The government has warned taxpayers against using invalid transitional credit for discharging goods and services tax (GST) liability, failing which the tax department would recover the amount along with interest and penalty, a circular issued by the Central Board of Excise and Customs (CBEC) said. In the GST regime, traders have been allowed to use the credit for pre-GST taxes paid on the stock to be sold in the GST regime from July 1 last year.
The government has often cited ‘unusually’ high transitional credit claims as one of the reasons for lower central GST (CGST) collections, given that taxpayers with credit on their electronic credit ledger utilised this instead of paying GST in cash. The transitional credit claim had reached `65,000 crore in September, prompting the department to launch an exercise to verify such submissions. After the window for submitting CENVAT credit claims expired on December 27, the same stood at nearly Rs 1.5 lakh crore.
In the circular addressed to field officials of the department, CBEC has laid out invalid CENVAT credit in two categories: One is the ‘disputed’ credit where an adjudication exists as on July 1, saying such credit was inadmissible and second is the ‘blocked’ credit, where a taxpayer has claimed credit for items explicitly prohibited in law, which includes claims against telecommunication towers and pipelines laid outside factory premises, among others. Further, the circular said that taxpayers with more than Rs 10 lakh in ‘disputed’ and ‘blocked’ credit must submit an undertaking to the jurisdictional officer of the central government, saying that such credit will not be utilised or has not been availed as transitional credit. “In other cases of transitional credit of an amount lesser than Rs 10 lakh, the directions as above shall apply but the need to submit the undertaking shall not apply,” it said.
“The permissibilty of disputed credits emanating from the erstwhile VAT regime will continue to be an issue for traders. While impermissible past credits cannot technically be used to discharge a current period tax payment, some concessions also need to be given by going slow on penalties as there have several challenges in filing the TRAN-1 returns in the past leading to several postponements of the timelines” MS Mani, partner, Deloitte India, said. The tax department officials said that the verification of transitional credit claims was nearing its end with a few centres still to submit their reports. However, officials said that despite suspicion of large-scale malpractice, the verification process so far has shown that invalid claims are only 5-10% of the total amount.