Eligibility of ITC, Goods and Services Tax - GST

[Rajesh Kumar]

Sir

Is ITC available to the recepient if supplier doest not file GSTR 3B returns i.e not paid taxes to the govt. ?

What are provision in this regard ?

Posts / Replies

[YAGAY andSUN]

In our view submission of statutory returns and payment of collected tax by the supplier is a precondition to avail the ITC under the provisions of GST Laws.

[Rajagopalan Ranganathan]

Sir,

If the supplier does not file GSTR-3B, then it indicates that he has not deposited the tax to government. Hence you are not eligible to take ITC of gst paid by the supplier as indicated in his invoice. The reason is that unless the tax is deposited to the Government by the supplier,he cannot file his GSTR-3B return.

[KASTURI SETHI]

Dear Querist,

How do you expect that there is a possibility of availing ITC without payment of tax by the supplier ? Payment of tax is the basic requirement. See Section 16 of CGST Act.

[Ganeshan Kalyani]

In such case, generally tax component is withheld by the customer. Otherwise, the customer pays tax to the supplier and also end up loosing credit. So double loss. So if the supplier's track record of compliance is not good then you may take precautionery steps.

[Anish Goyal]

Strictly and legally, as per the conditions of section 16(2), ITC is not available. But the same can be challenged. As section 16(2)(c), it is stated that, "subject to the provisions of 2[section 41 or section 43A], 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".

It mandates the requirement of payment of tax to the Government. It does not specify it must be paid by the supplier to the Government. There is judicial pronouncements such as in case of M/s BHAGWATI SECURITY SERVICES (REGD.) Vs UNION OF INDIA & OTHERS = 2013 (11) TMI 649 - ALLAHABAD HIGH COURT that states that the supplier is an agent of Govt. If you have paid the amount to the agent of Government, that means you have paid to Government. This issue can be litigated.

[KASTURI SETHI]

Agreed with Sh.Anish Goyal Ji. There are case laws in favour of the buyer of the goods. But every person wants to be litigation-free. So better option is to persuade the supplier to pay tax to the Govt. and be tension free. Sooner or later tax has to be paid. So why to take the risk of paying interest and penalty ?

[Ganeshan Kalyani]

Generally, cash discount is offered to customer to induce early payment.

[Roshan Singh]

Applicable Provisions:

[Section 16: Eligibility and conditions for taking input tax credit.

(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.

1[Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––

(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.]

(c) subject to the provisions of 2[section 41 or section 43A], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

[Rule 86A: Conditions of use of amount available in electronic credit ledger.-

(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as

a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-

i.issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained;

or

ii.without receipt of goods or services or both; or

b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or

c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,

may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.

[Section 43A: Procedure for furnishing return and availing input tax credit

(3) The procedure for furnishing the details of outward supplies by the supplier on the common portal, for the purposes of availing input tax credit by the recipient shall be such as may be prescribed.

(4) The procedure for availing input tax credit in respect of outward supplies not furnished under sub-section (3) shall be such as may be prescribed and such procedure may include the maximum amount of the input tax credit which can be so availed, not exceeding twenty per cent. of the input tax credit available, on the basis of details furnished by the suppliers under the said sub-section.

6) The supplier and the recipient of a supply shall be jointly and severally liable to pay tax or to pay the input tax credit availed, as the case may be, in relation to outward supplies for which the details have been furnished under sub-section (3) or sub-section (4) but return thereof has not been furnished.

Since the GSTR-3B has not been specified as return under CGST rules 2017 but Proviso to sub-rule (5) of Rule 61 of CSGT Rules 2017 states that where a return in FORM GSTR-3B is required to be furnished by a person referred to in sub-rule (1) of Rule 61 then such person shall not be required to furnish the return in FORM GSTR-3.

[Rule 36: Documentary requirements and conditions for claiming input tax credit.

(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 3[10 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.

Analysis :

1. According to Section 16(2)(C) the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply.

Since the supplier has not furnished GSTR-3B then question of payment of tax either in cash or through utilisation of input tax credit does not arises. So recipient cannot claim ITC on goods procured from such supplier.

2. Even Rule 86A(1)(b) does not allow to debit the electronic credit ledger to discharge of any liability under section 49, in respect of ITC availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government.

If in the discussed case recipient avail ITC even then he cannot utilize that ITC to discharge his liability as it will be in contravention of Rule 86A.

3. Further if recipient of goods avail ITC then under section 43A(6) supplier and recipient shall be jointly and severally liable to pay the tax or to pay the ITC availed in relation to outward supplies for which the details have been furnished under sub-section (3) or sub- section (4) i.e. GSTR-1 but return thereof has not been furnished. Here applicable return would be GSTR-3B as per proviso to sub-rule (5) of Rule 61of CGST rules 2017.

In the discussed case supplier has not furnished GSTR-3B (Assuming supplier has furnished GSTR-1), if recipient claim ITC then he will have to pay interest as well as ITC availed.

4. Rule 36(4) is applicable when supplier has not uploaded the invoice in GSTR-1 either mistakenly or otherwise but has filed his GSTR-1.

In the discussed case since it has been assumed GSTR-1 is filed but other provisions discussed above make rule 36(4) irrelevant in the absence of non- discharge of GST liability and non-furnishing of GSTR -3B by supplier.

Conclusion:

It is advisable not to take ITC if supplier has not furnished GSTR-3B and tax liability not discharged in respect of that either in cash or utilizing the input tax credit available in electronic credit ledger otherwise the only victim would be recipient.

There should be brought amendment with regard to such issues where a genuine buyer has to suffer for the default of supplier, so that the purpose of GST regarding seamless availability of tax credit could not defeated and ITC could not be denied to such genuine buyer who has paid to supplier for Invoice value including GST.

[orup dasgupta]

To : Rajesh Kumar

Sir, I have two questions in mind.

1. How will you come to know whether the supplier has paid the tax to the govt?

2. Rule 36(4) restricts you from availing the ITC exceeding 10% of the amount reflected in your 2A. So say the supplier has uploaded the invoices in his GSTR 1 which is essentially flown to your GSTR 2A, do you think still you should claim credit only after you can be assured that your supplier has paid the taxes to the govt?

[Bhavika Chothani]

Yes ITC is available to the recipient in such case.
Three important points should be noted while claiming ITC
1. The buyer should have the tax invoice copy of goods purchases/services taken
2. The buyer should have actually consumed the goods/services
3. The buyer should have a valid proof that he has made payment to seller towards this tax invoice

[Ganeshan Kalyani]

It's difficult to ensure that the supplier has paid the tax. However, we should ensure that he files GSTR-3B.