Section 140 of CGST explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 140 of the CGST Act, 2017 is the transitional credit provision in Chapter XX. It permitted a registered person to carry forward, as input tax credit under GST, the closing balance of eligible CENVAT credit (and State VAT / entry-tax credit under the corresponding State Act) shown in the last return filed under the earlier law, plus the unavailed credit on capital goods and credit on inputs held in stock on the appointed day. The claim had to be made electronically in Form GST TRAN-1 (with Form GST TRAN-2 for the deemed-credit route on stock without invoices) within the notified time limit, and the credit had to be admissible under both the old and the new law.
What Section 140 Says — In Plain English
When GST replaced excise, service tax and VAT, businesses were sitting on unused tax credits earned under those old laws. It would have been unfair to make that credit simply evaporate. Section 140 is the section that lets you carry your old, unused credit forward into your GST electronic credit ledger, so you can keep using it to pay GST. In plain terms: money you had already paid as tax on your inputs, capital goods and stock did not have to be paid again — it moved with you into GST, provided you filed the correct declaration and the credit would have been allowed under both regimes.
The principle underlying the whole section is that transition should be revenue-neutral for a bona fide taxpayer. A business that had genuinely borne excise, service tax or VAT on its purchases should neither gain a windfall nor suffer a loss simply because the tax label changed on 1 July 2017. Section 140 achieves this by mapping each type of legacy credit to a corresponding place in the GST credit ledger and then imposing conditions to weed out credit that was never really admissible — blocked credits, exempt-supply credits, and credits unsupported by documents. Understanding those conditions matters, because the amounts involved were often large and the credit, once carried forward, directly reduced the cash a business had to pay under GST.
Clause / Sub-section Breakdown
- Sub-section (1): carry forward of the closing balance of CENVAT credit (for central taxes) and VAT / entry-tax credit (for State tax under the SGST Act) reflected in the last return under the existing law.
- Sub-section (2): unavailed CENVAT credit on capital goods not carried forward in a return (for example the balance 50% claimable in a later year).
- Sub-section (3): credit of eligible duties on inputs held in stock by persons who were not liable to register earlier, were exempt, or were traders without duty-paying documents (subject to the deemed-credit scheme).
- Sub-sections (4) to (9): special situations — manufacturers of both taxable and exempt goods, works contractors, credit distributed by an Input Service Distributor, credit of a person with centralised registration, and credit reversed earlier for non-payment being reinstated on later payment.
The overarching condition is that the credit must be admissible as input tax credit under the CGST Act. Rule 117 of the CGST Rules prescribed Form GST TRAN-1 (and TRAN-2 for the deemed-credit route) and the time limit for filing, with Rules 118, 119 and 120A dealing with specific declarations and revision.
Applicability & Scope
The provision applied to a registered person migrating from the earlier regime, other than one who opted for the composition scheme under Section 10. Key eligibility conditions included:
- The credit carried forward must be admissible under the existing law and under GST;
- All returns for the six months preceding the appointed day must have been furnished under the earlier law;
- The credit must not relate to goods manufactured and cleared under specified exemption notifications;
- For stock-based credit, the person must be in possession of duty-paying invoices or documents, or use the deemed-credit scheme where documents were unavailable.
Worked Examples
Example 1 — manufacturer with three streams. A manufacturer files its last central excise return for June 2017 showing a closing CENVAT credit balance of ₹4,80,000 and separately holds capital goods on which ₹1,20,000 of CENVAT remained unavailed (only half claimed in the earlier year). Under Section 140(1) it carries forward ₹4,80,000, and under Section 140(2) it claims the balance ₹1,20,000 on capital goods. It also holds inputs in stock with valid excise invoices carrying ₹60,000 duty, claimed under Section 140(3). It reports all three amounts in Form GST TRAN-1, and ₹6,60,000 is credited to its electronic credit ledger as CGST input tax credit.
Example 2 — trader on deemed credit. A retail trader holds stock of ₹10,00,000 on 1 July 2017 but has no excise invoices, only VAT purchase bills. He cannot claim central credit under Section 140(3) with documents, so he uses the deemed-credit scheme: on selling the stock under GST he claims a fixed percentage of the CGST paid as credit, declaring the sales in Form GST TRAN-2 over the permitted tax periods. If, say, ₹90,000 CGST is paid on those sales and the deemed rate is 60%, he receives ₹54,000 as transitional credit.
Step-by-Step in Practice
- Confirm the closing credit balance in the last excise/service-tax/VAT return and that all prior six months' returns were filed.
- Segregate central credits (to CGST) from State VAT/entry-tax credits (to SGST).
- Identify unavailed capital-goods credit and eligible credit on stock in hand.
- File Form GST TRAN-1 within the notified window, entering each category in its correct table.
- For stock without duty-paying documents, file Form GST TRAN-2 over the permitted tax periods for deemed credit.
- Verify the amount lands in the electronic credit ledger and reconcile with books.
Common Mistakes & Practical Notes
- Carrying forward blocked or exempt-supply credit that is not admissible under GST — such credit is liable to be reversed.
- Claiming central and State credit in the wrong ledger — CENVAT flows to CGST, VAT/entry tax to SGST.
- Missing the last-six-months return-filing condition, which invalidates the carry-forward.
- Composition taxpayers under Section 10 wrongly attempting to carry forward credit — they are excluded.
- Including cesses such as education cess, KKC or SBC that were held not to be "eligible duties" for transition.
Timelines, Forms & Related Sections
Form GST TRAN-1 was the primary declaration and Form GST TRAN-2 covered the deemed-credit route. Section 140 connects with Section 139 (migration), Sections 16 to 18 (eligibility and conditions for input tax credit), Section 141 (job-work goods) and Section 142 (miscellaneous transitional provisions). Rules 117, 118, 119 and 120A of the CGST Rules govern the TRAN-1/TRAN-2 filing and revision procedure and the time limits, which were extended several times by notification and by court order.
Litigation & Current Relevance
Section 140 is among the most litigated transitional provisions. Thousands of taxpayers could not upload Form GST TRAN-1 within the original deadline because of GSTN portal glitches. In Union of India v. Filco Trade Centre Pvt. Ltd., the Supreme Court directed the GSTN to open a common portal for filing and revising TRAN-1 and TRAN-2 for a two-month special window (later extended), allowing all aggrieved taxpayers to file irrespective of whether they had approached a court — effectively re-opening transitional credit for genuine claimants. Earlier, the Delhi High Court in the Brand Equity Treaties matter had read down the time limit as directory. A separate and continuing dispute concerns the meaning of "eligible duties" and the retrospective exclusion of education cess, Krishi Kalyan Cess and Swachh Bharat Cess from transition. These issues keep Section 140 relevant well beyond the original transition.