The Central Board of Excise and Customs (CBEC) has ordered a scrutiny of transitional credit claims worth a whopping Rs 65,000 crore received from traders in the very first month of the Goods and Services Tax (GST) regime. The GST, which kicked in from July 1, allows tax credit on stock purchased during the previous tax regime. This facility is available only up to 6 months from the date of GST rollout.
The CBEC, the body which deals with formulation and implementation of policy concerning the levy and collection of indirect taxes, in a letter dated September 11 has asked tax officials to verify GST transitional credit claims of over Rs 1 crore made by 162 entities.
If the entire Rs 65,000 crore transitional credit claims are found genuine, it could burn a deep hole into the anticipated revenue collections under GST. Apart from transitional credit, government would also receive claims for input tax credit, the figure of which is not yet known. Finance Minister Arun Jaitley had said that the government had collected Rs 95,000 crore as GST for July with 64 per cent compliance.
In a letter to Chief Commissioners across the country, Mahender Singh, Special Secretary and Member, CBEC, said that the statement received from GST Network revealed that so far, the registered persons have claimed over Rs 65,000 crore as CGST transitional credit. Singh said that the possibility of claiming the ineligible credit due to mistake or confusion cannot be ruled out.
A list of assessees in the Delhi region, who have claimed more than Rs 1 crore as credit in their Tran-1 showed a firm even claiming up to Rs 228.82 crore as transitional credit.
The carry-forward of transitional credit is permitted only when such credit is also permissible under the GST law, Singh said in the letter, recommending that it is required that such credit be verified to ensure that only eligible credit is carried forward.
Such a verification would include matching the credit claimed with closing balance in returns filed under the earlier laws and checking the eligibility of credit under GST regime.
"It is desired that the same should be done at the earliest with regard to assessees under your jurisdiction and a report sent to this office by September 20," the letter said.
The transitional credit claims of Rs 65,000 crore are only for Central GST. The states may also follow a similar examination and verification process of claims received under State GST.
Listing out the key reasons for the staggering claims of transitional credit, GST expert Pritam Mahure said that it could be pertaining to closing stock lying with the manufacturers and traders (such as cars and electronics lying with dealers).
Secondly, in certain cases, Pritam said that due to invert duty structure (mainly in pharmaceutical industry), many taxpayers had substantial excise duty credit balances, which may have been claimed as transitional credits. Third, he said, the government had allowed traders to avail excise duty credit on the one-year-old stocks, which was not available to them earlier.
Experts also suggested that traders should themselves review their claims, before the government initiates scrutiny and subsequent action.