We refer to a recent Circular No. 33/07/2018-GST dated 23 February 2018 issued by the Central Board of Excise and Customs (CBEC) regarding non-utilization of disputed CENVAT credit transitioned under the Goods and Services Tax (GST) and non-availability of CENVAT credit carried forward but not eligible under GST.
Some of the key points discussed in the circular are summarized below:
· Non-utilization of Disputed Credit carried forward: In relation to any CENVAT credit, pertaining to which a show cause notice was issued under rule 14 of the CENVAT Credit Rules, 2004, which has been adjudicated and in the last adjudication order or the last order-in-appeal, as it existed on 1st July, 2017, it was held that such CENVAT credit is not admissible, then if such CENVAT credit has been credited to the electronic credit ledger (e-credit ledger) in terms of Section 140 of the Central Goods and Services Tax Act, 2017 (CGST Act), the same shall not be utilized by registered persons for discharging the GST liability till the existence of such order. In case the said disputed credit is utilised, the same shall be recovered from the tax payer along with interest and penalty as per the provisions of the Act.
· Non-transition of Blocked Credit: Registered person shall not carry forward in their e-credit ledger any CENVAT credit that is blocked under Section 17(5) of CGST Act. If such credit is carried forward in contravention, it shall not be utilized for discharging the tax liability under GST, and the same will be recovered from the taxpayer with interest and penalty.
· Where disputed credit or blocked credit as referred above is higher than INR 10 Lakhs, the taxpayer shall submit an undertaking to the jurisdictional officer of the Central Government that such credit shall not be utilized or has not been availed as transitional credit, as the case may be. In other cases of transitional credit, with amounts below INR 10 Lakhs, while there will be no requirement to submit an undertaking, the above provisions of blocked credit and disputed credit shall continue to apply.
Our Comments :
· The Circular, denying the benefit of utilization of disputed CENVAT credit against the GST liability, seems to be in supersession of the position under the law and hence it could invite litigation.
· Till recently, the GSTN portal did not give the option to the taxpayer to retain part of the credit without utilizing it fully while computing GST liability exceeding such credit. This could result in the recovery of credit with interest and penalty getting triggered in all such cases where a taxpayer had utilized the credit, as the tax authorities will be bound to follow the Circular.
· Directions to submit an “undertaking” for non-utilization of disputed or blocked credits is unwarranted and requires reconsideration as it would add to the compliance burden of the taxpayer.
We will need to await for any further clarity which may be issued by the government on the matter and will keep you posted on the same. The relevant circular and our EY Tax alert on the same has been attached herewith for your reference.
Trust the above update helps. Do let us know a convenient time in case you wish to discuss the same.