Analysis of provisions of Section 142 of CGST Act- certain doubts

On going through the provisions of Section 142 of CGSTA, certain doubts have emerged which are as mentioned below for critical examination of the other members and their views. The doubts/comments are provided sub-section wise hereunder.

(A) Section 142(1): Where any goods on which duty, if any, had been paid under the existing law at the time of removal thereof, not being earlier than six months prior to the appointed day, are returned to any place of business on or after the appointed day, the registered person shall be eligible for refund of the duty paid under the existing law where such goods are returned by a person, other than a registered person, to the said place of business within a period of six months from the appointed day and such goods are identifiable to the satisfaction of the proper officer :

Provided that if the said goods are returned by a registered person, the return of such goods shall be deemed to be a supply.

{Comments:

(1) Whether refund of duty paid would be under provisions of Section 54?

(2) What if the goods are returned by a registered person who is not under ITC scheme or under Composition scheme? It appears that even if they are not under ICT scheme still they can take credit in terms of Section 140 and pay tax on the returned goods considering the same as supply. Otherwise registered person requires to pay GST without having any ITC/Cenvat benefit.}

(B) Section 142(2)(a): where, in pursuance of a contract entered into prior to the appointed day, the price of any goods or services or both is revised upwards on or after the appointed day, the registered person who had removed or provided such goods or services or both shall issue to the recipient a supplementary invoice or debit note, containing such particulars as may be prescribed, within thirty days of such price revision and for the purposes of this Act such supplementary invoice or debit note shall be deemed to have been issued in respect of an outward supply made under this Act;

(b) where, in pursuance of a contract entered into prior to the appointed day, the price of any goods or services or both is revised downwards on or after the appointed day, the registered person who had removed or provided such goods or services or both may issue to the recipient a credit note, containing such particulars as may be prescribed, within thirty days of such price revision and for the purposes of this Act such credit note shall be deemed to have been issued in respect of an outward supply made under this Act :

Provided that the registered person shall be allowed to reduce his tax liability on account of issue of the credit note only if the recipient of the credit note has reduced his input tax credit corresponding to such reduction of tax liability.

{Comment:

(1) The condition provided at proviso should be in such a way that once credit note is issued by the supplier and/or amount is paid to the recipient, the recipient should payback the corresponding ITC amount taken}

(C) Section 142(3): Every claim for refund filed by any person before, on or after the appointed day, for refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under the existing law, shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) :

Provided that where any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse:

Provided further that no refund 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.

{Comment:

(1) I think the first proviso would be applicable in cases of refund of accumulated credits in terms of Rule 5 or 5B of CCR. Subject refund may attract rejection but credit might be eligible to be used for utilization for payment of their taxes/duties unless availment of credit is irregular. In such cases, what is the rationality to have such provision to lapse the subject credit.

(2) With regard to the second proviso, instead of no refund it should have been subject to debit/reduction of subject amount in the ITC/Transitional credit.

(D) Section 142(4): Every claim for refund filed after the appointed day for refund of any duty or tax paid under existing law in respect of the goods or services exported before or after the appointed day, shall be disposed of in accordance with the provisions of the existing law :

Provided that where any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse :

Provided further that no refund 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.

{Comment: Same as in respect of (B)}

(E) Section 142(5): Every claim filed by a person after the appointed day for refund of tax paid under the existing law in respect of services not provided shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944).

{Comment: It may be noted that irrespective of whether subject payments towards tax were earlier made through CENVAT or through PLA/Cash, the refund of amount shall be paid in CASH subject to scrutiny of unjust enrichment. What is the need of mention of Section 11B(2)? Is it not covered under by the words ‘in accordance with the provisions of existing law’. Only deviation provided vide said provision is about paying in CASH in certain cases}

(F) Section 142(6)(a): every proceeding of appeal, review or reference relating to a claim for CENVAT credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of existing 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 existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) and the amount rejected, if any, shall not be admissible as input tax credit under this Act :

Provided that no refund 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;

(b) every proceeding of appeal, review or reference relating to recovery of CENVAT credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of existing law and if any amount of credit becomes recoverable as a result of such appeal, review or reference, the same shall, unless recovered under the existing law, 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.

{Comment: What is the difference between a claim for CENVAT credit and recovery of CENVAT credit? Understandably, if the assessee reverses the subject credit during the course of investigation/ audit continues his litigation for such credit it is claim for Cenvat credit by the assessee and if he does not reverse the subject credit then it would be the proceedings for recovery of CENVAT credit by the department. It may be noted that any eligible Cenvat credit shall be paid in cash. Even though there is possibility of allowing credit in E.Credit Ledger it is to be paid in cash which indicates the intention of legislature that arrears under erstwhile law are not to be mixed with present ITC. In such case allowing such arrears to be paid through E.Cr.L is not in tune with the provisions}

(G) Section 142(7):-

(a) every proceeding of appeal, review or reference relating to any output duty or tax liability initiated whether before, on or after the appointed day under the existing law, shall be disposed of in accordance with the provisions of the existing law, and if any amount becomes recoverable as a result of such appeal, review or reference, the same shall, unless recovered under the existing law, be recovered as an arrear of duty or tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act;

(b) every proceeding of appeal, review or reference relating to any output duty or tax liability initiated whether before, on or after the appointed day under the existing law, shall be disposed of in accordance with the provisions of the existing law, and any amount found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) and the amount rejected, if any, shall not be admissible as input tax credit under this Act.

{Comments: In clause (a) above it appears that the ‘assessment’ is Final Assessment in terms of Rule 7 of CER in respect of C.E.Duty and Best Judgement Assessment in terms Section 72 of FA,1994; made by the proper officer of Central Excise. Why duty is not covered in this sub-section? Further, subject assessment or adjudication must take place after 30.06.2017.

In clause (b) Again what is reference? Anything specific about mentioning ‘output duty’? Why interest, fine or penalty are not mentioned in Section 142(7)(a).?}

(H) Section 142(8):

(a) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, 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;

(b) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes refundable to the taxable person, the same shall be refunded to him in cash under the said law, notwithstanding anything to the contrary contained in the said law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) and the amount rejected, if any, shall not be admissible as input tax credit under this Act.

{Comments: In clause (a) above it is any amount recoverable (on or after 1.7.2017) towards C.E.Duty/ Service Tax, it shall be recovered as Central Tax. As per wordings it should be recovered as (if) it is an arrear of Central Tax. Hence, the provisions of Sections 79 to 84 are made applicable mutatis mutandis for recovery of dues towards C.E.Duty/ Service Tax.

In clause (b) any amount becomes refundable it shall be refunded in cash even though subject though subject refund has to be given as credit into Cenvat account as per erstwhile provisions. }

(I) Section 142(9)(a): where any return, furnished under the existing law, is revised after the appointed day and if, pursuant to such revision, any amount is found to be recoverable or any amount of CENVAT credit is found to be inadmissible, the same shall, unless recovered under the existing law, 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;

(Comments: How the ‘revision of return’ lead to finding of CENVAT credit in admissible?)

(b) where any return, furnished under the existing law, is revised after the appointed day but within the time limit specified for such revision under the existing law and if, pursuant to such revision, any amount is found to be refundable or CENVAT credit is found to be admissible to any taxable person, the same shall be refunded to him in cash under the existing law, notwithstanding anything to the contrary contained in the said law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) and the amount rejected, if any, shall not be admissible as input tax credit under this Act.

(Comments: How the ‘revision of return’ lead to refund of CENVAT credit?. Any revision of ST3 return is allowed within 90 days of filing only. In clause (a) revision within Time limit is not mentioned whereas in clause(b) it is mentioned. What is the significance? )

(J) Section 142(10): Save as otherwise provided in this Chapter, the goods or services or both supplied on or after the appointed day in pursuance of a contract entered into prior to the appointed day shall be liable to tax under the provisions of this Act.

(Comments: I think this provision is not required as Time of Supply provisions takes care of this

(K) Section 142(11)

(a) notwithstanding anything contained in section 12, no tax shall be payable on goods under this Act to the extent the tax was leviable on the said goods under the Value Added Tax Act of the State;

(Comments: In cases where VAT is paid on the goods before the same are physically moved, in such cases whether GST is payable when the goods are actually moved?. I think not required }

(b) notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994 (32 of 1994);

(c) where tax was paid on any supply both under the Value Added Tax Act and under Chapter V of the Finance Act, 1994 (32 of 1994), tax shall be leviable under this Act and the taxable person shall be entitled to take credit of value added tax or service tax paid under the existing law to the extent of supplies made after the appointed day and such credit shall be calculated in such manner as may be prescribed.

(Comments: Where this clause is applicable? How can VAT or ST will be paid on any ‘supply’ as supply is the taxable event only after 1.7.2017. If the word ‘supply’ is used in the normal sense, no activity was subjected to both VAT as well as Service Tax during the period prior to 1.7.2017. How both will be paid? On the supplies like WCS both VAT and ST payable but not on same activity. VAT is payable on Goods and ST is payable on Service portion. Assuming that there were activities which were attracting both VAT and Service Tax, what is the need of paying the GST on both again taking credit of VAT or Service Tax. Further, it starts with both taxes paid while mentioning credit it says VAT or Service Tax. Further, as per clause (a) and (b) where VAT/ST is leviable before appointed day no GST is payable. In absense of non-obstante clause in clause(c) it can’t override clause (a) and (b), hence GST is not payable on the same as VAT and/or ST leviable and also paid. It appears that clause (c) comes in to operation only in cases where ST and/or VAT paid though the same are not payable prior to 1.7.2017 so that clause (a) and (b) are not operational in such cases.

Further, Rule 118 reads as “Declaration to be made under clause (c) of sub-section (11) of section 142.-Every person to whom the provision of clause (c) of sub-section (11) of section 142 applies, shall within the period specified in rule 117 or such further period as extended by the Commissioner, submit a declaration electronically in FORM GST TRAN-1 furnishing the proportion of supply on which Value Added Tax or service tax has been paid before the appointed day but the supply is made after the appointed day, and the Input Tax Credit admissible thereon.”

It gives scope to understand that in respect of any supply which is happening after 1.7.2017, if either VAT or ST is paid like in cases where ST is paid on advances but not VAT then the same would be available as credit and GST is payable on that supply. In some cases (may be in some states) there could be a situation that VAT is payable but not Service Tax. So is it to cover a situation where either only VAT or ST is paid/payable? . But clause (c) is not appropriately drafted so as to mean it. Further, what about if customers take credit of such VAT or ST paid and billed previously. He will again take credit of GST paid. There should be a clause that recipient should reverse such credit taken.

However, a suitable clarification with reference to clause (c) of Section 142(11) requires.

(L) Section 142(12): Where any goods sent on approval basis, not earlier than six months before the appointed day, are rejected or not approved by the buyer and returned to the seller on or after the appointed day, no tax shall be payable thereon if such goods are returned within six months from the appointed day :

Provided that the said period of six months may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding two months :

Provided further that the tax shall be payable by the person returning the goods if such goods are liable to tax under this Act, and are returned after a period specified in this sub-section :

Provided also that tax shall be payable by the person who has sent the goods on approval basis if such goods are liable to tax under this Act, and are not returned within a period specified in this sub-section.

(Comments-NIL)

(M) Section 142(13): Where a supplier has made any sale of goods in respect of which tax was required to be deducted at source under any law of a State or Union territory relating to Value Added Tax and has also issued an invoice for the same before the appointed day, no deduction of tax at source under section 51 shall be made by the deductor under the said section where payment to the said supplier is made on or after the appointed day.

Explanation. –– For the purposes of this Chapter, the expressions “capital goods”, “Central Value Added Tax (CENVAT) credit”, “first stage dealer”, “second stage dealer”, or “manufacture” shall have the same meaning as respectively assigned to them in the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder.

(Comments-NIL)

(Views expressed by the author are purely personal.)

(By C.Mallikarjun Reddy, Superintendent, Hyderabad GST zone; [email protected])