ITC Question No.239

QUESTION

During GST audit by the department u/s 65 for the FY 2017-18 & 2018-19, the GST department has demanded tax along with Interest & penalty in respect of the differential amount of ITC availed between books/GSTR-3B and GSTR-2A of the respective period. As far as I know, before Rule 36(4) came into effect w.e.f. 09/10/19, there was no restriction to avail ITC if all the conditions as specified u/s 16(2) are fulfilled except 16(2)(c) which is subject to matching concept u/s 42 or 43 which is not operational. Accordingly, I availed credit in GSTR-3B in every month as per supplies received during the respective month. In this regard, please guide me along with mentioning the specific provisions so that I can submit a proper reply to the department. Also what is relevancy of Section 41 and Rule 36 in this respect? Your early response is highly solicited.

ANSWER

Facts of the case: Eligibility of ITC claimed when the same is not reflecting in GSTR-2A

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: Nowadays 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, but prior to 19.10 2019, your case is very strong and after that, there are good chances in the high court. 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. 13/07/2021)