Burning issues in GST Input Tax Credit (ITC)

[Ganeshan Kalyani]

Respected, Speaker Mr. CA Bimal Jain Sir has deliberated on topic “Burning issues in GST ITC” in Webinar conducted by “Tax Experts' Pan India and Tax Kerala (Malayalam Business Magazine)” on 23.11.2021. Based on the issues discussed on topic I have prepared a detailed Note as given below. I have taken consent of Mr. Bimal Jain Sir for publishing this note in this website for the benefit of readers.

Note on Burning issues in GST ITC

GST allows seamless flow of input tax credit. The recipient of goods or services or both can avail input tax credit on inward supply of goods or services or both subject to fulfillment of four (4) conditions laid down u/s 16(2) of CGST Act, 2017. Those conditions are:

1. the recipient should have tax invoice or debit note in his hand
2. the recipient should have received the goods or services or both,
3. the tax charged in respect of such supply has been actually paid to the Government by the supplier, and
4. the recipient should have filed the return (GSTR-3B)

The fifth (5th) condition is given u/s 16(2)(aa) inserted vide Section 109 of Finance Act, 2021 which is yet to be notified.

The above stated provision indicates that recipient can claim input tax credit on invoice if he satisfies all the four (4) conditions. However, the GST Rule requires the recipient to follow two rules as sated below to claim input tax credit.

1. the invoice of which input tax credit is to be claimed should appear in GSTR-2A
2. If it is not appearing then claim 5% in excess of the input tax credit populating in GSTR-2A.

Now, the question arises as to whether :

1. the condition which states that invoice on which input tax credit is to be claimed has to appear in GSTR-2A is valid?
2. rule 36(4) binds on the taxpayer which states that if invoice is not appearing in GSTR-2A then only 5% in excess of the input tax credit populated in GSTR-2A can be claimed.
3. Is it not enough to satisfy the four (4) conditions stated above to claim input tax credit.
4. What reply should recipient give when notice is received from department for the input tax credit claimed in GSTR-3B which is more than the input tax credit appearing in GSTR-2A.

Respected speaker Mr. Bimal Jain Sir has clarified the above doubts for the benefit of all the recipient who are struggling with the burning issue of claiming input tax credit. He gives following points as defence to legally fight with department to justify the eligible input tax credit claim.

1. GSTR-2A and 2B is given under Rule and not in Act :
   1. The first defence that a taxpayer can give in his reply to the notice received from GST department is that the GSTR-2A is given under GST Rule and not in GST Act. Act is like parent and Rule is like a child. Without parent there cannot be a child.
   2. Similarly, when there is no provision in the Act about GSTR-2A then even if it is given under Rule it has no binding force under law for the recipient to follow it. So a recipient can very well argue that as he satisfied all the four (4) conditions laid down in the Act he is eligible to claim the credit.
2. Bharti Airtel – Hon’ble Supreme Court Order passed on 28.10.2021
   1. Bharti Airtel (in short ‘recipient’) has claimed input tax credit on estimation basis in July 2017, August 2017 and September 2017. When GSTR-2A was introduced in September 2018 only then the recipient came to know the total eligible input tax credit to the tune of 923 Crore rupees.
   2. The recipient argued that if the Govt. had introduced GSTR-2A in July 2017 itself i.e at the time of implementation of GST then he would have come to know about the balance in Electronic Credit Ledger and from there it would have paid the GST instead of paying through Electronic Cash Ledger. Since, the Govt. had failed in providing GSTR-2A on time the recipient has suffered the cash outflow. Thus Govt. must allow to revise GSTR-3B so that ITC can be claimed.
   3. Though the Hon’ble Delhi High Court has upheld the contention of the recipient and ordered the respondent to allow the revision of GSTR-3B filing, the Hon’ble Supreme Court has ordered against the recipient.
   4. Hon’ble Supreme Court has ruled that GSTR-2A is merely a facilitation to the recipient to know that their supplier has uploaded the invoices. But he should not depend on GSTR-2A to determine his input tax credit eligibility. He should rely on his books of account to claim input tax credit.
   5. This view of the Supreme Court clarifies that GST-2A need not be considered as a ground to claim input tax credit. Instead the recipient should claim credit as per his books of account subject to the fulfillment of four (4) conditions discussed above.
3. D Y Bethel & Co. – Hon’ble Madras High Court Order
   1. D Y Bethel is the recipient of goods from sellers Mr. Charles and his wife who are supplier of Raw Rubber Sheets. The recipient D Y Bethel has made payment to sellers Mr. Charles and his wife for the purchase made from them.
   2. Based on the return filed by the sellers the recipient has claimed input tax credit. It has later came to know that the sellers did not pay any tax to the Government. But the respondent had issued Show Cause Notice on recipient and unfortunately without involving the sellers the order was passed against the recipient.
   3. The Madras High Court quashed the impugned order and the matter was remitted to the respondent. The respondent initiated recovery action against the sellers Mr. Charles and his wife for non-payment of tax to the Government even after receiving it from the recipient D Y Bethel & Co.
   4. In the above ruling the supplier was held responsible for non-payment of tax to the government and recovery proceeding initiated against him. Hence one of condition amongst four (4) which states that the tax should have been paid to the Govt. is actually not in control of the recipient as seller may for any reason refrain from payment of tax to Govt. The recipient cannot be held responsible for the fault of supplier. In such case the supplier should be ordered to pay the tax instead of taking the rightful claim of input tax credit.
   5. The recipient can quote this case law as a defence in his reply to the notice received from Government.
4. Lex Non Cogit ad Impossibilia
   1. The legal maxim ‘Lex Non Cogit ad Impossibilia’ means that law does not compel a man to do that which cannot possibly be performed.
   2. Section 16(2)(c) requires that the tax has to be paid to Govt. However, there is no mechanism for the recipient to check that the supplier has actually paid the tax to the Govt. Also, GSTN display’s the supplier filing status but not the status of tax paid by him. In absence of any mechanism it becomes impossible for recipient to comply the provision u/s 16(2)(c). And as per maxim the law cannot compel a man to do the impossible things which is beyond his control.
   3. The recipient can quote this legal maxim in reply to the notice to be submitted to the department.

In summary the recipient can claim input tax credit based on fulfillment of three (3) conditions given below i.e.

1. the recipient should possess tax invoice or debit note in his hand
2. the recipient should have received the goods or services or both,
3. the tax charged in respect of such supply has been actually paid to the Government by the supplier, and (but can be argued on the basis of “Lex Non Cogit ad Impossibilia”)
4. the recipient should have filed the return (GSTR-3B)

Hope the above write-up has cleared all your doubts regarding the claim of input tax credit. However it is pertinent to note that the litigation cannot be ruled out. But when notices comes it can be replied by citing the defence as explained above and try to justify the claim of Input tax credit.

Thank you –

The above note is prepared by, Mr. Ganeshan Kalyani, M.Com, LL.B.

I will be happy to receive your feedback at [email protected]

Once again many thanks to respected Mr. CA Bimal Jain Sir for the wonderful deliberation on topic ‘Burning issues in GST ITC’ in the webinar organised by “Tax Experts' Pan India and Tax Kerala (Malayalam Business Magazine)” on 23.11.2021.

Discussions to this article

[KASTURI SETHI]

Sh. Ganeshan Kalyani Ji,

Nicely discussed the issues. I concur with your views that four conditions are sufficient to avail ITC in letter and spirit of law but both returns are very useful and have been enforced very carefully by Govt.

Pl. refer to the sentence "GSTR-2A and 2B is given under Rule and not in Act" mentioned in your article. Rules are also framed under the Act. Rules are also supplementary to the relevant Acts. Rules cannot be brushed aside. Common Portal System has been enforced under Section 146 of CGST Act. The introduction of returns GSTR-2 A and 2 B on common portal system is very much within gamut of CGST Act and both these returns keep check on irregular availment of ITC. Thus both these returns curb the wrong/irregular availment of ITC and thus help in plugging the leakage of revenue. Here is not the question that rules are overriding the CGST Act, rather rules are supplementing the Act. Needless to say that Govt. is empowered to curb the evasion of Govt. revenue by way of framing rules. Hence GSTR-2 A and 2B are within precincts of CGST Act.

Thanks & regards,

Yours sincerely,

K.L.SETHI

[OmPrakash jain]

Sir,

The ratio decidendi of Union of India v. Bharti Airtel Ltd. & Ors. 2021 (11) TMI 109 - SUPREME COURT is not that

“ the ground to claim of input tax credit is not GSTR-2A”.

Such type of interpretation is wrong.

Moreover what is justification for prescribing the time limit u/s 16(4) for claiming ITC inspite of four conditions in S.16(2).

In addition to the above, why Govt. has introduced S.16(aa), reading as under;

“(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 besides wasting lot of public money on litigation, without any deep thinking.. specified under section 37”

It will be implemented retrospectively in times to come, looking to its intention on the part of Govt. for raising Govt. revenue, irrespective of inconvenience caused to various citizens of India.

[Ganeshan Kalyani]

Thank you Sir for your comment.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

I want your comments on both obsevations. Will you please respond ?

Thanks & regards

K.L.SETHI

[CA.Tarun Agarwalla]

Esteemed members,

I have further two submissions

when section 16(2) start with overriding provision, is it not overriding section 16(4) also?

what would happen when, the ITC have been duly reflected in GSTR 2A along with all the conditions were fulfilled as per section 16(2) , however the GSTR 3B return were filed late even after date as per section 16(4), however credit have been availed and utilized in the books of accounts in time?

what would be , when a stand is taken relying on Bharati Airtel - 2021 (11) TMI 109 - SUPREME COURT case, where self assessment is the key and the return forms are for facilitation only.