This Tax Alert summarizes a recent Circular [1] issued by the Central Board of Indirect Taxes and Customs (CBIC). Vide said Circular, CBIC has issued guidelines for verification of transitional credit availed by the taxpayers pursuant to Supreme Court (SC) ruling.
Earlier, CBIC had clarified on claiming transitional credit through filing/revising TRAN-1/TRAN-2.
The guidelines cover the following:
- Verification of transitional credit shall be conducted by the jurisdictional tax officer (JTO).
- Since the transitional credit claims could contain both central tax and state/union territory tax, jurisdictional central tax officer may refer the claim for verification to his counterpart state/union territory tax officer for verification of such credits and vice versa.
- Procedure prescribed for verification of transitional credit of central tax by JTO.
- Post verification, JTO shall pass an order specifying the amount of transitional credit allowed to be transferred to the electronic credit ledger.
- Verification of transitional credit is to be carried out within 90 days after completion of the two months window, i.e., up to 28 February 2023.
Comments:
- Guidelines on verification of transitional credit will bring in consistency and help in avoiding divergent practices being followed at the field formation level.
- CBIC, in the past, had issued similar internal guidelines for verification of transitional credits vide letter dated 14 March 2018.
- Both central and state tax authorities were earlier empowered to conduct simultaneous verification of transitional credit which resulted in difficulties for businesses. Present procedure prescribed for such verification is a taxpayer friendly measure and a welcome move.
- Circular does not address a situation where the proper officer is unable to complete the verification of transitional credits within 90 days. In such cases, credit should be deemed to be allowed without any further verification.
- While CBIC has issued guidelines for claiming and verifying TRAN-1/TRAN-2, clarification on transition of credit by ISD and its further distribution, will help remove ambiguity.
