composition, Goods and Services Tax - GST

[AMIT BATHAM]

A dealer has two firms with the same pan number; one is for retail and is registered for medication, while the other is for whole sale and is registered for FMCG goods. When the dealer applied for composition in one firm with a turnover of less than 50 lacs, the second firm instantly opened in composition. When he discovered that if one registered person has the same pan, the registered person shall not be allowed to opt composition, he withdrew the composition application. However, for the two months of April and May, he submitted CMP-08 and stated turnover nil, and all of the turnover that should have been disclosed in April and May was declared in the month of JUNE and paid regular tax after adjusting the ITC (april+may+June). Now the department is claiming that because you were composition, you are ineligible to claim input tax.

Now my question is, can the department deny input tax credit despite the fact that the applicant never applied the composition in that firm and second, he paid tax on a regular basis including composition period (April & May) declared in june, and if so, why was the system allowed to dealer the file composition application because turnover of both firms far exceeded the threshold limit?

There was no revenue loss, only a technical error owing to a lack of knowledge of the legislation, so what should be done now that the matter belongs to the fiscal year 2020-2021?

Posts / Replies

[Padmanathan Kollengode]

Assuming both firms of the dealer are supplying goods, the threshold for composition is 1.5 crores and not 50 lakhs. The threshold limit of 50 lakhs is for supply of services & (service + goods).

Now coming to the issue in hand, you will have to litigate this matter extensively stating that since you have paid the tax under normal rate, ITC has to be allowed to you.

In my personal opinion, this issue will need to travel up to appellate authorities/tribunal for any relief.

[KASTURI SETHI]

Sh.Amit Batham Ji,

I support the views of Sh.Padmanathan Kollengode Ji. I further as add as under :-

Regarding merits the registered person is on a strong wicket but issuance of SCN is certain in this case. The second firm was statutorily bound to opt for composition scheme in terms of Section 10(1) of CGST Act but they did not. In the absence of non-opting for composition scheme by the second firm, the Common Portal System (software) should not have allowed to work under Composition scheme for two months i.e. April and May. (Your view is right) This has happened due to lack of efficacy (or you may say limitation/deficiency) in the functioning of software. The Common Portal System must commensurate with the GST Acts. The dealer can fight on this ground. In this context, it is pertinent to peruse the relevant extract of the judgement of Gujarat High Court in the case of SKP PHARMACHEM Vs UNION OF INDIA reported as 2023 (2) TMI 930 - GUJARAT HIGH COURT. The High Court has held as under:-

- "The limitation of the software should not become the limitation of the implementation of the statute, which otherwise, is quite clear on this aspect - While acceding to his request of such permission to be treated to have been cancelled from 16th March, 2022, Bench also directs the respondent-authority to take care of the software - Petition disposed of: High Court [para 14, 17]".

The case was decided in favour of the party on 07.01.23. More case laws can be traced out in favour of the party. It is also a plus point that no revenue loss is involved in this whole situation. It is a technical lapse.

You can expect relief/fair justice only through litigation.

[Shilpi Jain]

Also one more ground which can be taken is that when the department has accepted the higher output tax (i.e. difference between composition rate and regular rate), they cannot deny credit, since in the present case it is only a technical lapse or error.

To the department potray that this to be an error by the accountant instead of it being a 'lack of knowldge of law'. Courts don't take a lenient view in case of lack of knowledge of law.

Also see what is the extra output tax paid and the ITC amount. If ITC amount is lesser than the differential output tax liability, your case would be better off.

[Amit Agrawal]

I concur with my professional colleagues! You got a good case to defend though you may need to take it till the stage of tribunal (which is not yet formed but hopefully, soon, will be).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[AMIT BATHAM]

I'm grateful to my colleagues, especially Kasturi Sethi Ji and other colleagues, for their thoughtful comments on this topic.