TRANSITIONAL CREDIT as per proviso to Section 140(3)

[GAURAV SHARMA]

Namaskar to all,

M/s.A has two business in same PAN. For one segment he had VAT Registration (Trader in ready-made garments) & for the other he had Service Tax (ST) Registration (Supplier of Service- Business Auxillary). M/s. A claimed Trans Credit of Excise Duty as CGST as per proviso to section 140(3) on stock as on 30.06.2017 after filing TRANS-1 & TRANS-2.

Proviso to Section 140(3) states: Provided that where a registered person, other than amanufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed.

Now the department is contending that to claim the RTP must be other than a manufacturer or a supplier of service and in this case although M/s. A was not a manufacturer but was a supplier of service hence cannot claim credit.

Requesting all my learned friends to share their knowledge.

Thanks in advance

[GAURAV SHARMA]

Namaskar,

I request my learned experts to kindly share their opinion.

Thanks in advance

[Alkesh Jani]

Shri

On going through the query and facts narrated, my views are as under :-

As you are registered under respective state for VAT, credit transited may not disputed by the department.

For the segment for which registration is taken for Service tax, Section 140(3) of CGST Act, is not applicable, as you are registered under Service Tax. Section 140(3) is applicable to those, who were not liable to registration under erstwhile Act. For this purpose the opening lines of the Section is given below:-

“(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 or provision of exempted services…”

Therefore, Proviso appended to Section 140(3) is also not applicable in the given facts. The department is legally correct in the matter.

You may seek the help of expert near you to contest the case.

Thanks

[Amit Agrawal]

Kindly allow me to give you some preliminary line/s of defense:

'Existing law' - as per 2 (48) of respective state act/s - is defined as follows: “existing law” means any law, notification, order, rule or regulation relating to levy and collection of duty or tax or cess on goods or services or both passed or made before the commencement of this Act by the Legislature or any authority or person having the power to make such law, notification, order, rule or regulation;

Existing law' - as per 2 (48) of CGST Act, 2017 - is defined as follows: “existing law” means any law, notification, order, rule or regulation relating to levy and collection of duty or tax on goods or services or both passed or made before the commencement of this Act by Parliament or any Authority or person having the power to make such law, notification, order, rule or regulation;

M/s A was not liable to be registered under the 'existing law' - as defined under CGST Act - for its trading activities (i.e. as far as under laws by Parliaments are concerned).

He was registered under state act as 'trader' as per state legislation and that registration does not make him 'registered' under existing law under CGST Act, 2017.

Hence, for purpose of taking transition credit u/s 140 (3) (i.e. transferred as CGST) of the CGST Act, 2017, M/s A was eligible to the extent of his trading activities are concerned as he was not liable to be registered under the existing law.

Just because M/s A was registered under service tax related provisions for its 'business auxiliary services', it is not barred from taking benefit of 'proviso' to Section 140 (3) as it is not taking those benefit u/s 140 (3) in the capacity of service provider / manufacturer etc. but as a 'trader in goods'.

Considering that Section 140 are 'beneficial provisions' favoring tax-paper, when two interpretations of any such provision is possible, interpretation - which is beneficial to the tax-payer - needs to be adopted.

In other words, benefit under 140 (3) should not be denied to M/s A as 'trader in goods', just because it was registered under service tax in a completely unconnected / independent business activity.

As suggested by my colleague Shri Alkesh Jani Ji, I would also suggest to take assistance of expert to study whole issue deeper, including board clarifications etc., and have comprehensive analysis and get multiple line/s of defense before M/s A embark on defending itself on this complicated issue.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Just to clarity about my earlier post:

Issue raised is very complicated. And definition of 'person' (which is referred in definition of 'existing laws' under both central and state gst law) includes state as well as central govt.

So, limitations of preliminary line of defense - as suggested by me above - needs to be viewed with extreme caution. They are more a starting point for further analysis.

As suggested earlier, one needs to have much deeper & comprehensive study before taking any definitive call on the query raised.

AI Summary

Transitional credit eligibility for goods-stock hinges on whether trader activity qualifies under the proviso, despite separate service registration. Whether a person carrying distinct business activities under the same PAN can claim transitional credit for goods-stock depends on whether the proviso to Section 140(3) applies. The proviso allows a registered person who is not a manufacturer or supplier of services and who lacks invoices evidencing duty payment to take credit subject to prescribed conditions including passing on benefit. One view treats prior service registration as barring the proviso; another treats trader activity as separately eligible where it was not liable to registration under the existing law.