Tran 1 credit on goods procured under Notfn No. 1/2011

[Kavali Ramanjeneyulu]

Sir,

one taxpayer was manufacturing yarn by using Polyster Staple fibre . Polyster staple fibre i.e. input was attracting 2% duty under Notification No. 1/2011 CE . As on 30.06.2017 . Under cenvat credit rules, goods attracting 2% duty under Notification No.. 1/2011-CE fall under the definition of Exempted goods. He was having closing balance Polyster Staple fibre and took credit in Tran 1 under table 7a. It is requested to clarify whether the said goods i.e. Polyster Staple Fiber will be used in the taxable supply under GST from 1.7.2017 is eligible for credit under Tran-1 as it was not eligible for credit under Cenvat Credit Rules .

[Ganeshan Kalyani]

Sir, as per Section 140(3)(i) it is allowed. The relevant text is reproduced below for your ready reference.

(3) "a registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods...shall be entitled to take, in his electronic credit ledger credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day..." subject to the following conditions, namely:–

(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;

'this Act' means GST Act.

[Shilpi Jain]

Yes sir he will be eligible for the credit for the closing stock on 30.06.2017 as per section 140(6) of the CGST Act as 2% is a fixed rate in lieu of tax payable.

[Ganeshan Kalyani]

Yes, mam, sub-section (6) of sec.140 is more appropriate. Thanks

[Himansu Sekhar]

In my view the ITC is not eligible. I am humby differing from the experts on the following grounds

His inputs are Polyster stable fibre attracting 2% duty as per Notf. no. 01/2011. It is exempted:

As per Section 140. (1)

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; 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.:

AI Summary

Input tax credit on transitional stock under GST: allowed if inputs are for taxable supplies, subject to exemption rules. The issue concerns whether polyester staple fibre held on the appointed day, which was subject to a fixed duty under Notification No. 1/2011 and treated as exempt under prior cenvat rules, qualifies for transitional credit in Tran 1. Majority views rely on Section 140(3)(i) and Section 140(6) of the CGST Act to permit credit for inputs held in stock if they are used or intended for taxable supplies; a dissenting view invokes the proviso to Section 140(1) to argue that credits related to goods covered by exemption notifications are not admissible.