Input tax credit on capital goods to registered persons

[CA Akash Phophalia]

Input tax credit on capital goods to registered persons

The input tax credit on capital goods is presently available under all the laws with some restrictions. VAT law generally provides full credit on purchase of capital goods, but in some states the said credit is available in installments also. The Excise law generally provides for availment of Cenvat credit on capital goods at 50% in the first financial year in which capital goods is procured and balance 50% in the subsequent financial year. Further, the meaning of capital goods is very specific. The present chapter deals with the carry forward of Cenvat credit on capital goods for the registered persons from present tax regime into GST regime.

Basic Provision

The provision regarding admissibility of cenvat credit on capital goods is stated in section 140(2) of CGST Act 2017 is as under :-

“Section 140 (2) A registered person, other than a person opting to pay tax under section 10, 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 existing law by him, for the period ending with the day immediately preceding the appointed day in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit unless the said credit was admissible as CENVAT credit under the existing law and is also admissible as input tax credit under this Act.

Explanation.––For the purposes of this sub-section, the expression “unavailed CENVAT credit” means the amount that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of CENVAT credit to which the said person was entitled in respect of the said capital goods under the existing law.”

Persons eligible to claim credit on capital goods under this provision

This provision is applicable on the persons registered under the present tax regime under the indirect taxes to be subsumed. Thus the following persons are covered under this provision:-

(a) A person registered under Central Excise Act,1944 other than a person registered as first stage dealer or second stage dealer or as a registered importer or as a depot of a manufacturer under the said act.

(b) A person registered under Finance Act 1994 (Service tax).

(c) A person registered under respective Sales Tax Act.

(d) A person registered under any of the relevant act as applicable to it.

Thus it can be fairly inferred that the persons registered under the present indirect taxes which is going to be subsumed in the new GST regime and were eligible to avail of input tax credit on capital goods under the present taxation regime shall be eligible to carry forward input tax credit under this provision.

However, if the existing registered person migrates to the GST regime and opts for composition scheme under section 10 of the CGST Act 2017, then he shall be not be eligible to carry forward input tax credit on capital goods under GST regime.

Extent of Credit admissible under this provision

The amount of Cenvat credit which is not carried forward in the returns filed prior to the appointed date shall be admissible to be carried forward. Conversely, the unavailed Cenvat credit on capital goods shall be allowed to be carried forward in the GST regime. The unavailed Cenvat credit is explained to mean as the amount that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of CENVAT credit to which the said person was entitled in respect of the said capital goods under the existing law.

Conditions

In order to carry forward input tax credit on capital goods by the registered eligible person following conditions needs to be fulfilled:-

(a) There should be unavailed Cenvat credit in respect of capital goods and such credit on capital goods is not carried forward in the return furnished under the existing law.

(b) The said credit should be admissible as input tax credit under the existing law.

(c) The said credit should be admissible as input tax credit under the GST regime.

Examples-

(1) Sweet Memories Ltd has purchased a capital goods on April 12 2017 and paid duty of ₹ 15 lacs. It is eligible to avail of Cenvat credit on the said capital goods to the extent of ₹ 7.5 lacs in the same financial year under the present law. It can claim Cenvat credit in the return field for the relevant period in which capital goods are received presuming it to be for the month of April 2017. Now on the appointed day, say 1^st July 2017, it migrated into GST regime, then the unavailed Cenvat credit to the extent of ₹ 7.5 lacs can be claimed by it under the provision of this section.

(2) Sweet Memories Ltd is engaged in manufacture of exempted goods under the present law and purchased a capital goods in the month of April and paid excise duty on the said capital goods. Since it is engaged exclusively in manufacture of exempted goods, therefore, it is not eligible to avail of Cenvat credit on the said capital goods even in GST regime, irrespective of its nature of taxable person under the GST regime.

(3) Sweet Memories Ltd is engaged in manufacture of taxable good under the present regime and eligible to avail of Cenvat credit on capital goods purchased in pre-GST regime. After migration its product is exempted and it deals in the said exclusively exempted product then it is not eligible to avail of the credit of the balance tax paid on capital goods. Further, the amount carried forward by filing of returns shall also be not admissible.

How to carry forward credit of tax paid on capital goods

The registered person can carry forward input tax credit on capital goods by filing of return and following the steps stated hereunder -

(a) Take registration under GST law by way of migration as an assessee other than composition assessee.

(b) Submit an application electronically in Form GST TRAN-1 duly filled and signed narrating the amount of tax or duty to the credit of which said person is entitled.

(c) The claim of Cenvat credit on capital goods for each of the capital goods needs to be specified separately.

Hence, by filing of relevant details about each capital goods on which input tax credit is yet to be availed of , the registered person can claim the unclaimed credit of tax paid on the capital goods.

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CA Akash Phophalia

9799569294

ca.akashphophalia@gmail.com