Dispute regarding carry forward of closing balance of VAT credit due to non-furnishing of statutory forms like Form C

This is to update you regarding the recent notices issued by the department in respect of carry forward of closing balance of VAT credit in Form GST TRAN-1 under Goods and Services Tax (‘GST’) regime due to non-furnishing of statutory forms like Form C. Accordingly, it becomes imperative to discuss the issue involved in the dispute raised by the departmental authorities and our view thereon.

Background

With advent of GST, a taxpayer was allowed to carry forward the closing balance of input tax credit (‘ITC’) under VAT laws. Section 140(1) of the respective State Goods and Services Tax Act, 2017 (‘SGST Act’) entitled a registered person to carry forward ITC of closing balance of VAT credit as on June 30, 2017.

The proviso appended to Section 140(1) contained certain conditions and restrictions for carry forward of ITC. The proviso inter alia restricted and disallowed credit attributable to sales conducted under Section 5, Section 6 and Section 8 of the CST Act (Form-C, Form-H, Form-F sales etc.) where relevant statutory forms were not procured and filed by the taxpayer within the prescribed period. The second proviso to Section 140(1) allowed refund of ITC not carried forward upon subsequent filing of the statutory forms.

NITYA Comments:

The proviso to Section 140(1) of the SGST Act triggers only if statutory forms are not submitted within time period stipulated under Rule 12(7) of the Central Sales Tax (Registration and Turnover) Rules, 1957 (‘CST Rules’). Thus, as long as the forms are submitted within the stipulated period, reversal of ITC will not be required.

As per Rule 12(7), such forms need to be furnished within three months from the end of the quarter. It is pertinent to note that the proviso to Rule 12(7) permitted prescribed authority to allow extension of such time period on sufficient cause being shown.

Basis the abovementioned proviso to Rule 12(7), a taxpayer can file statutory forms at any point of time (even much after the conclusion of assessment) as long as it can explain the delay in obtaining such forms. It has been an industry wide practice that the buyers issue statutory forms after considerable delay. The delay in furnishing of forms by buyers constitute to be a sufficient cause under Rule 12(7) of the CST Rules. This is duly supported by various judicial precedents rendered in pre-GST regime.

Basis the above grounds, the taxpayers can refute the contention of the revenue authorities and justify the carry forward of closing balance of VAT credit in Form GST TRAN-1 under Goods and Services Tax (‘GST’) regime even if they could not furnish all statutory forms like Form C.