where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable.
Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.
Check Points for the Chartered Accountant –
(i) Verify registration particulars with the Registration Certificate.
(ii) Do not take responsibility for filing the respective statutory form prescribed as the same is the responsibility of Management. Auditor’s responsibility is to issue the above certificate and attest the information in in Appendix A of the certificate.
iii) Check the books and records and other relevant documents and registers relating to quantity and value of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supplies and capital goods exclusively used for such exempt supplies on the date immediately preceding the date on which such exempt supplies become taxable supplies under the CGST / SGST Acts, 2017. Eligibility of such credits also needs to be checked under Section 16 and Section 17 of the CGST / SGST Acts, 2017.
(iv) Check the basis of ‘derived’ data of equivalent units of inputs contained in semi-finished and finished goods in stock.
(v) Ensure that the input tax credit on capital goods has been reduced by five percentage points per quarter of a year or part thereof, from the date of invoice.
(vi) The books of accounts and relevant documents / records of the Applicant should be thoroughly verified to identify the exempt supplies effected by the Applicant. The relevant notifications issued by the Government should also be meticulously perused and documented to identify the date on which such exempt supplies have become taxable supplies.
(vii) Ensure that a declaration is obtained from the Applicant for the listing of stock and capital goods including quantity.
(viii) Obtain a list of existing capital assets with the purchase dates (for a period of 5 years). Cross check the listing with the fixed asset register maintained by the Applicant.
(ix) Ensure that the claim of credits under this Section is made only on inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supplies and capital goods exclusively used for such exempt supply. Where capital goods have been used for both – taxable and exempt supplies, no credit would be eligible to the Applicant.
(x) The bills of entry / tax invoices should not be older than 1 year on the day on which the Applicant is liable to pay tax (Section 18(2) of the CGST / SGST Acts, 2017). The tax invoice must be the one containing the prescribed particulars (Section 16(2) of the CGST / SGST Acts, 2017 to be read with Rule 46 of the CGST / SGST Rules, 2017).
(xi) Ensure that the debit notes / credit notes, if any, are recorded / accounted against the vendor invoice which are forming part of the closing inventory.
(xii) Ensure compliance with Rule 40(1) (e) of the CGST / SGST Rules, 2017 regarding verification of the credits claimed with the details furnished by the supplier in Form GSTR-1 or Form GSTR-4, as applicable.
(xiii) This certificate is required to be issued only if the aggregate value of the claim on account of SGST / CGST / UTGST and IGST exceeds rupees two lakhs (Rule 40 (1)(d) of the CGST / SGST Rules, 2017).
(xiv) This certificate is to be suitably modified wherever applicable. The names of the registered persons, dates, addresses etc. are only illustrative and needs to be modified in each case. Any resemblance to any person / place is purely unintentional.
(xv) This certificate is to be issued in respect of a person who effects exempt supplies, those of which have become taxable supplies subsequently.
(xvi) Ensure that the certificate issued is in accordance with the Guidance note on Reports and Certificates for special purpose issued by the ICAI.
(xvii) Ensure that a letter of representation is taken from the management for the details and information provided by them.