CONTENTS 1. Background of Transitional Provision 2. Practical issues faced in transitional provisions a) Problems due to the automation process Other reasons 3. The issues in transitional credit can be summarized as follows: a) Applicable to all sub-sections (1) to (8) of Section 140. b) Section 140(1) & (2) – Transfer of closing balance of credit 4.Impact of retrospective amendment in explanation 11 1, 2, and 3 of Section 140.

1. CA S.S. GUPTA
GST TRANSITIONAL
CREDITS - DISPUTES
& WAY FORWARD

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3. GST Transitional Credits - Disputes & Way Forward
1. Background of Transitional Provision 01
2. Practical issues faced in transitional provisions 01
Problems due to automation process 01
Other reasons 02
3. The issues in transitional credit can be summarized 04
as follows:
a) Applicable to all sub-sections (1) to (8) of Section 140. 04
b) Section 140(1) & (2) – Transfer of closing balance 06
of credit:
4. Impact of retrospective amendment in explanation 11
1, 2 and 3 of Section 140.
CONTENTS

4. I. BACKGROUND OF TRANSITIONAL PROVISION:
Prior to the introduction of GST w.e.f. 01/07/2017, the Central
Government mainly levied the excise duty on manufacture
of goods, service tax on provision of service and State
Government mainly levied the tax on sale of goods and tax
on entry of goods. There were many other small taxes levied
by the Central Government, State Government and local body
taxes like entertainment tax, etc. The provisions relating to
various taxes like excise duty, service tax, VAT, etc. required
the assessee to file the return at the interval specified in the
respective Acts. The various details required to be filed up
in the return invariably provided for details of availment,
utilization and balance of credit.
Since all the taxes were subsumed in the GST, it was natural that
the provisions are made for carrying forward of credit. Such
provisions are made in various sub-sections of Section 142 of
the GST Act. These provisions not only relate to migration of
credit balance in the GST but also made provisions in respect
of stock, work in process, etc.
The Section 140 read with Rule 117 makes provisions for transfer
of credit balance from earlier taxes to GST and also provides
for availment of credit in certain circumstances.
II. Practical issues faced in transitional provisions:
The issues arise due to automation process and other reasons.
These are discussed below:
1. Problems due to automation process:
The Government has developed portal to automize the various
process like granting of provisional registration to the assessee
who has obtained registration under the different statutes in
GST. The assessee was required to file the form REG 26 in
order to convert provisional registration to final registration.
The portal had lots of glitches and was not able to handle the
voluminous data. Further, the assessee was filing the various
01
Transitional Credit Provision

5. forms for the first time. There was no clarity with regard to
declaration of information of various table in TRAN-1. There
is no manual available with regard to the functioning of portal
explaining the manner in which the information filled in various
columns of the form will be transferred as credit balance in
the assesses electronic credit leger.
Further, the GST brought in new concepts of state wise
registration. The unit wise registration was required under
The Excise Act. The assesses providing the services can
either apply for a centralized registration or registration for
premises from which output supply is made. The breakup of
state wise credit is not available.
All the above factors have led a tremendous amount of
litigation between the Government and the assessee. The
number of writ petition have been filed in the various High
Courts with regard to transitional provision.
2. Other reasons:
The other reasons are:
A. Migration to final registration: Migration to final registration
from provisional registration to final registration without
insisting on filling up other reasons of form REG-26. This
resulted in non-declaration of premises in portal. For example,
say an excise duty manufacturer is separately registered for
three factories in Gujarat. The provisional registration was
granted for one of the registrations under central excise.
Therefore, the portal at the relevant time had only one factory
in its data and did not have address of the balance two
factories. The portal did not allow to carry forward the credit
for two units.
B. The credit balance declared in the return of June-2017:
Only credit balance reflected in June-2017 return was allowed
to be carried forward. However, it is practically impossible
to ensure that all the credit relating to the month of June or
earlierare declared in June return itself. There is always a time
lag of one month in availing the credit. For example, invoice
Transitional Credit Provision
02

6. for rent for June will be received in July. Further, in reverse
charge mechanism the tax is payable on payment of amount
to supplier. The tax payable on reverse charge mechanism
for the supply received in June or prior to June thus was paid
after June-2017. Therefore, there was certain credit which was
not declared in the ST-3 Return.
C Bifurcation of credit: The GST provides for State wise
registration. Earlier in central tax excise duty/service tax there
was no provision for state wise registration. It was either
centralized registration (service tax) or unit wise registration
(excise). This brought an additional challenge of bifurcation
of credit.
D. Revision of TRAN-1: The service tax provided for revision in
ST-3 return, but the revision amendment was not permitted in
TRAN-1. Hence, if the enhance amount of credit is reflected in
ST-3 return, the same was not allowed to be carried forward.
E. ISD Credit: There is no clarity on carrying forward of credit
balance in ISD. The manner of declaring the credit balance in
ISD and how it will be auto-populated into electronic credit
ledger or any other document was not clarified.
F. In addition, the issues relating to interpretation of eligible
duty, meaning of stock and semi-finished goods, etc. are also
involved in permitting carrying forward the transitional credit.
This resulted in either non-carrying forward of credit balance,
partial credit balance and number of applications for refund of
credit as per Section 142(5) of the GST Act.
03
Transitional Credit Provision

7. III. The issues in transitional credit can be summarized
as follows:
a) Applicable to all sub-sections (1) to (8) of Section 140.
04
Transitional Credit Provision
1. Technical glitches on a. Chogori India Retail Limited [SPECIAL LEAVE
the portal and direction PETITION (CIVIL) Diary No(s). 7374/2020] - SC
of courts ORDER
i. Gist - Hon’ble Supreme Court has affirmed the
decision of High Court wherein HC has directed to
the department to open the Portal to file Tran-1 in
case where there are technical glitches.
ii. Status – Since Supreme Court has confirmed
department will have to open portal.
b. Other following judgements
i. M/S Jay Bee Industries [2020] 113 taxmann.com
619 - Himachal Pradesh (HC)
ii. M/S. Aadinath Industries & Anr. [2019] 110
taxmann.com 420 - Delhi (HC)
iii. M/S. Arora & Co. [W.P.(C) 6331/2019 & CM No.
26983/2019]- Delhi (HC)
iv. Tara Exports [2018] 98 taxmann.com 363- Madras
(HC)
Gist - Various courts of law also directed to the
department to open the portal to upload the Tran-1
in case where the petitioner had faced technical
glitches.
2. Whether CENVAT credit can a. SRC AVIATION (P) LTD [No.- W.P.(C) 12167/2019]
be transitioned after due date - DELHI (HC)
of Tran-1, if there is no i. Gist –
evidence available with the • CENVAT credit is “property” of the assessee.
assessee of technical glitches. • As per Notification No. 49/2019 dated 09.10.2019
date for TRAN-1 has been extended to 31.12.2019.
This demonstrates that the respondents recognise
there was technical glitches in the system.
• Each person cannot preserve evidences by
taking a screen shot. Many of the registered
dealers/traders come from rural/semiliterate
background.
• Assessee cannot be made to suffer when the
systems of the respondent was not efficient.
3. Time limit for carrying forward a. Brand Equity Treaties Limited [2020]
the CENVAT credit to the GST 116 taxmann.com 415 - DELHI (HC)
regime of rule 117 of CGST i. Gist –
Rules 2017 is directory or • CENVAT credit is an accrued and vested property.
mandatory • The same cannot be taken away by delegated
legislation.
• The time limit is directory and not mandatory.
• Absence of specific statutory limitation under
CGST Act time limit of 3 years under the residuary
provision of the Limitation Act, 1963 would apply.

8. 05
Transitional Credit Provision
ii. Status – Stayed by Supreme Court
b. Nelco Limited [2020] 116 taxmann.com
255- Bom (HC)
i. Gist –
• Time limit is not ultra vires of the Act.
• Power provided under Rule 117 comes from the
power provided u/s 164(2).
• The time limit is neither arbitrary nor
unreasonable.
• Availment of ITC u/s 140(1) is a concession
attached with conditions of its exercise within the
time limit.
C. M/s P.R. Mani Electronics [Writ Petition No. 8890
of 2020] (Madras High Court). The gist is similar
to issues decided by Mumbai High Court.
4. Filing of TRAN-1 is procedural a. Adfert Technologies PVT. LTD [2019]
in nature 111 taxmann.com 27 – P & H HC
i. Gist –
• Cenvat credit is vested right which cannot be
taken away on procedural or technical grounds.
• Not allowing input tax credit would lead to double
taxation.
• CENVAT credit is the property and it cannot be
taken away by virtue of merely framing Rules in
this regard if time limit is not provided under
CGST Act.
ii. Status – Affirmed by Supreme Court
5. Whether the CENVAT Credit a. M/S Haryana Mill Store [2020]
can be transitioned in GST 117 taxmann.com 722 - PUNJAB & HARYANA
through GSTR-3B if the HIGH COURT
department does not open i. Gist –
portal to upload TRAN-1. • Denial of unutilized credit would amount to
violation of Article 14 as well Article 300A of the
Constitution of India.
• Directed to the department to permit assessee to
upload TRAN-1 on or before 30.06.2020 and in
case Respondent fails to do so, the Petitioner
would be at liberty to avail ITC in question in
GSTR-3B of July 2020.

9. 06
Transitional Credit Provision
6 Assessee had paid tax • As per section 142, the refund of such credit is
under RCM of service tax permitted
after filing of Tran-1, whether
the assessee will be able to
claim ITC in GSTR-3B or
can claim refund of the
tax paid
7. Transition of Education • Sutherland Global Services Private Limited [2019]
Cess (EC), Secondary and 111 taxmann.com 264- Madras High Court
Higher Education Cess (SHEC) i. Gist –
and KrishiKalyan Cess (KKC) • The revenue has not made out any bar for the
into GST Regime transitioning of EC, SHEC and KKC into the
GST regime and the petitioner satisfies all
conditions both under sub-section (1) and (8) of
section 140.
• There is no lapsing provision under GST Act.
ii. Status – Stayed by Madras High Court Division
Bench
8. Cash Refund of amount a. Bharat Heavy Electricals [2020]
remaining unutilized in 115 taxmann.com 32- CESTAT Hyderabad
Education Cess (EC), i. Gist –
Secondary & Higher • Section 11B allows refund of duty paid and not of
Education Cess (SHEC) Cenvat credit.
and KrishiKalyan Cess (KKC) • There is no scheme under which Cenvat credit
can be refunded to them in cash except under
Rule 5 of Cenvat Credit Rules (CCR), 2004.
• There is no legal provision under which refund
can be granted.
b. M/S Mylan Laboratories LTD [Final Order No.
30689/2020] - CESTAT Hyderabad
i. Gist –
There is no provision in the CENVAT Credit Rules
2004 or the Central Excise Act 1944 to allow
cash refund of cesses lying in balance in the
CENVAT Credit account on the ground that
appellant was not able to use the same.
9. Difference between the a. M/S DEENDAYAL PORT [2020]
amount of Cenvat credit 116 taxmann.com 4 - GUJARAT HIGH COURT
appearing in Revised ST-3 i. Gist –
and Credit transitioned in • Rule 7B of STR, 1994 permits to file revised
Tran-1 ST-3 within a period of 90 from the date return
filed under Rule 7.
• ACES Portal did not permit to file revised return
for the second time due to which certain amount
of ITC was not reflected in the last ST-3.
Therefore, it is technical glitches.
• Transition of credit which was not reflected in last
ST-3 was allowed.
(b) Section 140(1) & (2) – Transfer of closing balance of credit:

10. 07
Transitional Credit Provision
(b) Section 140(3) – Credit of duties and taxes on stock of
inputs, work in process and finished goods:
(i) Many manufacturers have depot/branches where the duty
paid goods are stored. Many of them have centralized
warehouse before being further distributed to depot or
branches. The duty paying documents substantiating the
duty payment on the stock, is available only at the first
location where goods are transferred from manufacturing
location. It is not available on the subsequent location
where goods are transferred from centralized warehouse.
As long as the available stock at any location can be co-
related with the duty paying documents by any means
like batch number, delivery challan number, etc., with duty
paying documents available at any location. The credit
of the duty available on the stock at the branches can be
availed.
(ii) Under-construction premises are immovable property.
The department has been contending that the under-
construction premises as on 01/07/2017 are nothing but
the immovable property. Therefore, the credit of cement,
steel, etc. contained in work in process should be denied. It
is felt that the under-construction premises are considered
as provision of service by builder to the buyer. Therefore,
the credit of raw material contained under-construction
premises should be allowed.
(iii) Time limit of one year provided in the Section for carrying
forward the credit. The issue decided by Gujarat High
Court/Bombay HC is given below:
(c) Section 140(4) – Credit in respect of stocks for person
manufacturing exempted goods and non-exempted
goods or provisions of non-exempted service as well as
exempted service:
(i) Many units were located in the area where exemption
was provided from payment of duty to manufacture of
goods. However, the input and input services used in the
manufacture of those goods were not exempted. This

11. 08
Transitional Credit Provision
section provides for availment of credit of input and input
services contained in such exempted goods. However,
the duty paying documents substantiating the payment
of input and input services contained in such finished
product will not be available at the location where the
goods are stored. The department is seeking to deny the
credit at other location. The credit will be available to
registered person as long as the duty paying documents
are available at different locations, than where the stock
is availed i.e. on 01/07/2017.
(d) Section 140(5) – Input or input services in transit:
(i) This section provides for availment of credit of duties
and taxes in respect of input and input services received
after the appointed date, but the tax of which was paid
prior to 30/06/2017. Thus, this section will not cover the
transactions for which invoices have been raised earlier
prior to June-2017 and services/goods received prior to
June-2017 and for which the credit has not been taken
in ST-3 return for the reasons explained above. Further,
this section will also not cover capital goods in transit.
The term ‘capital goods’, ‘input’ and ‘input services’ were
separately defined in different statute. The said credit will
also be available,as capital goods is used in manufacture
of goods.
(e) Section 140(6) – Registered person paying tax at fixed
rate or fixed amount (composition scheme):
(i) The issues given in this sub-section are similar to the one
discussed in para 140(3) & (4) of the GST Act.
(f) Section 140(7) – Availment of credit by ISD:
(i) The information relating to carry forward of credit availed
in ISD was required to be declared in table 7(b) of TRAN-
1. The table 7(b) required declaration of invoice number,
invoice date, value and date on which it is entered in the
books of recipient. This gave the impression that only the
details of invoices for which the credit has not been taken
before 30/06/2017 is required to be declared in this table.

12. 09
Transitional Credit Provision
There was no clarity as to the table number under which
the closing balance of ISD should be declared.
(g) Section 140(8) – Transfer of credit when person was
centrally registered
(i) Many registered persons have obtained the centralized
registration under service tax. However, in GST the state
wise registration is mandatory. Therefore, Section 140(8)
provided for transfer of credit from centralized registration
to various states. The information is required to be
declared in table-8 of TRAN-1. The Column 7 & 8 of the
table required the information regarding the distribution
of documents/invoice number to be mentioned. The
law does not provide preparation of any documents for
transfer of credit. Therefore, there was a confusion with
regard to the manner of filling the form.
(h) Section 140(9) – Reversal of credit due to non-payment
within prescribed time:
(i) The erstwhile cenvat credit rules did not make any
provisions relating to payment of value of services to the
supplier. The restriction imposed in the section that the
payment shall be made within three months from the
appointed date i.e. by September-2017 is unnecessarily
restricting the right of assessee to avail the credit.
(i) Deemed Credit
One of the conditions for availment of credit under section
140(3)isthattheregisteredpersonshouldhavedutypaying
document. If the registered person is not in possession of
invoice or any other document, such registered person is
entitled to avail credit of the stock of goods sold after
01-07-2017 in terms of provisions contained in rule 117(4)
subject to the conditions and restrictions specified therein.
The tax credit was available for the period of six months
from June-2017. The credit is available only when the
goods are sold within six months, if goods are not sold
within six months the credit will not be available, although

13. 10
Transitional Credit Provision
the GST will be payable as and when the goods are sold
subsequent to six months.
(j) Conditions:
All sub-sections of Section 140 of the GST Act provides certain
conditions to be fulfilled for the purpose of migration of credit
balance. For example, in case of sub-section (3) the following
conditions are prescribed:
(i) “Such inputs or goods are sued or intended to be used for
making taxable supplies under this Act;
(ii) The said registered person is eligible for input tax credit
on such inputs under this Act;
(iii) The said registered person is in possession of invoice or
other prescribed documents evidencing payment of duty
under the existing law in respect of such inputs;
(iv) Such invoices or other prescribed documents were issued
not earlier than twelve months immediately preceding
the appointed day, and
(v) The supplier of services is not eligible for any abatement
under this Act.
Provided that where a registered person, other than a
manufacturer or a supplier of services is not in possession of
nay invoice other any other documents evidencing payment
of duty in respect of inputs, then, such registered person shall,
subject to such conditions, limitations and safeguards as may
be prescribed including that the said taxable person shall pass
on the benefit of such credit by way of reduced prices to the
recipient be allowed to take credit as such rate and in such
manner as may be prescribed.”
The similar conditions are prescribed in other sub-sections.
The compliance with these conditions does not pose much
problem. For example, the first condition is the inputs or
goods are used for making taxable supplies. The registered
person is eligible for input tax credit on such inputs as he is
in possession of the invoice/documents evidencing payment
of duty under the existing law. Such invoice or prescribed

14. 11
Transitional Credit Provision
documents were not issued earlier than twelve months
immediately preceding the appointed date and the supplier is
not eligible for any abatement. The two conditions specified
in sub-para (3) & (4) raised some certain challenges which
have been discussed in issuesunder sub-section 140(3) of the
Act.
It will be observed that in respect of all sub-sections, certain
issues have been discussed in above paras. These issues arise
from conditions which are difficult in complying, are narrated
in the above paras:
IV. Impact of retrospective amendment in explanation
1, 2 and 3 of Section 140.
As mentioned above there was dispute with respect to carry
forwardofcreditbalanceinrespectofEducationCess,SHECess
and KKC. The eligible duties were defined in each explanation
1, 2, 3 of section 140. The clause (iv) in explanation-I and II
provided for carrying forward of credit balance of Additional
Duties under (Textiles and Textile Articles) Act, 1978. Therefore,
the amendment was made vide Amendment Act, 2018
retrospectively with effect from 01-07-2017. The amendment
deleted clause (iv) which provided Additional duty of excise
eligibility under section 3 of the additional duties of excise
(Textile and Textile Articles) Act 1978 and also expanded the
scope of applicability of meaning of eligible duties to different
sub sections. The amendment is briefly given below:
Explanation 1.—For the purposes of sub-sections[sub-sections
(1), (3), (4)] and (6), the expression “eligible duties” means––
i. Same as before.
ii. Same as before
iii. Same as before
iv. the additional duty of excise leviable under section 3 of
the Additional Duties of Excise (Textile and Textile Articles)
Act, 1978;
v. Same as before
vi. Same as before
vii. Same as before

15. 12
Transitional Credit Provision
In respect of inputs held in stock and inputs contained in semi-
finished or finished goods held in stock on the appointed day.
[*The bracketed Sub-sections were added by amendment]
Explanation 2.—For the purposes of [sub-section (1) and (5)],
the expression “eligible duties and taxes” means––
i. Same as before
ii. Same as before
iii. Same as before
iv. the additional duty of excise leviable under section 3 of
the Additional Duties of Excise (Textile and Textile Articles)
Act, 1978;
v. Same as before
vi. Same as before
vii. Same as before
viii. Same as before
[*The bracketed position was added by Amendment Act]
Explanation 3.— For removal of doubts, it is hereby clarified
thattheexpression“eligibledutiesandtaxes”excludesanycess
which has not been specified in Explanation 1 or Explanation 2
and any cess which is collected as additional duty of customs
under sub-section (1) of section 3 of the Customs Tariff Act,
1975 (51 of 1975).
• The amendment is basically made to disallow the carry
forward of credit balance for Education Cess, SHE Cess
and KKC. The clarification given by CBEC vide Circular
No. 87/06/2019-GST dated 01-01-2019 is reproduced
below:
“Thus, expression “eligible duties” in section 140(1) which
are allowed to be transitioned would cover within its fold
the duties which are listed as “eligible duties” at Sl. Nos. (
i ) to (vii) of Explanation 1, and “eligible duties and taxes”
at Sl. Nos. ( i ) to (viii) of Explanation 2 to section 140,
since the expression “eligible duties and taxes” has not
been used elsewhere in the Act.”

16. 13
Transitional Credit Provision
• However, the Madras High Court in the case of Sutherland
Global Services Private Limited [2019] 111 taxmann.
com 264 has permitted the carrying forward of credit of
Education Cess, SHEC and KKC by observing as follows:
44. Thus, in my view, the revenue has not made out any
bar for the transitioning of EC, SHEC and KKC into the
GST regime and the petitioner satisfies all conditions both
under sub-section (1) and (8) of section 140. The embargo
placed by Rule 3(7)(b) is long gone with the introduction of
GST. Certainly, the powers-that-be are conscious of these
factors in drafting the new legislation and the specific
provision in question i.e., Section 140.

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