ITC Question No. 272

QUESTION

During the Departmental audit for F.Y. 17-18,18-19,19-20, the department has made an observation that the businessman has missed to pay Reverse Charge GST on Import of Services. The department is insisting to pay through DRC 03.
1. Whether it is compulsory to pay this accepted liability through DRC 03 only? What will happen if it is simply pay through PMT 06? Will this be considered as satisfaction of the liability for which observations have been made by the audit department?
2. Whether ITC on RCM paid through 3B for earlier years can be adjusted against current months output tax liability or it has the limitation of 6 months from the end of financial year as in case of other normal ITC claim?

ANSWER

FACT OF THE CASE:

Departmental audit for FY 17-18, 18-19, 19-20 raised a demand for RCM on import of services.

LAW APPLICABLE:

1. Clause (i) of section 17(5) CGST is laid as under;

" any tax paid in accordance with the provisions of sections 74, section 129 and section 130."

2. Sub rule (2) of rule 142 CGST Rules specifies that;

" Where, before the service of notice or statement, the person chargeable with tax makes payment of the tax and interest in accordance with the provisions of sub-section (5) of section 73 or, as the case may be, tax, interest and penalty in accordance with the provisions of sub-section (5) of section 74, or where any person makes payment of tax, interest, penalty or any other amount due in accordance with the provisions of the Act whether on his own ascertainment or, as communicated by the proper officer under sub-rule (1A) he shall inform the proper officer of such payment in FORM GST DRC-03 and the proper officer shall issue an acknowledgement, accepting the payment made by the said person in FORM GST DRC' 04. "

3. Subsection (4) of section 16 CGST dictated the time limit for claiming ITC as follows;

" A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. "

INTERPRETATION:

On a discovery of any tax which was not paid to the credit of the government, the same can be deposited under sub section (5) of section 73 via voluntary payment. This voluntary payment shall be made before service of a show cause notice under section 73/74. Rule 142(2) mandates the filing of FORM DRC-03 in such a case after the payment has been made through PMT-06 challan.
It must also be noted that if your case is adjudged under section 74 then the ITC on this shall be blocked under section 17(5)(i). However if the payment is made under section 73 then the ITC can be claimed if all other conditions of section 16 are satisfied.

CONCLUSION:

So to answer your questions;

Question 1: Whether it is compulsory to pay this accepted liability through DRC 03 only? What will happen if it is simply paid through PMT 06? Will this be considered as satisfaction of the liability for which observations have been made by the audit department.?
Answer 1: Yes it is compulsory to file DRC-03 since it is mandated by rule 142(2) CGST.
If the payment is made simply through challan PMT-06 then the amount is deposited in your Electronic Cash Ledger. Your cash ledger will now reflect this amount. However your liability will not be adjusted from your Electronic Cash Ledger balance till the time DRC-03 is filed and it will not be considered as satisfaction of liability.

Question 2: Whether ITC on RCM paid through 3B for earlier years can be adjusted against current months output tax liability or it has the limitation of 6 months from the end of financial year as in case of othe rnormal ITC claim?
Answer 2: Availment of ITC can be done till earlier of the due date of September Return after end of financial year to which such invoice pertains or actual date of Annual return. There is ambiguity in the law in the sense that if an invoice for 17-18 is issued in 21-22 then will it be considered that "the invoice pertains to FY 17-18" and therefore the time limit is September 2018 or that "the invoice pertains to FY 21-22" and therefore the time limit is September 2022. This is a question of law and a matter of litigation. You may take up the interpretation that is beneficial to you and make an appeal for the claim of ITC. (Reply dt. 04/06/2022 )