MARCH 27, 2020

By Apeksha Bansal

WITH the advent of GST regime, the government has framed transitional as well as repeal and savings provisions under the GST law.

In this article, we will discuss the status of CENVAT credit not carried forward or transitioned to the GST regime. In other words, whether the CENVAT credit which was validly taken under the erstwhile indirect taxation law but not transitioned to GST regime can now be utilised for payment of excise or service tax liability arising out of any enquiry, investigation or audit proceedings by the authorities.

Mandatory to Transfer CENVAT credit:

With the introduction of GST law with effect from 01.07.2017, new CENVAT Credit Rules, 2017 (CCR, 2017) were framed in supersession of the CENVAT Credit Rules, 2004. The transitional provision of CCR, 2017 i.e. Rule 15 states that a person registered under the CGST Act shall transfer the entire CENVAT credit available under the CENVAT Credit Rules, 2004 relating to the period ending with the day immediately preceding the 1st day of July, 2017 in his electronic credit ledger as per Chapter XX of the CGST Act, 2017 and the rules made thereunder, and any CENVAT credit which is not eligible for such transfer shall not be retained as CENVAT credit unless eligible under these rules.

On reading the above rule, question arises as to whether the rule implies that CENVAT credit was to be necessarily transferred into the electronic credit ledger in GST regime and if not transferred, such credit has now lapsed?

It is worthy to note the meaning of word, 'shall' which ordinarily means mandatory or obligatory. [Refer Sainik Motors Vs. State of Rajasthan [AIR 1961 SC 1480]].

Based on strict reading of Rule 15 of the CCR, 2017, a view can be possibly taken that it was mandatory for the person registered under the CGST Act to transfer the entire CENVAT credit into the electronic credit ledger. The unutilized CENVAT credit lying in the return filed under the erstwhile regime would lapse if it is not transferred into the electronic credit ledger.

Entitled to Transfer CENVAT Credit but not mandatory:

Now, attention is drawn to the transitional provisions of GST law which have entitled the registered person to take CENVAT credit into the electronic credit ledger of GST under different situations.

For example, Section 140(1) of the CGST Act, 2017 ('CGST Act'') reads as under:

"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 of eligible duties 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.'

On reading of the transitional provisions, question arises as to whether it is possible to take a different interpretation i.e. it is not mandatory for the registered person to carry forward the CENVAT credit into the electronic credit ledger, but the provision only entitles the registered person to take the CENVAT credit into its electronic credit ledger of GST law.

Accordingly, in case, if the registered person did not opt for transitioning of CENVAT credit, whether it would be correct to interpret that such CENVAT credit can now be utilised for payment of excise or service tax liability arising out of any enquiry, investigation or audit proceedings by the authorities?

Further, Section 174(2)(c) of the CGST Act provides that the repeal of the Acts and the amendment of the Finance Act, 1994 shall not affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Act or repealed Acts or orders under such repealed or amended Acts.

On a conjoint reading of repeal and savings and transitional provisions of the CGST Act, a view may be possibly taken that as transitional provisions do not mandate the registered person to carry forward the CENVAT credit into the electronic credit ledger, the CENVAT credit taken in the erstwhile taxation regime should not get impacted by repeal or amendments of certain specified Acts/ orders.

Status of CENVAT Credit not transitioned to GST regime:

Here, the moot question remains is the status or fate of CENVAT credit validly taken under the erstwhile regime but not transitioned to GST regime.

Whether it can be argued that the validly taken CENVAT credit under the erstwhile regime can now be utilized for payment of excise duty or service tax liability if the said credit was not transitioned to GST regime?

Whether department can dispute that CENVAT credit, if not transitioned to GST regime, gets lapsed by virtue of CCR, 2017 and cannot be currently utilised for payment of excise duty or service tax liability?

Further, even if one takes a view that the CENVAT credit not transitioned into the electronic credit ledger would lapse by virtue of CCR, 2017, a doubt may arise as to whether one may argue that when the credit was availed, a vested right has been created and hence, law cannot take away the said right post valid availment of the CENVAT credit.

[Refer - Eicher Motors Limited and Another Vs. Union of India and Others - 2002-TIOL-149-SC-CX-LB, Samtel India Limited Vs. Commissioner of Central Excise, Jaipur - 2003-TIOL-40-SC-CX, Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Ltd. - 2002-TIOL-79-SC-CX-LB.

Therefore, on a concluding note, as different interpretations are possible, it is necessary for the government to clarify the position to avoid hardship and possible litigation in future for small and genuine taxpayers who have missed out to file FORM TRAN-1 for transition of CENVAT credit into the newly introduced GST regime.

[The author is Principal Associate, Lakshmikumaran & Sridharan and the views expressed are strictly personal.]