Industry stakeholders are urging state governments and the central tax authorities to provide clear guidelines on the treatment and utilization of VAT input credit embedded in closing stock as of the transition to GST in July 2017. Businesses, particularly in manufacturing and trading sectors, have expressed concern that ambiguity surrounding this issue has led to inconsistent interpretations, denial of credit, and legal disputes. Many had significant VAT-paid stock on hand at the time of migration, and despite efforts to carry forward such credits through transitional provisions, they have faced hurdles in validation and utilization due to procedural complexities and documentation gaps.

At the core of the issue is the lack of standardized treatment across states for claiming VAT credit on stock that was not immediately sold or utilized but formed part of the closing inventory. While Section 140 of the CGST Act and corresponding rules provided a mechanism for transitional credit claims through Form TRAN-1, businesses report that technical issues, missing invoices, and retrospective scrutiny by tax officers have led to denial or delay in accepting these claims. This has resulted in working capital blockages and has particularly impacted small and medium enterprises that lacked robust ERP systems to track legacy inputs and reconcile them with GST records.

Industry bodies have called for a one-time clarification or amnesty mechanism that would allow taxpayers to regularize genuine VAT stock credit claims without facing penalty or interest, provided they acted in good faith and have partial documentation. They argue that such a step would ease the compliance burden, reduce litigation, and bring closure to a key transitional challenge. Tax experts suggest that this would also align with the government’s broader objective of simplifying tax administration and reinforcing trust in the GST framework as the single national tax system.