TRAN-1 Verification

[Murari Agrawal]

We were registered under C.E. & Service tax and submitted TRAN-1 for basic Duty balances of C.E & service tax (no PLA balance or Vat credit). In 2018 we got a mail from department seeking verification, relevant documents were submitted against receipt. Again in 2019 we got mail seeking copies of Invoices related to credit availed during past six months which were submitted against receipt. Now again another Inspector has called over phone seeking all documents along with stock statement and concerned invoices saying we are eligible for amount of duty involved in closing stock, which we think is not correct. Also our audit under EA-2000 has been completed till June, 2017 in May, 2019. Kindly advise.

[KASTURI SETHI]

Carrying forward Cenvat Credit through TRANS-1, is subject to verification of docs. If you are thinking on time-bar issue, you can fight. Once audit is conducted, the extended period cannot be invoked. There are case laws to this effect (pertaining to pre-GST era.)

[Shilpi Jain]

Also if different officers are trying to look into the same aspect, you can write to them stating this was already verified and no discrepancies were communicated in this regard.

In such cases, if it is Central and State officers involved then clearly when one has seen the other cannot look into the same aspect.

[Murari Agrawal]

Sri Kasturi Sir all our documents are in order, we want your opinion on whether the Inspector is correct in asking for stock statement to ascertain the quantum of credit we are eligible to avail.

[KASTURI SETHI]

Yes. The Inspector is correct in asking for docs pertaining to Cenvat Credt carried forward in TRANS-1. Verification of docs is as per GST laws.

[Murari Agrawal]

I agree that they can ask for all documents, including stock statement, which we are ready to produce. My question is as we have brought forward duty balance amount as available to us as per C.E. & Service tax returns filed, whether we must have corresponding closing stock to justify the amount of credit brought forward. I suppose this is applicable to those who were not already registered and have to declare their stocks for getting corresponding credit.

[Murari Agrawal]

Dear experts kindly reply to my query

[KASTURI SETHI]

At present stock is not available for physical verification. Whatever you have declared in TRANS-1, that must tally with your books of accounts. The Department is empowered to scrutinize TRANS-1 with your books of account maintained by you.

If you think that verification is to be done for those declarant who were not registered with the department prior to 30.6.17 is not correct.

If credit is wrongly taken/declared in TRANS-1, the same can be recovered by way of SCN under Section 73 or 74 along with interest. See Rule 121 of CGST/SGST Rules, 2017 read with Rule 117 (3).

[Murari Agrawal]

Perhaps I am not able to frame my query properly. During previous tax regime, excise duty on our raw material was 12.5%, while on final product it was 6%, hence there was accumulation of duty and our closing stock was not proportionate to duty amount. We are ready to cooperate and produce all documents required for verification, including stock statements. My query is after all documents are found ok during verification, whether we are entitled to full amount brought forward by us as per our excise records, or the entitlement will be proportionate to closing stock as on 30th June, 2017.

[Amit Agrawal]

Dear Querist,

From your query and your various post/s thereafter including last Post No. 8, it is my understanding that your case is that of 'transfer of closing Cenvat Credit - as per last excise-return - through Trans-1' using the provisions of sub-section (1) of section 140 of the CGST Act, 2017.

It is further understood that Cenvat Credit so transferred is much more as compared to 'duty calculated "corresponding" to your actual closing stock (of raw material material / Inputs, WIP and finished goods) as on 30.06.2017'. And this is due to reason that excise duty on your raw material was 12.5% while on finished goods, you paid excise duty only @ 6% (resulting into accumulation of Cenvat Credit over long period of time).

In such a case, in my view, you are duly entitled to transfer entire closing Cenvat Credit balance - as per you last excise return. And non-availability of "corresponding" closing stock as on 30.06.2017 is wholly irrelevant.

In other words, transfer of Cenvat Credit balance - under said Section 140 (1) - can NOT be restricted to 'proportionate to duty calculated w.r.t. value of closing stock as on 30th June, 2017'.

[Amit Agrawal]

I would also suggest to submit 'Stock Statement/s as on 30.06.2017' to Dept. officer while simultaneously explaining above legal & factual position as well.

[Mr Rao]

Dear querist,

As per your query, it is seen that you have taken credit of closing balance available as on 30.06.2017 as Tran 1 credit. If that is the case, then verification of your input invoices from January, 2017 to June, 2017 is proper and wherever ineligible credit is noticed that need to be reversed/paid by you. The question of verification of stock does not arise in this case.

[AMIT GUPTA]

As per Section 140(5) of CGST Act, 2017, transitional credit can be availed in respect of inputs or input services received on or after 1 July 2017, the duty or tax in respect of which has been paid by the supplier under the existing law, subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of accounts of such person within a period of thirty days from the appointed day (1 July 2017),

My question is what is the meaning of thirty days from the appointed day 1 July 2017 to 30th July' 2017 or 1 July to 31 July'2017 because we have entered the ISD invoice in the books dt. 31July'2017. what this amount allow or disallow by the department.

AI Summary

Transitional Cenvat credit verification: department can demand records and recover wrongly claimed transitional credit after scrutiny. Transitional transfer of pre-GST Cenvat credit via TRAN-1 is subject to departmental verification and must reconcile with the taxpayer's books; officers may request invoices, stock statements and reconciliations. If verification discloses wrongly claimed or ineligible credit, the department may issue show-cause notices and recover the amounts with interest and penalties under the GST transitional and recovery provisions. Claimants should maintain and produce stock and invoice evidence and explain TRAN-1 balances, while noting competing views on whether entitlement is limited to duty corresponding to physical closing stock.