CGST Section 140 — Transitional arrangements for input tax credit

CGST Act  ·  Transitional arrangements for input tax credit

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Section 140 of the CGST Act, 2017 governs Transitional arrangements for input tax credit. It provides the core statutory basis, outlining the essential legal principles, rights, and liabilities under Indian indirect tax law. Section 140 GST: Transitional arrangements for input tax credit — eligibility, conditions, case laws and compliance impact under Indian tax law.

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Plain-English Explanation

Plain English Summary

Section 140 of the CGST Act deals with the transitional arrangements for claiming input tax credit (ITC) when businesses moved from the previous indirect tax regime (like Excise Duty, Service Tax, VAT) to the GST regime. It allows registered persons to carry forward eligible tax credits from the old regime to their electronic credit ledger under GST, subject to certain conditions and limitations. This provision was crucial for ensuring a smooth transition and preventing businesses from losing genuine tax credits accumulated under the previous laws.

This section applied to all registered persons under GST, except those who opted for the composition scheme under Section 10. It was relevant only during the initial transition period when GST was implemented (primarily from July 1, 2017). Even though the immediate transition is over, the principles enshrined in Section 140 remain important for understanding how legacy credits were handled and can provide guidance when similar tax reforms occur.

Here's a breakdown of the key conditions and exceptions:

  • CENVAT Credit Carried Forward (Section 140(1)): Businesses could transfer the CENVAT credit balance reflected in their last return filed under the old regime to their GST electronic credit ledger.

    • Condition: This credit must have been admissible as ITC under GST. If a particular type of credit allowed under the previous regime is not eligible under GST, it cannot be transitioned.
    • Condition: All returns required under the previous law for the six months immediately preceding the "appointed day" (the date GST came into effect) must have been furnished. This ensured compliance under the old regime.
    • Condition: The credit shouldn't relate to goods manufactured and cleared under exemption notifications specified by the Government.
    • Example: A manufacturer who had ₹50,000 as CENVAT credit in their last excise return can transfer this amount to their GST credit ledger, provided they meet all the above conditions.

  • Unavailed CENVAT Credit on Capital Goods (Section 140(2)): This provision addressed situations where the full CENVAT credit on capital goods had not been availed under the old regime. The unavailed portion could be claimed under GST.

    • Condition: The credit must have been admissible as CENVAT credit under the existing law and is also admissible as input tax credit under this Act.
    • Explanation: "Unavailed CENVAT credit" means the total CENVAT credit the person was entitled to on the capital goods minus the amount of CENVAT credit already availed.
    • Example: If a company purchased machinery in the previous regime and was entitled to a CENVAT credit of ₹1,00,000 but only availed ₹60,000, the remaining ₹40,000 could be claimed under GST, subject to admissibility.

  • Credit on Stock (Section 140(3)): This covered businesses not previously registered or dealing with exempted goods, allowing them to claim credit on inputs held in stock on the appointed day. This was vital for businesses newly brought under the GST net.

    • Condition: The inputs must be intended for making taxable supplies under GST.
    • Condition: The registered person must be eligible for ITC on such inputs under GST.
    • Condition: The business must possess invoices or prescribed documents evidencing payment of duty under the old law.
    • Condition: Invoices must not be older than twelve months from the appointed day.
    • Condition: The supplier of services should not be eligible for abatement under this Act.
    • Exception: If a trader does not have invoices, they may be allowed a credit at a prescribed rate subject to conditions and safeguards, including passing on the benefit to the recipient through reduced prices.
    • Example: A retailer who wasn't previously registered can claim credit on the excise duty paid on goods in their inventory, provided they have valid invoices and intend to sell those goods under GST.

  • Manufacturers of Taxable and Exempted Goods (Section 140(4)): Businesses manufacturing both taxable and exempted goods could transition both the CENVAT credit carried forward (as per 140(1)) and the credit on inputs held in stock related to exempted goods (as per 140(3)).

  • Inputs/Input Services Received After Appointed Day (Section 140(5)): ITC on inputs or input services received after the appointed day, but where the supplier had paid duty under the old law, could be claimed.

Amendments: The Finance Act, 2020 made amendments to Section 140 to specify the time within which the credits should be transitioned and also replaced “existing law” in sub-section (5) to ensure consistency.

In essence, Section 140 aimed to provide a fair mechanism for transitioning tax credits from the old regime to GST, ensuring that businesses weren't unfairly penalized during the shift. While the immediate transition is over, the principles outlined in this section illustrate how governments can handle complex tax reforms and manage the carryover of credits to avoid disruption and maintain business confidence.

* Section140.Transitional arrangements for input tax credit.-
(1)A registered person, other than a person opting to pay tax undersection 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT creditof eligible duties1 carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing lawwithin such time and2in such manner as may be prescribed: Providedthat the registered person shall not be allowed to take credit in the following circumstances, namely:-
(i)where the said amount of credit is not admissible as input tax credit under this Act; or
(ii)where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or
(iii)where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.
(2)A registered person, other than a person opting to pay tax undersection 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 daywithin such time and2 in such manner as may be prescribed: Providedthat the registered person shall not be allowed to take credit unless the said credit was admissible as CENVAT credit under the existing law and is also admissible as input tax credit under this Act.
Explanation.- For the purposes of this sub-section, the expression"unavailed CENVAT credit"means the amount that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of CENVAT credit to which the said person was entitled in respect of the said capital goods under the existing law.
(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 finishedgoods held in stock on the appointed day, within such time and in such manner as may be prescribed, subject to4 the following conditions, namely:-
(i)such inputs or goods are used 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: Providedthat where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or 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 at such rate and in such manneras may be prescribed.
(4)A registered person, who was engaged in the manufacture of taxable as well as exempted goods under the Central Excise Act, 1944 (1 of 1944) or provision of taxable as well as exempted services under Chapter V of the Finance Act, 1994 (32 of 1994), but which are liable to tax under this Act, shall be entitled to take, in his electronic credit ledger,-
(a)the amount of CENVAT credit carried forward in a return furnished under the existing law by him in accordance with the provisions of sub-section (1); and
(b)the amount of CENVAT 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, relating to such exempted goods or services, in accordance with the provisions of sub-section (3).
(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 theexisting law, within such time and in such manneras may be prescribed,5subject 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: Providedthat the period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding thirty days: Providedfurther that said registered person shall furnish a statement, in such manneras may be prescribed, in respect of credit that has been taken under this subsection.
(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 finishedgoods held in stock on the appointed day, within such time and in such manneras may be prescribed, subject to6 the following conditions, namely:-
(i)such inputs or goods are used or intended to be used for making taxable supplies under this Act;
(ii)the said registered person is not paying tax undersection 10;
(iii)the said registered person is eligible for input tax credit on such inputs under this Act;
(iv)the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs; and
(v)such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding 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 ascredit under this Act, within such time and in such manner as may be prescribed, 7whether the invoices relating to such services are received prior to, on or after, the appointed day13.7
(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 daywithin such time and in such manner8as may be prescribed: Providedthat if the registered person furnishes his return for the period ending with the day immediately preceding the appointed day within three months of the appointed day, such credit shall be allowed subject to the condition that the said return is either an original return or a revised return where the credit has been reduced from that claimed earlier: Providedfurther that the registered person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act: Providedalso that such credit may be transferred to any of the registered persons having the same Permanent Account Number for which the centralised registration was obtained under the existing law.
(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, suchcredit can be reclaimed, within such time and in such manner as may be prescribed, subject to9 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.
(10)The amount of credit under sub-sections (3), (4) and (6) shall be calculated in such manner as may be prescribed.
Explanation1.-For the purposes ofsub-sections10
(1), (3), (4)] and (6), the expression"eligible duties"means-
(i)the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957);]
(ii)the additional duty leviable under sub-section (1) ofsection 3of the Customs Tariff Act, 1975 (51 of 1975);7
(iii)the additional duty leviable under sub-section (5) ofsection 3of the Customs Tariff Act, 1975 (51 of 1975);7
(iv)****11;7
(v)the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);7
(vi) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); and7
(vii)the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day.
Explanation 2.-For the purposes ofsub-sections10
(1)and (5)], the expression"eligible duties and taxes" means-
(i)the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957);]
(ii)the additional duty leviable under sub-section (1) ofsection 3of the Customs Tariff Act, 1975 (51 of 1975);7
(iii)the additional duty leviable under sub-section (5) ofsection 3of the Customs Tariff Act, 1975 (51 of 1975);7
(iv)****11;7
(v)the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;7
(vi)the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);7
(vii) the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001 (14 of 2001); and7
(viii)the service tax leviable under section 66B of the Finance Act, 1994 (32 of 1994), in respect of inputs and input services received on or after the appointed day.
Explanation 3.-For removal of doubts, it is hereby clarified that the expression "eligible duties and taxes"excludes any cess which has not been specified in Explanation 1 or12
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).]]whether the invoices relating to such services are received prior to, on or after, the appointed day13.
(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 daywithin such time and in such manner8as may be prescribed: Providedthat if the registered person furnishes his return for the period ending with the day immediately preceding the appointed day within three months of the appointed day, such credit shall be allowed subject to the condition that the said return is either an original return or a revised return where the credit has been reduced from that claimed earlier: Providedfurther that the registered person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act: Providedalso that such credit may be transferred to any of the registered persons having the same Permanent Account Number for which the centralised registration was obtained under the existing law.
(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, suchcredit can be reclaimed, within such time and in such manner as may be prescribed, subject to9 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.
(10)The amount of credit under sub-sections (3), (4) and (6) shall be calculated in such manner as may be prescribed.
Explanation1.-For the purposes ofsub-sections10
(1), (3), (4)] and (6), the expression"eligible duties"means-
(i)the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957);
(ii)the additional duty leviable under sub-section (1) ofsection 3of the Customs Tariff Act, 1975 (51 of 1975);
(iii)the additional duty leviable under sub-section (5) ofsection 3of the Customs Tariff Act, 1975 (51 of 1975);
(iv)****11;
(v)the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
(vi)the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); and
(vii)the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day.
Explanation 2.-For the purposes ofsub-sections10
(1)and (5)], the expression"eligible duties and taxes" means-
(i)the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957);
(ii)the additional duty leviable under sub-section (1) ofsection 3of the Customs Tariff Act, 1975 (51 of 1975);
(iii)the additional duty leviable under sub-section (5) ofsection 3of the Customs Tariff Act, 1975 (51 of 1975);
(iv)****11;
(v)the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;
(vi)the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
(vii)the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001 (14 of 2001); and
(viii)the service tax leviable under section 66B of the Finance Act, 1994 (32 of 1994), in respect of inputs and input services received on or after the appointed day.
Explanation 3.-For removal of doubts, it is hereby clarified that the expression "eligible duties and taxes"excludes any cess which has not been specified in Explanation 1 or12
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).]

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Frequently Asked Questions

What does Section 140 of the CGST Act deal with?

Section 140 of the CGST Act outlines the transitional arrangements for availing input tax credit (ITC) on taxes paid under the pre-GST regime (e.g., VAT, Service Tax, Excise Duty) after the implementation of GST. It allows businesses to carry forward certain eligible ITC balances to the GST regime, subject to specific conditions and limitations.

What are the key conditions for claiming transitional ITC under Section 140?

Key conditions include: (a) The taxes/duties must have been paid under the earlier laws. (b) Such credit must be admissible as ITC under GST. (c) The claimant must have valid documents evidencing the tax payment (e.g., invoices, excise gate passes). (d) The ITC should have been validly available as per the pre-GST laws. (e) The claimant must file a declaration in Form GST TRAN-1 within the specified timeframe. (f) ITC related to exempted goods/services or negative list items is generally not allowed.

What is Form GST TRAN-1, and what information needs to be furnished in it?

Form GST TRAN-1 is a declaration form that registered persons are required to file to claim transitional credit under Section 140. It requires details like the amount of input tax credit carried forward from the previous regime (VAT, Excise, Service Tax), details of stocks of goods on which tax was paid under the previous regime (for claiming credit on stock), and other relevant information as required by the form.

What is the time limit for filing Form GST TRAN-1, and what happens if I miss the deadline?

The original deadline for filing Form GST TRAN-1 has passed. However, under certain circumstances (such as genuine hardship or errors due to technical glitches), there may have been opportunities for late filing based on court orders or special provisions. Missing the deadline generally means losing the opportunity to claim the transitional ITC unless you fall under specific exceptions allowed by law/court decisions. Consult a tax professional for specific guidance.

How is the transitional ITC claimed under Section 140 verified and processed by the tax authorities?

Tax authorities may verify the transitional ITC claim by scrutinizing the documents submitted along with Form GST TRAN-1, such as invoices, excise gate passes, and VAT returns. They may also conduct audits or investigations to ensure the validity of the claim. Discrepancies found during verification may lead to rejection of the ITC claim or further action.

Can I claim transitional ITC under Section 140 on capital goods?

Yes, transitional credit can be claimed on capital goods, provided the taxes/duties were paid under the pre-GST regime and the credit was admissible as ITC under the pre-GST laws. The conditions for claiming credit on capital goods are similar to those for other inputs, including having valid documents and filing Form GST TRAN-1 within the stipulated time. The specifics related to claiming ITC on capital goods are detailed in the CGST Rules.

If I have a centralized registration under service tax, can I transfer the credit to my GST registration in another state?

Yes, a registered person with a centralized registration under service tax could transfer the eligible credit to the GST registration in another state if the conditions under Section 140 and related rules are met. This generally involves ensuring that the centralized registration and the receiving GST registration have the same PAN and that the ITC is attributable to that state's branch. Form GST TRAN-1 is crucial for facilitating this transfer.

Key Conditions & Requirements

ConditionDetails
Eligibility for Credit (Sub-section 1 & 2) The registered person must NOT be a person opting to pay tax under section 10 (composition scheme).
CENVAT Credit Carried Forward (Sub-section 1) The credit must be CENVAT credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished under the existing law.
Return Filing Compliance (Sub-section 1) The registered person must have furnished all returns required under the existing law for the period of six months immediately preceding the appointed date to claim credit under sub-section 1.
Admissibility of Credit (Sub-section 1 & 2) The amount of credit must be admissible as input tax credit under this Act (CGST Act, 2017). For sub-section 2, the credit must have been admissible as CENVAT credit under the existing law.
Goods Manufactured Under Exemption Notifications (Sub-section 1) Credit is not allowed if it relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.
Unavailed CENVAT Credit on Capital Goods (Sub-section 2) Deals with credit of unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law for the period ending with the day immediately preceding the appointed day.
Time and Manner (Sub-section 1 & 2) Credit must be taken within such time and in such manner as may be prescribed.

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Amendment History

Enforced w.e.f . 1st July, 2017 .
123456789+3 moreSuperscript numbers in the text mark amended passages — click them to jump here. Click "↑ view in text" to jump back.
1
2017↑ view in text

Inserted w.e.f. 01.07.2017 by s.28 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.

2
2017↑ view in text

Inserted w.e.f. 01.07.2017 by s.128 of The Finance Act, 2020 (No. 12 of 2020)-Brought into force w.e.f 18.05.2020 vide Notification No. 43/2020-C.T. , dated 16-5-2020.

3
2017↑ view in text

Substituted w.e.f. 01.07.2017 for " goods held in stock on the appointed day subject to " by s.128 of The Finance Act, 2020 (No. 12 of 2020)-Brought into force w.e.f 18.05.2020 vide Notification No. 43/2020-C.T. , dated 16-5-2020 .

4
2017↑ view in text

Substituted w.e.f. 01.07.2017 for " existing law " by s.128 of The Finance Act, 2020 (No. 12 of 2020) -Brought into force w.e.f 18.05.2020 vide Notification No. 43/2020-C.T. , dated 16-5-2020 .

5
2017↑ view in text

Substituted w.e.f. 01.07.2017 for " goods held in stock on the appointed day, subject to " by s.128 of The Finance Act, 2020 (No. 12 of 2020)-Brought into force w.e.f 18.05.2020 vide Notification No. 43/2020-C.T. , dated 16-5-2020.

6
2017↑ view in text

Substituted w.e.f. 01.07.2017 for " credit under this Act even if " by s.128 of The Finance Act, 2020 (No. 12 of 2020)-Brought into force w.e.f 18.05.2020 vide Notification No. 43/2020-C.T. , dated 16-5-2020 .

7
2017↑ view in text

Substituted w.e.f. 01.07.2017 for " in such manner " by s.128 of The Finance Act, 2020 (No. 12 of 2020)-Brought into force w.e.f 18.05.2020 vide Notification No. 43/2020-C.T. , dated 16-5-2020 .

8
2017↑ view in text

Substituted w.e.f. 01.07.2017 for " credit can be reclaimed subject to" by s.128 of The Finance Act, 2020 (No. 12 of 2020)-Brought into force w.e.f 18.05.2020 vide Notification No. 43/2020-C.T. , dated 16-5-2020 .

9
2018↑ view in text

Substituted by s.28 of the Central Goods and Services Tax (Amendment) Act, 2018 w.e.f 01.07.2017 and shall always be deemed to have been substituted. This amendment, not yet enforced.

10
2017↑ view in text

Omitted w.e.f. 01st July, 2017 by s.28 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.

11
2017↑ view in text

Inserted w.e.f. 01st July, 2017 by s.28 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.

12
2024↑ view in text

Substituted by section 147 of The Finance Act (No. 2) Act, 2024 No. 15 of 2024 dated 16.08.2024 . Brought into force w.e.f. 01st July, 2017.

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