More input tax credit claims on pre-GST stocks to raise govt woes

Another set of claims of input tax credit on stocks from the period before the introduction of the goods and services tax (GST) is likely to aggravate the government’s problems.

While the government is rattled by the input tax credit (ITC) claimed for pre-GST stocks because it accounted for more than 68 per cent of the taxes paid in the new tax regime, more claims are expected from traders and retailers without invoices. 

For the close to Rs 95,000 crore revenue collected so far in July, around Rs 65,000 crore has been claimed as input tax credit by filing TRAN 1 for taxes paid for the period before July 1. These are only for the stocks with invoices. 

Filing TRAN 2, for claiming input tax credit by traders and retailers for transient stocks without an invoice, is yet to begin.

“The ITC claimed under TRAN 1 seems quite steep and is being verified. But the story doesn't end here. We are not sure how much will be claimed under TRAN 2. We are still evaluating the revenue impact," said a government official. 

The revenue outflow might be high in the initial months, he added. 

Companies had 90 days from July 1 to claim credit for the excise duty paid on inputs. 

The GST Council had allowed companies to claim 100 per cent input tax credit by uploading excise payment invoices for the period before July 1.

In the case of invoices not being available, the Council had first allowed 40 per cent input tax credit through TRAN 2. 

The limit was later raised to 60 per cent on items with a tax rate of more than 18 per cent GST. Claims relating to the pre-GST period could impact GST collections because many of these would have to be offset in the August payments.

“The impact of TRAN 2 will be over and above Rs65,000 crore credit already claimed. However, the deemed credit will be claimed on a monthly basis.

It will be essentially on the Central GST (CGST) instead of the state GST (SGST) as deemed credit is for excise duty and not VAT (value-added tax). But it is difficult to estimate how much that will be," said Pratik Jain of PwC India. 

He added that since it needed to be claimed by the end of each month, the utility of TRAN 2 should have been made available earlier. 

A GST Network (GSTN) official said that the TRAN 2 utility would be available by the first week of October.

Astonished at the huge credit claims from TRAN 1, the Central Board of Excise and Customs (CBEC) has asked officials to verify claims of credit of over 1 crore.

“The possibility of claiming ineligible credit due to mistakes or confusion cannot be ruled out,” said the CBEC in a letter to its field formations to verify the eligibility of credit carried forward.