Belated payment of GST against RCM, Goods and Services Tax - GST

[phaniraju konidena]

Dear Experts,

During the FY 2017-18 (Aug, Nov and Dec) our liability against RCM, say total ₹ 100/- has been deposited and shown in our Electronic Cash Ledger. Unfortunately, we have not debited/declared the liability while filing the GSTR-3B for the respective months. Finally, we have found the mistake on our own and paid the same on 15.02.2020 at the time of filing GSTR-9C through by DRC-03 and not paid the ‘interest’ under Sec.50 till today. But we have availed and utilized the ITC as we have assumed that the liability has already been debited to the account of Govt. That means, we have utilized the ITC before making the payment against Rule 36(b) of CGST Rules. Our query is that –

Can the department demand us to reverse the ITC on the reason of availing before payment of tax to the govt.?

Can the department impose equal penalty under Sec.74 on the reason of irregular availment?

If we will pay the interest (as it compensatory in character), can the belayed payment of tax be regularized; it means that the belated payment be treated as in time payment?

Please clarify.

Posts / Replies

[YAGAY andSUN]

In our view, it cannot be regularized however, paying of statutory interest will certainly bring some relief to you.

[KASTURI SETHI]

Q. Can the department demand us to reverse the ITC on the reason of availing before payment of tax to the govt.?

Reply : Yes.

Q. Can the department impose equal penalty under Sec.74 on the reason of irregular availment ?

Ans. Yes.

Regarding third query, I agree with M/s.Yagay and Sun, Sirs.

[Shilpi Jain]

Going by the strict interpretation of the law, I agree with the experts. However we have seen in the case of TRAN 1 irregularities that the courts have been liberal to stay that technical glitches cannot lead to denying benefit.

In the present case if you can show that the amount of tax liability was indeed paid in the cash ledger but was missed to be adjusted due to the reason that the law was new and the error has happened, there could be a possibility to defend. Though this would be worth only if amount of credit is significant considering the cost of litigation. Hence u can take a call and pay the Interest in case of department intervention.

[phaniraju konidena]

Thanks for all

[Amit Agrawal]

As per Section 31 (3) (g) & 31 (3) (f) of the CGST Act, 2017, against RCM liability, recipient needs to issue invoice as well as payment voucher. As you have claimed ITC, it is presumed that these documents were prepared and details of such invoice shown in ITC register maintained at your end. Furthermore, as per Rule 36 of the CGST Rules, 2017, ITC can be availed against "an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax".

In other words, 'such other tax paying documents as may be prescribed' as mentioned in section 16 (2) (a) is NOT 'tax paying debit entry in cash ledger, which is one entry against entire liability (including outward liability, if any) for whole month' but 'Invoice generated by the Recipient u/s 31 (3) (f)' and such ITC is only subject to payment of taxes.

'Subject to payment of taxes' does not mean that credit is available only after making payment of taxes. 'Subject to payment of taxes' only means that ITC can be availed on 'Invoice generated u/s 31 (3) (f) provided that payment of taxes is made by party to Govt. either by due-date and thereafter with interest. You have taken credit against RCM liability 'As per Date of Invoice generated u/s 31 (3) (f)' and those taxes were also paid by you though subsequently through DRC-03. Hence, we believe that your are correct in availing said credit.

As an additional support, your attention is also invited to Section 16 (2) (c) wherein it is said that 'subject to the provisions of [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'. This restriction does NOT mean that even for regular input goods / services against tax-invoice raised by he supplier, ITC can be claimed only after supplier s paid taxes there against. This restriction only means that 'ITC can be claimed against tax-invoice raised by the supplier, provided he subsequently pays taxes to Govt. against such tax-invoice'.

In above background, our answer to your queries are as follows:

Q. Can the department demand us to reverse the ITC on the reason of availing before payment of tax to the govt.?

A. Dept. may try to demand ITC reversal going by hyper-technical interpretation of relevant provisions. And you should be ready to defend your case judicially. We belief that you have strong case to defend ITC claimed, based on reasoning shared above.

Q. Can the department impose equal penalty under Sec.74 on the reason of irregular availment?

A. Dept. may try to levy penalty u/s 74 going by hyper-technical interpretation of relevant provisions. And you should be ready to defend your case judicially. We belief that you have strong case to defend ITC claimed, based on reasoning shared above. And, hence, question of such penalty does not arise in our view.

Q. If we will pay the interest (as it compensatory in character), can the belayed payment of tax be regularized; it means that the belated payment be treated as in time payment?

A. Due-date of paying taxes u/s 39 (7) is specifically linked with 'Due date of filing return u/s 39 (1)'. We hold a view that 'Due Date' of payment of taxes (as per Section 39 (7)) for the period from July, 17 to Mar, 19 is not yet lapsed considering various notifications issued in those period which is extended time-limit to file return u/s 39 (1) (For examples: Notification No. 58/2017-Central Tax, dated 15th November, 2017, Notification No. 44/2018-C.T., dated 10-9-2018, as amended from time to time). These notifications are not withdrawn till date. Once there is no delay by you in paying taxes under RCM, there is no question of paying interest u/s 50. However, I understand that this view about non-liability to pay interest, is expected to be highly controversial and definitely litigation-prone. Hence and taking conservative approach, you may pay interest against delayed payment of taxes under RCM through DRC-03. This will also help you while defending your ITC so claimed before Dept officers at ground level as well as at adjudication / appeal levels, if Dept. chooses to issue SCN denying such ITC.

Disclaimer: Please note that all of above are strictly my personal views and same should not be construed as legal / professional advice.