GST Baffled

Indian motorists drive past a billboard with an image of Prime Minister Narendra Modi announcing the implementation of the Goods and Services Tax in New Delhi July 4, 2017. India July 1 launched its biggest ever fiscal reform with the government promising that a new nationwide tax would make the economy stronger and less corrupt. (Prakash Singh/AFP/Getty Images)

NEW DELHI — A whopping Rs. 65,000 crore of transitional credit claims submitted by traders under the Goods and Services Tax have stumped the government and tax authorities are now preparing to check the veracity of claims over of Rs. 1 crore.

The Central Board of Excise and Customs has asked its officials to verify all transitional credit claims for more than Rs. 1 crore as it does not rule out ineligible claims "due to mistake or confusion."

If the entire Rs. 65,000 crore transitional credit claims are found to be genuine and accurate, it could burn a deep hole into the anticipated revenue collections under GST. Apart from transitional credit, the government will 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 from GST for July with 64 percent compliance.

"The statement received from GST Network revealed that so far, the registered persons have claimed over Rs. 65,000 crore as CGST transitional credit. The possibility of claiming the ineligible credit due to mistake or confusion cannot be ruled out. Accordingly, it is desired that the claims of credit of more than Rs. 1 crore may be got verified in a time-bound manner," Mahender Singh, special secretary and member, CBEC, wrote in a letter to chief commissioners across the country.

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 Goods and Services Tax law. It is required that such credit be verified to ensure that only eligible credit is carried forward," Singh said in the letter.

Such a verification would include matching the credit claimed with the closing balance in returns filed under earlier laws and then checking the eligibility of credit under the 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 Sept. 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 key reasons for the staggering claims of transitional credit, GST expert Pritam Mahure told IANS: "One, it could be pertaining to closing stock lying with the manufacturers and traders (such as cars and electronics lying with dealers)."

"Second, in certain cases, 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, 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.

"The government seems to have concerns with input tax credits claimed in TRAN-1 forms by taxpayers and thus, it is advisable that the taxpayers should immediately get these credits independently reviewed to avoid subsequent penal implications on inadvertently claimed credit," Jigar Doshi, partner, SKP Business Consulting, said.

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