Transitional Question No.46

QUESTION

There is a GST registered taxpayer who was previous registered under Service Tax having centralized Service Tax registration. He has different units in different states. Previously he had centralized registration under S. Tax (Kolkata being the head office), but under GST he has different registration for different states. He has availed TRAN-1 credit by carrying forward the balance credit in the last ST-3 return. He divided this balance credit of service tax to his different units in different states having same PAN and filed TRAN-1 accordingly for different states. Now, the department has conducted the Service Tax audit for the period Oct-16 to June-17 and found some wrongly availed credit which was carried forward through Tran-1. Please guide me on the following points- 1. Can CGST credit which was carried forward through Tran-1 be utilized to pay Service Tax? Moreover, it has not the sufficient balance in Kolkata GST unit. So, can he utilize the CGST credit of other states to pay off the demanded service tax as he had centralized registration previously? 2. If yes, how can he pay this service tax- through DRC-03? If through GST registration of Kolkata, he has not sufficient balance in his Er. Credit ledger and he can`t access the credit ledger of other states through GST portal of Kolkata unit. 3. If there are some other mechanism to pay arrears of Service Tax like any circular or website address, please give details thereof.

ANSWER

FACTS OF THE CASE:

Credit of service tax regime was transferred to electronic credit ledger via Tran-1 and claimed as credit in the GST regime. Now, the credit of service is rendered inadmissible.

LAW APPLICABLE:

1. Clause (b) to section 142(6) CGST dictates that;

" every proceeding of appeal, review or reference relating to recovery of CENVAT credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of existing law and if any amount of credit becomes recoverable as a result of such appeal, review or reference, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act. "

2. Para 3 of circular 58/32/2018 issued on 4th September 2018 has clarified as follows;

" It may be noted that all such liabilities may be discharged by the taxpayers, either voluntarily in FORM GST DRC-03 or may be recovered vide order uploaded in FORM GST DRC-07, and payment against the said order shall be made in FORM GST DRC-03. "

INTERPRETATION:

Section 142(6)(b) CGST specifies that where arrears of earlier tax regime would be recoverable, the same would be recovered under the current GST regime as per the relevant sections and rules of the CGST Act.
Circular 58/32/2018 has clarified that any such liabilities may be paid off voluntarily through DRC-03 challan using the electronic credit ledger or the electronic cash ledger of GST.

CONCLUSION:

So to answer your questions;

Question 1 : Can CGST credit which was carried forward through Tran-1 be utilized to pay Service Tax? Moreover, it has not the sufficient balance in Kolkata GST unit. So, can he utilize the CGST credit of other states to pay off the demanded service tax as he had centralized registration previously?
Answer 1: As per section 142(6)(b), yes the electronic credit ledger of GST may be utilised to pay off such liability. However, since the registered persons in other states are distinct persons and are identified as a separate legal entity in GST law, they can not pay the liability incurred by the registered person in kolkata. For this, you may apply for a writ petition in high court or you may decide to pay the liability through electronic cash ledger of the Kolkata office.

Question 2 : If yes, how can he pay this service tax- through DRC-03? If through GST registration of Kolkata, he has not sufficient balance in his Er. Credit ledger and he can`t access the credit ledger of other states through GST portal of Kolkata unit.
Answer 2: Circular 52/32/2018 has clarified that such liability can be paid through FORM DRC-03. The second part of the question has been answered above in Answer 1.

Question 3 : If there are some other mechanism to pay arrears of Service Tax like any circular or website address, please give details thereof.
Answer 3: You may please refer to circular 58/32/2018 issued on 4th September 2018 and circular 42/16/2018 issued on 13th April 2018 in this regard. Both these circulars are available as amended and up to date in your Lawcrux Ebook. (Reply dt. 16/04/2022)