Seeks to clarify meaning of the term “eligible duties” in section 140(1) of CGST Act, 2017.

Circular No.: 87/06/2019-GST
Date of Circular: 2nd January 2019
Relevant Sections and Rules:

• Central GST Act, 2017:
  • Section 140(1): Transitional arrangements for CENVAT credit
  • Section 168(1): Power to issue instructions
• CGST (Amendment) Act, 2018:
  • Section 28(a), (b), (c), (d) – Amendments to Section 140

Summary of Circular:

This circular clarifies the scope of the term “eligible duties” under Section 140(1) of the CGST Act in light of the retrospective amendment made via the CGST (Amendment) Act, 2018, particularly concerning the eligibility of transitional credit of service tax.

1. Clarification on CENVAT Credit of Service Tax:

• CENVAT credit of service tax paid under Section 66B of the Finance Act, 1994 is eligible for transition under Section 140(1) of the CGST Act.
• This position remains unchanged even after the retrospective amendment that added the term “eligible duties” to Section 140(1), based on the following logic:
  • The amendment and explanatory notes must be read harmoniously to preserve legislative intent.
  • The draft rationale uploaded for public consultation never intended to disallow service tax credit.
  • Under tax statutes, the terms “duties” and “taxes” are often used interchangeably, hence “duties” includes “service tax”

2. Scope of “Eligible Duties” Interpreted:

• The term “eligible duties” in Section 140(1) should be interpreted to include duties listed under:
  • Explanation 1 (Sl. No. i–vii)
  • Explanation 2 (Sl. No. i–viii)
• The use of “eligible duties and taxes” elsewhere does not limit the scope of “eligible duties” in Section 140(1).

3. Exclusion of Explanations 1 & 2 from Linkage with Section 140(1):

• The government has decided not to notify:
  • Clause (i) of Section 28(b), and
  • Clause (i) of Section 28(c)
    of the CGST (Amendment) Act, 2018.
• This ensures that credit transition under Section 140(1) is not tied to conditions related to:
  • Stock-in-hand (Explanation 1) or
  • Goods/services in transit (Explanation 2).

4. Transition of Cesses Not Allowed:

• As per Explanation 3 to Section 140 (inserted via Section 28(d)), no transition of cesses is allowed, including:
  • Cesses levied as additional customs duty under Section 3(1) of the Customs Tariff Act, 1975.
• This provision will apply retrospectively upon notification.

Source: Circular No.: 87/06/2019-GST