Service Tax as Transition Credit
Allowed Upfront in GST Law under Sec. 140(1) CGST Act, 2017
[Circular No. 87/06/2019-GST dated 2
January 2019]
Sub: Central Goods and Services Tax (Amendment) Act,
2018- Clarification regarding section 140(1) of the CGST Act, 2017.
Attention
is invited to sub-section (a) of section 28 of the CGST (Amendment) Act, 2018
(No. 31 of 2018) which provides that section 140(1) of the CGST Act, 2017 be amended with
retrospective effect to allow transition of CENVAT credit under the
existing law viz. Central Excise and Service Tax law, only in respect of
“eligible duties”. In this regard, doubts have been expressed as to whether the
expression “eligible duties” would include CENVAT credit of Service Tax within
its scope or not.
2.
Therefore, in exercise of powers conferred under section 168 of the Central
Goods and Services Act (hereinafter referred to as “Act”), for the purposes of
uniformity in the implementation of the Act, the Central Board of Indirect
Taxes and Customs hereby directs the following:
3.1
The CENVAT credit of service tax paid under section 66B of the Finance Act, 1994
was available as transitional credit under section 140(1) of the CGST Act and
that legal position has not changed due to amendment of section 140(1) on
account of following reasons:
i) The
amendment in provisions of section 140(1) and the explanations to section 140
need to be read harmoniously such that neither any provision of the amendment
becomes otiose nor does the legislative intent of the amendment get defeated.
ii) The
intention behind the amendment of section 140(1) to include the expression
"eligible duties” has been indicated in the “Rationale/ Remarks” column
(at Sl. No. 37) of the draft proposals for amending the GST law which was
uploaded in the public domain for comments. It is clear that the transition of
credit of taxes paid under section 66B of the Finance Act, 1994 was never
intended to be disallowed under section 140(1) and therefore no such remark was
present in the document.
iii) Under
tax statutes, the word “duties" is used interchangeably with the word
“taxes” and in the present context, the two words should not be read in a
disharmonious manner.
3.2
Thus, expression "eligible duties” in section 140(1) which are allowed to
be transitioned would cover within its fold the duties which are listed as
"eligible duties” at sl. no. (i) to (vii) of explanation 1, and “eligible duties and taxes”
at sl. no. (i) to (viii) of
explanation 2 to section 140, since the expression “eligible duties and taxes”
has not been used elsewhere in the Act.
3.3
The expression “eligible duties” under section 140(1) does not in any way refer
to the condition regarding goods in stock as referred to in Explanation 1 to
section 140 or to the condition regarding inputs and input services in transit,
as referred to in Explanation 2 to section 140.
4.
Further, it has been decided not to notify the clause (i)
of sub-section (b) of section 28 and clause (i) of
sub-section (c) of section 28 of CGST (Amendment) Act, 2018 which link
Explanation 1 and Explanation 2 of section 140 to section 140(1). This would
ensure that the credit allowed to be transitioned under section 140(1)
is not linked to credit of goods in stock, as provided under Explanation 1, and
credit of goods and services in transit, as provided under Explanation 2.
However, the duties and taxes for which transition is allowed shall be governed
by para 3.2 above.
5.
No transition of credit of cesses, including cess which is collected as additional duty of customs under
sub-section (1) of section 3 of the Customs Tariff Act, 1975, would be allowed
in terms of Explanation 3 to section 140, inserted vide sub-section (d) of
section 28 of CGST Amendment Act, 2018 which shall become effective from the
date the same is notified giving it retrospective effect.
6.
Trade may be suitably informed and difficulty, if any, in the implementation of
this circular may be brought to the notice of the Board.
F. No. 267/80/2018-CX.8