ENTITLEMENT TO AVAIL CREDIT OF EXCISE DUTY CAPITAL GOODS IN TRANSIT AS ON 01.07.2017

[Kashish Gupta]

Introduction

The transitional claims has been one of the long fought battle of Goods and Services Tax regime till date which is waiting to see the light of day in Hon’ble Supreme Court. Besides the issue of claiming transitional credit by a specified date, there are many other interpretational issues one being the entitlement to claim credit on capital goods in transit as on 01.07.2017 i.e. appointed date. Unfortunately, this aspect is not being addressed adequetly and suitably, and the government appears mired in confusion as to what should, or what should not, be done to ensure greater verisimilitude for the steps that it has taken. It is also mystifying to all those seeking plausible answers to this imborglio is why instead of indulging in such litigation of a doubtful value, the government/Board did not come out with a straight forward explanation of what it interprets. In this article, we have analysed the provisions minutely and hereby submits our views for the benefit of industry.

Facts of the Case

ABC Private Limted (hereinafter referred to as “the noticee”) purchased capital goods during the period June 2017 which were received in the month of July 2017 and paid applicable duty of excise thereon amounting to ₹ 30,00,000/- and VAT for ₹ 3,00,000/-. The break-up of input tax credit availed in Form GST TRAN-1 is as under:

Carried forward from Excise Return for the month of June 2017 availed in terms of section 140(1)	Unavailed Excise Duty on Capital Goods availed in terms of section 140(2)	Unavailed input tax credit on Capital Goods availed in terms of section 140(2)	Duty of Excise paid on goods lying in stock as on 30.06.2017 availed in terms of section 140(3)	Input tax credit of VAT and CENVAT credit of services tax on invoices received after appointed day, tax in respect of which is paid by the supplier availed under section 140(5)	Total input tax credit availed in Form GST TRAN-1
(1)	(2)	(3)		(4)	(5)
--	₹ 30,00,000/-	₹ 3,00,000/-	--	--	₹ 33,00,000/-

Issue/Matter in Dispute

On verification of the claims made in Form GST TRAN-1, it appeared to the search team that the credit for ₹ 30,00,000/- has been invalidly claimed under section 140(2) of the CGST Act and a notice was issued asking to reverse the excess credit transferred for ₹ 30,00,000/- along with interest under section 50 and penalty under section 122 of the CGST Act.

Interpretation of GST Law

Analysis of various provisions reckons as under:

1. THE RIGHT TO CLAIM THE CREDIT ACCRUES IN ASSESSEE AT THE TIME OF ISSUE OF CAPITAL GOODS WHICH CAN BE CLAIMED AT THE TIME OF RECEIPT THEREOF IN FACTORY. DUE TO REPEAL OF ACTS, SAID ACCRUED RIGHT IS SAVED UNDER SECTION 174 OF THE CGST ACT AND THEREFORE, NOTICEE IS ENTITLED TO CLAIM THE CREDIT UNDER SECTION 140(2) OF THE CGST ACT.

1. As per section 140(2) of the CGST Act, a registered person is entitled to claim credit of unavailed input tax credit in respect of capital goods, not carried forward in the excise return. As per proviso to this sub-section, the credit is allowed only if said credit is admissible as CENVAT credit under Central Excise Act as well as under CGST Act. Further, the unavailed input tax credit shall mean the amount that remains after substracting the CENVAT credit already availed from the aggregate amount of CENVAT credit to which said person is entitled under the Excise Act. The relevant provisions of CGST Act reads as under:

140. Transitional arrangements for input tax credit

(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 [within such time and] 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.

2. Therefore, it is important to analyse whether the credit availed by the noticee is admissible as CENVAT credit under the Excise Act.

• CENVAT CREDIT ON CAPITAL GOODS IS CLAIMED ON RECEIPT THEREOF IN THE FACTORY AND IS TO BE TRACKED ON THE BASIS OF CLAIM MADE IN A FINANCIAL YEAR

3. For this attention is invited to rule 3 of CENVAT Credit Rules, 2004 (hereinafter referred to as ‘CCR, 2004’) which defines the term “CENVAT Credit” to mean duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act, inter-alia, other various type of duties specified therein, paid on capital goods received in the factory of manufacturer of final product. The definition is reproduced hereunder for reference:

3. CENVAT Credit

(1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of

1. the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;
2. …………………

XXXXXXXX

Paid on –

1. any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and
2. ……………..

4. Attention is also invited on Rule 4 of the CCR, 2004 which lays down the conditions for allowing the CENVAT Credit. This rule provides that CENVAT Credit in respect of capital goods received in the factory at any point of time in given financial year shall be taken only for an amount not exceeding 50% of the duty paid on such capital goods in the same financial year and balance can be availed in subsequent financial year. The relevant provision of the rule read as under, -

4. Conditions for allowing CENVAT Credit

(2)(a) The CENVAT credit in respect of capital goods received in a factory or ………. at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent. of the duty paid on such capital goods in the same financial year:

……………….

(b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years.

5. The above provisions makes it clear that eligibility to avail the CENVAT Credit on capital goods is based on the receipt thereof in the factory of manufacturer and the manner of claiming thereof is to be tracked on the basis of financial year instead of tracking the same on periodic basis. It is quite evident from the use of words “at any point of time in a given financial year” used in rule 4(2)(a) of the CCR Rules (supra). This submission can further be substantiated from the illustration appended to the rule 4(2) of the CCR Rules which reads as under, -

Illustration. - A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit upto a maximum of one lakh rupees in the financial year 2002-2003, and the balance in subsequent years.

• INTERPRETING THE EXPRESSION “UPTO”

6. The expression “upto” indicates the maximum amount of credit that can be availed in terms of provisions of rule 4(2)(a) of the CCR, 2004 but not the mandatory availment of 50%. Therefore, even if no credit is availed by the noticee, then he is entitled to claim the balance credit i.e. 100% in the present case in any of the subsequent financial year.

• ALL NECESSARY THINGS HAPPENDED PRIOR TO 30.06.2017. CAPITAL GOODS WERE DUE ONLY FOR RECEIPT AS ON 01.07.2017.

7. In the present case, noticee ordered for the capital goods before 30.06.2017 as is evident from the date of invoices. The supplier issued the tax invoice after paying the duties of excise to the Central Government and therefore, a right to claim the CENVAT Credit accrued in noticee which was to become absolute on receipt of goods. Therefore, claiming CENVAT Credit is a substantive right of the noticee which is to be claimed to the extent of 50% in the financial year in which goods are received and balance amount is entitled in any of the subsequent financial year.
8. There is no other provision except above provisions in the pre-GST law i.e. Excise law to claim the CENVAT Credit on purchase of capital goods.
9. Therefore, a right accrued in the noticee at the time invoice is issued by the supplier, taxes paid to the Central Government and the goods were dispatched to the factory of noticee. What was pending is just receipt thereof in the factory.

• CHANGE OF LAW ON 01.07.2017 LEAD TO REPEAL OF CENTRAL EXCISE ACT, 1944 AND THEREFORE, CENTRAL GOVERNMENT SAVED THE ACCRUED RIGHTS OF THE ASSESSEE BY WAY OF INCORPORATING THE SPECIAL PROVISIONS IN CGST ACT

10. As per section 174 of the CGST Act, repeal of excise Act shall not revive anything not in force or existing at the time of such repeal or affect any right accrued under the repealed Acts. The relevant part of section 174 is reproduced below for reference, -

“174. Repeal and Saving

(1) Save as otherwise provided in this Act, on and from the date of commencement of this Act, the Central Excise Act, 1944 (1 of 1944.) (except as respects goods included in entry 84 of the Union List of the Seventh Schedule to the Constitution), the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, (16 of 1955.) the Additional Duties of Excise (Goods of Special Importance) Act, 1957, (58 of 1957.) the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978, (40 of 1978.) and the Central Excise Tariff Act, 1985 (5 of 1986.) (hereafter referred to as the repealed Acts) are hereby repealed.

(2) The repeal of the said Acts and the amendment of the Finance Act, 1994 (32 of 1994.) (hereafter referred to as “such amendment” or “amended Act”, as the case may be) to the extent mentioned in the sub-section (1) or section 173 shall not-

(a) revive anything not in force or existing at the time of such amendment or repeal; or

(b) affect the previous operation of the amended Act or repealed Acts and orders or anything duly done or suffered thereunder; or

(c) affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Act or repealed Acts or orders under such repealed or amended Acts:

…………………”

11. The contention sought to be taken by the assessing authority lead to revive anything which was not in force at the time repeal of excise Act i.e. bar on availment of CENVAT Credit and is thereby affecting the right accrued by noticee for availing the CENVAT Credit on receipt of goods in the factory.
12. There is no dispute regarding receipt of goods in the factory of the noticee in the month of July 2017.
13. The provisions of section 174, therefore, comes to rescue the assessee for availing the credit in the GST regime either through transitional form or any other viable means for availing the same.
14. As the proviso to section 140(2) of the CGST Act speaks only about the entitlement i.e. admissibility of unavailed credit on capital goods under Excise Act, in light of discussion done above, said requirement is fulfilled adequately.
15. Since the noticee could not avail the credit under excise Act till repeal thereof due to non-receipt of capital goods in the factory, it is squarely covered within the expression “unavailed credit in respect of capital goods”. The noticee is entitled to avail CENVAT Credit of full amount under the existing law which he could not avail due to non-receipt of the capital goods till the date of repeal of excise Act. Therefore, the amount of credit availed in existing law i.e. excise Act becomes nil and after subtracting this value from the aggregate value of CENVAT to which noticee is entitled, amount claimed in Form GST TRAN-1 is arrived at which has been validly claimed in table 6 of the Form under the section 140(2) of the CGST Act. The relevant provision has been reproduced again for reference, -

140. Transitional arrangements for input tax credit

(2) ……………

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.

 

B. CENVAT CREDIT IS A VESTED RIGHT OF THE ASSESSEE AND THE SAME CANNOT BE DENIED DUE TO TECHNICAL INFRINGEMENTS / ABSENCE OF PROVISIONS IN LAW.

1. As per the CENVAT Credit scheme, excise duty paid on purchase of capital goods is available as credit at the time of receipt of goods in the factory of manufacturer. However, said credit accrues as on the date of issue of invoice by the vendor and vests in the assessee on the date of receipt of goods in the factory.
2. It was held by the Supreme Court in the case of DISTRICT MINING OFFICER & ORS. VERSUS TATA IRON & STEEL CO. & ANR. - 2001 (7) TMI 1277 - SUPREME COURT that, “the process of construction combines both literal and purposive approaches. In other words, the legislative intention, i.e. the true or legal meaning of an enactment, is derived by considering the meaning of the words used in the enactment in light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed.
3. The present case requires purposive interpretation of section 140(2) in light of the (i) accrual of rights by the noticee, and (ii) saving clause provided in section 174 of the CGST Act, as per submissions made in para A above.
4. Hon’ble Supreme Court in the case of Kailash Chandra and Another Versus Mukundi Lal and Ors. reported as 2002 (1) TMI 1324 held that a provision in the statute is not to be read in isolation. It has to be read with other related provisions in the Act itself, more particularly, when the subject matter dealt with in different sections or parts of the same statute is the same or similar in nature. As in the case in hand, the noticee is entitled to claim the CENVAT Credit on receipt of goods in factory which in fact are actually received. But the said credit could not be claimed in excise Act due to repeal thereof. However, in light of the saving clause provided in section 174, it becomes clear the said credit is to be considered as unavailed credit in respect of capital goods under excise law and therefore, the entire amount shall be considered as aggregate amount to which noticee was entitled under existing law.
5. The Supreme Court, in the case of UNION OF INDIA VERSUS SUKSHA INTERNATIONAL & NUTAN GEMS & ANR. - 1989 (1) TMI 316 - SUPREME COURT has held that an interpretation unduly restricting the scope of a beneficial provision should be avoided so that it may not take away with one hand what the policy gives with the other.
6. The principle, later provision shall prevail, finds absolute Support in the case of K.M. Nanavati vs. State Of Bombay[AIR 1961 SC 112] = 1960 (9) TMI 117 - SUPREME COURT]. The Supreme Court has repeatedly approved the said principle and held that the last provision stands later in the enactment and thus, Speaks the last intention of the makers of the Statute and therefore; must be given effect to.
7. Further, it is also settled that if benefits under more than one provision are lawfully available, the assessee can enjoy the one more beneficial to him. Therefore, even if it is said that benefit is not available to the noticee under section 140 of the CGST Act, same should not be denied under section 174 of the CGST Act. For reliance, we cite Collector of Central Excise –vs- Indian Petro Chemicals 1996 (12) TMI 66 - SUPREME COURT OF INDIA; HCL Ltd –vs- Collector of Customs 2001 (3) TMI 971 - SUPREME COURT OF INDIA; Commissioner of Central Excise and Service Tax –vs- Orient Bell Ltd (CEA – 65/2016 before the High Court of Karnataka) = 2018 (8) TMI 892 - KARNATAKA HIGH COURT; Winsome Yarns Ltd (Excise Appeal No. 55317-55318 of 2013 before CESTAT, Delhi) = 2015 (9) TMI 459 - CESTAT NEW DELHI
8. Hence, the claim of credit is just and proper.

Conclusion

The attempt of should be to expand the reach and ambit of the principles of interpretation rather than to attenuate their meaning and content to make then vulnerable to the process of judicial interpretation. In the present case, the law appears to be very simple i.e. accrued rights of the assessee are saved on account of repeal of enactments. Therefore, if it is considered that section 140 does not provide for the same i.e. absence of provision, the benefit should be allowed under section 174 being the later and more beneficial provision. However, emphasis should be given to interpret the term “unavailed input tax credit” purposively.

CA. Kashish Gupta

Paksh Legal

85108 06440, kashish@pakshlegal.in

New Delhi