GST UPDATE No 282 ON GUIDELINES FOR FILING TRAN-1 DUE TO SC ORDER

Even after 5 long years of implementation of GST, the saga of transitional credit continues till date. The disputes regarding carry forward of credit from the erstwhile indirect tax regime to the GST regime have reached to the maximum point as the hon’ble Supreme Court in the case of UNION OF INDIA VS FILCO TRADE CENTRE PVT LTD. has provided another opportunity to the taxpayers for filing/revising the TRAN-1/TRAN-2 returns which will ignite the fire of litigation. Recently, the CBIC has issued guidelines for filing/revising TRAN-1/TRAN-2 in terms of the order passed by the hon’ble Supreme Court vide Circular No. 180/12/2022-GST dated 09.09.2022. The present update seeks to discuss the implications of the clarification issued.The highlighting aspect of the clarification is that unlike the original TRAN-1/TRAN-2 where the input tax credit flowed to the electronic credit ledger of the assessee automatically, the assessees filing/revising their TRAN-1 on account of the above cited Supreme Court order will get their claim verified by the jurisdictional authority and subsequently, the input tax credit will be transferred in their electronic credit ledger. Moreover, another interesting aspect is the filing of declaration in the format given in ‘Annexure-A’. After studying the circular, it appears that the controversies related to transitional credit will increase manifold in the days to come.
One important point to be noted here is that it is clarified that cases where the credit availed by the registered person on the basis of FORM GST TRAN-1/TRAN-2 filed earlier, has either wholly or partly been rejected by the proper officer, the appropriate remedy in such cases is to prefer an appeal against the said order or to pursue alternative remedies available as per law. Where the adjudication/ appeal proceeding in such cases is pending, the appropriate course would be to pursue the saidadjudication/ appeal. In such cases, filing a fresh declaration in FORM GST TRAN-1/TRAN-2, pursuant to the special dispensation being provided vide this circular, is not the appropriate course of action. It is submitted that the circular restricts revising of TRAN-1 in cases where the original TRAN-1 is pending for adjudication or is pending in appeal proceedings whereas no such distinction was made by the Supreme Court. The Apex Court has granted one time relief to all the taxpayers, for filing/revising transitional credit but the guidelines are going beyond the intention of the Supreme Court order. In our opinion, the assessees should have the option to withdraw the appeal filed in case they wish to revise their transitional return. This restriction will be the point of dispute and will be the cause of increasing litigations as the assessees cannot be compelled to do a particular course of action when the benefit of filing/revising TRAN-1 is open to all the assessees.
Furthermore, the clarification also states the case where the assessee has claimed transitional credit in GSTR-3B but now wants to regularise the same by filing revised TRAN-1. In this context, the part B of the declaration in Annexure-B is relevant which states that the taxpayer is either liable to confirm that they have not claimed any transitional credit in GSTR-3B filed by them or needs to specify the amount of transitional credit availed by them in GSTR-3B filed by them and also provide the details of reversal of credit in order to file revised transitional credit and regularise the same. Now, the declaration will enhance litigation as there can be disagreement between the assessee and department regarding the amount of credit reversal and the interest amount. While assessee may claim that as they were legitimately available for claiming interest since 01.07.2017, there is no requirement of paying interest whereas department may contend that the proper mechanism to avail transitional credit is via filing TRAN-1 so the credit availed in GSTR-3B needs to be reversed along with interest.
Moreover, the declaration is also to be given that no refund has been claimed for the carry forward credit or the amount to be transitioned as credit has not been utilised or adjusted against liability under the existing (erstwhile) law. In this context, reference is made to the issue regarding payment of service tax under reverse charge mechanism after implementation of GST regimewherein the input tax credit could not be claimed in the transitional return filed by the assessee. It is to be noted that there have been various favourable decisions granting refund of the tax so paid under RCM to the assessee such as FLEXI CAPS AND POLYMERS PVT. LTD. VERSUS COMMISSIONER, CGST & CENTRAL EXCISE-INDORE [2021 (9) TMI 917-CESTAT NEW-DELHI], M/S. CIRCOR FLOW TECHNOLOGIES INDIA PRIVATE LTD. V/S THE PRINCIPAL COMMISSIONER OF GST & CENTRAL EXCISE. However, it is to be noted that there have been decision rendered by hon’ble Madras High Court in the case of M/S GANGES INTERNATIONAL PRIVATE LTD. V/S THE ASSISTANT COMMISSIONER OF GST & CENTRAL EXCISE wherein credit of service tax paid under RCM was allowed to be taken in the electronic credit ledger in GST regime. In contrast, adverse view was taken as regards availment of such credit in GST regime in the case of M/S SRC PROJECTS LIMITED. Now, the question arises is whether it is possible to claim the said RCM credit of service tax as transitional credit by filing revised return in view of the Supreme Court order. In our opinion, as the said issue is covered by favourable decisions, it is possible for the assessee to take a chance by revising the transitional return inspite of the fact that there is no express provision in the GST law for the same. However, the issue will be litigated by the department and so the assessee should keep in mind the litigation cost associated with it.
Likewise, another issue is regarding carry forward of education cess, SHE cess or KKC in the GST regime. Although, there are contrary decisions on the issue regarding carry forward of cesses into GST regime, retrospective amendment made in section 140 indicates the intention of the government to disallow carry forward of cesses in GST regime. However, the retrospective amendment too has drafting error and is prone to be challenged in the courts. Amidst the confusion, whether assessees can revise their transitional return for claiming the carry forward of the cesses is again a question that remains unanswered.
The above cited issues related to transition of credit into GST regime are point of great concern both for the assessees and the revenue department. Its high time that the government should end this story of transitional credit so that the objective of ease of doing business can be achieved.

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GST UPDATE No 282 ON GUIDELINES FOR FILING TRAN-1 DUE TO SC ORDER

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