2022 (9) TMI 485 - AT - Central Excise

Quantum of transfer of CENVAT Credit to GST - transitional credit - sole objection of Revenue is that the appellant should not have retained any part of the cenvat credit in their Central Excise records and should have transferred the entire balance into electronic credit ledger as per Chapter XX of Central Goods and Service Tax Act, 2017 - HELD THAT - As perusal of section 140 of CGST Act, clearly indicates that there are numerous restrictions of transfer of credit from central excise cenvat credit to GST input tax credit. In these circumstances, it may not be possible in many circumstances to transfer the entire cenvat credit available in cenvat credit Rules, 2004 to the electronic credit register maintained under GST regime. The appellant has worked out a certain proportion and that has been examined by the Commissioner and found to be proper. The Revenue in its appeal has not pointed out as to why the said apportioning done by Commissioner is incorrect. It is obvious that as per first proviso to Section 140(1), only the credit which is admissible as input tax credit under the CGST Act can be availed as input tax credit. Obviously, the quantum of credit which relates to the items which continued to be covered under the Central Excise Act would not be admissible as input tax credit under CGST Act and therefore, the argument of the Revenue that the Respondent should have transferred the entire credit is incorrect. There are no grounds to interfere with the order of Commissioner - appeal dismissed - decided against Revenue.

Issues Involved:

1. Legality of the Show Cause Notice (SCN) demanding reversal of Cenvat credit and interest.
2. Interpretation of Rule 15 of the Cenvat Credit Rules, 2017.
3. Revenue neutrality and the validity of audit post-GST implementation.
4. Proportional distribution of service tax credit into GST and non-GST products.
5. Transitional provisions under Section 140 of the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Legality of the Show Cause Notice (SCN) demanding reversal of Cenvat credit and interest:

The appeal was filed by the Revenue against the order of the Commissioner which set aside the SCN issued for demand of Cenvat credit and interest. The SCN alleged that the respondent should have transferred the entire balance of Cenvat credit available on 13.06.2017 into TRAN-1 filed under the GST regime and should not have carried forward any amount into the Cenvat credit register maintained for Central Excise purposes. The notice sought to deny the total Cenvat credit of Rs. 12,02,85,059/-.

2. Interpretation of Rule 15 of the Cenvat Credit Rules, 2017:

The Revenue argued that Rule 15 of the Cenvat Credit Rules, 2017 mandates that the assessee shall transfer the entire Cenvat credit available under the Cenvat Credit Rules, 2004 into the electronic credit ledger as per Chapter XX of the CGST Act, 2017. The rule uses the word "shall," indicating a mandatory requirement. The Revenue relied on the decision of the Hon'ble Bombay High Court in Malaysian Airlines vs. UOI, which states that the use of "shall" in a statute ordinarily means the provision is mandatory.

3. Revenue neutrality and the validity of audit post-GST implementation:

The respondent's counsel argued that the situation is revenue-neutral as the appellant could have availed the credit as ITC under the GST regime. The counsel also relied on the decision of the Hon'ble High Court of Delhi in Mega Cabs Pvt. Ltd. to assert that the audit of the respondent post-GST implementation is ab initio illegal, and the notice issued consequent to the audit needs to be quashed. Additionally, the counsel cited the Hon'ble Gujarat High Court's decision in Marwadi Shares and Finance Limited to assert that the audit was conducted without any powers.

4. Proportional distribution of service tax credit into GST and non-GST products:

The respondent distributed the closing balance of service tax credit into GST and non-GST products proportionate to their turnover in the first quarter of 2017-2018. They claimed an amount of Rs. 1,57,32,37,759/- as ITC under TRAN-1 filed under GST out of the total service tax credit amounting to Rs. 1,60,14,32,745/-. The balance amount of Rs. 2,81,94,986/- was transferred as Cenvat credit in their Central Excise return. The respondent's counsel argued that the phrase "any Cenvat credit which is not eligible for such transfer shall not be retained as Cenvat credit unless eligible under these rules" in Rule 15(1) of the Cenvat Credit Rules, 2017, means that only credit not eligible for transfer to the GST regime cannot be retained under the Cenvat Credit Rules, 2017.

5. Transitional provisions under Section 140 of the CGST Act, 2017:

The Tribunal examined Section 140 of the CGST Act, 2017, which deals with transitional arrangements for input tax credit. The section imposes numerous restrictions on the transfer of credit from the Central Excise Cenvat credit to GST input tax credit. The Tribunal found that the appellant's proportional distribution of credit was proper and that the Revenue had not provided any grounds to challenge the quantification done by the Commissioner.

Conclusion:

The Tribunal concluded that the Revenue's argument that the respondent should have transferred the entire credit is incorrect. The quantum of credit relating to items covered under the Central Excise Act would not be admissible as input tax credit under the CGST Act. The Tribunal found no grounds to interfere with the Commissioner's order and dismissed the Revenue's appeal. The cross-objection by the respondent also stood disposed of.

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