The Goods and Services Tax Appellate Tribunal (GSTAT), Chandigarh State Bench, has held that transitional credit on capital goods imported before the introduction of GST cannot be denied merely because the goods reached the factory after July 1, 2017. 

The bench of Jatinder Pal Singh (Judicial Member) and Pradeep Kumar Goel (Technical Member) clarified that Section 140(2) of the Central Goods and Services Tax Act, 2017, permits transition of the entire eligible unavailed CENVAT credit and does not restrict relief to cases where 50% credit had already been claimed under the earlier tax regime.

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However, the bench declined to allow transitional credit of Central Excise duty paid on goods dispatched for export before GST but actually exported after its introduction. It held that Section 140 cannot operate as a residual mechanism for claiming credit in situations that the provision does not cover.

The company, engaged in manufacturing taxable goods, had claimed transitional credit totalling ₹9,89,849 through Form TRAN-1 following the introduction of GST.

The first component comprised ₹2,90,845 towards countervailing duty and additional duty of excise paid on capital goods imported under a bill of entry dated June 27, 2017. Although the import took place before GST, the goods reached the company’s factory on July 8, 2017. The company claimed this amount through Table 6(a) of TRAN-1.

The second component comprised ₹6,99,004 in Central Excise duty paid on goods dispatched for export under three invoices dated June 29, 2017. According to the company, it subsequently had to pay IGST when the goods were exported after July 1, 2017. It claimed the earlier excise duty as transitional credit through Table 7(a).

The adjudicating authority disallowed both claims, confirmed recovery of the entire ₹9,89,849 with interest, and imposed a penalty of ₹98,985. The Joint Commissioner (Appeals), Ludhiana, upheld that decision, prompting the company to approach GSTAT.

Examining the capital goods claim, the Tribunal noted that Section 140(2) allows eligible unavailed CENVAT credit that was not carried forward in a return filed under the earlier law.

Under the erstwhile Central Excise framework, credit on capital goods was ordinarily available in two stages: 50% in the year of receipt and the balance in subsequent years. The Tribunal nevertheless held that this arrangement did not confine Section 140(2) to situations where a taxpayer had already taken the first instalment.

The statutory explanation defines unavailed CENVAT credit by subtracting the credit already availed from the aggregate credit to which the taxpayer was entitled. The Bench reasoned that neither this definition nor the information requirements under Rule 117(2)(a) prohibit a claim where the amount previously availed was nil.

Consequently, the provision could cover capital goods received after GST commenced, provided the duty paid was eligible as CENVAT credit under the earlier law and as input tax credit under GST.

The Tribunal expressly observed that credit not carried forward in a Central Excise return could be transitioned through TRAN-1, whether it represented 50% or 100% of the total eligible credit.

The Bench also referred to CBIC’s third edition of GST FAQs, dated December 15, 2018. The clarification addressed a situation where capital goods were purchased under the earlier law and the invoice was received before June 30, 2017, but the goods arrived in July.

The FAQ stated that credit would be available under Section 140(2), subject to admissibility under both the earlier law and the CGST framework.

The Tribunal additionally considered CBIC Circular No. 182/14/2022 dated November 10, 2022, including its guidance on verification of capital goods credit claimed through TRAN-1. Reading the guidance alongside the statutory provision, the Bench found that Deltron had fulfilled the necessary conditions and furnished the prescribed information.

It accordingly allowed the capital goods credit of ₹2,90,845.

The company’s claim concerning export goods received a different treatment.

The Tribunal found that Table 7(a) concerned transitional credit on inputs, whereas the disputed amount represented Central Excise duty paid on goods cleared for export.

It further held that Section 140 contained no provision permitting transition of excise duty paid on goods dispatched before July 1, 2017, but actually exported after GST commenced.

Although the company argued that the goods had suffered tax twice, the Bench held that a claim still had to fall within a situation expressly recognised by the legislation. It observed that the company could perhaps have sought a refund of the excise duty, but it could not use Section 140 as a residual credit provision. The order did not grant any refund relief.

Deltron relied on Section 174(2), which preserves specified rights and obligations following repeal of the earlier enactments. It also cited decisions concerning vested credit rights and the seamless flow of tax credit.

The Tribunal held that these arguments did not establish entitlement to the disputed export-related transitional credit.

It distinguished Adfert Technologies and Tara Express, explaining that those decisions concerned procedural difficulties in claiming otherwise eligible transitional credit, including filing or revising TRAN-1 and portal-related problems.

It also distinguished Circor Flow Technologies India, which involved service tax paid under reverse charge on imported services and credit entitlement under the earlier law.

The Bench found that the export-related credit itself lacked statutory eligibility. It also rejected the contention that recovery could take place only under the earlier enactments, holding that GST recovery provisions applied because the disputed credit had been claimed under the CGST Act.

The Tribunal upheld interest liability on the credit that remained disallowed and directed its calculation accordingly.

It also rejected the argument that disclosure of the credit in TRAN-1 and the absence of suppression justified removing the penalty. The Bench explained that Section 73 applies to wrongful availment or utilisation of credit for reasons other than fraud, wilful misstatement or suppression.

With ₹2,90,845 allowed and ₹6,99,004 remaining disallowed, the Tribunal reduced the penalty from ₹98,985 to ₹69,900, calculated at 10% of the disallowed amount.

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