Bangalore Branch of SIRC of ICAI Clause by Clause ... · SEC-140(1) CENVAT CREDIT CARRIED FORWARD IN RETURN - CGST Sec 140(1): A registered person, other than a person opting to pay

GOODS AND SERVICES TAX

Bangalore Branch of SIRC of ICAI – Clause by Clause Discussion

TRANSITIONAL ARRANGEMENTS FOR INPUT TAX CREDIT UNDER GST

INCLUDING RELEVANT RULES BASED ON DRAFT TRANSITION RULES

CA Rajesh Kumar T R

CA Sandesh S Kutnikar

SEC-140(1) CENVAT CREDIT CARRIED FORWARD IN RETURN -

CGST

Section Section application

140(1) Cenvat credit carried forward in return

140(2) Cenvat credit of Capital goods

140(3) Cenvat credit on stocks

140(4) Cenvat credit-taxable and exempted goods/services

140(5) Cenvat of in-transit goods and services

140(6) Paying tax at fixed rate

140(7) ITC of service received prior to appointed date by an ISD

140(8) ITC of service received prior to appointed date by a centralized registration

140(9) Reversal of ITC due to non–payment to vendor

140(10) Mode of computation of credits


CGST

Sec 140(1): A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his

electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending

with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may

be prescribed:

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:—

i. where the said amount of credit is not admissible as input tax credit under this Act; or

ii. where he has not furnished all the returns required under the existing law for the period of 6 months immediately

preceding the appointed date; or

iii. where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as

are notified by the Government.


CGST

Rules 1(1): Every registered person entitled to take credit of input tax under section 140 shall, within 60 days of the

appointed day, submit an application electronically in FORM GST TRAN-1, duly signed, on the Common Portal specifying

therein, separately, the amount of tax or duty to the credit of which the said person is entitled under the provisions of

the said section:

Provided that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic

Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the

CENVAT Credit Rules, 2004 [applicable only to CGST]

50% of [assessable value X {(1+BCD/100) X (CVD/100)}]


SGST

Sec 140(1): A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his

electronic credit ledger, credit of the amount of VAT and Entry tax carried forward in the return relating to the

period ending with the day immediately preceding the appointed day, furnished by him under the existing law, not later

than 90 days after the said date (not there in CGST), in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:—

i. where the said amount of credit is not admissible as input tax credit under this Act; or

ii. where he has not furnished all the returns required under the existing law for the period of 6 months immediately

preceding the appointed date; or

iii. where the said amount of credit relates to goods sold under notification no … and …… claiming refund of VAT

paid thereon. (applicable to states having industrial incentive)


SGST

Provided further that so much of the said credit as is attributable to any claim related to section 3 (Form C),

subsection (3) of section 5 (Form H), section 6 (E-I/E-II), section 6A (Form F) or subsection (8) of section 8 (Form I) of

the Central Sales Tax Act, 1956 that is not substantiated in the manner, and within the period, prescribed in rule 12 of

the Central Sales Tax (Registration and Turnover) Rules, 1957 [(C/F/E-I/E-II - 3 months from the end of the

quarter), (H – upto the time of assessment by the first assessing authority) shall not be eligible to be credited

to the electronic credit ledger:

Provided also that an amount equivalent to the credit specified in the above proviso shall be refunded under the existing

law when the said claims are substantiated in the manner prescribed in rule 12 of the Central Sales Tax (Registration

and Turnover) Rules, 1957.


SGST

Rules 1(1): Every registered person entitled to take credit of input tax under section 140 shall, within 60 days of the

appointed day, submit an application electronically in FORM GST TRAN-1, duly signed, on the Common Portal specifying

therein, separately, the amount of tax or duty to the credit of which the said person is entitled under the provisions of

the said section:

Provided that in the case of a claim under sub-section (1) of section 140, the application shall specify separately—

i. the value of claims under section 3, sub-section (3) of section 5, sections 6 and 6A and sub-section (8) of section

8 of the Central Sales Tax Act, 1956 made by the applicant during the financial year relating to the relevant

return, and

ii. the serial number and value of declarations in Forms C and/or F and Certificates in Forms E and/or H or Form I

specified in rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 submitted by the applicant

in support of the claims referred to in subclause (i) above; [applicable only to SGST]


POINTS TO PONDER

1. Whether every tax payer is eligible to claim credits under 140(1)?

No, a composition person is not eligible to credits under Section 140(1)

2. Whether credits of cess is available under Section 140(1)?

As per explanation to Section 142, Cenvat credit is as per CE Act or Rules made thereunder. As per Rule 3(1) of CCR, 2004, Cenvat credit includes both education cess and secondary and higher education cess also.

3. Whether eligibility of carried forward credits would be tested under GST?

No only assessed under the earlier law

4. Since the condition is eligibility under only GST Act and not under earlier law, will ITC be restricted under GST if ineligible under earlier law?

No, any credits disclosed in TRANS-1 would be allowed as credits to the extent the same are appearing in the last returns under earlier law. In case the same is found to be ineligible later, the same would not be recovered under GST but as arrear under earlier law.

5. Should line by line credits be disclosed in TRANS-1?

Formats not been notified. In our view, may not be required.

6. If certain credits which are claimed under earlier law is ineligible under GST, how would the same be tested?

There are two ways of addressing the issue: 1. Apply FIFO test and showcase eligibility of credits; or 2. Ensure you first utilize the credits which are ineligible under the GST and balance would be carried forward to GST. Rule 14 of CCR may come to your rescue. Apply Rule 14 diligently to prove utilisation in earlier regime itself of such blocked credits under GST.


POINTS TO PONDER

1. Whether credits will automatically flow from earlier returns to GSTR-2?

No, credits will flow only through TRANS-1 which is self declaration by tax payer. ER-1/ST3/VAT100 does not talk to GSTN

2. If one of the returns in last six months has not been filed by the assessee, can he still claim credits

from last returns?

No, only if all the past 6 months returns under all the existing law including ER1/2/3/4 etc., and ST3/VAT100 having been filed

allows you to claim credits from last return.

3. Which are the goods which might be covered under third condition for blocking of transitional

credits?

It has to be notified. However, we feel items listed in Rule 6(6) of CCR, 2004 like manufactured goods supplied to

ICBs, power projects, solar power generation projects, foreign diplomatic mission etc., might be notified in this

behalf which currently even though exempted, credits are fully allowed.

Sec 140(2): A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in

his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in

a return, furnished under the existing law by him, for the period ending with the day immediately preceding the

appointed day in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit unless the said credit was admissible as

Cenvat credit under the existing law and is also admissible as input tax credit under this Act.

Explanation.––For the purposes of this sub-section, the expression ―unavailed CENVAT credit‖ means the amount

that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable

person under the existing law from the aggregate amount of CENVAT credit to which the said person was entitled in

respect of the said capital goods under the existing law.

SEC-140(2) CENVAT CREDIT OF CAPITAL GOODS -CGST

Sec 140(2): A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit

of the unavailed input tax credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending

with the day immediately preceding the appointed day in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit unless the said credit was admissible as input tax credit under the

existing law and is also admissible as input tax credit under this Act.

Explanation –– For the purposes of this sub-section, the expression ―unavailed CENVAT credit‖ means the amount that remains after

subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the existing law from the

aggregate amount of CENVAT credit to which the said person was entitled in respect of the said capital goods under the existing law.

SEC-140(2) CENVAT CREDIT OF CAPITAL GOODS -SGST

Rule 1(2): Every application under sub-rule (1) shall :-

(a) in the case of a claim under sub-section (2) of section140, specify separately the following particulars in respect

of every item of capital goods as on the appointed day-

i. the amount of tax or duty availed or utilized by way of input tax credit (the words used is input tax credit and not

Cenvat credit) under each of the existing laws till the appointed day, and

ii. the amount of duty or tax yet to be availed or utilized by way of input tax credit under each of the existing laws till the

appointed day;

SEC-140(2) CENVAT CREDIT OF CAPITAL GOODS - RULES

1. If 50% of the credits are not availed during 2016-17 under Cenvat credit rules, can the assessee still claim full 100% in TRANS-1?

Yes, the words used are unavailed and not balance 50%. Hence any Cenvat not claimed under CCR, 2004 can be claimed in transition

2. Whether definition of capital goods is as per existing law or is as per GST Act?

Explanation to Section 142 clarifies that capital goods is as defined under CE Act or Rules made thereunder. Similar explanation in SGST Bills.

3. Where balance 50% can be availed in TRANS-1 even if the capital goods are purchased during FY 2017-18 and not in FY 2016-17?

Yes, no such restriction in the section

4. Since the condition is eligibility under both the laws, will ITC be restricted and made ineligible if the same is ineligible under earlier law?

Yes, since GST Act requires eligibility to be tested, in case of any ineligible credits availed through TRANS-1, the same would be recovered as ineligible ITC under GST irrespective how it would be treated under earlier law.

SEC-140(2) CENVAT CREDIT OF CAPITAL GOODS – POINTS TO

PONDER

Sec 140(3): 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,

SEC-140(3) CENVAT CREDIT ON STOCKS-CGST

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 :––

1. such inputs or goods are used or intended to be used for making taxable supplies under this Act;

2. the said registered person is eligible for input tax credit on such inputs under this Act;

3. 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;

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

5. the supplier of services is not eligible for any abatement under this Act

Rule 1(2)(b):

In the case of a claim under sub-section (3), or the proviso thereto, shall specify separately details of stock held on the appointed day;


Proviso to Section 140(3):

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.

Rule 3 (a):

i. A registered person, who was not registered under the existing law (not other category of persons under Section 140(3)), availing credit in accordance with the proviso to sub-section (3) of section 140 shall be allowed to avail input tax credit on goods held in stock (not WIP and FG) on the appointed day in respect of which he is not in possession of any document evidencing payment of central excise duty.

ii. Such credit shall be allowed at the rate of 40% 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.

iii. The scheme shall be available for 6 tax periods from the appointed date.

SEC-140(3) CENVAT CREDIT OF STOCKS-CGST

Rule 3(b):

Such credit of central tax shall be availed subject to satisfying the following conditions, namely,-

i. Such goods were not wholly exempt from duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 or were not nil rated.

ii. Document for procurement of such goods is available with the registered person. (not Cenvat invoice)

iii. Registered person availing this scheme and having furnished the details of stock held by him in accordance with the provisions of clause (b) of sub-rule (2) of rule 1, submits a statement in FORM GST TRAN--- at the end of each of the six tax periods during which the scheme is in operation indicating therein the details of supplies of such goods effected during the tax period.

iv. The amount of credit allowed shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the Common Portal.

v. The stock of goods on which the credit is availed is so stored that it can be easily identified by the registered person.


Sec 140(3):

A registered person,

who was not liable to be registered under the existing law or

who was engaged in the sale of exempted goods [or tax free goods] under the existing law but which are liable to tax under this Act or

where the person was entitled to the credit of input tax at the time of sale of goods,

shall be entitled to take, in his electronic credit ledger, credit of the value added tax [and entry tax] 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: –

1. such inputs or goods are used or intended to be used for making taxable supplies under this Act;

2. the said registered person is eligible for input tax credit on such inputs under this Act;

3. the said registered person is in possession of invoice or other prescribed documents evidencing payment of tax under the existing law in

respect of such inputs;

4. such invoices or other prescribed documents were issued not earlier than 12 months immediately preceding the appointed day;

SEC-140(3) CENVAT CREDIT ON STOCKS-SGST

1. Not liable to be registered under existing law: ―existing law‖ means any law, notification, order, rule or regulation relating to levy and collection of duty or tax on goods or services or both passed or made before the commencement of this Act by Parliament or any Authority or person having the power to make such law, notification, order, rule or regulation; (accordingly, CST being an Act of the parliament, any dealer/trader registered under CST loses the right to claim credits under Section 140(3). Reference is drawn to Section 6 of CE Act, Rule 9 of CE Rules and Notfn 36/2001.

2. Whether works contractor service is eligible to get credits under Section 140(3):

The law is ambiguously worded in this respect. The words used after works contract service is “and” and not “or”. Persons covered before works contract in Section 140(3) end with “or”. So, two views are possible (1) both works contract service provider and every person covered under 26/2012 ST are eligible for this independently or (2) works contract service provider and who is covered by 26/2012 ST together being the same person is only eligible under this category.

3. Whether items covered under notfn 1/2011 CE and 26/2012 ST would be governed by Section 140(3)?

Yes, since there is no guidance of the term exempted goods and exempted services in the chapter, we have to rely upon CCR, 2004 for the definition. As per CCR, 2004 goods and services covered under these notifications are considered as exempted.

SEC-140(3) CENVAT CREDIT ON STOCKS–POINTS TO PONDER

1. Whether FSD/SSD/RI is a must?

Not mandatory for Section 140(3). However, considering that the language ―not liable to register‖ is not very clear, it is better

as a second defense, registration as FSD/SSD/RI is obtained by all the traders. Also get your vendors registered too, to pass on

the Cenvat benefit in case you are buying from such dealers.

2. Whether credits of service tax is allowed under 140(3)?

No, since eligible credits for the purpose of 140(3) does not cover credits of service tax.

3. Which are the cases where abatements are notified under GST?

These may be the cases where the rates of taxes are fixed with a condition that no ITC is available to the person.

4. Whether a manufacturer or a service supplier can claim the credits under Section 140(3) without

a Cenvat invoice?

No, only a person other than these two can claim credits on adhoc percentage of 40% without a Cenvat invoice.

5. How should the 40% of taxes without Cenvat invoice be arrived at?

This has to be arrived at based on GST rate of tax on such products.


1. When is the credit of 40% available to a person under Section 140(3)?

The same is available only after the CGST payable on such stock is paid by the supplier as outward supply. In essence credits are allowed only in the subsequent month in which the taxes are paid. It is also to be ensured that such stocks are sold within 6 months as the time limit for filing TRANS--- is only 6 months from the appointed date. So if any stocks are not sold within 6 months, then such credits are lost.

2. Whether inter state sale made of above stock is eligible for credit under proviso to Section 140(3)?

The way rule currently is worded gives an impression that only if such stocks are sold within the state where CGST is paid is eligible as credits under this section.

3. Whether passing of benefit through reduced prices due to credits to consumer a precondition for adhoc credit of 40%?

Yes, if the same is not passed on to the satisfaction of the officer, then the credits will not be allowed to the person.

4. Whether adhoc credit of 40% available to every trader under Section 140(3)?

No, only to such trader who was not liable to be registered under existing law. If he was liable to be registered under existing law then he will not be able to claim the benefit of adhoc credits of 40%. So, if a FSD/SSD/RI does not have a Cenvat invoice, then he loses the right to claim adhoc credit of 40% also. It is also not available to a person who is a trader as well as a service provider/manufacturer.


Sec-140(4):

A registered person, who was engaged in the manufacture of taxable as well as exempted goods under the Central

Excise Act, 1944 or provision of taxable as well as exempted services under Chapter V of the Finance Act, 1994, but

which are liable to tax under this Act, shall be entitled to take, in his electronic credit ledger,—

a. the amount of CENVAT credit carried forward in a return furnished under the existing law by him in accordance

with the provisions of sub-section (1); and

b. the amount of CENVAT 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, relating to such exempted goods or services, in

accordance with the provisions of sub-section (3).

SEC-140(4) CENVAT CREDIT-TAXABLE AND EXEMPTED

GOODS/SERVICES-CGST

Sec-140(4):

A registered person, who was engaged in the sale of taxable goods as well as exempted goods [or tax free goods]

under the existing law but which are liable to tax under this Act, shall be entitled to take, in his electronic credit

ledger,-

a. the amount of credit of the value added tax [and entry tax] carried forward in a return furnished under the

existing law by him in accordance with the provisions of sub-section (1); and

b. the amount of credit of the value added tax [and entry tax] in respect of inputs held in stock and inputs

contained in semi-finished or finished goods held in stock on the appointed day, relating to such exempted goods

[or tax free goods] in accordance with the provisions of sub-section (3).


GOODS/SERVICES-SGST


No, since eligible credits for the purpose of 140(4) does not cover credits of service tax.

2. Whether a person who would continue to be taxable as well as an exempt person even under ST

would be governed by section 140(4)?

To the extent inputs which were used for exempt under the existing law but made taxable under GST would be eligible as

credits under Section 140(4). Balance inputs which are used for exempt or made exempt under GST (taxable under existing

law) would be restricted credits on transition.

3. Whether items covered under notfn 1/2011 CE and 26/2012 ST would be governed by Section

140(4)?

Yes since there is no guidance of the term exempted goods and exempted services in the chapter, we have to

rely upon CCR, 2004 for the definition. As per CCR, 2004 goods and services covered under these notifications

are considered as exempted.


GOODS/SERVICES–POINTS TO PONDER

Sec-140(5):

A registered person shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in

respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has

been paid by the supplier under the existing law, subject to the condition that the invoice or any other duty or tax

paying document of the same was recorded in the books of account of such person within a period of 30 days from

the appointed day:

Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a

further period not exceeding thirty days:

Provided further that said registered person shall furnish a statement, in such manner as may be prescribed, in

respect of credit that has been taken under this sub-section. (not yet prescribed in the draft transitional provision

rules)

SEC-140(5) CENVAT OF IN TRANSIT GOODS AND SERVICES-CGST

Sec-140(5):

A registered person shall be entitled to take, in his electronic credit ledger, credit of value added tax [and entry tax]

in respect of inputs received on or after the appointed day but the tax in respect of which has been paid by the

supplier under the existing law, subject to the condition that the invoice or any other tax paying document of the

same was recorded in the books of account of such person within a period of thirty days from the appointed day:

Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a

further period not exceeding thirty days:

Provided further that said registered person shall furnish a statement, in such manner as may be prescribed, in

respect of credit that has been taken under this sub-section. (not yet prescribed in the draft transitional provision

rules)

SEC-140(5) CENVAT OF IN TRANSIT GOODS AND SERVICES-SGST


Yes, since eligible credits for the purpose of 140(5) specifically covers credits of service tax.

2. Considering the appointed day to be July 1, 2017, whether CE/ST/VAT paid by the supplier after July 1, 2017 would be eligible as credits under Section 140(5)?

Yes, since the levy in the hands of the supplier by virtue of respective statutes is under existing law, he is liable to pay respective duties or taxes. Having paid the taxes under existing law and the recipient receiving such goods on or after the appointed day, such recipient is eligible to claim credits of such duties or taxes under Section 140(5)

3. Is levy essential in the hands of the supplier under the earlier law in order to enable the recipient o claim Cenvat under Section 140(5)?

No, since the section uses the term duty or tax paid by the supplier under earlier law, so even if taxes are paid upfront by the supplier but goods/services are received on or after the appointed day and accounted by the recipient within 30 days from the appointed day credits are still eligible in the hands of the recipient under section 140(5).

4. What is the consequence if the goods or services are not received and recorded in the books of accounts within 30 days from the appointed day?

Such credits would be ineligible and never allowed as credits.

SEC-140(5) CENVAT OF IN TRANSIT GOODS AND SERVICES–POINTS

TO PONDER

SEC-140(6)-PAYING TAX AT FIXED RATE - CGST

Sec-140(6):

A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable (Section 3A - on the basis of capacity of production in respect of notified goods - Pan masala and Tobacco, Iron and steel based on annual capacity) under the existing law 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 not paying tax under section 10;

iii. the said registered person is eligible for input tax credit on such inputs under this Act

iv. the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs; and

v. such invoices or other prescribed documents were issued not earlier than 12 months immediately preceding the appointed day.

SEC-140(6)-PAYING TAX AT FIXED RATE - SGST

Sec-140(6):

A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable (Composition of tax – turnover below notified limit, dealer executing works contract, hotelier etc and mechanised crushing unit) under the existing law shall be entitled to take, in his electronic credit ledger, credit of value added tax 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 not paying tax under section 10;

iii. the said registered person is eligible for input tax credit on such inputs under this Act

iv. the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs; and

v. such invoices or other prescribed documents were issued not earlier than 12 months immediately preceding the appointed day.

Sec-140(7):

Notwithstanding anything to the contrary contained in this Act, the input tax credit on account of any services

received prior to the appointed day by an Input Service Distributor shall be eligible for distribution as credit

under this Act even if the invoices relating to such services are received on or after the appointed day.

Points to ponder:

1. What is the time limit within which the credits are to be distributed by the ISD?

No time limit as per Section 140(7). However, TRANS-1 required to be filed for all claims of credits under

Section 140 has to be filed within 60 days from the appointed day.

SEC-140(7) - ITC OF SERVICE RECEIVED PRIOR TO APPOINTED DATE

BY AN ISD-CGST

SEC-140(8)-ITC OF SERVICE RECEIVED PRIOR TO APPOINTED DATE

BY A CENTRALIZED REGISTRATION

Sec-140(8):

Where a registered person having centralised registration under the existing law has obtained a registration under

this Act, such person shall be allowed to take, in his electronic credit ledger, credit of the amount of CENVAT credit

carried forward in a return, furnished under the existing law by him, in respect of the period ending with the day

immediately preceding the appointed day in such manner as may be prescribed:

Provided that if the registered person furnishes his return for the period ending with the day immediately

preceding the appointed day within three months of the appointed day, such credit shall be allowed subject to the

condition that the said return is either an original return or a revised return where the credit has been

reduced from that claimed earlier:

Provided further that the registered person shall not be allowed to take credit unless the said amount is

admissible as input tax credit under this Act:

Provided also that such credit may be transferred to any of the registered persons having the same Permanent

Account Number for which the centralised registration was obtained under the existing law.

SEC-140(8)-ITC OF SERVICE RECEIVED PRIOR TO APPOINTED DATE

BY A CENTRALIZED REGISTRATION-POINTS TO PONDER

1. Can the person file the returns for his centralized registration under Service tax law after the

appointed day?

Yes for the period ending upto the appointed day. Any credits reduced from that claimed earlier would be allowed through such

revised return.

2. What happens if there is a revision in the original return to increase the credits?

No such additional credits would be allowed. A revised return is permitted only if such revision results in reduction of credits

earlier claimed either through original return.

3. Can credits be distributed to a newly registered unit/branch?

No, credits can be distributed to only such units/branches which was in the centralized registration scheme.

4. In what ratio should the credits be distributed to other units?

No specified ratio. At the discretion of the person credits can be distributed.

5. Conflict between period for TRANS-1 (60 days) and between section 140(8)

Sec-140(9):

Where any CENVAT credit availed for the input services provided under the existing law has been reversed due to non-payment of the consideration within a period of three months, such credit can be reclaimed subject to the condition that the registered person has made the payment of the consideration for that supply of services within a period of three months from the appointed day.

Points to ponder:

1. Whether the reversal of credits should have been done under the earlier law?

Yes, it has to be triggered under the earlier law only.

2. In case where the there was non-payment for a period beyond 3 months under the existing law and subsequently paid off under the existing law itself, even then department may take a view that since Section 140(9) requires reversal under the earlier law which was not reversed and reclaimed, credits could be restricted. So it is better to reverse in the ST3 returns and reclaim it back to comply with this provisions.

3. What if the payment of such credits reversed is not made within 3 months from appointed day?

The credits would be lost permanently and the same cannot be reclaimed after payment (beyond 3 months).

SEC-140(9)-REVERSAL OF ITC DUE TO NON–PAYMENT TO VENDOR

The amount of credit under sub-sections (3), (4) and (6) shall be calculated in such manner as may be prescribed.

However no rules are yet prescribed for sub section (4) and (6).

SEC-140(10)-COMPUTATION OF CREDITS

Documents

Bangalore Branch of SIRC of ICAI Clause by Clause ... · SEC-140(1) CENVAT CREDIT CARRIED FORWARD IN RETURN - CGST Sec 140(1): A registered person, other than a person opting to pay