A tax credit is a component of a company’s tax payment that can be applied to offset a subsequent tax obligation.
When India moved to the GST regime in 2017, companies had to transition the credit sitting on their books. So, the closing balance in the old tax regime would become the opening credit balance under GST.
When India moved from the old indirect tax regime to GST, a one-time transition of credit was allowed. That is, companies could set off part of the taxes paid during the old tax regime against future GST liabilities.
Many companies claimed that they had simply forgotten to claim the transitional credit.
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The case reached the Delhi High Court, which ruled in favour of the taxpayers.
On Friday, the Supreme Court division bench of Justice Abdul Nazeer and Justice JK Maheshwari ruled in the Brand Equity Treaties Limited versus Union of India case that all companies should be able to get transitional credit, whether or not they have approached the court of law.
The court also directed the government to open a common portal for all taxpayers to claim the credit within 60 days – from September 1 to October 30.
“The judgement and the guidelines prescribed therein will now guide thousands of cases that are pending for assessment in writ courts across the country to their logical end,” said Abhishek A Rastogi, Partner, Khaitan & Co., which represented the company in the case.
Many companies argue that transitional credit is their vested right and just because they forgot to claim it doesn’t mean this right should be withdrawn.
“The Supreme Court, in a seminal judgment, upheld the principles of equity… by allowing the vested right to be carried forward in GST returns. The judgement will now act as precedent for thousands of cases pending before various high courts. Officers will be required to process these TRAN-1 applications in a time-bound manner now,” said Rastogi.
Companies could claim the transitional credit through TRAN forms. The SC said Tran 1 and Tran 2 were GST forms that allowed the assessees to transition from the pre-GST credit to the GST regime.
“This decision comes in light of the on-going dispute wherein various taxpayers have contested that, on account of technical glitches, these forms could not be filed in a timely manner, and even if otherwise, their right to transition the credit cannot be denied to them,” said Abhishek Jain, Tax Partner, KPMG in India. “This presents a golden opportunity for the industry players, irrespective of whether they were a party to the writ petition or not, and all businesses should look at any pre-GST credit that was not duly transitioned, in light of this SC judgment.”
Brand Equity Treaties is a company owned by Bennett, Coleman & Co Ltd (BCCL), the publisher of The Economic Times.