Guide to Maximizing the Utilization of GST Input Tax Credit

Table of the Contents

1. Introduction
2. Statutory provisions
3. Manner of utilization of credit
4. Entry for utilization shall be made in electronic ledger
5. One to one correlation not necessary
6. General principal of utilization
7. Requirement of registration
8. No time limit for utilization of credit

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1. Introduction

Availment of credit and its utilization are two different activities. The provisions relating to availment and utilization of credit are normally made under different sections/rules. Section 17 of CGST Act makes provisions with regard to availment of credit. Section 49 of the CGST Act makes provisions relating to utilization of credit. Normally restrictions are placed in utilization of credit. The provisions relating to utilization of credit are discussed in this chapter.

2. Statutory Provisions

Sub-sections (4) and (5) of Section 49 of CGST Act provides for utilization of credit. The provisions relating to utilization of credit are also made in section 9 of UTGST Act. These provisions are reproduced below:

2.1 Under CGST Act

(4) The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed.

(5) The amount of input tax credit available in the electronic credit ledger of the registered person on account of—

(a) integrated tax shall first be utilised towards payment of integrated tax and the amount remaining, if any, may be utilised towards the payment of central tax and State tax, or as the case may be, Union territory tax, in that order;

(b) the central tax shall first be utilised towards payment of central tax and the amount remaining, if any, may be utilised towards the payment of integrated tax;

(c) the State tax shall first be utilised towards payment of State tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

(d) the Union territory tax shall first be utilised towards payment of Union territory tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

(e) the central tax shall not be utilised towards payment of State tax or Union territory tax; and

(f) the State tax or Union territory tax shall not be utilised towards payment of central tax.

2.2 Under UTGST Act

(9) The amount of input tax credit available in the electronic credit ledger of the registered person on account of,—

(a) integrated tax shall first be utilised towards payment of integrated tax and the amount remaining, if any, may be utilised towards the payment of central tax and State tax, or as the case may be, Union territory tax, in that order;

(b) the Union territory tax shall first be utilised towards payment of Union territory tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

(c) the Union territory tax shall not be utilised towards payment of central tax.

2.3 Under SGST Act

(a) integrated tax shall first be utilised towards payment of integrated tax and the amount remaining, if any, may be utilised towards the payment of central tax and State tax, or as the case may be, Union territory tax, in that order;

(b) the central tax shall first be utilised towards payment of central tax and the amount remaining, if any, may be utilised towards the payment of integrated tax;

(c) the State tax shall first be utilised towards payment of State tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

(d) the Union territory tax shall first be utilised towards payment of Union territory tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

(e) the central tax shall not be utilised towards payment of State tax or Union territory tax; and

(f) the State tax or Union territory tax shall not be utilised towards payment of central tax.

3. Manner of utilization of credit

The manner of utilization provided in section 49(4) and 49(5) of CGST Act, SGST Act & section 9 of UTGST Act are discussed below:

3.1 IGST Credit

As per provisions contained in section 49 of CGST Act and SGST Act and section 9 of UTGST Act, the credit of IGST available in the electronic credit ledger shall be utilized for payment of IGST; thereafter for payment of CGST or SGST or UTGST in that order. Thus, IGST credit can be utilized for payment of all the 4 taxes, but the utilization shall be done in the order specified above.

3.2 CGST Credit

As per section 49(5)(b) of CGST Act, credit balance in electronic credit ledger on account of CGST shall be first utilized for the purpose of payment of CGST and the amount remaining if any shall be utilized for payment of IGST. It is specifically provided under clause (e) that balance in CGST cannot be utilized for payment of SGST or UTGST.

3.3 SGST Credit

As per section 49 of SGST Act, credit balance in electronic credit ledger on account of SGST shall be first utilized for the purpose of payment of SGST and the amount remaining if any shall be utilized for the purpose of IGST. Again it is specifically provided under clause (f) that balance of SGST or UT GST cannot be used for payment of CGST.

3.3.1 Balance to be utilized after exhausting CGST – Section 49(5)(c) is amended from date to be notified. It is now provided that balance of SGST can be utilized for payment of IGST only after the entire balance of CGST has been utilized. Thus, balance of CGST shall be zero before utilizing SGST towards payment of IGST.

3.4 UTGST Credit

As per section 9 of UTGST Act, Credit balance in electronic credit ledger on account of UTGST shall be first utilized for the purpose of payment of UTGST and the amount remaining if any shall be utilized for the purpose of IGST. The balance of UTGST shall not be utilized for payment of CGST. Further balance of IGST shall be utilized for payment of IGST and thereafter for CGST, SGST and UTGST in that order.

3.4.1 Balance to be utilized after exhausting CGST – Section 49(5)(d) is amended from date to be notified. It is now provided that balance of UTGST can be utilized for payment of IGST only after the entire balance of CGST has been utilized. Thus, balance of CGST shall be zero before utilizing UTGST towards payment of IGST.

• Sequence of utilization – Balance of IGST to be utilized first for payment of IGST. Provisions of section 49(5) provides that balance of IGST shall be utilized for payment of IGST; thereafter balance of CGST shall be utilized for payment of IGST; only thereafter balance of SGST/UTGST can be utilized for payment of IGST. Thus, IGST is required to be paid by utilizing balance in the order of IGST, CGST, SGST or UTGST.

3.5 Manner of utilization of credit

CBEC has vide circular No. 33/07/2018-GST issued directions under section 168 of CGST Act, 2017 regarding non-transition of blocked and disputed credit. As per the clarification, following two types of credit should not be utilized by the assessee:

(i) Disputed credit carried forward – In some case, the show cause notices for disallowance of credit has been issued by the department which are pending for adjudication. The credit has been availed by assessee, but the same is disputed by the department. The said amount of credit is shown in ST-3 return filed by the assessee as on 30-6-2017. Therefore, the assessee has carried forwarded the credit by filing Trans-1 under GST. As per the clarification, such credit shall not be utilized by the assessee as it is disputed by department

• • • Utilization of credit is as per section 49(4) of GST Act. There is no such provision that where show cause notice has been issued for denial of credit, the credit cannot be utilized. Such direction is totally contrary to provisions of section 49 of GST Act.

(ii) Non-transition of blocked credit – Section 17(5) of GST Act specifies certain items on which credit of input tax paid will not be available. Section 140(1) specifies that the assessee shall not carry forward credit when such credit is not admissible as input tax credit under GST. Thus, credit can be carried forward only when credit is available under GST Act also. For example, credit on outdoor catering used for business purpose like meeting of distributors was available under Cenvat Credit Rules, 2004. However, under GST, credit on outdoor catering is not available irrespective of its use. Therefore, the assessee cannot carry forward the credit of outdoor catering availed prior to 30-6-2017. Practically, it is very difficult to determine the composition of balance of credit as on 30-6-2017.

3.6 IGST to be utilized first

Section 49A and 49B incorporated by GST Amendment Act, 2018 is effective from 1-2-2019. The impact of these notifications has been practically nullified by issuance of rule 88A vide notification No. 16/2019-CT, dated 29-3-2019. CBIC vide circular No. 98/17/2019-GST dated 23-4-2019 clarified the manner of utilizing the credit. Paras 4 and 5 of the circular is reproduced below:

The newly inserted rule 88A in the CGST Rules allows utilization of input tax credit of Integrated tax towards the payment of Central tax and State tax, or as the case may be, Union territory tax, in any order subject to the condition that the entire input tax credit on account of Integrated tax is completely exhausted first before the input tax credit on account of Central tax or State/Union territory tax can be utilized. It is clarified that after the insertion of the said rule, the order of utilization of input tax credit will be as per the order (of numerals) given below:

The following illustration would further amplify the impact of newly inserted rule 88A of the CGST Rules: Illustration: Amount of Input tax Credit available and output liability under different tax heads

Option 1

Option 2

Thus, the registered person can continue to use the credit in the manner being done prior to 1-2-2019.

3.7 Power to Government

Section 49B has been incorporated from date to be notified by which Government has been given power to prescribe the order of utilization of input tax credit of IGST, Central Tax, State Tax or Union Territory Tax. This is only enabling power. As of now, no notification has been issued prescribing the order of utilization of input tax credit. Therefore, utilization of credit shall be made in the order as prescribed in section 49(5).  Further after any notification is issued under section 49B the utilization of credit will have to be made in terms of that notification and not as per provision of section 49(5).

4. Entry for utilization of credit

Common portal will maintain electronic credit ledger of taxpayer in form GST-PMT-2. The description of heading of column 6 is “Transaction [Debit (Dr)/Credit (Cr)]. Wherever credit is available to taxpayer, remark ‘Cr’ will appear in column 6 of GST-PMT-2. The credit available in the ledger can be utilized only for the purpose of payment of tax specified in above para. The taxpayer is to indicate remark ‘Dr’ in column 6 of GST PMT-2 whenever he utilizes the credit available in the ledger for payment of tax in the manner specified above. After the entry has been passed in GST-PMT-2 for utilization, the system will automatically generate Sr. No. of the entry.

The tax liability of the registered taxpayer will be maintained in two parts of GST-PMT-1 :

(i) Part I relates to return related liability and

(ii) Part II relates to other than return related liabilities

The taxpayer shall indicate in GST-PMT-2 in column 5 the purpose for which the amount has been utilized. If the amount has been utilized for payment of tax, entry will also be reflected in part I of GST-PMT-1. If the amount has been utilized for other payments like making pre-deposit or payment of tax liability arising out of order under Section 73 or 74, it will be reflected in part II of GST-PMT-1. It is advisable to verify after making entry in GST-PMT-2 that the entry has been reflected in GST-PMT-1 in part I or part II as the case may be. The entry in GST PMT-1 will provide as an evidence that tax has been paid.

4.1 Utilization only for payment of output tax

As per section 49(4) of the GST Act excluding IGST Act the amount available in the credit ledger shall be used for making payment towards output tax payable under the provisions of the Act or the rules made thereunder in such manner and subject to such conditions as may be specified. The ‘output tax’ has been defined in section 2(82) of CGST and SGST Act as follows:

“(82) “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.”

Further ‘output tax’ has been defined in section 2(18) of IGST Act as follows:

“(18) “output tax”, in relation to a taxable person, means the integrated tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.”

Supply of goods or services made by every person is either considered as intra-State or inter-State supply. The supplier is required to charge CGST and SGST for intra-State supplies and IGST for inter-State supplies. The credit can be utilized for the tax payable for supply of goods or services made by the supplier.

The definition of output tax given under section 2(82) and 2(18) of the CGST & IGST Act respectively, makes it clear that output tax will not include the amount of tax payable by person on reverse charge basis. Thus, whenever the recipient is liable to pay tax, tax paid by him cannot be considered as output tax. Accordingly, credit available in electronic credit ledger cannot be used for the purpose of payment of tax on reverse charge basis.

4.2 Clarification

The CBIC had vide Circular No. 172/04/2022-GST dated 6-7-2022 has clarified that the credit balance in Electronic Credit Ledger can be used towards payment of output tax, whether self-assessed in the return or payable as a consequence of any proceeding instituted under the provision of GST law. Similarly, it is also clarified that where refund has been sanctioned in cash the amount cannot be paid by debiting the balance in credit ledger.

5. One-to-One correlation not necessary

The provisions relating to utilization of credit are made in section 49 of the GST Act excluding IGST Act. These provisions have been discussed in above para. The general principle about utilization of credit as decided in Central Excise Act and the rules made thereunder are discussed below:

5.1 No correlation with particular output required

There is no correlation of the raw material and the final product; that is to say, it is not as if credit can be utilized only on a final product that is manufactured out of the particular raw material to which the credit is related – CCE v. Dai Ichi Karkaria Ltd. 112 ELT 353 = AIR 1999 SC 3234 = 1999 AIR SCW 3205 = (1999) 7 SCC 448 (SC 3 member bench) – quoted with approval in CCE v. Bombay Dyeing (2007) 10 STT 286 (SC).

Cenvat rules do not provide for ‘one-to-one’ co-relation between input and output. – Kisan Products Ltd. v. CCE – (1996) 88 ELT 440 (CEGAT) * Bajaj Sevashram Ltd. v. CCE (1996) 87 ELT 726 (CEGAT) * Nisha Conductors v. Collector and Rama Cables and Wires Ltd. v. Collector – 1993 (68) ELT 256 (CEGAT) * Pratap Steels Ltd. v. CCE [1997] taxmann.com 597 (Chennai) * Bajaj Tempo Ltd. v. CCE 2000 taxmann.com 1305 (CEGAT). * HMT v. CCE [2009] 18 STT 8 = (CESTAT 3 member bench) * CCE v. Motherson Sumi Electric Wires (2010) 252 ELT 543 (CESTAT) * Shri Dnyaneshwar SSK v. CCE (2014) 310 ELT 770 (CESTAT).

There is no one-to-one co-relation in Cenvat scheme – PSL Corrosion Control v. CCE (2009) 237 ELT 495 (CESTAT).

One-to-one correlation between credit availed on inputs and its utilisation of final products is not required under Cenvat. The rules do not provide for segregated credits, depending upon inputs and final products made from the inputs – Indian Aluminium v. CCE (2001) 137 ELT 1092 (CEGAT).

No one-to-one correlation is required for taking Cenvat credit – CCE v. National Trading Co. 1996 taxmann.com 835 (Chennai) – both members agreed on this point, though they differed on other points.

In CCE v. Bajaj Tempo Ltd. 2005 (1) STT 242 (CESTAT), it was held that credit of duty paid on inputs meant for ‘matador’ vehicle can be used for payment of duty on another motor vehicle ‘tempo-traveller’.

CBE&C, vide para 2(viii) of circular No. 33/33/94-CX dated 4-5-1994 has confirmed that there is no 1:1 correlation between input and final product under the Cenvat scheme for utilisation of credit.

Credit by assessee who is manufacturer as well as service provider – Cenvat credit of manufacturing activity can be utilised for payment of service tax since there is no such restriction in Cenvat Credit Rules or CBEC manual – CCE v. Nahar Industrial Enterprises Ltd. (2007) 10 STT 117 (CESTAT SMB) – followed in CCE v. Vardhman Spinning (2008) 14 STT 503 (CESTAT SMB).

Cenvat credit of input service tax can be utilized for payment of excise duty – S. S. Engineers v. CCE (2015) 317 ELT 597/61 taxmann.com 7 (CESTAT).

There is no provision in Cenvat credit rules for segregation of input services, which are utilised in manufacture or to provide output service – Forbes Marshall v. CCE (2010) 258 ELT (CESTAT SMB).

There is no provision in Cenvat Credit Rules for segregation of Cenvat credit for payment of excise duty and for payment of service tax. There is no requirement for one-to-one correlation of Cenvat credit availed on input services towards payment of output service – Jyoti Structures Ltd. v. CCE (2012) 36 STT 645 = 24 taxmann.com 263 = 285 ELT 356 (CESTAT)

Fragmentation of credit not required – Cenvat credit is indefeasible. Its fragmentation to restrict earned credit to particular lines of production is not permissible. Such an allocation of credit raw material-wise or final product-wise is not permitted by the Rule nor it is practicable – Vardhman Spinning v. CCE 2006 taxmann.com 119 (New Delhi) (CESTAT).

Thus, Cenvat on inputs for one product may be used for payment of duty on other product of different Chapter. Such credit can be denied only if one product is fully exempt from duty.

Same principle applies to State Vat – In Hindustan Unilever Ltd. v. State of Andhra Pradesh (2015) 80 VST 370 (T & A HC DB), assessee had manufacturing and trading division with same TIN. It was held that input tax credit of one division can be used for payment of sales tax (Vat) of other division – same view in Maxwroth Plywoods v. AC(CT) (2013) 62 VST 573 (AP HC DB).

6. General principle of utilization

As mentioned above, provisions relating to availment of credit and its utilization were also made under Central Excise Act read with Cenvat Credit Rules, 2004. Many issues about utilization of credit has been decided under these provisions. For example, credit on input tax can be availed when the supplier has made supply on the recipient on discounted price. Such principle which are generally applicable for utilization of credit are discussed below:

6.1 Full credit of duty is available to recipient, even if less duty is paid or no duty is paid by supplier [this principle will not be applicable in GST, in view of provision in section 16(2)]

In CCE v. Advance Diesels Engines (2012) 278 ELT 491 (CESTAT), assessee had received duty material with invoice from supplier (Amul Industries). Department alleged that duty was wrongly paid by Amul Industries as they cannot be considered as manufacturer. It was held that even if case is booked against the supplier, the assessee can avail Cenvat credit of duty paid by him.

Excise Officer at the user’s end has no jurisdiction to decide whether duty was short paid or excess paid. Credit equal to amount of duty shown in duty paying document is to be granted – Kerala State Electronic Corpn. v. CCE 1996 taxmann.com (CEGAT) – followed in Tirupati Cigarettes v. CCE [1999] taxmann.com 30 (New Delhi) (CEGAT) * Eveready Industries v. CCE 2000(120) ELT 379 (CEGAT SMB) * Raj Kesari Electrodes v. CCE (2008) 228 ELT 466 (CESTAT SMB) * Jollyboard Ltd. v. CC&CE (2012) 37 STT 436 = 26 taxmann.com 292 (CESTAT) * CCE v. UP State Sugar Corporation Ltd. [2013] 31 taxmann.com 473 (New Delhi) (CESTAT SMB) * CCE v. Synmedic Laboratories (2013) 42 GST 122 = 39 taxmann.com 46 = 294 ELT 147 (CESTAT) * YG1 Industries v. CCE (2013) 42 GST 535 = 37 taxmann.com 26 (CESTAT) * CCE v. GKW Ltd. (2014) 308 ELT 759 (CESTAT SMB).

A quantum of duty already determined by the jurisdictional officers of the supplier unit cannot be contested or challenged by the officers in charge of the recipient unit. – MDS Switchgear v. CCE 2001 (132) ELT 405 (CEGAT) – confirmed in CCE v. MDS Switchgear Ltd. (2008) 229 ELT 485 (SC). – followed in UP State Sugar Corporation v. CCE (2009) 241 ELT 558 (CESTAT SMB), where it was held that when department has not challenged assessment of duty at supplier’s end, Cenvat credit would be admissible on basis of invoice issued by supplier – also followed in CCE v. Anant Commodities (2010) 24 STT 497 (CESTAT SMB).

In Eveready Industries v. CCE [2000] taxmann.com 523 (Delhi)(CEGAT), it was held that it is not open to the Central Excise Officer at the end of applicants to reassess duty on inputs received for purpose of Cenvat credit – same view in Ruptex Mineral v. CCE (2008) 228 ELT 440 (CESTAT). * Shakun Polymers v. CCE (2009) 241 ELT 250 (CESTAT SMB) * CCE v. Gwalior Chemical Industries (2009) 240 ELT 738 (CESTAT SMB).

In CCE v. Sterlite Industries 2004 (173) ELT 28 (CESTAT), it was held that the officers cannot question the amount of duty that is shown as paid on the documents prescribed for availing Cenvat credit – same view has been held in Kerala State Electronic Corporation v. CCE [1996] taxmann.com 424 (Chennai) (CEGAT) * International Tractors v. CCE (2009) 235 ELT 120 (CESTAT) * CCE v. Neel Metal Products (2009) 237 ELT 270 (P&H HC DB) * Cipla Ltd. v. CCE (2011) 273 ELT 391 (CESTAT) * CCE v. Kitchen Appliances (2013) 41 STT 154 = 30 taxmann.com 373 (CESTAT).

Whether duty is paid rightly or wrongly is not concern of recipient of goods/service. So long as duty has been paid, assessee (recipient of goods/services) can avail Cenvat credit – Racold Thermo v. CCE (2013) 39 STT 332 = 28 taxmann.com 79 (CESTAT SMB).

Actual duty paid by manufacturer is admissible as credit. Buyer has no responsibility to ensure that correct duty has been paid by manufacturer of inputs – CCE v. Aggarwal Iron Industries 2005 (184) ELT 397 (CESTAT).

In CCE v. Pawan Ispat Udyog (2007) 213 ELT 134 (CESTAT SMB), department alleged that the supplier (manufacturer) had mis-declared goods. It was held that buyer cannot be denied credit when department is not proceeding against the manufacturer.

Whether duty is paid rightly or wrongly is not concern of recipient of goods/service. So long as duty has been paid, assessee (recipient of goods/services) can avail Cenvat credit – Racold Thermo v. CCE (2013) 39 STT 332 = 28 taxmann.com 79 (CESTAT SMB) * Cummins Diesel Sales and Services India Ltd. v. CCE [2015] 52 taxmann.com 296 = 315 ELT 63 (Mum. – CESTAT SMB).

These decisions have been accepted vide CBE&C circular No. 1014/2/2016-CX dated 1- 2-2016.

6.2 Full Cenvat credit of duty paid available even if seller gave trade discount or price reduction later

Sometimes, manufacturer-seller agrees to give some discount to buyer after clearance of goods. In such cases, there is no reduction is excise duty which he has already paid. In such cases, the buyer is eligible to avail Cenvat credit of entire duty paid by manufacturer- seller, if the supplier does not claim refund of excise duty paid, since the Cenvat credit is of duty ‘paid’ and not duty ‘payable’. It should be got confirmed that supplier has not claimed refund on reduction of price – CBE&C circular No. 877/15/2008-CX dated 17-11-2008.

The same view has been consistently held by Tribunal also, as stated below.

Even if manufacturer-seller gives trade discount/price reduction later, full credit of excise duty paid by him is available to buyer so long as duty paid at supplier’s end is not changed – CCE v. Tirumala Fine Texturiser P. Ltd. [2007] 2007 taxmann.com 586 (Ahd. – CESTAT) (SMB) – same view in Evergreen Engineering Co. v. CCE [2007] 2007 taxmann.com (CESTAT – Mum. SMB) * Brown Kraft Indus. Ltd. v. CCE (2007) 212 ELT 369 = 6 STR 275 (CESTAT) * Sri Balaji Industries v. CCE (2008) 228 ELT 37 (CESTAT) * ACS Hydraulics v. CCE [2008] 2008 taxmann.com 384 (CESTAT – Mum. SMB) * Advance Detergents v. CCE (2008) 232 ELT 90 (CESTAT) * Srinivasa Chemical Enterprises v. CCE (2009) 234 ELT 667 (CESTAT) – same view in Force Motors v. CCE (2007) 213 ELT 302 (CESTAT), where it was held that credit available is of duty ‘paid’ and not duty ‘payable’ – same view in Mahaveer Surfectants v. CCE [2008] 2008 taxmann.com 1635 (CESTAT – Chennai) * CCE v. Toyo Springs (2013) 294 ELT 639 (CESTAT SMB) * CCE v. Toyo Springs (2013) 294 ELT 639 (CESTAT SMB) * Pawan Alloys v. CCE (2015) 318 ELT 267 (CESTAT New Delhi SMB).

Duty paid originally in respect of which credit is taken need not be varied despite the fact that assessee claimed certain amounts from their job workers – Creative Polypack Ltd. v. CCE (2007) 217 ELT 148 (CESTAT).

In CCE v. Trinetra Texturisers 2004 (166) ELT 384 (CESTAT), supplier of inputs gave reduction in price subsequent to clearance of goods. It was held that the buyer is eligible to avail full Cenvat credit of duty paid, unless the duty liability of supplier was reduced. [Thus, even if supplier of input gives price reduction, Cenvat Credit is available of full duty paid] – same view in CCE v. J L Morison Ltd. (2008) 223 ELT 625 (CESTAT SMB) * Bajaj Auto Ltd. v. CCE [2010] 2 taxmann.com 540 (CESTAT).

In MRF Ltd. v. CCE 1997(92) ELT 309 (SC), it was held that any fluctuation in price subsequent to removal of goods has no relevance whatsoever to the liability of excise duty.

Credit cannot be denied for difference in description between commercial invoice and Dealer’s Cenvat invoice and price charged by dealer is lower than price of manufacturer – In Business Combine Ltd. v. CCE 2005 (190) ELT 67 (CESTAT), there was difference between description as given in Cenvat invoices and commercial invoices. The price charged by second stage dealer was lower than the price on which originally excise duty was paid. It was held that this is not sufficient reason to deny Cenvat credit and Cenvat credit is available. It was also held that dealers are not required to maintain record for inputs for which they did not issue Cenvatable invoice – departmental appeal admitted by Bombay HC – 235 ELT A56.

No reduction in Cenvat even if price reduced due to quality difference – In CCE v. J L Morison (2008) 223 ELT 625 (CESTAT SMB), the buyer issued a debit note on supplier on account of inferior quality of goods. However, there was no refund claim by supplier. Hence, it was held that Cenvat credit cannot be reduced.

Credit even if duty paid at higher rate – Even if duty was paid at higher rate, buyer is eligible to avail Cenvat credit of entire duty paid – Nahar Industrial Enterprises v. CCE (2007) 210 ELT 38 = 5 STR 385 (CESTAT SMB) * CCE v. Jai Mata Alloys (2008) 232 ELT 462 (CESTAT SMB).

In CCE v. Pirity Flexpack (2008) 223 ELT 361 (Guj HC DB), assessee paid duty @ 24% against actual rate of 16%. It was held that buyer is eligible for entire Cenvat credit, as the payment of higher duty was not disputed at supplier’s end.

Credit even if duty is paid under protest – Cenvat Credit is available even if duty is paid under protest – CCE v. Sterlite Industries 2004 (173) ELT 28 (CESTAT).

Memories Photography Studio v. CCE (2014) 45 GST 486 = 45 taxmann.com 237 (CESTAT).

User cannot be penalised for fault of supplier – In J K Industries Ltd. v. UOI (2008) 223 ELT 372 (Raj HC DB), supplier was an EOU unit but actually issued normal invoice without following procedures required by EOU. It was held that the buyer is eligible for Cenvat credit and he cannot be penalised for any default committed by seller.

In Malhotra Cables v. CCE (2013) 293 ELT 72 (CESTAT), there was allegation that supplier of inputs had availed Cenvat credit wrongly. It was held that Cenvat credit cannot be denied to receiver of inputs.

In Hind Alloys v. CCE (2014) 46 GST 611 = 47 taxmann.com 203 (CESTAT SMB), assessee procured inputs from registered dealer under proper invoice. However, the registered dealer had not obtained goods from the manufacturer. It was held that assessee is eligible for Cenvat credit so long as he has indeed procured inputs and the proper invoice is available – similar view in Karishma Overseas v. CCE (2014) 46 GST 574 = 47 taxmann.com 112 (CESTAT).

6.3 Buyer can avail Cenvat credit, if supplier paid duty, even though not payable

If supplier had paid excise duty (though not payable), buyer is eligible to avail Cenvat credit.

In CCE v. CEGAT 2006 (202) ELT 753 (Mad HC DB), it was held that the words used are ‘paid’ and not ‘payable’. Thus, once duty is ‘paid’, Cenvat credit is available, whether duty was payable or not [rule 3(1) of Cenvat Credit Rules also use the word ‘paid’] same view in CCE v. Ranbaxy Labs Ltd. 2006 (203) ELT 213 (P&H HC DB) * Manaksia Ltd. v. CCE (2008) 232 ELT 497 (CESTAT 2 v. 1 order) * Savera Pharmaceuticals v. CCE (2008) 222 ELT 457 (CESTAT) * Divya Pharma v. CCE (2009) 244 ELT 480 (CESTAT SMB) * Manikgarh Cement v. CCE (2010) 259 ELT 571 (CESTAT) * V G Steel Industry v. CCE (2011) 271 ELT 508 (P&H HC DB) * Sterlite Industries v. CCE (2011) 33 STT 7 (Mag) = 13 taxmann.com 183 (CESTAT SMB) * Natco Pharma v. CCE (2011) 274 ELT 438 (CESTAT SMB) * Uniworth Ltd. v. CCE (2013) 292 ELT 119 (CESTAT SMB) * CCE v. Nahar Granites (2014) 45 GST 369 = 45 taxmann.com 190 = 305 ELT 9 (Guj HC DB) * Hindustan Coca Cola Beverages v. CCE (2014) 301 ELT 360 (CESTAT) * Balakrishna Industries v. CCE (2014) 309 ELT 354 (CESTAT) * Neuland Laboratories v. CCE (2015) 317 ELT 705 (CESTAT) * Kohinoor Printers v. CCE (2015) 321 ELT 456 (CESTAT) – confirmed in CCE v. Kohinoor Printers (2015) 321 ELT 448 (Mad HC DB) * Oboi Laboratories v. CCE (2015) 321 ELT 472 (CESTAT) * Neuland Laboratories v. CCE (2015) 51 GST 662 = 59 taxmann.com 18 (CESTAT) * CCE v. Sundaram Auto Components (2015) 52 GST 702 = 62 taxmann.com 242 (Mad HC DB).

If supplier has paid excise duty on wire drawn (though it was not legally payable during relevant time), the buyer is eligible to avail Cenvat credit if supplier had not obtained refund of duty paid by them on drawn wire – BCL Springs v. CCE 2005 (185) ELT 56 (CESTAT). * CCE v. Nagappa Springs (2009) 238 ELT 489 (CESTAT SMB) * V G Steel Industry v. CCE (2012) 37 STT 525 = 26 taxmann.com 340 (P&H HC DB).

In CCE v. Pirity Flexpack (2008) 223 ELT 361 (Guj HC DB), assessee paid duty @ 24% against actual rate of 16%. It was held that buyer is eligible for entire Cenvat credit, as the payment of higher duty was not disputed at supplier’s end.

In Brakes India v. CCE (2008) 230 ELT 621 (CESTAT), duty was paid on inter-unit transfers by calculating profit margin of 30% (instead of 10%). Assessee claimed that it was done to take care of fluctuation of value of inputs. Though duty was paid on higher side, refund was not claimed. No fraudulent intention was alleged. It was held that other unit can take Cenvat credit of entire duty paid.

In Spic (HCD) Ltd. v. CCE 2006 (201) ELT 386 (CESTAT), duty was paid by job worker and the manufacturer availed its credit. The credit was proposed to be denied on the ground that job worker was not required to pay duty. It was held that the credit is eligible. If goods were received on payment of duty, Commissioner having jurisdiction over manufacturer’s unit cannot revise or restrict credit – relying on Kerala State Electronic Corporation v. CCE 1996 (84) ELT 44 (CEGAT) and Owens Bilt v. CCE 1998(101) ELT 642 (CEGAT) – similar view in CCE v. Hogans India (2007) 212 ELT 37 (CESTAT SMB) * – followed in CCE v. DIL Ltd. (2008) 14 STT 210 (CESTAT SMB) – same view in Koch-Glitsch India v. CCE (2009) 19 STT 16 (CESTAT) * CCE v. Laxmi Metal Pressing Works (2010) 24 STT 271 (CESTAT SMB) * Sundaram Auto Components v. CCE (2010) 259 ELT 640 (CESTAT SMB) – confirmed in CCE v. Sundaram Auto Components (2015) 52 GST 702 = 62 taxmann.com 242 (Mad HC DB).

Similarly, in Owens Bilt Ltd. v. CCE 1998 (101) ELT 642 (CEGAT), it was held that once duty is paid at the manufacturer’s end, the jurisdictional Assistant/Deputy Commissioner at user’s end has no jurisdiction to decide whether duty was payable or not – followed in Goa Industrial Products v. CCE 2005 (181) ELT 222 (CESTAT) – same view in Nav Bharat Tubes v. CCE (2010) 26 STT 150 (CESTAT SMB) – view confirmed in CCE v. Nestle India (2012) 275 ELT 49 (Bom HC DB) – view confirmed in CCE v. Nestle India (2012) 275 ELT 49 (Bom HC DB).

In Shree Shyam Filaments v. CCE (2014) 310 ELT 801 (CESTAT), the manufacturer was eligible to clear goods without payment of excise duty against advance authorization. However, he still paid excise duty. It was held that the receiver can avail Cenvat credit of duty paid, when assessment of duty at the end of domestic suppliers is not reviewed.

In Sanjivani SSK Ltd. v. CCE (2009) 241 ELT 431 (CESTAT), excise duty on molasses was paid by manufacturer (though it was payable by procurer). It was held that the procurer can avail Cenvat credit of duty paid by manufacturer on molasses, as what matters is whether duty was ‘paid’ on the inputs and not whether duty was ‘payable’ thereon.

Cenvat credit of duty paid on inputs as well as duty paid by job worker on entire value – In Thermax Ltd. v. CCE (2015) 326 ELT 369 (CESTAT), assessee took Cenvat credit of excise duty paid on inputs. The inputs were sent to job worker. Job worker paid excise duty on total value including value of inputs. It was held that such credit is admissible.

Job worker can pay service tax and principal manufacturer can avail Cenvat credit – In Federal Mogul Goetze India v. CCE (2015) 318 ELT 340 (CESTAT), it was held that Notification No. 214/1986-CE dated 25-3-1986 is conditional and hence not mandatory. Further section 5A(1A) of Central Excise Act has not been made applicable to service tax. Hence, job worker can pay service tax and principal manufacturer (raw material supplier) can avail its Cenvat credit – view confirmed in CCE v. Federal Mogul TPR India [2015] 59 taxmann.com 196 (Karn HC).

No Cenvat credit to assessee or the customer if assessee pays duty on unconditionally exempted goods – It has been clarified that if assessee still pays duty on goods which are unconditionally exempted, the amount paid is not ‘duty’. Hence, the buyer will not be eligible for Cenvat credit of such amount. Further, the person paying excise duty will not be eligible for Cenvat Credit of duty paid on inputs. Further, the assessee is required to deposit the duty charged with Central Government, in view section 11D of Central Excise Act – CBE&C circular No. 940/01/2011-CX dated 14-1-2011.

Entire Cenvat credit even if duty payable on final product lower than input credit available – In CCE v. Camphor Allied Products (2015) 51 GST 259 = 57 taxmann.com 154 (All HC DB), it was held that entire Cenvat credit on inputs is available even if excise duty payable on final product was lower than input Cenvat credit available.

6.4 Accounting entries not relevant for eligibility of Cenvat credit

Whether the expenditure is capitalised or not will not have any bearing on eligibility of Cenvat credit, which is required to be adjudged in the light of Central Excise Provisions – Shree Rama Multitech v. CCE (2011) 266 ELT 81 (CESTAT).

6.5 No reversal if supplier gives reduction in price after clearance

Excise duty is payable on the basis of price at the time of clearance. Thus, assessable value does not change if supplier gives credit of duty after removal of goods. In view of this, credit is not to be reversed only because the supplier of inputs has given some reduction in prices after removal of goods, unless he claims and gets refund of excise duty paid by him.

In MRF Ltd. v. CCE 1997 (92) ELT 309 (SC), it was held that any fluctuation in price subsequent to removal of goods has no relevance whatsoever to the liability of excise duty.

In CCE v. Kinetic Engg. 1997 (95) ELT 396 (CEGAT), it was held that classification of goods made at the supplier’s end cannot be altered at the manufacturer’s end. Same principle will apply to valuation also.

Full credit available even if price subsequently reduced – Full credit is available even if supplier subsequently gives price reduction. In CCE v. Trinetra Texturisers 2004 (166) ELT 384 (CESTAT), supplier of inputs gave reduction in price subsequent to clearance of goods. It was held that the buyer is eligible to avail full Cenvat credit of duty paid, unless the duty liability of supplier was reduced. [Thus, even if supplier of input gives price reduction, Cenvat Credit is available of full duty paid]. In MRF Ltd. v. CCE 1997(92) ELT 309 (SC), it was held that any fluctuation in price subsequent to removal of goods has no relevance whatsoever to the liability of excise duty.

7. Requirement of registration

Section 17(5) or section 49 nowhere provides that taxpayer shall be registered for the purpose of availment of input tax credit. The procedure laid down for availment of credit under section 18 is such that the credit will not be auto populated in electronic credit ledger of the recipient unless the recipient is registered. But none of the sub-section of sections 16 to 18 specifies that the person shall be registered for the availment of credit. Section 16(2) which specifies the conditions for availing credit also does not provide this condition.

Section 18(1)(b) specify that when the person who takes registration under sub-section (3) of section 25 of said section shall be entitled to take credit on input tax in respect input held in stock, contained in semi-finished or finished goods held in stock immediately preceding the date of registration, section 25(3) provides that person can voluntarily decide to obtain registration even if he is not so liable. Thus, section 18(1)(b) is applicable only when such person takes registration.

This rule cannot be generalised for every person who has not obtained registration and intends to avail the credit.

7.1 Decisions under Cenvat Credit Rules, 2004

Cenvat Credit Rules, 2004 permitted credit of excise duty paid on input and capital goods and service tax paid on input services to the manufacturer or provider of output service. The rules under Cenvat Credit Rules, 2004 nowhere provides that manufacturer or provider of output service shall be registered during the period for which credit is sought to be obtained. For example, say service provider obtained registration on 15-10-2016 and he avails the credit of service tax paid on input services received during the period April to 14-10-2016. During the period when input service was received he was not registered. The Hon. Karnataka High Court in the case of mPortal India Wireless Solutions P. Ltd., 2012 & 927/STR 134 (Kar) has held that there is no requirement under Cenvat Credit Rules that the person shall be registered at the time of receiving the input services. Therefore, credit for the period prior to obtaining of registration will be available to him.

The High Court observed as follows:

7. Insofar as requirement of registration with the department as a condition precedent for claiming Cenvat credit is concerned, learned counsel appearing for both parties were unable to point out any provision in the Cenvat Credit Rules which impose such restriction. In the absence of a statutory provision which prescribes that registration is mandatory and that if such a registration is not made the assessee is not entitled to the benefit of refund, the three authorities committed a serious error in rejecting the claim for refund on the ground which is not existence in law. Therefore, said finding recorded by the Tribunal as well as by the lower authorities cannot be sustained. Accordingly, it is set aside.

7.2 Ratio of judgment will apply

It appears that the ratio of the judgment of Karnataka High Court in the case of mPortal India Wireless Solutions P. Ltd., 2012 & 927/STR 134 (Kar.) will be applicable in GST also.

7.3 Credit is tax paid in advance on output supply

Sections 16 and 17 allows credit of input tax paid on various input and input services. The credit is available subject to terms and conditions specified under these two sections. Section 16 makes it evident that the credit will be available to the recipient of input or input services only when supplier has paid tax amount on the supplies made by him to the department. The Hon. Supreme Court in the case of Eicher Motors Ltd. 1999 (106) ELT 3 (SC) has under Modvat has observed that credit available on input is nothing but advance tax paid by the manufacturer on the excise duty payable by him on manufactured goods. The court in para 5 observed as follows:

“5. …… As pointed out by us that when on the strength of the rules available certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that right, which had accrued to a party such as availability of a scheme, is affected and, in particular, it loses sight of the fact that provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assessees concerned. ……”

This observation was reiterated by Supreme Court in the case of Dai Ichi Karkaria Ltd. 1999 (112) ELT 353. The Court in para 18 observed as follows:

18. It is, therefore, that in the case of Eicher Motors Ltd. v. Union of India [1999 (106) E.L.T. 3] this Court said that a credit under the Modvat scheme was “as good as tax paid.”

One of the conditions for availment of credit specified in section 16(1) is input and input services shall be used in the course of furtherance of business. Further, the credit of input tax is not permitted when input or input services have been used exclusively for exempted supply or for personal consumption. Thus, it will be observed that the input tax paid by the recipient is nothing but advance tax paid on the output supply. Undoubtedly, there is no one to one correlation between the credit availed on any input and output tax payable on final product in which the input have been used. Thus, the observation of Supreme Court gives credence to the fact that credit will be available to the taxable person even if he has not obtained registration. However, this view may be subject to litigation.

8. No time limit for utilization of credit

Section 16(4) provides that the taxable person shall not be entitled to take input tax credit in respect of any invoice for supply of goods or services after filing of return under section 39 for the month of September following end of financial year to which such invoice relates or filing of relevant annual return whichever is earlier. The provisions in section 16(4) is only for availment of credit and not for utilization of credit. There is no time limit specified in sections 16 to 18 or section 49 about utilization of credit. Therefore, the credit once availed can be utilized at any point of time.