REVERSAL OF TRAN CENVAT CREDIT

[Sadanand Bulbule]

Dear experts

1] Whether the taxpayer engaged in the supply of works contract services need to reverse 'un-availed CENVAT' credit landed in the ITC ledger as provided under Section 140, in the event of obtaining the Occupancy Certificate or Completion Certificate' under Section 5[b] of Second Schedule to the CGST Act?

2] Whether such CENVAT credit under Section 140 automatically takes the legal form of 'Input Tax' as prescribed under Section 2[62]in the absence of any inward supply of services or goods or both under the CGST Act, irrespective of requirement of reversal of ITC under Section 17[3]?

Plz pour thoughts.

[Amit Agrawal]

One of the issue to be considered here is the clause (i) of proviso to Section 140(1) (i.e. where the said amount of credit is not admissible as input tax credit under this Act) & its implications on the points raised by you in your query. Similar clause exists even under 140(3). 

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

[Shilpi Jain]

Once such credit has attained finality under CENVAT plus under GST also at the time it was transitioned, credit was eligible, reversal would not be required.

Further facts would be required to answer this query.

[Shilpi Jain]

When was completion certificate received for this project?

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, My view to query no.2 is as under :-

2] Whether such CENVAT credit under Section 140 automatically takes the legal form of 'Input Tax' as prescribed under Section 2[62]in the absence of any inward supply of services or goods or both under the CGST Act, irrespective of requirement of reversal of ITC under Section 17[3] ?

Ans. NO. The essence of transitioned Cenvat Credit here is of 'deemed nature' with a purpose to provide fair justice to the assessee. The tax payer should not suffer. It does not take legal form of 'input tax'.

Regarding query no. 1

Sir, There are so many factors involved in order to ascertain whether transition of Cenvat Credit in Electronic Credit Ledger in this scenario is legally correct or not under Section 140 of CGST Act. The issue of reversal or non-reversal arises only thereafter..

Whether such transaction attracts Schedule-III or not ? This aspect has to be examined in order to arrive at correct and concrete decision in respect of query no. 1

[Sadanand Bulbule]

Dear Shilpi madam

Partial occupancy certificate is issued for Block A on its completion of construction.Block B in the same project is still on-going. So final occupancy certificate is yet to be issued. Once the final OC is issued, the need for reversal of unutilised ITC would arise. In that scenario, whether unuitilised CENVAT credit carried forward under Section 140 also needs to be reversed, since it is outside the umbrella of Section 2[62] of the CGST Act?

Your thoughts on this typical situation are solicited.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, You have gone very very deep.  I am tempted to intervene after your above post at serial no.5 and express as under :-

(i) Reversal is required against exempt supply.

(ii) Reversal is required against non-taxable supply.

(iii) Reversal is not required against  the transactions or activities which do not conform to the  scope of definition of 'supply' in GST Acts.(Negative list of erstwhile Service Tax laws) .

Now you have opened a new avenue (4th avenue in the form of a  unique query). It is brainstorming indeed.

[Sadanand Bulbule]

Dear Sethi sir ji

Many a times. thoughts bloom like 'moonflowers' in the dusk. We should keep on churning the process till we reach the bedrock of law. Consent or dissent about one's opinion is immaterial for me. There is no end of space in the learning curve.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I wholly agree with your views expressed at serial no.7. Your post reminds of the following quote :-

"We are creators (manufacturers) of our own thoughts".--------B.K.Shivani Goodwill Ambassador of Word Psychiatric Association.

So thoughts do not come from outside. First we create thoughts and, thereafter, the question of blooming arises like 'moonflowers' as opined by you. There are so many factors involved in 'manufacturing' thoughts. You know very well.

Now I come to the present issue. After thorough examination of the facts & circumstances (as disclosed in the query) and statutory position in the GST Acts, I have arrived at the following conclusions :-

(i) Un-availed Cenvat Credit was transitioned correctly into Electronic Crediit Ledger as per Section 140 of the CGST Act.

(ii) Reversal is not required as already detailed above.

My reply is based on the facts disclosed by you in the queries.

Views of other experts are welcome.

Disclaimer : These are my personal views for education purpose and not meant for any court proceedings.

[Sadanand Bulbule]

Dear all,

Please note the following judgement in favour of  the taxpayer and the query:

SHREE NAVNEET COTTON CO. & ANR. VERSUS STATE OF GUJARAT & ORS - 2024 (9) TMI 667 - GUJRAT HIGH COURT

 

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I have thoroughly perused the Gujarat High Court judgement posted by you. The ratio of this judgement is clearly applicable to the issue raised by you in the query. You must take shelter of this case law while filing reply to the SCN, if issued.

The receipt of entire consideration after the issuance of completion certificate or occupancy certificate (whichever is earlier) makes the transaction as non-GST supply (out of the ambit CGST SGST Act) In other words, not covered under "exempt supply" as defined under Section 2(47) of CGST Act and also not covered under "non-taxable supply" as defined under Section 2 (78) of CGST Act.

Theseviews may please be read in conjunction with all my views posted above for more clarity.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, You are really heading towards refund claim. The department may be thinking otherwise. You should take maximum benefit from Gujarat High Court judgement on merits. How to take  aximum benefit is a cake-walk for you, keeping in view of your art of drafting. There is no exaggeration.

[Sadanand Bulbule]

Dear Sethi Sir ji

Let the legal benefits spread to all deserving taxpayers. Our job is to explore the hidden treasure. So one has to dive deep into the ocean to get pearls.

Thanks for acknowledging the query and supporting case law as well.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I am evergreen follower of your principles.

[Sadanand Bulbule]

Dear all

1] I request the Hon'ble CBIC to examine this matter and issue a suitable clarification distinguishing the essential features of  "Tran Credit" carried forward under Section 140 and "Input Tax" as defined under Section 2[62] as regards to the applicability of Notification No.15/2017-Central Tax[Rate] dated 28/06/2017which prohibits refund of unutilised ITC in case of supply of services specified in sub-item [b] of item 5 of the Schedule II of the CGST Act.

2] Since much water has flown on the this issue including the latest judicial ruling of Hon'ble Gujarat High Court [supra], in my considered opinion the prohibition as regards to refund of unutilised "Tran Credit" carried forward under Section 140 does not apply to the cases of supply of services specified in sub-item [b] of item 5 of the Schedule II of the CGST Act. Consequently it needs to be refunded, if substantiated/claimed under such circumstances.

3] A separate email would be sent to the CBIC for needful action.

[Sadanand Bulbule]

Dear all

Further I wish to add that, Section 54[3] prohibits only refund of " Input tax" and "Input Tax Credit" as defined under Section 2[62] and 2[63] of the CGST/SGST Act respectively in respect of notified transactions. But it never whispers about the disentitlement of refund of unutilised CENVAT/ VAT tran credit under Section 140.

Thus by no means the CENVAT/VAT tran credit can take the legal form of " Input Tax or Input Tax Credit" as defined under the GST Act for the purpose of Section 17[3], more particularly as regards to the supply of services specified in sub-item[b] of item 5 of the Schedule II of the CGST/SGST Act.

Experts to offer their thoughts in the larger interest of deriving refunds legally due to such taxpayers. Your validation strengthens the rights of taxpayers.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, This is with reference to your post at serial no.14 above. Pl. go ahead. Also send copy to GST Council, if you think proper.

If we do not fight legally on merits now, we are defeated today itself. To get fair justice is our fundamental right

Wish you all the best.

[Sadanand Bulbule]

Dear Sethi Sir ji

Please peruse Para No. 50 of the CBIC Circular No.125/44/2019-GST dated 18/11/2019 as regards to the clarification on refund of transitional credit. Your fresh comments on this specific para would remove the dark clouds surrounding the subject query.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I have gone through para no. 50 of Circular No. 125/44/GST-2019 dated 18.11.2019 as amended up to 17.07.23. This clarification does not pertain to the issue raised i by you in the query dated 11.09.2019. In the circular, the restriction on the refund claim is imposed upon because of refund claimed/availed of IGST on goods exported and refund claimed/ availed on the inputs contained in finished goods exported.

Therefore, in my view, you can go ahead for refund claim on the grounds already detailed above.

Views of the other experts are also welcome.

Disclaimer : These are my personal views and meant for education purpose and not for any court proceedings.

[Sadanand Bulbule]

Dear all 

It is experienced that with the bountiful pouring of experts' thoughts, the object of subject issue is amplified in a simplified way. This is the product of  free and fair discussion to safeguard the rights of taxpayers without causing prejudice to the interests of revenue. May such discussions increase.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, This is your novel and unique style to express gratitude. Actually, your query is always thought provoking and offbeat (positively). 

                                      

AI Summary

Transitional CENVAT credit treatment affects reversal and refund when occupancy/completion alters supply character under GST. Whether unutilised transitional CENVAT credit migrated under Section 140 must be reversed on issuance of occupancy/completion certificate turns on whether the credit was lawfully transitioned and whether the underlying transaction remains within the scope of GST. Contributors generally view properly migrated transitional credit as a distinct deemed entitlement that does not automatically become Input Tax under Section 2(62); reversal or refund consequences therefore require fact-specific analysis of admissibility at transition, the legal character of the supply (including post-completion non-GST character), and applicable notifications and CBIC guidance.