The Central Board of Excise and Customs (CBEC) is set to start investigations into a suspected trend among some construction companies to claim undeserved transitional credits on building materials used in under-construction structures, prior to the roll-out of the goods and services tax (GST). Such illegal use of transitional credit was found by tax sleuths in case of at least one company and many others might have done this as well, sources said, adding that field offices have been asked to conduct a probe into such practices. Under the GST, businesses are allowed to claim transitional credits for taxes paid on goods that remained unsold before the roll-out of the GST and were to be sold in the new indirect tax regime. However, the government received transitional credit claims of nearly Rs 65,000 crore by September which were dubbed ‘unusually’ high. Suspecting a foul play, the tax department began verifying the validity of such claims.
During one such verification process, a commissionerate in Delhi found that a construction company had not only taken the transitional credit of inputs (bricks, TMT bars and rods, cement, etc.) held in stock on June 30 last year, but had also taken the credit of nearly Rs 60 lakh on inputs which had been consumed in its building under development before the GST roll-out. While the credit on inputs held on the day before GST implementation is permissible, the tax department said the building under construction being attached to earth can’t be called ‘goods’ as per the existing law as well as under erstwhile central excise law. “Therefore, it appears that in the case of building construction, the transitional credit of inputs already used in construction and contained in work-in-progress as on June 30, 2017 is not permissible,” the department said in a letter to field formations. It advised field formations to verify transitional credit claims in the construction industry keeping in view a similar modus operandi.