Many cases or situations are observed where there is difference in Input Tax Credit (ITC) claimed in GSTR 3b and ITC available in GSTR-2a. This is due to the reason – Taxes are paid by the recipient to the supplier but not deposited by the supplier to the government. On Combined reading of Sections 16(2)(c), 37, 38, 73 of Central GST Act (CGST),2017, a buyer who avails ITC for amount paid to his seller (both invoice amount and tax) will be denied for the credit, if the seller does not deposit tax with the appropriate Government authorities and disclosed in his GSTR-1 return.
New Calculator of GST Payment and Input Tax Credit (ITC)
But why the bonafide buyer gets cut up for the GST Input Tax Credit (ITC) for the reason of non-payment of tax by the defaulting seller. There are many sections or instances which should allows the buyer to take ITC of the GST paid. They should not supersede on merely a fact that the amount is not received by the government. Such sections or instances are as follows:-
- Section 16(1) allows availment of ITC subject to the satisfaction of the following 2 conditions:-
– Supplies should be made to a registered person; and
– Such supplies are meant to be used or intended to be used by such registered person in the course or furtherance of his business.
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- As per Section 16(2), ITC is available if the following conditions are fulfilled:
- Possession of a tax invoice or debit note or any tax paying document
- Receipt of goods/services by the receiver or anyone his behalf.
- Section 41 gives the vesting condition for claiming ITC, filing of return under section 39. As GSTR2 is in hold, the buyer can only see the autopopulated information in GSTR2A. The second part of GSTR2 is not in force. It allows the recipient to enter information missed by the supplier in GSTR 1.
Advance received under GST and related FAQs
- Denying the credit of ITC of the tax paid by recipient, it will go against article 14 of the Constitution. It says, “Equality before law – The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth.”
- Such credit denial is also against Article 19(1)(g) of Constitution of India. It says “All citizens shall have the right (g) to practise any profession, or to carry on any occupation, trade or business.”
- The Hon’ble Supreme Court in the case of Commissioner of Trade & Taxes, Delhi and others Vs. Arise India Limited and others [TS-2-SC-2018-VAT], has dismissed the Special Leave Petition filed by the Revenue against the decision of the Hon’ble High Court of Delhi in the case of Arise India Limited and others Vs. Commissioner of Trade & Taxes, Delhi and others [TS-314-HC-2017(Del)-VAT] (“Arise India case”). The Hon’ble High Court of Delhi held Section 9(2)(g) of Delhi VAT Act to the extent it disallows Input Tax Cedit (ITC) to purchaser due to default of selling dealer in depositing tax, as violative of Articles 14 and 19(1)(g) of the Constitution of India.
Requirement of GST Registration in India
- Decision in case of Kay Kay Industries (2013-TIOL-41-SC-CX). (2013-TIOL-41-SC-CX) that the manufacturer cannot determine whether his supplier has discharged excise duty on the goods which are supplied to the manufacturer by him.
- Also, a verdict came In Larsen & Toubro vs. CCE (2001 (127) ELT (807), it was held that the assessee should not be penalized [by denying credit] for the mistake of seller of goods.
Change in GSTIN Registration Details
- On Quest Merchandising India Pvt. Ltd Vs Government of Nct of Delhi & Ors. (Delhi High Court), it was held that ITC would be allowed to purchaser despite non-payment by selling dealer.
- The benefit of input tax credit is denied to a bona fide purchaser. The reason of the default of the selling dealer over whom such purchasing dealer has no control. It should not be made the responsibility of the purchasing dealer to ensure that the tax is deposited by the selling dealer when the transaction is bona fide.
FAQ’s on GST Annual Return and GST Audit
The Government should work against the defaulting assessee and recover the tax along with interest and penalties. Otherwise, how the seller will be caught for such kind of tax evasions. We tried to give some facts or instances. We urge that it maybe specifically provided that the input tax credit (ITC) would not be denied to the purchasing dealer for the reason being non-payment by selling dealer, if the purchasing dealer acted in bona fide manner.
The Author of the above article is Riya Thawani, ICAI.
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