The issue of transitional credit (TRAN Credit) under Goods & Services Tax (GST) is still being litigated with two High Courts — Kerala and Bombay — settling it in favour of the assessees.
The Kerala High Court, in a recent order, directed the GST department to facilitate revision of Form GST TRAN-1 and filing of Form GST TRAN-2 by making necessary arrangements, while the Bombay High Court has permitted late filing of return. Earlier, various High Courts — including Madras and Delhi — had also given relief to assesses.
Experts feel the GST Council should thrash out this issue in the next meeting and recommend changes in the GST law.
Transitional credit refers to use of tax credit accumulated up to June 30, 2017; that is, the last day of the erstwhile central excise and service tax regime. Post introduction of GST, a provision was made for credit accumulated under VAT, excise duty or service tax to be transited to GST.
However, there were some conditions. The credit was available only if returns (VAT, excise and service tax) for the last six months — from January 2017 to June 2017 — were filed in the previous regime. Form TRAN-1 (to be filed by registered persons under GST, may be registered or unregistered under the old regime) had to be filed by December 27, 2017, to carry forward the input tax credit. Also, Form TRAN-1 could be rectified only once. The government permitted those registered persons who furnished evidence of an attempt to load TRAN-1 up to December 27, 2017, to file TRAN-1 by March 31, 2019.
‘Nascent period’
The Kerala HC bench observed that the period between 2017 and 2020 ought to be regarded as “the nascent period of legislation”. There were many glitches, even from the I-T Department, during that period.
Further, the Court maintained that unfamiliarity with the new regime caused formidable and unprecedented difficulties. Accordingly, the statutory limitation prescribed for correcting errors that occurred during the initial stages of transition ought not to be used as an iron handle to deny the legitimate claims of taxpayers, especially for claims relating to transitional input tax credit.
‘Genuine mistake’
Harpreet Singh, Partner in KPMG, notes that another judgment in favor of assessee establishes that it is unjustified to deny input tax credit on account of procedural and bonafide lapse.
“With the High Court’s ruling in favour of assesee, the GST Council should come up with standardised guidelines for processing of such claims by jurisdictional authorities,” he said, adding that a genuine mistake in filling up TRAN-1 on account of procedural lapse or inadvertent any mistake should not prevent the assessee from claiming or being entitled to claim what is otherwise legally due to him.
Samir Kapadia, Partner – Indirect Tax at Nangia Andersen LLP, said that while revenue authorities have been arguing that the right to transition credits was not absolute and time limit under rule 117 is mandatory, various High Courts in several cases have considered the transition phase as a “trial and error phase” as far as implementation of the statute was concerned.
“The comments/suggestions of the Single Judge of the Kerala High Court in the case of G&C Infra Innovations — including treating period between 2017 to 2020 as a nascent period — will be helpful in future disputes also, including disputes related to levy of penalty,” he said.