Several Indian companies, including some large entities, may start receiving notices from Monday on transitional tax credits in the run-up to the introduction of the single producer levy, two people with direct knowledge of the developments told ET.

The notices from the indirect-tax department follow last week’s direction from the Central Board of Excise and Customs (CBEC) that asked chief commissioners to verify all transitional credit claims beyond Rs 1 crore. About 160 companies, which collectively have claimed about Rs 65,000 crore in transitional tax credits, would be issued notices in the coming weeks. 

“By Friday, chief commissioners had received the names of companies in their jurisdictions and asked for a basic report on the subject. Notices would be issued to companies and explanations would be sought for the amounts claimed in transitional credits,” said a person in the know. 

In some cases, the indirect-tax department is also asking companies – particularly some Hyderabad-based infrastructure establishments — to produce the VAT returns of the past one year. 

The government is seeking these details to cross-check the transitional credit in GST. Transitional credits are basically tax credits accumulated before July 1 on pre-GST stock. According to the GST law, the credit can be set off against GST liability. Taxmen suspect that some companies are misusing the provision and have filed fake returns. 

“The suspicion is that many companies have claimed credit when they do not have proper invoices to support them. Ideally, when this happens, companies could only claim 60% of transitional credit, but some companies seem to have taken 100% credits,” said a tax officer. Industry trackers say that this step by the government has spooked several companies. 

Some industry trackers say that Rs 65,000 crore as transitional credit in the total GST revenue of Rs 95,000 crore for July appears disproportionate. #casansaar (Source - Economic Times)