GST UPDATE ON LACK OF PROVISIONS FOR RECOVERY OF TRANSITIONAL CREDIT 60/2020-21

The saga of carry forward of erstwhile credit into the GST regime is being still continued, even at the time when we will be celebrating 3^rd Anniversary of GST in the coming month. The transition of credit pertaining to erstwhile laws has not been smooth enough and the inability to file prescribed TRAN-1 within the stipulated time period is being disputed with relief provided by the Hon’ble Delhi High Court in the case of Brand Equity Treaties Ltd. However, the dispute has not end in light of the retrospective amendment made in section 140 and the decision of Delhi High Court being challenged before the Supreme Court. Nonetheless, in the present update we will discuss the provisions that will be invoked by the revenue authorities in case where wrong credit has been availed as “transitional credit” under the GST regime.

Before discussing the provisions of section 73/74 of the CGST Act, 2017, it is pertinent to discuss certain provisions relating to transitional credit. The first and foremost question is whether the “transitional credit” availed by the assessees under GST regime is to be construed as “input tax credit” as the procedural mechanism available on the GST portal merges the erstwhile credit of Central Excise and Service Tax as “Central Tax” and the VAT credit as “State Tax” and the transitional credit becomes the part of the common pool of input tax credit in the electronic credit ledger on the GST portal. It is observed that in GST Law, it is possible that utilities available on GST portal and the provisions of Act are not in consonance with each other and so reference is required to be made to the definition of input tax credit as stated in section 2(63) of the CGST Act, 2017 according to which “input tax credit” means the credit of input tax. Furthermore, the term “input tax” is defined in section 2(62) of the CGST Act, 2017 as follows:-

(62) “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,

but does not include the tax paid under the composition levy;

On perusal of the above definition, it is clear that transitional credit is not to be considered as “input tax credit” under GST Law. In this context, in order to further substantiate this point, reference may be made to clarification issued vide Circular No. 125/44/2019-GST dated 18.11.2019 wherein it has been clarified in paragraph no. 50 that the transitional credit pertains to duties and taxes paid under the existing laws and so the same cannot be said to have availed during the relevant period so as to consider it as part of “Net ITC” and so no refund of unutilised transitional credit is admissible under section 54(3) of the CGST Act, 2017.

Therefore, it is clear that transitional credit is not “input tax credit” as per GST Law. Now, the question arises is whether the provisions of section 73/74 of the CGST Act, 2017 can be invoked for demanding wrongly availed transitional credit? In this respect, it is worth noting that the provisions of section 73/74 pertain to determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised. It is submitted that when the transitional credit is not considered as “input tax credit” under GST Law, then whether the provisions of section 73/74 of the CGST Act, 2017 can be invoked for demanding and recovering wrongly availed transitional credit? If answer is No, then whether the show cause notice for demanding wrongly availed transitional credit will be issued under erstwhile laws? Well, when the credit of erstwhile regime merges into the common pool of CGST and SGST in the electronic credit ledger after filing TRAN-1 and assumes the character of CGST and SGST, issuance of show cause notice under erstwhile laws would also be challenging task for the revenue authorities as utilisation of such wrongly availed transitional credit is in GST regime. One may argue that revenue authorities may certainly raise demand for short payment of tax if the said wrongly availed transitional credit has been utilised.

In this context, reference is also made to Rule 121 of the CGST Rules, 2017, which states that the transitional credit may be verified and proceedings under section 73 or section 74 shall be initiated in respect of any credit wrongly availed, whether wholly or partly. It is pertinent to mention that neither the section 73/74 nor the transitional provisions contained from section 139 to 142, expressly indicate that the wrongly availed transitional credit will be demanded and recovered under section 73/74 of the CGST Act, 2017. Therefore, in the absence of statuary provisions in the Act for recovery provisions pertaining to transitional credit when the said credit is not covered by the term “input tax credit”, the viability of Rule 121 is certainly doubted. This is for the reason that the Rules are accessories to any law and provisions of Rule cannot go beyond the statutory provisions stated in any Law. In our opinion, perhaps, this is drafting lacunae in section 73/74 of the CGST Act, 2017 which may be corrected by resorting to retrospective amendment.

This is solely for educational purpose.

You can reach us at www.capradeepjain.com, at our facebook page on https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/as well as follow us on twitter at https://www.twitter.com/@capradeepjain21.

Comments

GST UPDATE ON LACK OF PROVISIONS FOR RECOVERY OF TRANSITIONAL CREDIT 60/2020-21

Post a Comment

Query