QUESTION

Supplier has passed in-eligible ITC and is absconding. What should the receiptent do - recovery letter from the Dept , saying that Supplier has fraudulently passed the ITC. What is the process of recovery by the GST dept?

ANSWER

Facts of the case: Supplier has passed in-eligible ITC and is absconding. What should the receipient do - recovery letter from the Dept, saying that Supplier has fraudulently passed the ITC. What is the process of recovery by the GST dept?

Law Applicable: SECTION 16 OF CGST ACT

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,''

a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

b) he has received the goods or services or both.-------------------------------------

c) 'subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

d) he has furnished the return under section 39:

CGST RULE 36 (wef 09.10.2019)

(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 5 per cent (10 percent till 21.12.2020) (20 per cent till 01.01.2020) of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.

Interpretation: There is no provision which makes ITC not reflected in GSTR-2A as ineligible nor it is one of the mandatory conditions to avail ITC in terms of Section 16 of the CGST Act.

However wef 09.10.2019 Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers in GSTR-1 shall not exceed 5 per cent (10 percent till 21.12.2020) (20 per cent till 01.01.2020) of the eligible credit available.

Hence ITC claimed on the basis of tax invoices cannot be disallowed for the period before amendment in Rule 36(4) on the grounds that same was not reflecting in GSTR-2A, thereafter as per Rule 36(4) for invoices not reflecting in GSTR-2A, ITC can be claimed 5% on provisional basis.

Conclusion: If the amount is small, then deposit it with interest. However if amount is huge then you can go for litigation against demand of ITC claimed on the basis of tax invoices and not reflecting in GSTR-2A.

NOTE: Now a days GST Department is creating a high pressure for recovery of ITC claimed for invoices not reflecting in GSTR-2A. In case you go for Appeal, there may be a possibility of rejection by the Lower Authorities. Therefore if the amount is huge then you are suggested to appoint an Advocate practicing in civil and criminal field for the aforesaid case.

These type of cases are already decided in VAT regime. If the buyer is making payment to the seller for bonafide purchase then he can avail credit of it even if the seller has not deposited the tax. Some of the relevant citations are as follows:

1. 2013(08)LCX 0278
2. 2000(10) LCX0177
3. 2013(01) LCX 0042 (Reply dt. 10/03/2021)