ITC reversal, Goods and Services Tax - GST

[DHRUV CHOPRA]

Restaurant business is required to charge GST@5% without any ITC i.e. availment of ITC is not allowed to restaurant business. And as per Circular No. 170/02/2022-GST, ITC is required to be claimed as per GSTR-2B and reversal if any can be made in Table 4(B)(1) or Table 4(B)(2). In which table should restaurant business reported reversal of whole ITC and on what basis that specific table is selected for reversal.

Posts / Replies

[Jasmat Jidiya]

ITC required to be reverse in Table 4(B)(1) because its ineligible in nature for restaurant services.

[Padmanathan Kollengode]

I am also of the view that reversal should be done in 4(B)1 as it is of permanent nature.

Table 4(B)1 seems to be for reporting permanent reversals where as 4(B)2 is for temporary reversal such as Rule 37, Section 16(2)(b) etc on which recredit is to be claimed.

[Amit Agrawal]

Circular No. 170/02/2022-GST is issued by CBIC using its powers conferred under sub-section (1) of section 168 of the Central Goods and Services Tax Act, 2017.

And, said powers read as follows:

" The Board may, if it considers it necessary or expedient so to do for the purpose of uniformity in the implementation of this Act, issue such orders, instructions or directions to the central tax officers as it may deem fit, and thereupon all such officers and all other persons employed in the implementation of this Act shall observe and follow such orders, instructions or directions."

Now, question is whether instructions given in said circular is binding upon any tax-payer? I do not think so.

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

[Amit Agrawal]

Anyway, to my mind, issue raised by the Querist is NOT captured by Circular No. 170/02/2022-GST.

Restaurant service provider are eligible to avail ITC but if they want to take ITC, they are liable to pay GST @ 18% on their outward supply. Thus, subject restaurant service provider is NOT taking ITC so as to fulfil condition prescribed under Notification No. 11/2017-Central Tax (Rate) (as amended till date) in order to be eligible to pay GST @ 5% on its outward supplies and NOT due to restrictions under Section 16, Section 17(5) or Rule 38/42/43 etc.

In other words, showing ITC reversal u/s Table 4B(1) will be technically wrong.

But, showing ITC reversal u/s Table 4B(2) (which is correct method, IMHO) can be misinterpreted by Dept. (by wrongly relying on Circular No. 170/02/2022-GST etc.) which in-turn may create another set of problems for the tax-payer ((worst case scenario (though unlikely but one never know for sure), demand of GST @ 18% on outward supply by alleging that tax-payer had kept the option of availing subject ITC on future date)).

To get out of above dilemma, to my mind, Restaurant service provider should NOT show any ITC availed in Table 4A of Form GSTR-3B and thereby, there will not be any need to show any reversal in Table 4B. I will be ready to defend myself (if so needed) against Dept's penal action using Section 125 for not following general norms (as expected by them) while filing return.

But, if & only if system / GST portal does not allow above suggested course of action, then, I will go for showing reversal under Table 4B(1) (& NOT in Table 4B(2) i.e. others) as a practical measure i.e. to avoid even slightest risk of getting demand (even though completely untenable under law) of GST @ 18% on outward supplies. This is despite my views that reversal of such ITC in Table 4B(2) i.e. others is correct & same should not be done under Table 4B(1) of Form GSTR-3B.

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

[Amit Agrawal]

Correction in second Para of my last post above: Restaurant service provider are not eligible to avail ITC even if they want to pay GST @ 18% on their outward supply.

This is in view of Explanation (a) inserted against Serial No. 7 in Table of Notification No. 11/2017-Central Tax (Rate) vide Notification No. 20/2019- Central Tax (Rate).

Hence, Second Para of my last post above should read as follows:

Subject restaurant service provider is NOT taking ITC so as to fulfil condition prescribed under Notification No. 11/2017-Central Tax (Rate) (as amended till date) in order to be eligible to pay GST @ 5% on its outward supplies and NOT due to restrictions under Section 17(5) or Rule 38/42/43 etc. Said restaurant service provider cannot be take any ITC u/s 16(1) in views of Notification No. 20/2019- Central Tax (Rate).

Rest of my last post remains the same.

P.S. Constitutional validity of these mandatory tax-rate with conditions attached will be hopefully tested in Court/s in due course. But, that is matter of separate discussion.

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

[Padmanathan Kollengode]

Learned Friend Amit Ji,

I agree and also respectfully disagree with your views.

A. 1. As far as binding nature of Circular is concerned, I completely agree with you in toto. Circular 170/02/2022-GST seems to be contradictory to some provision such as section 16, 17 and so on. Therefore, most certainly it is not binding apart from the reason that it is not issued under section 168 as mentioned by you.

B.1. Now, supposing one wants to follow the circular, I disagree with the view that reversal is not as per section 16.

B.2. Section 16(1) reads as: Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

B.3. Rate Notification No 11/2017-Central Tax Rate opens with:

G.S.R. 690(E) - In exercise of the powers conferred by sub-section (1) sub-section (3) and sub-section (4)] of section 9, subsection (1) of section 11, sub-section (5) of section 15, sub-section (1) of section 16 and section 14 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby notifies that the central tax, on the intra-State supply of services of description as specified in column (3) of the Table below, falling under Chapter, Section or Heading of scheme of classification of services as specified in column (2), shall be levied at the rate as specified in the corresponding entry in column (4), subject to the conditions as specified in the corresponding entry in column (5) of the said Table:-

(ii) Supply of ‘restaurant service’ other than at ‘specified premises’

2.5

Provided that credit of input tax charged on goods and services used in supplying the service has not been taken [Please refer to Explanation no. (iv)]

Further, the explanation thereunder reads as:

(iv) Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that,-

(a) credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and

(b) credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder.

B.4. On conjoined reading, in my humble opinion, ideally the credit should not be taken BUT if one wants to follow the circular, it is a reversal under section 16 or section 17 respectively and is of permanent nature. Hence the same is to be declared in Table 4(B)(1).

B.5. Practically:-

Further, if one discloses the credit in Table 4B(2), it will go to Electronic Credit Reversal and Recredit ledger and for persons having multiple line of business under same GSTIN, the reconciliation thereof will be cumbersome.

[Padmanathan Kollengode]

Further,

"B. Registered person will report reversal of ITC, which are absolute in nature and are not reclaimable, such as on account of rule 38 (reversal of credit by a banking company or a financial institution), rule 42 (reversal on input and input services on account of supply of exempted goods or services), rule 43 (reversal on capital goods on account of supply of exempted goods or services) of the CGST Rules and for reporting ineligible ITC under section 17(5) of the CGST Act in Table 4 (B) (1)."

I believe such as is only for purpose of illustration and not just limited to 42, 43 or 17(5). What has to be ultimately seen is the nature of reversal as to whether is it permanent/absolute or only temporary/reclaimable.

[Amit Agrawal]

@ Shri Padnanathan Ji,

First, I have already corrected myself in my post at serial No. 5 above where I have said that Said restaurant service provider cannot be take any ITC u/s 16(1) in views of Notification No. 20/2019- Central Tax (Rate).

Second, Table 4B(1) reads as follows 'ITC reversed' & 'As per rules 38, 42 & 43 of CGST Rules and section 17(5)'. This does cover 'ITC not available as per Section 16(1)'. Table 4B(2) (i.e. 'ITC reversed' & others) means ITC reversal which is not covered under Table 4B(1).

Anyway, reversal of ITC cannot happen if one does not take any ITC.

Without reference to circular - which is not binding to the tax-payer - it is difficult to argue that Table 4B(1) deals with reversal of ITC which is permanent in nature. This is when Rule 42(2)(b) allows re-credit of ITC in certain situations. This is more so when Section 39(9) allows corrective action (which include taking re-credit against wrong reversal done in Table 4(B)(1) INHO) in certain situations within prescribed time-limits.

In other words, circular is wrong in saying that Table 4B(1) deals with reversal of ITC which is permanent in nature & Table 4B(2) deals with reversal of ITC which is non-permanent in nature. And there is no legal basis to differentiate these two rows this way as done by CBIC. I also do not see any legal compulsion to take ITC on the basis of ITC appearing in Form GSTR-2B under Table 4(A)(5) though suggested / instructed by Board.

Lastly though for different reasons, I agree with the view that if & only if system / GST portal does not allow my suggested course of action (i.e. not taking any ITC under Table 4(A)(5) and thereby, no need to reverse anything under Table 4(B)), then, I will go for showing reversal under Table 4B(1) (& NOT in Table 4B(2) i.e. others) as a practical measure. This is to avoid even slightest risk of getting demand (even though completely untenable under law) of GST @ 18% on outward supplies. This is despite my views that reversal of such ITC in Table 4B(2) i.e. others is correct & same should not be done under Table 4B(1) of Form GSTR-3B.

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

[Amit Agrawal]

*Please read in above post as @ Shri Padmanathan Ji,

Apology for typo error.