Transitional Credit

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

One of my clients has taken the VAT credit in GSTR-3B in the month of July 2017 instead of taking the credit through by filing TRAN-1 form. This credit belonging to VAT Credit against the Export of Goods. Presently, my client is under Central Jurisdiction, and the audit team came for Audit and found this error to the tune of ₹ 30 Lakhs. Accordingly, my client has excessive credit in the GST, based on that coercive action my client has reversed the credit under protest.

Now, my client has received the SCN from the department and asking for Interest for the wrong availment of transition credit.

My query is, can I file a writ petition before the court and direct the authority to accept the fresh TRAN-1 and allow the credit. And also waive the Interest u/s 50 of the CGST Act.

Please suggest me and also, kindly share suitable citations in order to overcome this issue.

Thanks in Advance.

[ABHISHEK TRIPATHI]

Dear Sir,

Transitional credit in GSTR 3B has been availed by lot of registered people. Unfortunately, few people (tax advisors) suggested that you may avail transitional credit in GSTR 3B. GST being in the natal stage, so much procedure to comply with. During that, something or the other will go wrong. That happened procedurally while availing Tran Credit.

See, you have a case, because it is just the procedural backfall. Other than procedural difference, the client had valid VAT credit and the client has the right to transfer the same, but unfortunately, the procedure adopted was different.

Even the government was aware of availing of credit through form GSTR-3B. Established through this advisory.

“11.1 Check 13: Check that credit which can be taken legally through TRAN 1 is not taken through return in FORM GSTR-3B. This can lead to double credit being taken. If there is no double credit and only procedural irregularity that credit was taken through GSTR 3B which should have been taken through TRAN 1, before the closing date of filing of TRAN 1, i.e. by 27/12/2017, the taxpayers may be directed to submit a statement of reconciliation of credits and credit regularised where otherwise admissible as per the law.”

Couldn’t recollect any case laws on the same facts, but there are cases that state that if the portal is not opened to accept Tran-1 then the assessee may avail the credit using GSTR – 3B.

In my view, it was just a bonafide procedural mistake thus the client may knock the writ door.

[KASTURI SETHI]

SH.THYAGARAJAN KALYANASUNDARAM JI,

You have not caused revenue loss to the department but there is , undoubtedly, a serious procedural lapse. Proper procedure laid down under Section 140 of CGST Act and Rule 117 of CGST Rules have not followed. Carrying forward the credit through GSTR 3B is not permitted at all. The department may impose penalty for this lapse. Case laws are available if the registered persons have not filed TRANS-1 due to snags in the functioning of Common Portal System.

You should not be in a hurry for filing writ petition with the Court direct. You should exhaust departmental channel first. By the time the SCN is decided, some case law may be available in your favour at that time. The delay by legal means is in your favour. Needless to say you can avail three opportunities for personal hearing.

So take time lag.

[Shilpi Jain]

If your VAT credit is bona-fide and eligible to be carried forward intonGST then the availing of credit in 3b is only a procedural lapse. You should be able to get relief for sure considering the numerous favorable cases for TRAN.

Gower there is no question of any interest on this credit in casebu have not utilized or you succeed in the court.

[Ganeshan Kalyani]

Sir, department is strict in allowing Transitional credit. They say sometime that you can go for appeal and present your case to higher official, but at my level I have to follow the rules so I would disallow the credit. This seems to a matter when GST was just introduced and this credit is of pre-GST period the officers are strict in checking the correctness of the credit. As experts are advocating you should keep convincing authority that it is mere a procedural lapse and has not incurred any loss to the Govt.

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

Originally the audit team came to my client's premises and audited his books of accounts. They have raised 6 para, out of which five para was accepted my client and paid the amount. However, para related to transitional credit, the authority even after representation also not dropped. Further, they have issued SCN to my client and demanding Interest u/s 50 of CGST Act. Since, client was only claimed the transitional credit in GSTR-3B instead of filing Tran-1. But so far he was not utilised, because he is an exporter and has no domestic sales to adjust the input.

Can I directly invoke Writ jurisdiction to challenge the SCN or need to wait until the order issued by the authority?

I really appreciate anyone who supports this matter.

[KASTURI SETHI]

If you challenge SCN direct in High Court, there is every possibility that High Court may direct you to first exhaust departmental channel sent your case back.. Thus your client's money and time will be wasted. Nobody likes to waste money and time unnecessarily.

Moreover, if you exhaust departmental channel, your case will be stronger on merits with legal force than now. By that time you will get more case laws in your favour. So do not be in a hurry. Going through proper channel is far better than challenging SCN direct in High Court.

Chances of getting the case decided in your client's favour are bright through proper channel.

[THYAGARAJAN KALYANASUNDARAM]

Dear sir,

Thanks for your valuable suggestion. In February, one more query that an identical petition was allowed in Jammu & Kashmir High Court and directed the respondent to allow Tran-1 Credit. Case ref : 2021(2) TMI 434 - Neptune Plastics and Jai Enterprises Vs UOI and also recently in Madras high Court relates to Interest should be levied only on the part of Utilised not on claimed amount Case ref: 2021(7) TMI 600 - F1 Auto Components Pvt. Ltd Vs State Tax Officer, Chennai.

Can I cite these cases in this matter and file writ or even go before the statutory authority and wait for some more time.

Thanks in Advance.

[KASTURI SETHI]

Dear Sir,

I am well aware about these case laws. You cannot take for granted. The element of subjectivity can play instrumental role. In other words, it depends upon the mood. You may get natural justice (relief) direct from High Court. Chance are 50 : 50.

In my view, you should cite these case laws before Original Adjudicating Authority (at first stage) and that too in the course of personal hearing. The above case laws can help you even at first stage.

In case your client is willing to go to High Court direct and God forbid, the High Court directs you to exhaust departmental channel, then more time will be wasted and relief will be delayed. There is proverbial truth, "Hurry makes curry".

[THYAGARAJAN KALYANASUNDARAM]

Dear Sir,

Thank you so much for your valuable time and reply.

[HITESH DEDHIA]

If client had not taken transitional credit tlill now and not filed Trans 1. Any way out through which he can avail the same.

[Pooja Khanna]

Dear Abhishek Tripathi,

Can you mention or provide a link to the below advisory of GOI.

“11.1 Check 13: Check that credit which can be taken legally through TRAN 1 is not taken through return in FORM GSTR-3B. This can lead to double credit being taken. If there is no double credit and only procedural irregularity that credit was taken through GSTR 3B which should have been taken through TRAN 1, before the closing date of filing of TRAN 1, i.e. by 27/12/2017, the taxpayers may be directed to submit a statement of reconciliation of credits and credit regularised where otherwise admissible as per the law.”

Thanks in Advance

[ABHISHEK TRIPATHI]

Dear Rajani Ma'am,

Please find the link

https://cbic-gst.gov.in/pdf/Advisory/Returns/CSGT-Trans-Credit-A.pdf

[Shilpi Jain]

If transitio al credit not taken nor taken through gstr3b, then it's too late to bet a remedy as the limitation period has lapsed

[THYAGARAJAN KALYANASUNDARAM]

Dear Mr.kasturi Sethi sir,

As per your direction I have filed reply through email and registered post to the respective authority after receipt of SCN but so far no response from the department. It's almost 2 months over. Now can I invoke Article 226 by filing writ petition before high Court and get the remedy. Since my working capital got struck with the department. My client has reversed the Transitional credit under protest only. Please advice me on this sir.

Thanks in advance.

[KASTURI SETHI]

Dear Sir,

Adjudication of SCN takes too much time. Sometimes it takes one year or more. Cases in the department are decided turn by turn. Disposal of SCN is age-wise. Oldest case is decided first.

If you intend to go to High Court before the adjudication of SCN, it is yours decision. I have seen cases where the parties went to High Court before the Adjudication of SCN by the department. Sometimes High Court admit writ petition and sometimes do not admit. So it depends upon the nature of the case/SCN.

So I have already expressed my views above. So the risk is your.Decision is yours.

AI Summary

Transitional credit procedural lapse: challenge SCN and seek regularisation of credit while exhausting departmental remedies. The issue concerns transitional credit taken in FORM GSTR 3B instead of by TRAN 1, prompting a show cause notice demanding interest under Section 50. Although the VAT credit appears bona fide, the procedural requirement under Section 140 and Rule 117 was not followed. Administrative advisories and some precedents permit reconciliation and regularisation where no double credit occurred or where portal failures prevented TRAN 1 filing, but the department can disallow credit and impose interest or penalties; exhausting departmental remedies and citing favourable cases at personal hearing is the recommended approach prior to filing writs.