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Article Analyses Transitional Provisions under Revised Model GST Law specified in section 168 related to  Unavailed cenvat credit on capital goods, not carried forward in a return, to be allowed in certain situations

Section 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 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.

Also Read-Transitional Provisions under Revised Model GST Law -Part-I 

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.

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