Ministry of Finance, Government of India on 23rd February 2018 issued a circular no. 33/07/2018-GST providing Directions under Section 168 of the CGST Act regarding non-transition of CENVAT credit under section 140 of CGST Act or non-utilization thereof in certain cases

This circular provides directions regarding two types of credits viz.

  • Non-transition of Blocked Credit; and
  • Non-utilization of Disputed Credit.

A   Non-transition of credit which is blocked u/s. 17(5) of CGST Act’2017.

A.1 What is blocked credit?

In terms of clause (i) of sub-section (1) of section 140 of the Act, a registered person shall not take in his electronic credit ledger, amount of CENVAT credit as is carried forward in the return relating to the period ending with the day immediately preceding the appointed day which is not eligible under the Act in terms of sub-section (5) of section 17 (hereinafter referred to as „blocked credit‟), such as, telecommunication towers and pipelines laid outside the factory premises.

A.2 What will happen if such blocked credit is carried forward?

If the said blocked credit is carried forward and credited to the electronic credit ledger in contravention of section 140 of the Act, it shall not be utilized by a registered taxable person to discharge his tax liability under this Act or under the IGST Act, 2017, and shall be recovered from the tax payer with interest and penalty as per the provisions of the Act.

A.3 What will happen if such blocked credit is carried forward by mistake but eventually suo-motto reversed by the registered person without utilizing such credit?

As per this circular, interest or penalty would be levied even in case where such credit has only been carried forward and credited to electronic credit ledger of the registered person but it is not actually utilized by a registered taxable person to discharge his tax liability by setting of GST liability in any of the returns filed by such person.

B. Non-utilization of Disputed Credit carried forward

B.1 What is disputed credit?

Where in relation to a certain CENVAT credit pertaining to which a show cause notice was issued under rule 14 of the CENVAT Credit Rules, 2004, which has been adjudicated and where in the last adjudication order or the last order-in-appeal, as it existed on 1st July, 2017, it was held that such CENVAT credit is not admissible, then such CENVAT credit (herein and after referred to as “disputed credit”),

B.2 What will happen if such disputed credit is carried forward?

Such disputed credit when credited to the electronic credit ledger in terms of sub-section (1), (2), (3), (4), (5) (6) or (8) of section 140 of the Act, shall not be utilized by a registered taxable person to discharge his tax liability under this Act or under the IGST Act, 2017, till the order-in-original or the last order-in-appeal, as the case may be, holding that disputed credit as inadmissible is in existence.

B.3 What will happen if such disputed credit is utilised before such period?

During the period, when the last order-in-original or the last order-in-appeal, as the case may be, holding that disputed credit as inadmissible is in operation, if the said disputed credit is utilised, it shall be recovered from the tax payer, with interest and penalty as per the provisions of the Act.

Is there any statutory obligation on part of the registered person to file some documents or information regarding disputed credit or blocked credit?

Where such disputed credit or blocked credit is higher than Rs. Ten lakhs, the taxpayers shall submit an undertaking to the jurisdictional officer of the Central Government that such credit shall not be utilized or has not been availed as transitional credit, as the case may be.

In other cases of transitional credit of an amount lesser than Rs. ten lakhs, the directions as above shall apply but the need to submit the undertaking shall not apply.

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