About the Book
Input Tax Credit remains one of the most litigative area in GST. The litigation is reaching before various Judicial forums be it the Supreme Court or the High Court or AAR/AAAR. With the era of assessment starting in GST, taxpayers are ooded with the notices being received on various issues.
The book has been divided into two parts wherein Division one narrates the legislative background and Division two compiles various issues which may form part of draft response to the notices being received.
Detailing out Division One, it narrates the law relating to Input Tax Credit in a brief manner. This has references to the relevant sections, rules and the applicable forms pertaining to Input Tax Credit.
Division Two of the Book contains draft responses to the notices being commonly received in GST by the Taxpayers. It is a given fact that the submissions on a particular issue on merits is governed by the facts of the individual case. A small change in fact may result in adding of a new ground or a deletion of the existing ground. Thus, an effort has been made to compile various issues which may be part of the response to be led against the notice. However, compilation is only indicative and individual discretion is to be applied on the issues to be incorporated while preparing the draft relies.
References have been made to the various decisions of the Supreme Court, High Court of the Pre and Post GST Regime, CESTAT and AAR/AAAR for compiling the issues. The reference to the said decisions in not only about the decision being rendered in those cases but also about the submissions made by the taxpayer. Most of the times, attention is only given to the nal decision rendered by the Authority. However, since the litigation in GST is at an early stage and matters have rarely attained nality. Therefore, in cases wherein decision is rendered against the taxpayer, submissions made by taxpayers has a unique value as it might be possible that in an appeal before the higher authority, same submissions may result in a favourable decision. An attempt has been made to include the issues raised by the
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taxpayers in their submissions in such cases. Thus, the book is not only made up of the cases being referred but also for the submissions by the taxpayers and thus a list of referred cases has been given at the end of each of the chapter. Therefore, a special acknowledgement for all such cases which have contributed in making of this book.
I-8 ABOUT THE BOOK
I-9 PAGE About the Author I-5 About the Book I-7 DIVISION ONE LAW RELATING TO INPUT TAX CREDIT Chapter 1 3 Chapter 2 Eligibility to Claim ITC 7 Chapter 3 22 Chapter 4 34 Chapter 5 42 Contents
I-10 CONTENTS DIVISION TWO ITC LITIGATION - DEPARTMENT’S OBJECTIONS AND RESPONSES Chapter 6 53 Chapter 7 83 Chapter 8 113 Chapter 9 c 135 Chapter 10 148 Chapter 11 173 Chapter 12 Money 205 Chapter 13 217 Chapter 14 226 Chapter 15 234 Chapter 16 239 PAGE
CONTENTS I-11 Chapter 17 243 Chapter 18 251 Chapter 19 255 Chapter 20 267 Chapter 21 283 Chapter 22 287 Chapter 23 293 Chapter 24 298 Chapter 25 307 Chapter 26 317 Chapter 27 327 Chapter 28 338 Chapter 29 344 PAGE
I-12 CONTENTS Chapter 30 357 Chapter 31 360 Chapter 32 364 Chapter 33 372 Chapter 34 378 Chapter 35 382 Chapter 36 386 Chapter 37 390 Chapter 38 394 Chapter 39 397 Chapter 40 402 Chapter 41 407 PAGE
CONTENTS I-13 Chapter 42 412 Chapter 43 418 Chapter 44 422 Chapter 45 429 Chapter 46 433 Chapter 47 436 Chapter 48 Immovable Property 443 Chapter 49 445 Chapter 50 455 Chapter 51 460 Chapter 52 465 Chapter 53 470 PAGE
I-14 CONTENTS Chapter 54 474 Chapter 55 479 PAGE
CHAPTER
Mismatch in ITC claimed in GSTR-3B and reflected in GSTR-2A
To, The Proper Of cer, Central Goods and Services Tax, New Delhi
Re: M/s XYZ Limited
GSTIN
Subject: Reply to your Notice in Form DRC-01 having Ref. No……… ………………………….. Dated ………………. (hereinafter referred as “impugned notice”)
Sir,
For the above captioned subject, we are in receipt of the impugned notice for the mismatch in Input Tax Credit claimed in GSTR-3B against the Input Tax Credit re ected in GSTR-2A. The reply in this regard along with the facts of the matter are as follows-
1. FACTS IN THE MATTER
1.1 We have duly filed all monthly returns as per the requirement under GST Act for the year 2018-19 and annual return for the year 2018-19.
1.2 After filing of annual return, we have received a show cause notice in GST DRC-01 regarding difference in ITC as accrued as per GSTR-2A and ITC availed as per GSTR-3B for the year 2018-19.
1.3 Thus, we are in receipt of the notice alleging that we have claimed Input Tax Credit in violation of provisions Section 42 of CGST Act, 2017 read with section 16(2)(c).
6
53
2. GROUNDS OF SUBMISSION
Before moving ahead and making the submissions, we would like to state following facts which stand undisputed as on date:
(
a) We have a valid GST Invoice issued by the Supplier in respect of supplies made to us.
(
b) We have made the due payment to the Supplier in respect of the Invoices.
(
c) The supplier too has deposited the due tax in respect of the supplies made to us and in respect of the invoices issues in respect of such supplies.
(
d) That the supplies covered by such invoices have been duly received by us and are genuine supplies and genuineness of the supplies have not been doubted by your good self as well.
We are hereby submitting the following grounds which are independent and without prejudice to one another and we reserve the right to challenge the respective grounds independent of each other—
2.1 That there is no provision applicable for 2017-18 and 2018-19 which restricts the claim of Input Tax Credit only to the extent of Input Tax Credit appearing in the GSTR-2A.
2.1-1 That there is no provision applicable for 2017-18 and 2018-19 which restricts the claim of Input Tax Credit only to the extent of Input Tax Credit appearing in the GSTR-2A. That we are hereby reproducing relevant para No. 2 of Circular No. 183/15/2022 which provides as under‘Further, restrictions regarding availment of ITC by the registered persons upto certain specified limit beyond the ITC available as per FORM GSTR-2A were provided under rule 36(4) of Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “CGST Rules”) only with effect from 9th October 2019. However, the availability of ITC was subjected to restrictions and conditions specified in section 16 of CGST Act from 1st July, 2017 itself.’
2.1-2 It is pretty clear that claim of Input Tax Credit on the basis of reflection in GSTR-2A could only be made applicable from 9th October 2019 and for the period 2017-18 and 2018-19, only compliance which has to be made is of the provisions of section 16 of the CGST Act, 2017.
2.1-3 Therefore, invoking provisions of section 42 in the instant matter is beyond the provisions of the Statute as the Circular itself provides that there was no statutory provision in place during the period 2017-18 and 2018-19 that Input Tax Credit shall be claimed only on reflection in GSTR-2A.
54 DIV. 2 : ITC LITIGATION
- DEPARTMENT’S OBJECTIONS AND RESPONSES
2.1-4 Therefore, impugned notice has erred in invoking provisions of section 42 for mismatch between Input Tax Credit as the said provisions are not applicable for the period of 2017-18 and 2018-19 because had such provisions been applicable for the years 2017-18 and 2018-19, circular would have provided that provisions of section 42 are applicable for the years 2017-18 and 2018-19 for availing Input Tax Credit in GSTR-3B only on the basis of reflection in GSTR-2A.
2.1-5 The fact that no such reference has been made is reflective of the fact that there was no provision not even section 42 applicable for the years 2017-18 and 2018-19 which provided that Input Tax Credit in GSTR-3B has to be claimed on the basis of reflection in GSTR-2A.
2.2 That without accepting the Constitutional Validity of rule 36(4) or section 16(2)(aa) and reserving the right to challenge the same if the need arises, it is humbly submitted that the fact that rule 36(4) has been inserted from 9th October 2019 and section 16(2)(aa) has been inserted by Finance Act, 2021 is an evidence that no provision under the statute was present for the years 2017-18 and 2018-19 and the entire mismatch exercise for ITC is without any enabling provision.
2.2-1 That rule 36(4) was inserted with effect from 9th October 2019 and the relevant extract of rule 36(4) is being reproduced herein under:
“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 20 per cent 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.”
2.2-2 Section 16(2)(aa) was inserted vide Finance Act, 2021. The relevant extract of the amendment is as follows:
‘Amendment of section 16.
100. In section 16 of the Central Goods and Services Tax Act, in sub-section (2), after clause (a), the following clause shall be inserted, namely:––
“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;”.’
2.2-3 The statement of objects and reasons to Finance Bill, 2021 further explained the reason for insertion of section 16(2)(aa) of CGST Act, 2017 as follows:
CH. 6 : MISMATCH IN ITC CLAIMED IN GSTR-3B & REFLECTED IN GSTR-2A 55
- DEPARTMENT’S OBJECTIONS AND RESPONSES
“Clause 100 of the Bill seeks to amend section 16 of the Central Goods and Services Tax Act by inserting a new clause (aa) in sub-section (2) thereof, so as to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.”
2.2-4 Thus, it can be seen that the purpose and the reason for inserting the amendment was on the similar lines to rule 36(4) of CGST Rules.
2.2-5 That it is humbly submitted that if rule 36(4) has been inserted with effect from 9th October 2019 and section 16(2)(aa) has been inserted vide Finance Act, 2021, therefore either there was no section for matching of Input Tax credit prior to 9th October 2019 or the same had to be withdrawn post 9th October 2019.
2.2-6 That no such withdrawal or deletion has been made after the insertion of rule 36(4) and section 16(2)(aa). This is itself indicative and evidence of the fact that there existed no provision of matching the Input Tax Credit prior to 9th October 2019.
2.3 That as per Circular No. 183/15/2022 dated 27th December 2022, only conditions relating to section 16 of CGST Act, 2017 are required to be fulfilled.
That the impugned notice does not contain any evidence to the noncompliance on our part under section 16 of CGST Act, 2017 thereby reflecting to the fact that the provisions of section 16 have been complied with and no further action is required on our part and Input Tax Credit claimed by us is correct and proceedings need to be dropped.
2.3-1 That it would also be worthwhile to highlight that Circular No. 183/15/2022 provides that provision of section 16 of the CGST Act, 2017 are required to be satisfied for the period 2017-18 and 2018-19.
2.3-2 That the impugned notice does not contain any evidence to noncompliance of provisions of Section 16 of the CGST Act, 2017 thereby reflecting to the fact that the provisions of section 16 have been complied with by us.
2.3-3 Thus, in view of the above, as provisions of section 16 are required to be complied with and since impugned notice does not contain any evidence to the non-compliance of the said provision, therefore, there is no further action required on our part and the proceedings initiated by the impugned notice be dropped.
56 DIV. 2 : ITC LITIGATION
2.4 That in the alternative and without prejudice to the grounds raised by us hereinafter in this reply and reserving the right to challenge the impugned proceedings initiated through the notice, the impugned notice seeks to invoke provisions of section 16(2)(c) on the ground that since suppliers have either not filed their GSTR-1 or incorrectly filed their GSTR-1, therefore taxes have not been paid by the suppliers.
That it is humbly submitted that non-filing or incorrect filing of GSTR-1 is not an evidence of suppliers not having paid taxes. That there might be scenarios wherein the suppliers had already paid tax but might have filed incorrect GSTR-1 or would not have filed GSTR-1.
Therefore, it is submitted that the impugned show cause notice is illegal and ultra vires to the extent it seeks to rely upon non-filing or incorrect filing of GSTR-1 by the suppliers for the purpose of invoking non-compliance of provisions of section 16(2)(c).
2.4-1 That your honour has provided in the impugned notice that since the entries of Input Tax Credit pertaining to 2018-19 are not reflecting in GSTR-2A, therefore there has been a non-compliance of provisions of section 16(2)(c) of the CGST/RGST Act, 2017.
2.4-2 That non-reflection of the invoices in GSTR-2A is not a proof of the tax not being paid by the suppliers as GSTR-3B is relevant for the taxes being paid and GSTR-1 is relevant for reflection of entry in GSTR-2A.
2.4-3 Therefore, to treat that since entry is not reflecting in GSTR-2A, therefore tax has not been paid is incorrect and illegal.
2.4-4 That hence it is submitted that since the basic prerequisites for initiating provisions of section 16(2)(c) have not been fulfilled by your honour, therefore the impugned proceedings are illegal and demand is sought to be created on the basis of incorrect evidences. Therefore, the consequential demand would also be illegal.
2.5 Provisions of section 42 of CGST Act, 2017 are applicable in cases for matching, reversal and reclaim of Credit and are based on details of inward supply filed by the registered person. Details of Inward Supply in GSTR-2 were required to be filed under section 38 of CGST Act, 2017. That since due date for filing of GSTR-2 has not been notified till date and thus the due date for the process of matching as envisaged in Rule 42 has also been extended by virtue of the provisions of rule 69, no action for non-compliance of provision of section 42 be casted upon us.
CH. 6 : MISMATCH IN ITC CLAIMED IN GSTR-3B & REFLECTED IN GSTR-2A 57
2.5-1 Provisions of section 42 are applicable only in cases for matching, reversal and reclaim of Credit and are based on details of inward supply filed by the registered person
2.5.1-1 In this regard we humbly submit that the provisions of section 42 are applicable for matching, reversal and reclaim of input tax credit. We would like to quote relevant provision of section 42 which are as follows:-
42. Matching, reversal and reclaim of input tax credit.— (1) The details of every inward supply furnished by a registered person (hereafter in this section referred to as the “recipient”) for a tax period shall, in such manner and within such time as may be prescribed, be matched––
2.5.1-2 Thus, it can be observed that section 42(1) provides that details of every inward supply furnished by a registered person for a tax period shall be matched for the parameters as provided there in and discussed hereinbelow.
2.5-2 Details of Inward Supply in GSTR-2 were required to be filed under section 38 of CGST Act, 2017
2.5.2-1 It is further submitted that for applicability of provision of section 42, details of inward supply had to be furnished under section 38 of CGST Act.
2.5.2-2 Further provision of section 38 of the CGST Act, 2017 is being reproduced herein under for your ready reference as follows:
“(5) Any registered person, who has furnished the details under sub-section
(2) for any tax period and which have remained unmatched under section 42 or section 43, shall, upon discovery of any error or omission therein, rectify such error or omission in the tax period during which such error or omission is noticed in such manner as may be prescribed, and shall pay the tax and interest, if any, in case there is a short payment of tax on account of such error or omission, in the return to be furnished for such tax period”
2.5.2-3 It can be observed from the above that section 38 which provided for filing of GSTR-2 also provided that if recipient has furnished return in Form GSTR-2 and amounts have remained unmatched under sections 42 and 43, then in such case interest would be payable for short payment of tax on account of such error and omission.
2.5.2-4 Therefore, the basic premises of section 42 rested upon the details of inward supply furnished under section 38. The return to be furnished under section 38 was GSTR-2.
58 DIV. 2 : ITC LITIGATION -
DEPARTMENT’S OBJECTIONS AND RESPONSES
2.5-3 That the time limit for furnishing GSTR-2 in Section 38 has not been notified till date
2.5.3-1 That it is humbly submitted that Form GSTR-2 for the period till date has not been notified till date. That the time limit for furnishing returns under section 38(2) and 38(1) has time to time been suspended by issuing following notifications: -
Noti cation Details Dated
Notification No. 12/2019 –Central Tax
Relevant Part of the Noti cation deferring ling of details under Section 38
7th March, 2019 The time limit for furnishing the details or return, as the case may be, under sub-section (2) of section 38 and sub-section (1) of section 39 of the said Act, for the months of July, 2017 to June, 2019 shall be subsequently noti ed in the Of cial Gazette.
The above notifications that have been issued from time to time provide as follows:—
“2. The time limit for furnishing the details or return, as the case may be, under sub-section (2) of section 38 of the said Act, for the months of July, 2017 to June, 2019 shall be subsequently notified in the Official Gazette.”
2.5.3-2 It is pretty clear from the above that return under section 38 have not been notified in official gazette till date and since the returns have not been notified till date therefore section 42 itself cannot be used until then since the very basis of section 42 is the details of inward supplies furnished under section 38 and matching of the same in the manner as provided therein. Since GSTR-2 itself has not been brought in place therefore its matching procedure and implications of non-matching of the credit as provided under section 42(3), 42(5) and 42(6) cannot also be implemented.
2.5-4 Rule 69 of CGST Rules provide that the date of matching under Section 42 of CGST Act, 2017 of Details of Inward Supply should be extended if the due date of filing of GSTR-2 under section 38 has been extended
2.5.4-1 We would like to reproduce relevant extract of rule 69 for your ready reference as follows:
“69. Matching of claim of input tax credit.— The following details relating to the claim of input tax credit on inward supplies including imports, provisionally allowed under section 41, shall be matched under section 42 after the due date for furnishing the return in FORM GSTR-3-
CH. 6 : MISMATCH IN ITC CLAIMED IN GSTR-3B & REFLECTED IN GSTR-2A 59
(a) Goods and Services Tax Identification Number of the supplier;
(
b) Goods and Services Tax Identification Number of the recipient;
(
c) invoice or debit note number;
(
d) invoice or debit note date; and
(
e) tax amount:
Provided that where the time limit for furnishing FORM GSTR-1 specified under section 37 and FORM GSTR-2 specified under section 38 has been extended, the date of matching relating to claim of input tax credit shall also be extended accordingly”
2.5.4-2 The abovesaid rule provides that if the time limit for furnishing of GSTR-2 under section 38 has been extended then the date of matching relating to claim of input tax credit shall also be extended accordingly.
2.5.4-3 That it is humbly submitted that Form GSTR-2 for the period till date has not been notified till date. That the time limit for furnishing returns under section 38(2) and 38(1) has time to time been suspended by issuing following notifications: -
Noti cation Details Dated Relevant Part of the Noti cation deferring ling of details under section 38
Notification
No. 12/2019 –Central Tax
7th March, 2019 The time limit for furnishing the details or return, as the case may be, under sub-section (2) of section 38 and sub-section (1) of section 39 of the said Act, for the months of July, 2017 to June, 2019 shall be subsequently noti ed in the Of cial Gazette.
The above notifications that have been issued from time to time provide as follows:—
“2. The time limit for furnishing the details or return, as the case may be, under sub-section (2) of section 38 of the said Act, for the months of July 2017 to June 2019 shall be subsequently notified in the Official Gazette.”
2.5.4-4 That it is humbly submitted that since till date due date for filing of details of inward supply has not been notified, therefore matching as per the provisions of section 42(1) read with rule 69 is not required to be done till date. The date has automatically been extended until the date of filing of GSTR-2 for the relevant period.
2.5.4-5 That since the matching under section 42 is only possible on filing of details of inward supplies under section 38 and date of filing
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DEPARTMENT’S OBJECTIONS AND RESPONSES
of Return under GSTR-2 under section 38 has not been notified till date, therefore the date of matching by virtue of First Proviso to rule 69 has also been extended. Once the date of matching under section 42 read with Rule 69 has been extended then any action on account of non-compliance of discrepancies as highlighted under the provision of Section 42 cannot be initiated.
2.5.4-6 It has to be borne in mind that provisions of section 42 are a complete code in itself. Once the section is complete code in itself and it provides a manner and the procedure for doing the things and if the system itself is not in place for compliance of provisions of that section, then in such case there cannot be a case for non-compliance of the provisions contained in the section itself.
2.5.4-7 Therefore, in view of the above fact and law cannot compel the us to do the impossible, since firstly by virtue of Proviso to rule 69 of CGST Rules Matching under section 42 cannot be done until the due date for Return under section 38 has been notified and the same has expired, therefore by virtue of the legal principle lex non cogitate ad impossible (the law does not compel the doing of impossibilities), no implications for non-compliance of section 42 can be casted upon us and therefore it is humbly submitted to kindly drop the proceedings initiated against us for non-compliance of section 42.
2.6 System envisaged in section 42 has not been brought in place and therefore no consequence can be levied upon us for its non-compliance.
2.6-1 A Brief description of the same is as follows:
Particulars Form
Furnishing of outward supplies by Supplier GSTR-1
Re ection of the entries uploaded by the Supplier to the recipient GSTR-2A
Acceptance of the entries by the Recipient and updating such accepted entries GSTR-2
Communication of Finally Accepted Credit to the recipient MIS-1
Communication of Credit previously found mismatched but subsequently matched after recti cation either by the supplier or recipient
MIS-1
Discrepancy to be communicated to the recipient about the credit claimed MIS-1
CH. 6
IN
IN
& REFLECTED IN GSTR-2A 61
: MISMATCH
ITC CLAIMED
GSTR-3B
Particulars Form
Discrepancy to be communicated to the supplier about the details of the invoices uploaded MIS-2
2.6-2 It can be observed from the above that Forms GSTR-2A and GSTR2 were supposed to be dynamic forms wherein entries first would have been reflected in GSTR-2A and then upon acceptance would have the data flown into GSTR-2. Now although the Credit is being reflected in GSTR-2A however GSTR-3B is not linked with GSTR-2A. The two forms are separate and are not linked to each other.
2.6-3 Furthermore, apart from GSTR-2A being not linked with GSTR-3B as would have been the case between GSTR-2A and GSTR-2, there is no Forms MIS-1 and MIS-2 which would have communicated the finally accepted Input Tax Credit to the Recipient or would have been a tool to communicate discrepancy to the supplier and the recipient.
2.6-4 Further, there was a particular timeline wherein the discrepancies would have been communicated between the recipient and the supplier and if the discrepancy would not have been rectified by the supplier or the recipient, then in such case within the specified time limit the discrepancy as persisting would have been added to the output liability of the recipient. The time line as provided is as follows:
Step Process of Communication, Recti cation and Addition to Output Liability
Step 1 The discrepancy was to be communicated in Form GST MIS-1 and Form GST MIS-2 to the recipient and supplier respectively through common portal on or before the last date of the month in which the matching was carried out along-with details of output tax liable to be added
Step 2 A supplier to whom any discrepancy was made available was entitled to make suitable recti cations in the statement of outward supplies to be furnished for the month in which the discrepancy is made available. A recipient to whom any discrepancy was made available was entitled to make suitable rectications in the statement of inward supplies to be furnished for the month in which the discrepancy is made available.
Step 3 Where the discrepancy would not have been recti ed, an amount to the extent of discrepancy would have be added to the output tax liability of the recipient in his return to be furnished in FORM GSTR-3 for the month succeeding the month in which the discrepancy was made available.
62 DIV. 2 : ITC
LITIGATION - DEPARTMENT’S OBJECTIONS AND RESPONSES
