QUESTION

We are a Proprietorship firm. In 2017 during the VAT to GST transition, we had ITC of approx 40 lacs in VAT which had to be transferred to GST credit. We had fille VAT return showing 0 credit in Vat, later on which was revised and full ITC was transferred to GST credit. Now the GST department is claiming that our revised return is void as per some internal circular they had which we are unaware of and they are considering the ITC as per original return which was 0. The GST department is pressuring us to pay the full approx 40L claimed in GST in 2017 with penal interest of 15% approx 30-35L and after paying this amount they are asking to claim from VAT giving us only approx 6% int. Kindly look into this at most urgent, as we have show-cause notice to appear on or before 8th November, 2021.

ANSWER

Facts of the case:

ABC had ITC of approx 40 lacs in VAT which had to be transferred to GST credit. He filled VAT return showing 0 credit in Vat, later on the same was revised and full ITC was transferred to GST credit. Now the GST department is claiming that revised return is void as per some internal circular they had and they are considering the ITC as per original return which was 0. The GST department is pressuring to pay the full 40L claimed in GST in 2017 with penal interest of 15% approx 30-35L and after paying this amount they are asking to claim from VAT giving only approx 6% int.

Interpretation:

Firstly Revised return means a return filed to rectify the error, omissions made at the time of filing of original return. Revised return replaces the original return and is deemed to have been filed on the same date the original return was filed. Therefore ITC claimed as per revised return is to be taken into consideration.
Notwithstanding point no. 1, it is technical/clerical error. During Pre GST regime various judgments were pronounced by H'onable Courts that CENVAT credit cannot be denied on mere technicalities or clerical error.

CESTAT, SOUTH ZONAL BENCH, BANGALORE in case of A.K. ENGINEERS Versus COMMISSIONER OF C. EX., S.T. & CUS., BANGALORE-II has clarified the same. Relevant extract is reproduced below:

6. After considering the submissions of both the sides and on perusal of the records, I am of the opinion that the denial of Cenvat credit merely on wrong address mentioned by oversight is not justified when the same has also been clarified by the supplier by issuing the letter which is placed on record. It is settled law that Cenvat credit should not be denied on mere technicalities. Keeping in view this fact, I am of the opinion that the impugned order to this extent is not sustainable in law and I allow the appeal with consequential relief, if any.

Further the penal interest for reversal of ITC as per section 50 of CGST Act is 24% and 15%.

Conclusion:
ITC claimed as per revised return is to be taken into consideration. Since the amount of credit involved is huge, therefore if the Department do not agree on above grounds, ask them to issue proper SCN and go for litigation. (Reply dt. 12/11/2021)