Risk in Stock Transfers: K-VAT and CST

Stock transfer of Goods to a branch or consignee is common in trade. Stock transfer can be both Intra & Inter state. A prudent businessman should plan the sales transactions with the option of stock transfers considering the VAT and CST provisions prevailing in the state. Planning such transactions is not a cakewalk as it involves many risks. Few of the points which should be considered in case of stock transfers along with the details of risk involved are discussed below.

INTRASTATE STOCK TRANSFERS

Intrastate stock transfers usually do not involve much risk or hassles as there would be no loss to the revenue in the state as long as goods move within the state. However, the dealer shall ensure that the documentation part is taken care even in case of intrastate stock transfers. The dealers shall record details of such movement of goods including the description, quantity and destination. Maintenance of registers at the place of despatch and receipt would be important along with meeting the requirements of E-sugam in the state of Karnataka. A dealer should also ensure that the additional place where the goods are being transferred is registered with the VAT authorities and registration certificate is amended.

Apart from this, the dealer shall ensure that the inputs if any transferred to the other places are used for taxable activities if VAT input setoff has been claimed on such inputs by maintaining proper records. If there is a change in use of goods on which input setoff has been claimed for non-taxable activities, then the amount of setoff claimed shall be repayable in terms of Section 19 of KVAT Act 2003.

INTERSTATE STOCK TRANSFERS

A dealer should consider various factors such as rates of local VAT provisions, input tax restrictions and location of customers etc. before deciding to stock transfer the goods in course of the interstate. Following points would be helpful in this regard:

a) A requirement of Form F

In order to prove a stock transfer transaction as a non-sale transaction, the dealer has to mandatorily submit Form F to his local VAT office. Obtaining Forms from the VAT officials of goods receiving states is not an easy task. Department officials usually deny or delay issuing Form Fs unless all their expectations (legal and illegal) are met by the dealer. Though it is not right to meet their illegal expectations, it is highly recommended to meet the legal expectations including proper documentation with supporting application forms, disclosure of information in the VAT / CST returns filed. Non-production of Form F would carry greater risk as the department could demand full rate of such sales transactions.  

The dealer shall ensure that such stock transfers are not as a result of pre-determined sales order which otherwise would be liable for CST at full rate of tax unless Form C could be produced by the buyer of such goods.   

2. Input tax reversals as per local VAT provisions

VAT provisions in most of the states requires the dealer transferring the goods in course of interstate not as a result of sale to reverse the input credit availed on inputs at specified rates. In case of Karnataka VAT provisions, the dealer is eligible to claim VAT input setoff only over and above 2% in case of inputs which are used in stock transferred goods as per Section 14 of KVAT Act 2003. For instance, if VAT input setoff is Rs.14,500/- at the rate of 14.5% on inputs which are stock transferred, dealer is eligible to claim input set off of Rs.12,500. He shall not be eligible to claim balance 2% VAT amount as per Section 14.