TRANS-1 CREDIT ISSUE, Goods and Services Tax - GST

[ABHILASH PANICKER]

Dear Sir/Madam,

My query related to Trans-1 Credit, as per the audit observations made by the officers of GST they pointing out the following discrepancies.

1) As per the Trans-1 uploaded by the taxpayer, 100% credit on some capital goods ( Only 3 Invoices ) has been claimed, whereas the provisions and explanation allows only "unclaimed balance amount". Thus, Availing of 100% credit on capital goods in Trasn-1 was irregular.

2) Credit in table RCM paid tax challans been claimed wherein the services was rendered by the supplier in prior to implementation of GST and tax was paid after appointment date. e.g. RCM Tax # paid in 6th July 2017, related to June 17 credit claimed in TRANS-1 was not correct as per the provisions.

Need advise to given reply.

Regards

Posts / Replies

[KASTURI SETHI]

Sh.Abhilash Panicker Ji,

Reply to query No..1

(1) As per Rule 4(2a) of Cenvat Credit Rules, 2004, 50% Cenvat Credit on Capital Goods was allowed in the financial year in which Capital Goods were purchased/received and the remaining balance of 50% was allowed in any financial year . In case the manufacturer or provider of output service could not take 50% credit in the same financial year (year of purchase/receipt), he could avail 100% Cenvat Credit in the next financial or in any financial year subsequent to the year of receipt. There was no restriction of availing 100% in next financial year. Restriction of 50% was imposed for the first financial year (year of purchase) and NO restriction for availing 100% credit on Capital Goods was imposed for the next financial year.

Now as per Section 140(2) of CGST Act there are following conditions for availing credit on capital goods purchased before 1.7.2017 and credit could not be carried forward:-

(i) Cenvat Credit must be admissible under the existing law. 'The existing law' has been defined under Section 2(48) of CGST Act.

(ii) The registered person must qualify the phrase, "Un-availed Cenvat Credit" as per Explanation to Section 140(2) of CGST Act which means the amount that remains after subtracting the amount of CENVAT credit already availed from the aggregate amount of CENVAT credit.

The registered person/manufacturer will subtract the amount of CENVAT credit only if he has already availed. Since the manufacturer has not availed 50% CENVAT credit in pre-GST regime, so the question of 'subtracting' does not arise. Hence he is not out of scope of the phrase, "Un-availed Cenvat Credit". The above Explanation does not hit the said credit availed by the registered person inasmuch as 100% CENVAT Credit was allowed in next financial year i.e. 2017-18 under Rule 4 (2a) of Cenvat Credit Rules, 2004.

Thus, if the registered person qualifies for (i) above, the condition (ii) does not create hurdle.

In my view, 100% Cenvat Credit on Capital goods is correct.

[KASTURI SETHI]

The repeal of the existing laws upon coming of the GST law regime did not leave a vacuum as to past transactions which were not closed.---------- Jharkhand High Court in the case of Usha Martin Ltd. Vs.ADDL. COMMISSIONER OF CGST & EX., JAMSHEDPUR 2022 (11) TMI 1266 - JHARKHAND HIGH COURT Decided in favour of the assessee. It is worth reading in the context of Transitional Credit.

[KASTURI SETHI]

Reply to query no.2.

The department's view is legally not correct. The assessee has paid Service tax correctly in terms of Point of Taxation Rules, 2011 and Cenvat credit(ITC) cannot be denied via TRAN-1.

2022 (5) TMI 480 - CESTAT MUMBAI - BROSE INDIA AUTOMOTIVE SYSTEMS PVT. LTD. Versus COMMR. OF CGST & C. EX., PUNE-I

[KASTURI SETHI]

Section 140 of CGST Act is to be read with relevant Cenvat Credit Rules and not in isolation. Simliarly, Section 140 is also to be read with Point of Taxation Rules, 2011 and not in isolation w.r.t.query no.2.

Section 174 of CGST Act is not only meant for protection of interests of Govt. but also meant for giving justice to the assessees.

[Amit Agrawal]

I agree with Shri Kasturi Sethi Ji!

Please also see Circular No. 207/5/2017-Service Tax dated 28-09-2017

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

Credit in both the cases should be eligible.

[SHRI GST]

What if the capital goods were used in provision of exempted services in the service tax regime and the said services were made taxable in GST? Does the CENVAT credit on such capital goods be eligible to be availed in TRAN-1?