SECTION 167: AMOUNT OF CENVAT CREDIT CARRIED FORWARD IN A RETURN TO BE ALLOWED AS INPUT TAX CREDIT
The following provisions have been incorporated under CGST Laws:-
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, 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 earlier law in such manner as may be prescribed:
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.
If we make a comparison of the provisions enumerated in the Revised GST Law with the provisions of the old GST Law, we find that person opting for paying tax under composition scheme under section 9 will not be able to carry forward amount of Cenvat credit relating to return filed under earlier law. It is pertinent to note that person operating under composition scheme will not be entitled for input tax credit and also the tax paid under composition scheme will not be admissible as credit to the recipient. Consequently, the provision debarring carry forward of credit pertaining to return filed under earlier law was expected to be denied in GST regime.
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 capitalized 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.
As far as provisions for carry forward of credit under SGST laws is concerned, similar provisions have been incorporated with the amendment that credit will be admissible of Value Added Tax and Entry Tax. Here, one point that needs clarification is that credit of entry tax is admissible only in certain State Laws and so whether credit of entry tax will be available in all States or only in States where it is cenvatable. This is for the reason that the proviso merely states that registered taxable person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act. Under GST regime, all taxes are cenvatable and one opinion may be that credit of entry tax will be allowed even if the same was not allowed under earlier law. However, the revenue authorities will not accept such an interpretation and will definitely dispute credit of entry tax if the earlier State Laws denied it.
New provisos have been added regarding credit under section 3, 5(3), 6 or 6A of the Central Sales Tax Act, 1956. It is provided that amount of credit substantiated in the prescribed manner and within the stipulated period will be admissible in the form of refund to the assessees whereas the amount of credit not substantiated in the manner prescribed within the stipulated period will not be eligible to be credited to the electronic credit ledger of the assessee. It is observed that the credit admissible under earlier laws is allowed as refund in many situations except that carried forward through return filed under earlier laws. This is probably done to demarcate the credit pertaining to earlier laws and that taken under GST regime.
168: 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 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.
169: Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations
This provision intends to enable the taxable person to avail the cenvat of duties and taxes in respect of inputs held in stock subject to certain conditions. The provision reads as follows:
(1) A registered taxable person, who was not liable to be registered under the earlier 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 20.06.2012 or a first stage dealer or a second stage dealer or a registered importer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes 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:
(i) such inputs and / or goods are used or intended to be used for making taxable supplies under this Act;
(ii) the said taxable person passes on the benefit of such credit by way of reduced prices to the recipient;
(iii) the said taxable person is eligible for input tax credit on such inputs under this Act;
(iv) the said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law in respect of such inputs;
(v) such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and
(vi) the supplier of services is not eligible for any abatement under the Act:
A very important thing to note that earlier the benefit of such availment was only extended to registered taxable person engaged in manufacture of exempted goods or a person not liable to register under the earlier law. Now this provision has been extended to such persons also who are engaged in 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 20.06.2012 or a first stage dealer or a second stage dealer or a registered importer. Interestingly, works contract service has been linked with notification no. 26/2012 which is an abatement notification. This notification does not prescribe any abatement for works contract service. It seems that there is a clerical error. There can be two intentions behind the same. First is to allow the credit to works contract only as they are getting credit of input services only in current regime. Hence, the credit of inputs lying in stock should be allowed. Only the notification is wrongly quoted. The second intention could be to allow the credit to those services covered under abatement notification because there is also condition of allowing credit either only on input services or no credit at all. The trade and industry will support second interpretation. But this clerical mistake should also be rectified to avoid any unwarranted litigation.
Secondly, the conditions also have been revised. The second condition earlier stated that the taxable person should be eligible for Cenvat but haven't availed it because of him being exempted. This condition has been replaced to insert a new condition that the benefit of such credit has been passed by way of reduced prices to the recipient. This meant that if the credit is allowed to him then he should reduce the prices also. Following the Apex Court decision in Dai ichi Kankaria case, the credit will not form the part of cost of goods then the prices should come down. This is very good intention on the part of the Government. But the market forces determine the prices and not the credit allowed. Hence, this condition may prove difficult to adhere to and to prove. This will lead to uncalled litigation as revenue department in each and every case will ask the assessee to prove that the price is reduced.
Another condition no. (v) has been inserted to provide that any supplier of service intending to avail benefit of this provision should not be eligible for any abatement under the new act. But there is no abatement provision in proposed revised GST law. We are failed to understand the meaning of this provision. It may imply that there are going to bring abatements in new law also. It is welcome step but it is again going against the concept of GST of one rate of tax. We are already seeing four rates along with cess as well as separate rate for Gold. The abatements will also add to number of rates in GST.
Apart from this a new proviso has been inserted to this provision to provide that any registered taxable person apart from a manufacturer or a supplier of services, who is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then such registered taxable person shall be allowed to take Cenvat at a specified rate and manner. This is a welcome step and we on part of trade and industry has been continuously demanding the same. This is the same provision which came for textile industry (popularly known as one time credit) in 2003. It will greatly benefit the traders who normally do not possess the duty paying documents as they do not receive the goods directly from manufacturer. But the exempted manufacturer or exempted service provider are kept out of this provision. They also do not receive the duty paying documents. Normally goods are sold by input manufacturer to traders and these traders sell to these exempted manufacturer. Hence, the duty paying documents do not travel to ultimate exempted manufacturer because he do not need to take the credit. Hence, this provision should also be passed on to the manufacturers and service providers.
170: Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations
This is a new provision added in the act aiming to cover such assessees who are engaged in manufacture of both taxable and exempted goods or are providing both taxable and exempted services. This provision reads as follows:
(1) A registered taxable person, who was engaged in the manufacture of non-exempted as well as exempted goods under the Central Excise Act, 1944 (1 of 1944) or provision of non-exempted as well as exempted services under Chapter V of Finance Act, 1994 (32 of 1994), shall be entitled to take, in his electronic credit ledger,
(a) the amount of Cenvat credit carried forward in a return furnished under the earlier law by him in terms of section 167; 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 exempted goods or services, in terms of section 169.
This is also a new provision introduced on this topic. We have been demanded the same and wrote an article on the same which was published at ----------. This is welcome step wherein the assessee manufacturing exempted and dutiable product or taxable and exempted services will allowed the credit in return on taxable product or service and on stock for exempted product or service.
It is clear that basically the assessees covered under rule 6 of CCR, 2004 have been kept in view here so that they can also carry forward the cenvat available with them as shown in the return as well as take credit on stock of exempted product. But there are three procedures in Rules 6 which are listed below:-
1. maintain separate inventory;
2. take the credit on common input and input services and reverse the Cenvat credit at particular percentage on value of exempted goods;
3. take the credit on common input or input services and reverse the Cenvat credit on proportionate basis.
This provision very well covers the first provision i.e. where the manufacturer or service provider has maintained the separate inventory and has taken the credit only inputs used in manufacture of dutiable goods or provision of taxable services. Hence, he will be allowed to take the credit on stock of inputs of exempted final product or exempted service.
But this provision does not hold good for the second alternative. If a manufacturer or service provider has already taken the credit on common input then credit cannot be allowed to him second time. Moreover, the credit is reversed at the time of removal of exempted final product or provision of exempted service. This mean that the credit is already contained in his balance for the stock of inputs lying with him. Then this provision will allow him the credit second time on these inputs. This is not the intention of the Government. Even the department will not allow him the credit second time on same inputs. But the problem does not end here. There is clear cut provision in Rule 6 that credit on inputs used exclusively in exempted goods will not be allowed credit. Hence, there will be two type of inputs viz. one common inputs on which credit is taken and second exclusively used inputs on which credit is not taken. Hence, this provision holds good for second type of inputs.
The similar problem is being faced for the third alternative. Here also, the credit is taken on common inputs and Cenvat is reversed on proportionate basis at the end of month on exempted final product removed during the month or the exempted services provided during the month. This means that the credit is already taken on common inputs but the problem of exclusive inputs going in exempted goods still remains here also.
To solve this problem, it is suggested that the credit on stock of inputs for exempted goods should be allowed subject to condition that the credit is not already taken. This provision will solve the problem. The assessee will be allowed to take the credit on stock of those inputs on which credit is not taken by him.
But there are many other situations also where the credit is not taken by the assessee. We have come across a situation where the manufacturer has taken the credit only on inputs exclusively used inputs in dutiable final product but has not taken credit on common inputs for dutiable and final product as well as on inputs exclusively used in exempted final product. Hence, the credit should be allowed in such situation also.
Similarly, many exporter manufacturer are claiming drawback and forgoing Cenvat credit. But they intend to take the credit on input stock as they intend to avail the credit under GST regime.
Similar is the situation for textile manufacturers who are exempted from payment of excise duty with the condition that no credit is taken on inputs. They have been taking credit on consignment of goods which are exported and not taking credit on those consignments which are cleared in domestic industry. This is being done as per provision of notification 29/2004 dated 9.7.2004 read with CBEC circular number 795/28/2004-CX dated 28.7.2004.
There is no transitional provision for manufacturers availing concessional duty of 2% with no Cenvat credit under notification number 1/2011. Whether their duty can be termed as composition duty at fixed rate or they can be termed as exempted goods as declared to them under Cenvat credit rules. Even there are certain export incentive schemes where the credit is not allowed.
There can be more situations like these on which there is no transitional provisions available. The non-availment of credit is done as per statutory provisions. The credit on stock should be allowed to all manufacturers, service providers under transitional provisions who have not availed the credit due to one provision or the other subject to condition that they will not avail the credit twice.
SECTION 171: CREDIT OF ELIGIBLE DUTIES AND TAXES IN RESPECT OF INPUTS OR INPUT SERVICES DURING TRANSIT
This is a new provision that has been incorporated in the revised GST law which provides for credit availment for inputs/input services during transit. Where the goods have been removed prior to the appointed day on payment of excise/VAT but are received after the appointed day, then the question of availment of cenvat of excise and VAT against CGST/SGST will arise. To resolve this situation, following has been provided:-
(1) A registered taxable 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 before the appointed day, subject to the condition that the invoice or any other duty/tax paying document of the same was recorded in the books of accounts of such person within a period of thirty days from the appointed day:
PROVIDED that the aforesaid period of thirty days may, on sufficient cause being shown, be extended by the competent authority for a further period not exceeding thirty days.
(2) The said registered taxable person shall furnish a statement, in such manner as may be prescribed, in respect of credit that has been taken under sub-section (1).
If we minutely observe the above provisions, we find that these enable credit availment for inputs/input services that are in transit on the appointed day. The example of input services in transit can be the services of transportation of goods by road/rail. At this point, it is pertinent to note the provisions contained in section 188 of the Revised GST law which states that tax in respect of taxable services shall be payable under earlier law to the extent the point of taxation in respect of such services arose before the appointed day. Say for example, if the transportation of goods by road service has been booked in advance for which invoice has been issued before the appointed day and payment is also made before the appointed day, the point of taxation shall be the date of receipt of advance and service tax will be payable on the said taxable service under earlier law. Now, the question that arises is the credit admissibility of service tax paid on such service which is received after the appointed day. The above provisions allow credit of tax on input services received after the appointed day but tax for which has been paid before the appointed day.
However, these provisions do not cover the capital goods which are in transit on the appointed day. There may be possibility that capital goods purchased before the appointed day are received by the assessee on or after the appointed day. In such cases, there will be excise duty/VAT credit available on such capital goods but there is no provision in revised GST law for enabling assessees to avail the credit of capital goods in transit. Consequently, the assessees should ensure that they receive the capital goods before the appointed day if ordered before the appointed day or place order for capital goods only after implementation of GST so that there is no issue regarding availment of credit of excise duty/VAT.
The above provision also specifies that the credit will be allowed only if the invoice is booked in the accounts within 30 days of the appointed day. Not only this, assessee is also required to file a statement with the authorities to substantiate the credit taken on the goods in transit.
Credit of eligible duties and taxes on inputs held in stock to be allowed to a taxable person switching over from composition scheme
The Section 172: (146 in old draft) dictates the provision and conditions, on fulfillment of which a registered taxable person becomes eligible to avail the Cenvat of the inputs held in stock if he opts to switch over from composition scheme. The sections reads as follows:
Registered taxable person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the earlier law (hereinafter referred to in this section as a "composition taxpayer"), 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 date subject to the following conditions:
(i) such inputs and / or goods are used or intended to be used for making taxable supplies under this Act;
(ii) the said person is not paying tax under section 9;
(iii) the said taxable person is eligible for input tax credit on such inputs under this Act;
(iv) the said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law in respect of inputs; and
(v) such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day. (CGST)
A worth noting change bought in this section is that earlier there was an additional condition which stated that the Cenvat which the assessee intends to avail should have been allowed to him under the previous law also but he was not availing merely because he had opted composition scheme. This condition is now dropped. Thus even if certain inputs were not allowed under the previous law but are allowed under the new law; Cenvat can be availed on them.
But yet there is one problem. The conditions also state that the invoice on which Cenvat is been availed should not be older than 12 months. To comply this condition, it has to be ascertained that which all invoices are forming the stock as on date. Also such assessees who are having old stock won't be allowed to avail the Cenvat on their stock.
Another change bought in this relation is that the old draft prescribed the use of generally accepted accounting principles to calculate the credit to be availed, whereas the new draft states that the procedure shall be prescribed separately for such calculation.
The old draft contained another provision which has been deleted in the new draft. It reads as follows:
The amount taken as credit under sub-section (1) shall be recovered as an arrear of tax under this Act from the taxable person if the said amount is found to be recoverable as a result of any proceeding instituted, whether before or after the appointed day, against such person under the earlier law
The provisions for SGST are similar except that one condition has been replaced there also. The condition (iii) read as follows: the said taxable person was eligible to claim input tax credit on purchase of such inputs and/or goods under the earlier law but for his being a composition taxpayer under the said law
This condition has been replaced by the following condition:
The said inputs were not [specified in Schedule--- of the earlier law or in the rules made there under or in any notification issued under the earlier law] as inputs on which credit was not admissible under the earlier law;
The effect of this is that if the inputs were not allowed under the old law by being specified in a particular schedule, then credit of those input will not be allowed under the new law too.
Sec 173: Exempted goods returned to the place of business on or after the appointed day
The section enables a taxable person to receive exempted goods (under the old law) which were removed/sold earlier and then received back within 6 months of the appointed date. This section has been kept similar to the previous provision in the old draft. The only amendment has been introduced by a way of proviso in both CGST law and SGDT act to clarify that if the exempted goods (under old law) are returned back by a person who is not registered even after the time limit of 6 months then also no tax will be payable by him. Thus any chances of confusion on a non taxable/non registered person being held liable to pay tax on such return of goods have been eliminated.
174: Duty (Tax - in SGST Act) paid goods returned to the place of business on or after the appointed day
This section enable a taxable person to receive back duty paid goods(under the old law) which were removed/sold prior to appointed date and received back within 6 months of the appointed date. It has been amended to delete a proviso which stated that tax shall be payable by the taxable person returning the goods if the said goods are liable to tax under this Act and are returned after a period of six months from the appointed day. Instead of it, a new proviso has been added which states as follows:
PROVIDED that if the said goods are returned by a registered taxable person the return of the goods shall be deemed to be a supply.
The effect of this amendment is that earlier where the tax became payable only if the return was made after a time period of 6 months, now the return will be held as supply irrespective of the time period of return. Also the old draft stated that:
Every taxable person who receives such goods within a period of six months shall be entitled to take credit of the duty paid earlier at the time of removal.
This proviso has also been deleted as after the amendment it was no longer needed because the return by a taxable person will be deemed as supply and he will have to charge tax on it while removing the goods. Thus the person receiving the goods will be automatically in receipt of duty paid goods and he will be eligible to avail Cenvat on the same.
Section 175: Inputs removed for job work and returned on or after the appointed day
This section intends to enable the receipt of goods sent on job work before the appointed day but received back after the appointed day. Like the previous sections the time limit has been kept at 6 months from the appointed date to receive back such goods without payment of duty. The provision reads as follows:
Where any inputs received in a factory had been removed as such or removed after being partially processed to a job worker for further processing, testing, repair, reconditioning or any other purpose in accordance with the provisions of earlier law prior to the appointed day and such inputs, are returned to the said factory on or after the appointed day, no tax shall be payable if such inputs , after completion of the job work or otherwise, are returned to the said factory within six months from the appointed day.
The bold marked text is the only addition done in this para in comparison to old draft GST law. This is done so to clarify that the goods can be returned even without doing any job work. In absence of this provision, it could have been interoperated that only job worked goods can be returned back and if the inputs are returned as such without job work, then tax may become payable.
Apart from the above, 3 provisos from the old draft have been replaced to insert another proviso. The old provisos read as follows:
Provided further that tax shall be payable by the job worker if such inputs are liable to tax under this Act, and are returned after a period of six months or the extended period, as the case may be, from the appointed day:
Provided also that tax shall be payable by the manufacturer if such inputs are liable to tax under this Act, and are not returned within a period of six months or the extended period , as the case may be, from the appointed day.
This proviso lead to confusion that GST will be payable by job worker or manufacturer if goods are not returned in the stipulated time period. The literal meaning of this provision was that the manufacture shall be liable to tax if goods are not returned within six months and if the goods are returned after the period of 6 months then the job worker will be liable to pay tax. On completion of exact 6 months, goods are not returned then manufacturer has to pay the duty. Now after 6 month, the job worker has to return the goods then he has to pay GST once again. Now, GST is paid twice on same goods. firstly by principal supplier and then by job worker. Even this was also not clear from these provision in old GST law whether the credit will be available to job worker of the GST paid by principal supplier.
Even we see the provision in current Cenvat Credit Rules, 2004 then manufacturer has to reverse the Cenvat credit taken on inputs and when the goods are returned after 180 days then credit is to be taken once again.
These are very good provisions.
The new proviso substituted reads as follows:
PROVIDED FURTHER that if such inputs are not returned within a period of six months or the extended period , as the case may be, from the appointed day the input tax credit shall be liable to be recovered in terms of section 184.
Thus now in event of non return of goods within the stipulated time, section 184 will come into play for the recovery of tax. The section reads as follows:
Where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the earlier law, any amount of tax, interest, fine or penalty becomes recoverable from the taxable person after the appointed day, the same shall be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act.
Thus to conclude the tax on late returned goods will be deemed as a arrear of tax under this act and subsequently no input tax credit will be admissible under this act. Thus, if the inputs are not returned within 6 months then credit will be lapsed.
Hence it is advised to job worker that he should return the goods within 6 months of appointed day whether job work is done or not.
179: Pending refund claims to be disposed of under earlier law
This section provides for the treatment of such refund claims which have been filed before the appointed day in respect of any tax, amount of Cenvat credit, duty, tax or interest paid before the appointed day. It provides that all such claims will be disposed off as according the rules laid down in the previous law itself and any refund accruing on such account shall be paid in cash only. Thus no Cenvat will be granted against such refund.
Presently, the department is allowing the rebate claim under Rule 18 of Central Excise Rules where major amount is sanctioned in cash but small portion of rebate claim is deducted and allowed as credit in Cenvat credit account. As per department the duty is to be paid on the transaction value at factory gate. for computing the same, the department deducts post removal expenses from the FOB value and this is compared with transaction value shown in ARE-1. Hence, the rebate claim is allowed in this value and rest is allowed as credit.
But because under the new law, old taxes and duties won't exist, such Cenvat will be of no use. Apart from this, one amendment has also been bought in form of a proviso which reads as follows:
PROVIDED FURTHER that no refund claim shall be allowed of any amount of Cenvat credit where the balance of the said amount as on the appointed day has been carried forward under this Act
It is a clarificatory in nature to remove such interpretation of the law which would lead to availing of double benefits i.e. Cenvat and refund both. It has been clarified that where any Cenvat is carried forward in return, then no refund shall be granted of such Cenvat.
We have seen that refund of unutilised credit under Rule 5 of Cenvat credit Rules prescribes the condition that the refund claim should be debited from the Cenvat account before filing the claim. This provision has been incorporated recently. But earlier the amount was debited only after sanction of rebate claim so that exact amount is debited in the Cenvat credit account. If such type of situation emerge where the amount is not debited and it is carried forwarded in GST then claim will not be allowed.
Two new sections have been added after the above sections. These are:
180. Refund claims filed after the appointed day for goods cleared or services provided before the appointed day and exported before or after the appointed day to be disposed of under earlier law
181. Refund claims filed after the appointed day for payments received and tax deposited before the appointed day in respect of services not provided
Where the section 179 provided for refund claims filed before the appointed day, a need was felt to provide for such instances where refund claim will be filed after the appointed day but for the transactions undertaken before the appointed date. In the old draft, there was no provision for such instances. It is obvious that the refund in respect of goods sold/exported or service provided/exported before the appointed day (majorly in the quarter of Jan-March) under rebate/refund claim will have to be filed after the appointed day. In absence of any specific provision in this regard, litigation could have happened. Thus addition of these provisions is a welcome step. In both the cases, refund claims will be dealt with in accordance of previous laws and refund if any, will be paid fully in cash.
SECTION 182: CLAIM OF Cenvat CREDIT TO BE DISPOSED OF UNDER THE EARLIER LAW
It is provided in sub-section (1) that every proceeding of appeal, revision, review or reference relating to a claim for Cenvat credit initiated whether before, on or after the appointed day, under the earlier law shall be disposed of in accordance with the provisions of earlier law, and any amount of credit found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of earlier law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 and shall not be admissible as input tax credit under this Act. This provision can be explained with the help of an example regarding credit admissibility on capital goods. If we observe the definition of capital goods given under revised GST Law, we find that it is very wide wherein every goods whose value has been capitalised in the books of accounts to be used in business are considered as capital goods whereas the Cenvat Credit Rules, 2004 provides a restrictive definition of capital goods. The above provision will debar assessees from taking reference of Revised GST Law for matters pertaining to earlier law. However, the provision regarding refund of credit found to be admissible under earlier law will definitely increase compliance cost of assessees as it is extremely difficult to claim refund under indirect taxation. Furthermore, it is also specifically mentioned that the provisions of sub-section (2) of section 11B, pertaining to unjust enrichment will also apply thereby diminishing the possibility of grant of refund to assessees. This is for the reason that in case of refund of Cenvat credit, it will be very difficult for assessee to prove that the burden of duty has not been passed on by the assessee. As such, the government will enrich at the cost of assessee even if it is decided that the assessee is admissible for credit because it is provided that credit will be allowed only by way of refund which is very difficult to claim. In this context, reference may be made to the Supreme Court decision in the case of COMMISSIONER OF CENTRAL EXCISE, MADRAS VERSUS M/S ADDISON & CO. LTD. [2016-TIOL-146-SC-CX-LB] wherein it was held that the principle of unjust enrichment is to be seen till the ultimate buyer of goods and is not limited to the immediate buyer of goods.
The proviso to sub-section (1) further clarifies that no refund claim shall be allowed of any amount of Cenvat credit where the balance of the said amount as on the appointed day has been carried forward under this Act. This provision has been incorporated to ensure that the assessee does not take double benefit for the same credit.
The sub-section (2) provides that every proceeding of appeal, revision, review or reference relating to recovery of Cenvat credit initiated whether before, on or after the appointed day, under the earlier law shall be disposed of in accordance with the provisions of earlier law, and if any amount of credit becomes recoverable as a result of appeal, revision, review or reference, the same shall be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act. It is not understandable as to why the provision regarding non-admissibility of input tax credit has been incorporated because it is not the case of recovery of duty but it is the case of recovery of credit. When credit has been considered as non-admissible, why will assessee claim the credit again.
188. Taxability of supply of services in certain cases
This is a newly added section to provide for taxation for such instances of service provision where the point of taxation was occurring before the appointed day. It states that in cases where the point of taxation lies before the appointed day then the tax will be applicable as per the earlier law. In the old draft, this was non-existent and this has been added to bring more clarity in situations where point of taxation comes into play. Situations like taxation on advances and subsequent adjustment in the invoice value are such transactions where this provision becomes relevant. Although continuing with the advance eg. it might still be open to debate that how the tax paid on advance before the appointed day are to be adjusted against the invoices issued after the appointed day. Will refund be granted of this tax paid on advances and full tax will have to be paid on the invoice issued under the new regime is yet to be clarified.
An explanation has also been added stating that where the portion of a supply of service is not covered by this section, then such portion will be taxable under the new act.
A very similar provision has been added as section 189 also for supply of goods where it has been stated that where the point of taxation lies before the appointed day in respect of supply of goods then tax will be payable on such supply in accordance with the earlier law.
191. Provision for transfer of unutilized Cenvat Credit by taxable person having centralized registration under the earlier law
Another section has been added keeping in view that many concerns have taken the centralized registration in respect of their units and were availing the cenvat at a single premise and were filing a consolidated return in respect of all such units. Now under GST regime, the registration is to be taken separately for each state. The old draft was silent on the treatment of cenvat balance which was lying with them but was pertaining to various units. Thus it was not clear how the cenvat shall be carried forward and whether the other units will get their share of cenvat.
This newly added provision states that where a taxable person having centralized registration under the earlier 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 earlier law by him. An important proviso in this section is that such credit may be transferred to any of the registered taxable persons having the same PAN for which the centralized registration was obtained under the earlier law. Thus distribution of cenvat has been made possible without conditions.
Another proviso added states that if the taxable person files his return for the period ending with the day immediately preceding the appointed day within 3 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. Also it has been specifically stated that out of the credit claimed, only that much portion of the cenvat shall be allowed which is admissible under the new law.
197. Transitional provisions for availing Cenvat credit in certain cases
This provision has been added to as to provide for treatment of such cenvat which was reversed before the appointed day due to non-payment of consideration within a period of 3 months. This provision states that in such situation such credit can be reclaimed provided that the taxable person has made the payment of the consideration for that supply of services within a period of three months from the appointed day.
This provision may be a welcome step but it’s also difficult to implement and brings with it restrictions. Currently a period of 9 months is available to avail such cenvat on payment of consideration if it’s reversed earlier. It is because the total time limit to avail the cenvat is 1 year from the date of invoice. Now many business entities may not be able to pay the consideration within the period of 3 months from the appointed day due to various reasons, so this provision will hamper the rightfully availed cenvat by them.
In other instance where the services receiver generally retains a certain amount of contract value as retention charges and does not avail the cenvat on account of non-payment, he will also have to suffer due to this provision because the retention charges are paid generally at the completion of the contract.
In other cases, certain entities avail the cenvat only after the payment of consideration to the service provider. There is no specific provision in the revised GST draft to cover such situations where until the appointed day, the cenvat was not availed due to non-payment of consideration. It should be clarified too.
Thus this provision should be simplified by increasing the time limit of availing such cenvat and the necessity of payment to the service provider should be relaxed other many assessees are bound to lose their rightfully availed cenvat.