The Central Board of Excise and Customs (CBEC) has directed taxpayers not to utilise disputed transitional CENVAT credit under the goods and services tax (GST) regime, failing which the department would recover the amount with interest and penalty.
In a circular to field officials, the CBEC has also disallowed utilisation of blocked credit, which is ineligible under GST law, such as for telecommunication towers and pipelines laid outside the factory premises for payment of tax liability.
The circular further said that the taxpayers with more than Rs 10 lakh in disputed or 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 government had in December said that high transitional credit had been claimed in many cases with no bonafide explanation and had advised the taxpayers to revise Form TRAN-1 by December 27 to revise erroneous claims.
Till September, businesses had claimed credit of over Rs 65,000 crore for excise, service tax or VAT paid before the GST was rolled out from July 1, following which the tax administration had initiated audit and enforcement action against the high-value claims.
Officials said the number of transitional credit claims were later revised upwards to about Rs 1.4 lakh crore, out of which only 10 per cent have been found to be ineligible.
Tax experts questioned the denial of disputed CENVAT credit against GST liability, saying that it could invite litigation. EY in a note said, “The circular, denying the benefit of utilisation of disputed CENVAT credit against the GST liability, seems to be in supersession of the position under the law and hence it could invite litigation. Till recently, the GSTN portal did not give the option to the taxpayer to retain part of the credit without utilising it fully while computing GST liability exceeding such credit. This could result in the recovery of credit with interest and penalty getting triggered in all such cases where a taxpayer had utilised the credit, as the tax authorities will be bound to follow the circular.
Directions to submit an “undertaking” for non-utilisation of disputed or blocked credits is unwarranted and requires reconsideration as it would add to the compliance burden of the taxpayer.”