Excise. You can take credit of Rs 1 lakh in TRANS-1 and the credit corresponding to stock of 1 ton in TRANS-2 as per the provisions relating thereto.

The section 171 of CGST relating to anti profiteering will apply for the credit taken in TRANS-2 because to the extent credit is allowed cost of goods sold through warehouse is reduced.

The provision of Anti-Profiteering will also apply to the warehouse goods to the extent ITC availed in GST by the warehouse.

Make a cost and benefit analysis taking into consideration GST ITC v/s VAT ITC.

(b) Further, you are eligible for credit as per Section 140(3), the same is reproduced below:-

A registered person, who was not liable to be registered under the existing 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 the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties 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, namely:''

(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;

(ii) the said registered person is eligible for input tax credit on such inputs under this Act;

(iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;

(iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and

(v) the supplier of services is not eligible for any abatement under this Act:

Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed.

Further, as per Rule 117 (4) the credit of central tax u/140(3) shall be availed subject to satisfying the following conditions, namely:-
4) (a) (i) A registered person who was not registered under the existing law shall, in accordance with the proviso to sub-section (3) of section 140, be allowed to avail of input tax credit on goods (on which the duty of central excise or, as the case may be, additional duties of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975, is leviable) held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of central excise duty.

(ii) The input tax credit referred to in sub-clause (i) shall be allowed at the rate of sixty per cent. on such goods which attract central tax at the rate of nine per cent. or more and forty per cent. for other goods of the central tax applicable on supply of such goods after the appointed date and shall be credited after the central tax payable on such supply has been paid:
Provided that where integrated tax is paid on such goods, the amount of credit shall be allowed at the rate of thirty per cent. and twenty per cent. respectively of the said tax;

(iii) The scheme shall be available for six tax periods from the appointed date.

(b) The credit of central tax shall be availed subject to satisfying the following conditions, namely:-

(i) such goods were not unconditionally exempt from the whole of the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 or were not nil rated in the said Schedule;

(ii) the document for procurement of such goods is available with the registered person;
Thus as Area based exemption were not unconditional and you have documents for procurement of such goods so credit shall be eligible as per u/s 140(3) with Rule 117 to the trader (Godown) who purchased goods from area based exemptions manufacturing unit. (Reply dt.29/11/2018)