transitional credit.

[priyesh agrawal]

BACKGROUND

The assessee is dealing in extracting oil from cotton seed. earlier in VAT both oil and cotton seed cake were taxable but due to rate differences, they have a huge amount of credit lying in their stock in VAT regime.

ISSUE

in GST cotton seed oil cake is exempt as is used as cattlefeed. so if we carry the credit under sec 140(1) to GST will we be allowed to carry whole credit or has to reverse proportionate credit.

Further what will happen if credit is in excess of the tax paid on the stock lying on 30.06.2017(eg: input credit is of 15 lac, but tax paid on stock lying as on 30.06.2017 is of ₹ 5lac only.)

[Rajagopalan Ranganathan]

Sir,

Section 140 (1) of CGST Act stipulates that "a registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:-

(i) where the said amount of credit is not admissible as input tax credit under this Act (CGST Act, 2017); or

(ii) where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or

(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.

Since you have stated that Cotton seed oil cake is exempted as is used as cattle feed you are eligible to avail the credit under transitional provisions.

[Ganeshan Kalyani]

Cotton seed cake is mentioned as exempt in the FAQs advertised in the newspaper by CBEC. However there is no Notification clarifying that cotton seed cake is exempt.

[KASTURI SETHI]

Full credit will not be allowed. Regarding the point raised by Sh.Kalyani Sir, if tariff rate is nil, no need of notifications. In pre- GST era, tariff rate was nil and now under 2306 is nil. Correct HSN 2306.10.

[priyesh agrawal]

Rajagopalan sir, I know the provision but need help in interpretation. How to interpret word admissible. And will we get 100% credit. And what will happen in the case I mention in last paragraph.

Kalyani ji as per notification no 2/2017 cgst rate cotton seed oil cake is exempt if used as cattle feed. Thus as per rule 42 we will get proportional credit.

Kasturiji can you please put some more light on the case I mentioned in last paragraph of my query.

Thank you all of you for your prompt reply.

[KASTURI SETHI]

Sh.Pyuish Aggarwal Ji,. When you will file TRANS 1, balance of credit to be carried forward is subject to approval by the department via Common Portal. No refund of overflow is allowed. After uploading TRANS 1 and uploading of your purchase invoices by registered person and uploading of your tax invoices, exact liability will be worked out by the System. At present System of GST is overloaded and not perfect, so your clear liability in cash or otherwise will emerge only after adjusting all your rightful dues of ITC .

[priyesh agrawal]

Sir let me re phrase my query:

Oil Miller has 15 lac rupee in his credit on 30.6.17. which he carried in GST through trans-1. But the stock relating to 10 lac is already sold in vat regime. Only stock relating to 5 lac is lying in stock on 30.6.17 which will be sold in GST regime.

So the doubt now is will we have to reverse the proportionate credit from 15 lac or five lac.

[KASTURI SETHI]

What about condition of Section 140 (iii) ? If you fulfil that condition, proportionate reversal is required from ₹ 15 lakhs which is provisional.

[priyesh agrawal]

Sir but my query relates to 140(1) as assessee is already registered in VAT

[Rajagopalan Ranganathan]

Sir,

Section 140 (1) of CGST Act, 2017 deals with cenvat credit. Cenvat credit deals with credit of cenvat duty paid on manufactured goods and service tax paid on output services.

Section 140 (1) of Madhaya predesh SGST Act, deals with credit of VAT. This section talks about "credit of the amount of Value Added Tax, if any, carried forward in the return relating to the period ending with the day immediately preceding the appointed day, Even this Act stipulates that the registered person shall not be allowed to take credit where the said amount of credit is not admissible as input tax credit under this Act (Madhayapredesh SGST Act). Therefore if cotton seed oilcake is exempted under State GST Act, the you will not be allowed to take the transitional credit. Therefore you cannot take the proportionate credit of vat relating to cotton seed oilcake under the GST Act.

[KASTURI SETHI]

Now I agree with the reply dated 20.8.17 of Sh.Ranganathan Sir. The legal status of admissibility of credit during pre-GST and post-GST remains the same. In other words, if final product or output service (Now supply of goods or services) is exempted from ST/GST, no credit/ITC is admissible. It is clear now that the client is dealing with 100% exempted goods. Hence an amount of ₹ 15 lakhs (which has been carried forward provisionally and subject to final approval by the department) has to be reversed. So do it immediately in order to save interest and penalty.

The question of proportionate reversal arises only if taxable supply is also involved with exempt supply. Final decision is yours.

[priyesh agrawal]

Thank you both of you.

Yes kasturiji taxable supply is also involved.

We have already planned to reverse the credit but were having a doubt over to reverse on whole 15 or on 5 only as tax paid on stock lying in closing stock is of rupees 5 lac only.

[Ganeshan Kalyani]

I would request the querist to reproduce the phrase / text from the Notification which states that Cotton Seed Cake is exempt if it is used in Cattle Feed manufacturing.

To my knowledge the 'Oil cake' is taxable and 'De-oiled cake ' is exempt. Cotton Seed Cake contains oil , so it is taxable.

[KASTURI SETHI]

If taxable supply is also involved then proportionate reversal of ₹ 15 lakhs required.

[priyesh agrawal]

Notification 2/2017 central rate entry no 102 read as follows:

Aquatic feed including shrimp feed and prawn feed, poultry feed & cattle feed, including grass, hay & straw, supplement & husk of pulses, concentrates & additives, wheat bran & de-oiled cake.

On interpretation of the said entry it can be said that deoilled cake, wheat bran, hay straw, husk of pulses, grass are wholly exempt and other than deoilled cake if used as aquatic feed shrimp fees prawn feed poultry feed cattle feed will be exempt too.

[priyesh agrawal]

Thank you kasturiji.

Kalyani ji hope this would help. These are my views your input are welcome.

[Ganeshan Kalyani]

Sri Kasturi Sir, HSN 2306 is appearing in both the schedule given in Notification 1/2017-CT (Rate) as well as in Notification 2/2017-CT (Rate). Oil cake is classified in Not.1/2017 attracting 5% GST. Deoiled cake is mentioned in Not.2/2017 which is exempt. Since cotton seed cake contains 7% to 8% oil content in it , it is taxable @5%. It is only in the advertisement where it is said that if cotton seed cake is used in Cattle feed manufacturing it is exempt. Thanks

[Ganeshan Kalyani]

Your interpretation is difficult to digest. Please reproduce the exact phrase where it is mentioned that it is exempt. The clarification in the advertisement has a disclaimer that it is only for educational purpose. It has no legal validity.

[KASTURI SETHI]

Dear Querist,. You day your query relates to Section 140 (1) but it is not your choice or option. You are hit by Section 140 (3). First be sure about taxability of your product as advised by Sh.Ganeshan Kalyani, an expert. Pl. deeply into all the aspects involved in this situation.

[Vijay kumar]

Mr.Priyesh,

If taxable supplies are also involved post-GST, I think the entire credit lying in balance as on 1.7.2017 can be carried forward. Sn.140(1) specifies only 3 conditions. First condition is that credit shall be eligible under both the laws - in this case, credit was eligible under VAT act and is eligible under GST also since it is meant for furtherance of business (if taxable and exempted supplies are there, you are governed by Section 17) . Second condition of previous six months returns should be satisfied. Third - no notification issued and even if so, it is applicable to only manufacturers and not to you.

There is no provision prescribing proportionate reversal of credit at the time of transition, in my view.

AI Summary

Transitional input tax credit: entitlement depends on post GST admissibility and product taxability under the GST regime. Transitional input tax credit may be carried forward only to the extent the pre GST credit is admissible under GST; credits relating to supplies that are exempt post GST must be disallowed and reversed, while mixed taxable and exempt supplies require proportionate reversal. The TRANS 1 filing, invoice uploads and departmental/system reconciliation will determine final admissible amounts, and product classification (e.g., deoiled versus oil bearing cake) controls taxability and hence credit entitlement.