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GST UPDATE: GUIDELINES FOR VERIFICATION OF TRANSITIONAL CREDIT

The Government of India overhauled the indirect tax structure and implemented the goods and services tax (“GST”) many years ago but its execution especially with regard to transitional credit has been shaky and subject to various writ petitions and other litigations across India. Fortunately, the issue related to carrying forward of credit from the erstwhile service tax regime to GST was resolved by the recent verdict of the Supreme Court in the case of “Union of India & Ors V. Filco Trade Center Pvt. Ltd & Anr 1.

Pursuant to the direction of the Supreme Court, the Goods and Service Tax Network (“GSTN”) has re-opened the portal permitting aggrieved registered taxpayers to file or revise Forms TRAN-1 or 2 between October 1, 2022 to November 30, 2022. The Central Board of Indirect Taxes & Customs (“CBIC”) has issued guidelines on filing or revising the forms by applicants highlighting procedural aspects regarding availing of the credit. Considering that such transitional forms are required to be verified by the jurisdictional tax officers within 90 (ninety) days, (i.e., between December 1, 2022, to February 28, 2023), CBIC issued the guidelines vide Circular No. 182/14/2022 (“Verification Guidelines”) dated November 10, 2022, pertaining to verification of such credit claims ensuring homogeneity in implementation of the directions issued by the Apex Court.

The Verification Guidelines reiterate that the Supreme Court has kept all questions of law open for filing and revision of forms Tran 1 or 2 and clarifies that the facility introduced cannot be used for revising the returns already filed under then applicable laws.

 Verification Procedure: 

We herein below discuss some of the key provisions of the Verification Guidelines: 

Ø  Accessing the filed or revised transitional forms 

Jurisdictional tax officers can access the forms TRAN-1/TRAN-2 filed or revised by the applicant on their back-office systems. Further, a self-certified downloaded copy of forms TRAN-1/TRAN-2 which is filed or revised by the applicant will also need to be made available to the jurisdictional tax officer by the said applicant.

Ø  Appropriate jurisdictional tax officer for verification

Where the applicant is under the administrative control of the central tax authorities, verification will be done by the jurisdictional central tax officer by following the guidelines provided under Annexure I of the Verification Guidelines. Where the applicant is under the administrative control of the state tax authorities, verification will be done by the jurisdictional state or union territory (“UT”) tax officer by following the guidelines issued by the respective states or UTs.

 Ø  Time frame for verification

 The jurisdictional officers are required to commence the verification process immediately once the forms TRAN-1 or 2 are filed or revised by the applicant or on receipt of the self-certified copy from the applicant, whichever is earlier.

 Ø  Role of counterpart tax officer

 The jurisdictional tax officer and the counterpart tax officer should verify the transitional credit claimed under the Central Goods and Services Tax (“CGST”) or the State Goods and Services Tax (“SGST”) head by referring to the Verification Guidelines. For this purpose, the jurisdictional tax officers are required to share a list of GSTINs or ARNs with the counterpart officer. Also, an intimation should be made to the nodal officer appointed for ensuring coordination between the central and state or UT tax authorities.

 Ø  Issuance of verification report

 The counterpart officer will be required to prepare a verification report specifying the amount of transitional credit which may be allowed to be credited to the electronic credit ledger of the applicant and the amount, which is liable for rejection, along with detailed reasons/grounds on which the said amount is liable to be rejected. Such duly signed verification report will be sent by the counterpart officer to the jurisdictional tax officer not later than 10 (ten) days from the date of receipt of the request from the jurisdictional officer.

 Ø  Passing of order

 After considering the facts of the case, including verification report received from the counterpart officer, submissions made by the applicant, and the comments, if any, of the counterpart officer on the same, the jurisdictional tax officer will pass a reasoned order, preferably within a period of 15 (fifteen) days from the date of personal hearing, specifying the amount of transitional credit allowed to be transferred to the electronic credit ledger of the applicant and upload a pdf copy of the said order, on the common portal for crediting the amount of allowed transitional credit to the electronic credit ledger of the applicant. Such order must be passed within a period of 90 (ninety) days from December 1, 2022, i.e., up to February 28, 2023.

 Remarks: 

The Verification Guidelines issued by CBIC details the procedure and formalities for the benefit of the assessees for filing of the TRAN 1 during the period of October 1, 2022 to November 30, 2022. They also streamline the response time and adjudication process to be adopted by the tax authorities for expedited disposal of the credit applications. This comes as a great relief to the assessees who have long suffered in seeking transfer of credits from the erstwhile service tax regime to GST regime but were unable to claim credits either due to technical glitches in the GSTN portal or inability to amend errors or mistakes made during filing of the TRAN 1. The Supreme Court order and the Verification Guidelines also bring closure to thousands of pending credit claim-related litigations pending across India.

Endnotes:

[1] SLP (C) No. 32709-32710/2018