Special audit for Areas of Excessive Transitional Credit: In order to check “frivolous and fraudulent” tax credit claims by businesses, the CBEC has decided to verify demands of top 50,000 tax payers claiming maximum GST transitional credit, starting with those where the quantum exceeds Rs 25 lakh

The verification of “unreasonable” transitional credit claims would be conducted in four phases. In the first phase, the tax officers will verify transitional credit claims where the growth is more than 25 per cent or the credit availed is in excess of Rs 25 lakh. One-third of the remaining claims of 50,000 taxpayers will be verified in three phases — July-September, OctoberDecember and January-March (2019). Credit verification will remain one of the focus areas in 2018-19. One of the important tools for credit verification available with the government is special audit u/s 66.

As per section 66, at any stage of scrutiny, inquiry, investigation or any other proceedings direction to registered person to get accounts examined and audited can be given. Direction has to be given by Proper Officer before whom scrutiny, inquiry, investigation or any other proceeding is done (and none else). Direction for special audit can be made only by officer not below the rank of Asstt Comm. Direction for special audit is given having regard to nature

Areas of Excessive Transitional Credit

1 Credit taken against Return of goods by unregistered person on or after 01-07-2017 against goods supplied between 01- 01-17 to 30-6-2017 on payment of tax

2 Tax paid on goods returned by unregistered person on or after 1-7-17, can be claimed back as refund under the existing law. [S. 142(1)]

3 ITC taken on goods in transit on 30-6-17, Invoice of which has not been recorded in books of accounts upto 31-07- 2017. [Sec. 140(5)].


4 ITC taken against amount refundable pertaining to pre GST regime

5 Credit of CST paid on stock as at 30-6-17 taken.

6 Credit taken against pending Vat assessment for which C/H/F forms are not available.

7 Transitional Credit taken both in TRAN-1 as well as GSTR-3B.

8 100% Transitional Credit taken on the basis of Credit transfer document against non identifiable goods not bearing distinct number and/or, not bearing brand name of manufacturer and/or goods having unit value lesser than Rs. 25000

9 Transitional Credit taken against stock without being in possession of invoice or invoice being older than 1-7-2016

10 Enhanced Input credit taken on the basis of revised return for period ending 30-6-2017whereas law does not allow to take higher credit in revised return as compared to the original return.

11 50% Credit of tax taken against capital goods inspite credit not being admissible under existing law

12 ITC taken against reversal of credit under 2nd Proviso to Rule 4(7) where consideration and tax was not paid within 3 months from the date of invoice, inspite the payment not made within 3 months from appointed date.

13 ITC taken against carry forward of service tax without reversal of cenvat credit under 2nd Proviso to Rule 4(7) where consideration and tax was not paid within 3 months from the date of invoice

14 ITC against inputs taken by supplier u/s 140(3) who though liable to be registered under existing law failed to take registration.

15 ITC taken against goods entitled to credit on sale without reversing credit under existing law

16 Credit of service tax taken against services used against inputs lying on 30-6-17

17 Deemed Transitional Credit taken against non-identifiable goods.

18 Deemed credit under proviso to S. 140(3) taken by service provider or manufacturer where tax amount is not indicated in invoice.

19 Deemed Credit of SGST taken by trader against sale of stock (other than first stage goods) lying on 30-6-17, where tax amount was not mentioned in supporting invoices.

20 Deemed credit of CGST and SGST taken against stock without there being any evidence for procurement of goods

21 Deemed credit of CGST taken by trader against taxable goods which enjoyed conditional exemption under CETA.

Prior approval of Commissioner is required for special audit. Direction for Special audit has to be made by communication in writing to Registered Person. Direction for special audit has to be communicated in ADT-03. Direction to special audit shall involve getting records including Books of accounts examined and audited.Special audit has to be done by Chartered Accountant or Cost and Works Accountant nominated by Commissioner. Expenses And Remuneration of CA/CWA shall be determined and paid by Commissioner and such determination shall be final. Report of Audit has to be submitted by such nominated CA or CWA within 90 days. Special Audit may be directed even if accounts of the registered person have been audited under any other law or under other provisions of this Act.Registered Person shall be given an opportunity of being heard in respect of material gathered on the basis of special audit which is proposed to be used in any proceedings against RP under this Act or Rules. On conclusion of special audit Registered Person shall be informed about the findings of special audit in ADT-04. Where audit results in detection of tax not paid/short paid etc, Proper Officer may initiate action u/s 73 or 74.

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