Companies unlikely to get transition credit for cesses paid earlier

Companies unlikely to get transition credit for cesses paid earlier

The government is set to amend the goods and services tax (GST) law to explicitly state that no transition credit can be availed in lieu of cesses paid under the previous tax regime, a move that comes after companies claimed hundreds of crores of rupees as transition credit in lieu of Swachh Bharat Cess and Krishi Kalyan Cess.

Although the government had made it clear at the outset that no transition credit would be available after implementation of the GST regime, some companies took refuge in lack of clarity in law to claim credit against cesses.

The GST Council had at its meeting last week approved changes to the GST law suggested by the law review committee. These will now be vetted by the legislative department, approved by the GST Council and brought in as amendment bill in the second half of the budget session, the official said. The GST regime, which kicked in on July 1, 2017, replaced 43 central and state government taxes and cesses. The regime allows tax credit on stock purchased during the previous tax regime.

Some companies, however, included cess as part of transition credit claims when they filed returns, citing lack of clarity on the issue. As much as Rs 65,000 crore out of the nearly Rs 95,000 crore tax collections in July - the first month of GST - was claimed as transitional credit by taxpayers, prompting the Central Board of Excise and Customs to order a scrutiny of the claims. The apex indirect taxes body asked tax officials to verify GST transitional credit claims of over Rs 1 crore made by  162 entities.

Tax experts said the issue may trigger a spurt in litigation. "From a policy point of view, cesses which were allowed as credit under the earlier laws should be permitted as a carry forward credit under transition provisions. Education cess and Krishi Kalyan cess fall under that category, though Krishi Kalyan cess was only allowed as credit to service providers," said Pratik Jain, indirect taxes leader, PwC.

Jain said while credit for clean energy cess was not available (which got replaced by compensation cess), it should have been allowed under GST law to avoid double taxation, similar to credit of excise duty allowed to traders, under the transition provisions. "This change would effectively tantamount to retrospective amendment of law and is likely to go to courts," he said.

The Economic Times, New Delhi, 24th January 2018