As per Section 140 (9) of CGST Act 2017:
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.
This transition provision has been introduced with a view to enable the availment of credit in cases where CENVAT credit has been reversed in terms of second proviso to rule 4(7) of the CENVAT Credit Rules, 2004.
Reversal of Credit under Service Tax:
As per Rule 4 (7) of Cenvat Credit Rule 2004:
The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received:
[Provided that in respect of input service where whole or part of the service tax is liable to be paid by the recipient of service, credit of service tax payable by the service recipient shall be allowed after such service tax is paid:
Provided further that in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9 is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service, except an amount equal to the CENVAT credit of the tax that is paid by the manufacturer or the service provider as recipient of service, and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules]
Example: In case assessee is Service receiver and has not made payment to vendor:
Let say Mr. X received INPUT SERVICE on or before 31st March, 2017 but he has not paid the consideration & service tax to the party, hence as per Rule 4(7) of Cenvat Credit Rule 2004, he was liable to pay an amount equal to the CENVAT credit availed earlier on receipt of invoice from service provider.
Now after GST if he wants to claim the benefit of tax paid under rule 4(7) then he has to compulsory made the payment of the consideration for that supply of services within a period of three months from the appointed day (i.e. Up-to 30th September-2017)
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