The higher-than-expected utilisation of input tax credits, including the transitional credits, has been cited by the government as one of the reasons for the sharp decline in GST revenue.
Even after the tax department casting a critical eye on the unexpectedly high claims of transitional credits by businesses paying the goods and services tax (GST), such credits have soared to upwards of Rs 90,000 crore till the December 27 deadline, up nearly 40% from September, sources told FE. The facility to avail these credits — for the taxes like excise, service tax and state VAT paid in the year prior to the GST launch — has been staggered to avoid a big revenue impact in a shorter period. The higher-than-expected utilisation of input tax credits, including the transitional credits, has been cited by the government as one of the reasons for the sharp decline in GST revenue witnessed in October-November.
Alarmed over these disproportionate claims — which limited tax payment in cash — the Central Board of Excise and Customs (CBEC) had issued a series of missives to its field formations since September, asking them to intelligently verify claims of over Rs 1 crore. Though the verification exercise continues, the tax department has found it difficult to manually check all aspects of a business and decide on the eligibility of the claims. In her weekly letter last week, the CBEC chairperson had reiterated: “The last date for filing as well as revision of TRAN-1 (transitional) was December 27. We must continue and complete the process of verification of TRAN-1 claims filed urgently and initiate corrective actions whenever required.”
Once a taxpayer successfully files TRAN-1, the credits are reflected in the business’s electronic credit ledger on the GSTN portal. This can be used to discharge and offset tax liabilities submitted in GSTR-3B in any month till December. Under GST, firms were allowed to claim credit for taxes paid on stocks that remained with them a day before the new indirect regime was rolled out on July 1 last year. Credit claimed against excise and service tax paid on the transition stock was to be utilised against payment of central GST and credit claimed against VAT was allowed to be used for payment of state GST. After multiple extensions and new provisions for making corrections to the form, the last date for claiming transitional credit ended last week.
In October, the GST collection dipped to around Rs 83,000 crore, which fell further to just over Rs 80,000 crore in November. In comparison the first three months saw an average collection of over Rs 90,000 crore. Although the invoice-matching mechanism, which matches sales and purchases of businesses, remains suspended till March, the government hopes that it can match GSTR-1 (sale invoices) data with that of summary return (GSTR-3B) to identify leakages. However, this too would be a tedious and time-consuming task, given that GSTR-1 returns for July alone would be filed by January 10.