Concerned over what it perceives as a tendency among a section of taxpayers to over claim transitional credits in the GST regime, the Centre has arrogated to itself the power to verify these claims, a move that might not go down well with the state governments.
Since the launch of the GST, taxpayers have claimed Rs 1.6 lakh crore transitional credit (for taxes like excise and service tax paid in the pre-GST period), denting the central GST (CGST) payments in cash.
In a set of instructions to field formations, Central Board of Excise and Customs (CBEC) chairperson Vanaja S Sarna said, “C-GST officers of the central government shall have the jurisdiction for verification of transitional credit of CGST irrespective of whether the taxpayer is allotted to the central government or the state government for the purposes of GST.”
The CBEC justified the move on the grounds that the verification exercise can only be done by the tax authority, which had legal jurisdiction under the erstwhile law and also has the requisite past record of the taxpayer. According to an administrative power-sharing arrangement between the Centre and states approved by the GST Council, 90% taxpayers below the turnover of Rs 1.5 crore are under the administrative control of states and the rest is under the Centre.
Assessees with turnover higher than Rs 1.5 crore are equally divided between the Centre and states.
According to the CBEC circular, the department will undertake detailed verification of transitional credits claimed by taxpayers since GST rollout. While the claims are seen to be high, a preliminary enquiry, sources said, revealed that only 5-7% of claims are invalid.
“This (verification only by Centre staff) could lead to litigation between states and the Centre as it would create a precedent even for future audits of such taxpayers,” Rashmi Deshpande, associate director at Khaitan & Co, said.
Additionally, the CBEC note directs officials that the CGST Act would be amended to specifically exclude credit of cesses paid in earlier regime as valid. “Appropriate action in this direction would be taken whenever the CGST Act is amended next. You may keep this direction in view while verifying transitional credit,” the letter said.
Experts said many taxpayers have claimed credit for Swachch Bharat and education cess paid in the earlier regime as the law doesn’t specifically prohibit it. In the earlier regime, credit of cesses could be offset against cess liability, but the CGST law doesn’t have any provision for such accumulated credit, Deshpande said. She added that any amendment to exclude cess credit must provide a way forward for dealing with it.
However, Vishal Raheja, DGM at Taxmann, said the government was well within its rights under the law to issue these instructions.