An amendment to the central goods and services tax (CGST) Act has explicitly and retrospectively barred claiming transitional credit in lieu of the Krishi Kalyan cess and Swachh Bharat cess paid in the pre-GST regime. The CGST Amendment Bill was tabled in the Lok Sabha on Wednesday. The GST law provides for transition of accumulated credit, which allows taxpayers to transfer the input tax credit (ITC) available as closing balance in pre-GST returns to GST returns. Therefore, assesses were able to transfer the closing balance of credit in respect of central excise duty, service tax and local VAT as the opening credit balance in GST returns.
The law, however, had not specifically denied credit of cess against GST liability, which led to a section of taxpayers claiming the same too. Many other taxpayers relied on the principle that cess credit can be used to pay only the cess liability. Abhishek Jain, tax partner, EY India, said, “This amendment would open a pandora’s box for businesses which had transitioned the credits based on a literal interpretation of law. The issue may get into litigation or the businesses would need to reverse the transitioned cess credits and also evaluate on the applicability of interest on credits so transitioned.”
The government has launched a year-long drive to verify transitional credit claims of top 50,000 taxpayers as the revenue department believes that large-scale evasion took place in claiming Rs 1.6 lakh crore as transitional credit till December last year; when the windows for applying for such credit closed.
Additionally, as a result of other amendments to the GST Bill, employers will soon be able to claim input tax credit on facilities like food, transport and insurance provided to employees under any law. The government has proposed as many as 46 amendments to the Goods and Services Tax laws — central GST, state GST, integrated GST and Compensation of Sales Act. The amendments, among other things, provide for modification of reverse charge mechanism, separate registration for companies having different business verticals, cancellation of registration, new return filing norms and issuance of consolidated debit/credit notes covering multiple invoices.