GST update on CREDIT OF CAPTIAL GOODS IN TRANSIT

The admissibility of credit of capital goods in transit has been a controversial issue since the final transitional provisions have come into effect. There have been divergent views of professionals where some say the credit of such capital goods shall be admissible; others take the view that as there is no explicit provision for credit of capital goods in transit, it should not be admissible.
We in our updates have regularly pointed out the fact that as law specifically gives the provision for inputs in transit under section 140(5) and not for capital goods in transit the credit of such capital goods shall not be admissible. We have always stated that we cannot travel beyond law and consider the credit admissible until and unless law specifically provides for.

Thereafter government had released FAQ’S on GST on 31/3/2017 whereby they had stated that:-

“A registered person, say, purchases capital goods under the existing law (Central Excise) in the June quarter of 2017-18. Though the invoice has been received within 30th June but the capital goods are received on 5th July, 2017 (i.e. in GST regime). Will such a person get full credit of CENVAT in GST regime?
Ans. Yes, he will be entitled to credit in 2017-18 provided such a credit was admissible as CENVAT credit in the existing law and is also admissible as credit in CGST - section 140(2) of the CGST Act.”

The release of FAQ had created a lot of rumors that credit of capital goods shall be admissible even though there is no provision in the law. But we were of opinion that FAQ’s are just for guidance purpose and do not have any legal backing, therefore when law does not contain the provision of admissibility of credit in capital goods in transit no matter whatsoever FAQ states credit shall not be admissible.

This dispute in our opinion reached its conclusion yesterday with the new FAQ release by Finance minister whereby it has been stated that:-

“Q84. Would we be eligible for credit on Capital Goods in transit and received post GST?
Ans:- No provision for such credit is there in GST law”
Now, as neither the law provides for admissibility of capital goods in transit and FAQ’s too deny for same, it is crystal clear that credit of capital goods in transit should not be admissible.

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GST update on CREDIT OF CAPTIAL GOODS IN TRANSIT

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