Transitional Provisions-Part-II

  1. Unavailed cenvat credit on capital goods, not carried forward in a return, to be allowed in certain situations

The changed section 168 (old section 144) reads as follows:

A registered taxable person, other than a person opting to pay tax under section 9, 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 earlier law by him, for the period ending with the day immediately preceding the appointed day in such manner as may be prescribed.

Under current Cenvat credit Rules the 50% credit can be taken in first year and rest 50% in the subsequent year. Many assessee have taken the credit of first 50% and the rest is to be taken in next year. This provision has been incorporated to enable the assessees to take  the unavailed cenvat cenvat on capital goods.  Thus , the unavailed cenvat credit won’t appear in the return and hence  the provision of Section 167 will not cover this situation.

 Further a proviso is kept accompanying this provision which reads as follows:

PROVIDED that the registered taxable person shall not be allowed to take credit

unless the said credit was admissible as cenvat credit under the earlier law and is also admissible as input tax credit under this Act:

It is to be noted that capital goods definition has been amended in the revised draft to incorporate all such goods which are capitalized in the books of accounts. It is totally different from the definition of “capital goods” given under Cenvat Credit Rules, 2004.  Thus there may have been a situation where a certain item will fall under capital goods definition as per the old law but won’t fall under the new definition. For example, Grinding Wheel is specifically given under the definition of capital goods under present Cenvat Credit Rules but it will be treated as consumables in books of accounts and hence will not be capitalized. Therefore, it will not be treated as capital goods under revised GST law. Department will take the stand that cenvat credit on such items will not be allowed to carry forward for the reason that these are not capital goods under revised GST law. But  the word used in proviso is ” and admissible as input tax credit under this Act”.  Input tax credit would  include the credit of both inputs and capital goods. Hence, even if the credit is allowed as input under revised GST law then also the credit will be allowed.

But the literal meaning of “input tax credit ” will also create another problem. Section 2(56) gives the definition of “input tax credit” as credit of “input tax” under Section 2(55) and Section 2(55) allows credit of IGST, CGST and SGST on any supply of goods and services. But no IGST, CGST and SGST paid on such capital goods in this transitional provision. If we take this literal meaning then this provision will be redundant. Following the principle of homogenous construction, the credit should be allowed.

Taking further, the explanation added to this proviso reads as follows:

Explanation 2.- Capital goods means the goods as defined under clause (a) of rule 2 of CENVAT Credit Rules, 2004.

This clause also clarifies that credit will be allowed on capital goods and new definition of capital goods under revised GST law will not come into picture.

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Comments

  1. Pramod G Saraogi says

    Dear Sir
    Your articles make interesting , informative and analytical reading. It is always pleasure to read your articles which provide in depth knowledge of the subject . In the Transitional Provisions Part I you have made the following observations :

    Section 140(1) [SECTION 167 of Model CGST law]

    PROVIDED that the registered taxable person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act.

    “As regards the proviso is concerned, the same is a better version of the earlier proviso in old GST Law. As per old proviso, it was specified that credit will be available only if the credit was admissible both under earlier law and under the GST law. This provision was very difficult to comply as there are different provisions under present laws and GST laws. As far as credit availment in present scenario is concerned, the same is governed by Cenvat Credit Rules, 2004 whereas credit under GST regime is governed by section 16 of the GST Act, 2016 and there are significant differences. For example, under Cenvat Credit Rules, 2004, the definition of capital goods is very specific while under GST, goods which are capitalised in the books of accounts are considered as capital goods. The old proviso was very difficult to comply with and representations were made to restrict the credit admissibility under GST regime only. Consequently, the revised proviso says that credit will be allowed to be carried forward if the same is admissible under GST law which is appreciated.

    But if the credit is not admissible / eligible under the existing laws then it shall not be allowed to be incorporated in the returns filed under the existing laws and then one cannot carry forward the same. Unless the credit is admissible how one could take the CENVAT credit under the existing laws as the existing laws have not been amended so far to allow to take the ineligible credit under that law. Had this been the case and on the same logic one could also have taken the credit of unavailed Cenvat Credit on Capital Goods in the return filed under the existing laws up to the date prior to the appointed day and there was no need for a separate sub section 2 in section 140. Moreover, the example givenby you above has more applicability to Section 140(2) .

    Kindly enlighten on the above issue.

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