Taxpayers have been directed not to utilise disputed transitional CENVAT credit under the goods and services tax (GST) regime. This has been informed by Central Board of Excise and Customs (CBEC) in a circular. The department has also mentioned that if the taxpayers failed to do so, the amount along with the interest and penalty will be recovered from them, according to Indian Express reports. However, questioning the denial of disputed CENVAT credit against GST liability, the Tax experts have said that such step could invite litigation. According the report, Ernst & Young (EY) in a note said that the circular by CBEC seems to be in suppression of the position under the law and hence it could invite litigation.
According to EY, the GSTN portal till now did not give the taxpayer the option to retain part of the credit without utilising it fully while computing GST liability exceeding such credit. However, this circular could result in the recovery of credit with interest and penalty. This will be triggered in all such cases where a taxpayer had utilised the credit, as the tax authorities will be bound to follow the circular.
Also, as per the circular, the taxpayers are not allowed to utilise the blocked credit which is ineligible under GST law. CBEC has disallowed utilisation of blocked credit such as for telecommunication towers and pipelines laid outside the factory premises for payment of tax liability.
Not just that, according to report, the taxpayers – who have more than Rs 10 lakh in disputed or blocked credit – must submit an undertaking to the jurisdictional officer of the central government. Such taxpayers must give in writing saying that such credit will not be utilised or has not been availed as transitional credit. However, as per the circular, 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.
To this EY was quoted as saying that the directions to submit an “undertaking” for non-utilisation of disputed or blocked credits is unwarranted. It added by saying that this will require reconsideration as it would add to the compliance burden of the taxpayer.