Backdated amendment in Section 140 of the CGST Act 2017: intends to formalise the gap in the law and to put an end to legal proceedings. – Notification No. 43/2020-Central Taxes, dated 16.05.2020

TRANSITIONAL PROVISIONS FOR ITC NOTIFY U / S 140 OF CGST ACT

• CBDT INFORMED PROVISIONS U / S TRANSITIONAL PROVISIONS FOR ITC
• TRANSITIONAL CENVAT CREDIT – ENACTED PROVISIONS EFFECTIVE FROM 18.05.2020

CBDT, Ministry of Finance, (Department of Revenue) vide Notification No. 43/2020 –Canter  Tax dated 16 May 2020 has released notification requesting the entry into force of Section 128 of the Finance Act 2020 to amend Section 140 of the CGST Act w.e.f. 01.07.2017.

What was the change to Section 140 of the CGST Act, 2017?

Section 140 of the CGST Act deals with transitional GST payments. The terms “within that period” have been used in the various clauses of Section 140 of the CGST Act, 2017 of the Finance Act, 2020.

The said change has a retrospective effect from 1 July 2017, i.e. the very first day of introduction of the GST. However, until now, that provision of the Finance Act 2020 has not been put into force.

The reform has now been enforced by CBIC empty Notice No. 43/2020-Central Tax dated 16.05.2020 from 18 May 2020.

What was the need for an amendment?

Previous to the amendment referred to above, Section 140 did not include a time limit on the use of transitional GST credits.

However, Rule 117 of the CGST Rules 2017 does contain a time limit, but in the past two years, different writs have been filed by taxpayers before the High Courts challenging the validity of the time limit laid down in Rule 117 of the CGST Rules 2017 for the use of transitional credits under the GST.

The High Courts held that the CGST Rules could not supersede the CGST Act. Since the CGST Act does not allow any time limit for the use of transitional credits under the GST, therefore, the CGST Rules that set the time limit for the use of transitional credits are unconstitutional.

There has since been pending lawsuits surrounding the legitimacy of Rule 117.

The amendment referred to above seeks to regularize the gap in the law and to put an end to the dispute with regard to the validity of Rule 117 of the CGST Rules.

What will be the effective date of amendment?

While the above amendments to section 140 of the CGST Act is valid as of 01 July 2017, section 128 of the finance bill 2020 (through which the above amendment was made) has been in force as of 18 May 2020. This means that the law does not plan to reverse the actions of taxpayers until 18 May 2020.

KEY DIFFERENCE IN THE AMENDMENT IN SECTION 140 OF THE CGST ACT 2017 ARE PROVIDE IN THE BELOW ANALYSIS:

Before Amendment	After Amendment (Section 128 of Finance Act, 2020)
(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:	(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 “within such time and” in such manner as may be prescribed:
(2) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day in such manner as may be prescribed:	(2) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the “within such time and” in such manner as may be prescribed:
(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, or who was providing works contract service and was availing of the benefit of notification No. 26/2012—Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, 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:––	(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, or who was providing works contract service and was availing of the benefit of notification No. 26/2012—Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, 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, within such time and in such manner as may be prescribed, subject to” the following conditions, namely:––
(5) A registered person shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the existing law, subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day:	(5) A registered person shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the “existing law, within such time and in such manner as may be prescribed”, subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day:
(6) A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law 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:––	(6) A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law 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, within such time and in such manner as may be prescribed, subject to subject to the following conditions, namely:––
(7) Notwithstanding anything to the contrary contained in this Act, the input tax credit on account of any services received prior to the appointed day by an Input Service Distributor shall be eligible for distribution as credit under this Act even if the invoices relating to such services are received on or after the appointed day.	(7) Notwithstanding anything to the contrary contained in this Act, the input tax credit on account of any services received prior to the appointed day by an Input Service Distributor shall be eligible for distribution as “credit under this Act, within such time and in such manner as may be prescribed, even if” the invoices relating to such services are received on or after the appointed day.
(8) Where a registered person having centralised registration under the existing law has obtained a registration under this Act, such person shall be allowed to take, in his electronic credit ledger, credit of the amount of CENVAT credit carried forward in a return, furnished under the existing law by him, in respect of the period ending with the day immediately preceding the appointed day in such manner as may be prescribed:	(8) Where a registered person having centralised registration under the existing law has obtained a registration under this Act, such person shall be allowed to take, in his electronic credit ledger, credit of the amount of CENVAT credit carried forward in a return, furnished under the existing law by him, in respect of the period ending with the day immediately preceding the appointed day “within such time and in such manner” as may be prescribed:
(9) Where any CENVAT credit availed for the input services provided under the existing law has been reversed due to non-payment of the consideration within a period of three months, such credit can be reclaimed subject to the condition that the registered person has made the payment of the consideration for that supply of services within a period of three months from the appointed day.	(9) Where any CENVAT credit availed for the input services provided under the existing law has been reversed due to non-payment of the consideration within a period of three months, such “credit can be reclaimed within such time and in such manner as may be prescribed, subject to” the condition that the registered person has made the payment of the consideration for that supply of services within a period of three months from the appointed day.

Enacted Provisions informed on 16 May and come into operation on 18 May 2020.

Link: https:/www.cbic.gov.in / sources/htdocs-cbec / gst / notfctn-43-central-tax-english-2020.pdf

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