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Draft Reply to Notice for ITC denial for Additional Place ARR

Draft Reply for Reply to ITC denial for
Non-Registration of Additional Place of Business 

FORM GST DRC – 06

[See rule 142(4)]

Reply to the Show Cause Notice

To,

The Office of Deputy Commissioner

Ward No. …, Delhi State GST

Room No. ….., … Floor

Vyapar Bhawan, I.P. Estate

New Delhi – 110 002

Sub: Reply to Show Cause Notice in case of M/s …… (GSTIN: 07……)

Ref: Your Notice dated …. DIN: ……

Respected Sir,

Greetings!

We, M/s …., manufacturer/trader/wholesale dealer of ……. Located at ……………. , …., East Delhi – 110 0XX, are in receipt of above mentioned Notice. This Notice levies allegations that we have claimed Input Tax Credit (ITC) on the additional place of business which is not registered with the GST Department. The allegations levied in the above mentioned notice is as follows:

You have received the goods on your factory or godown which is your additional place of business, same is not registered in your GST Registration Certificate issued by us, so ITC availed on such purchase is not allowed. Therefore, you are instructed to reverse such ITC on goods.

With this reply we hereby contest the notice on the following grounds:

A.  Details of the Assessee

S.No Particular Details
A. Name of the Assessee M/s ….
B. GSTIN 07…….
C. Address of Principal Place of Business …., …., East Delhi, 1100XX
D. Status of Assesse ….
E. Detail of Supplies Provided Trader of……
G. Financial Year 20XX-20XX
H. Whether any Offence Case is Booked in respect of GST, Service Tax, Central Excise, Income Tax, VAT/Sales Tax, If so, details thereof NO

B.   FACTS OF THE CASE

Facts of the case

1. The facts mentioned in the notice are correct.

  • We with this reply acknowledge that our Principal Place of Business is located at ……
  • We further acknowledge that we have Additional Place of Business located at ……… This Additional Place of Business is next to our Principal Place of Business. As our business grew we used this additional place as temporary one. We started this as temporary one since November’2021. We got this place registered as our Additional Place of Business in May’2022.
  • Since May’2022 this Additional Place of Business is on record of our GST Registration.
  • As per our understanding non-registration of Additional Place of Business is not a valid ground to deny ITC as there is no condition linked to ITC as per Additional Place of Business. ITC is linked with GST Registration and proper documentations.

Extracts of Statutory Provisions of the Case 

2. SECTION 16: ELIGIBILITY AND CONDITIONS FOR TAKING INPUT TAX CREDIT

(1) 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.

(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;

(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 specified under section 37;

(b) he has received the goods or services or both.

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; 

(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted; 

(c) subject to the provisions of section 41, 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; and 

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

Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment: 

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be paid by him along with interest payable under section 50, in such manner as may be prescribed: 

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon. 

(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed. 

(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the 6[thirtieth day of November] following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. 

Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019. 

3. SECTION 155: BURDEN OF PROOF

Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person. 

4. SECTION 41: AVAILMENT OF INPUT TAX CREDIT

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to avail the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited to his electronic credit ledger. 

(2) The credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest, by the said person in such manner as may be prescribed: 

Provided that where the said supplier makes payment of the tax payable in respect of the aforesaid supplies, the said registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed. 

5. RULE 36: DOCUMENTARY REQUIREMENTS AND CONDITIONS FOR CALIMING INPUT TAX CREDIT

(1) The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely,- 

(a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31; 

(b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax; 

(c) a debit note issued by a supplier in accordance with the provisions of section 34; 

(d) a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports; 

(e) an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54. 

(2) Input tax credit shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the said document: 

Provided that if the said document does not contain all the specified particulars but contains the details of the amount of tax charged, description of goods or services, total value of supply of goods or services or both, GSTIN of the supplier and recipient and place of supply in case of inter-State supply, input tax credit may be availed by such registered person. 

(3) No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts. 

(4) No input tax credit shall be availed by a registered person in respect of invoices or debit notes the details of which are required to be furnished under subsection (1) of section 37 unless,- 

(a) the details of such invoices or debit notes have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1 or using the invoice furnishing facility; and 

(b) the details of 4[input tax credit in respect of] such invoices or debit notes have been communicated to the registered person in FORM GSTR-2B under sub-rule (7) of rule 60. 

6. OTHER IMPORTANT DEFINITIONS

  • Section 2 (85): “place of business” includes-

(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or

(b) a place where a taxable person maintains his books of account; or

(c) a place where a taxable person is engaged in business through an agent, by whatever name called.

  • Section 2 (86) “place of supply” means the place of supply as referred to in Chapter V of the Integrated Goods and Services Tax Act.
  • Section 2 (89) “principal place of business” means the place of business specified as the principal place of business in the certificate of registration.

Discussions and Submissions

7. With reference to the above subject, we would like to submit our understanding as follows:

  • Section 16 of the Indian GST law outlines the eligibility and conditions for availing Input Tax Credit (ITC). Here’s a summary of the primary conditions to avail ITC as per this section:
    • Eligibility for ITC: Every registered person is entitled to take credit of input tax charged on any supply of goods or services or both, which are used or intended to be used in the course or furtherance of his business. The amount is credited to the electronic credit ledger of the taxpayer.
    • Mandatory Conditions for Availing ITC:
      • Possession of Tax Invoice or Debit Note: The taxpayer must possess a valid tax invoice or debit note issued by a supplier registered under the GST Act or other prescribed tax-paying documents.
      • Receipt of Goods or Services: The taxpayer must have actually received the goods or services or both.
      • Payment of Tax to the Government: The tax charged on such supply must have been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply.
      • Furnishing of Returns: The taxpayer must have furnished the return under section 39 of the GST Act.
    • Special Conditions:
        • Invoice and Debit Note Details: The details of the invoice or debit note must have been furnished by the supplier in the statement of outward supplies and communicated to the recipient in the manner specified.
        • No Restriction on ITC Details: The details of input tax credit in respect of the said supply communicated to the registered person should not have been restricted.
        • Payment Within 180 Days: If the recipient fails to pay the supplier the amount towards the value of supply along with tax within 180 days from the invoice date, the availed ITC will be added back to his output tax liability along with interest.
        • Non-eligibility of ITC on Depreciated Goods: If the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the Income Tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
    • Deadline for Availing ITC: ITC cannot be availed in respect of any invoice or debit note for supply of goods or services after the thirtieth day of November following the end of the financial year to which such invoice or debit note pertains, or the date of furnishing of the relevant annual return, whichever is earlier.
    • These conditions are designed to ensure that ITC is availed and utilized in a manner that is consistent with the GST framework's objectives of transparency, compliance, and prevention of tax evasion.
  • Rule 36 outlines the provisions related to the availing of Input Tax Credit (ITC) by registered persons, including Input Service Distributors. Here is a summary of the rule:
  • Documents Based on Which ITC Can Be Availed:
    • An invoice issued by the supplier in compliance with section 31.
    • An invoice issued under clause (f) of sub-section (3) of section 31, with tax payment.
    • A debit note issued by a supplier as per section 34.
    • A bill of entry or similar document under the Customs Act, 1962, for the assessment of integrated tax on imports.
    • An invoice or credit note issued by an Input Service Distributor in accordance with rule 54(1).
  • Conditions for Availing ITC:
    • ITC can be availed based on documents containing all specified particulars as per Chapter VI. However, if a document lacks all specified particulars but includes essential details like the amount of tax charged, description of goods or services, total value of supply, GSTIN of supplier and recipient, and place of supply in case of inter-State supply, ITC may still be availed.
  • Restrictions on Availing ITC:

No ITC shall be availed by a registered person for any tax paid due to any order where a demand has been confirmed because of fraud, willful misstatement, or suppression of facts.

  • Additional Condition for Availing ITC on Invoices or Debit Notes:

ITC on invoices or debit notes can be availed only if:

    • The details of such invoices or debit notes have been furnished by the supplier in their outward supply statements in FORM GSTR-1 or through the invoice furnishing facility.
    • The details of ITC in respect of such invoices or debit notes have been communicated to the registered person in FORM GSTR-2B.
    • Rule 36 provides a structured framework for the documentation and conditions under which ITC can be availed, aiming to ensure transparency and compliance in the GST regime. It emphasizes the importance of maintaining proper records and the necessity of supplier compliance for a recipient to avail of ITC, along with imposing restrictions to prevent misuse of the ITC mechanism.
  • Principal Place of Business: This refers to the main location within the State or Union Territory where a taxpayer's business is conducted and where the books of accounts and records are kept. For a business with multiple branches or locations, the principal place of business is typically where the central management and control of the business are exercised. This is the primary location registered under GST and is used for the purpose of determining the jurisdiction of tax authorities.
  • Place of Business: This term encompasses any location where the taxpayer conducts business. This can include branches, warehouses, factories, offices, or any other place where the taxpayer stores goods, provides services, or maintains books of accounts. In contrast to the principal place of business, a taxpayer can have multiple places of business within a state or across states. Each of these places may require separate GST registrations, especially if they are located in different states, to comply with the GST laws applicable to inter-state and intra-state transactions.
  • Additional Place of Business: In the Indian GST context, an “Additional Place of Business” refers to any secondary locations other than the principal place of business where a taxpayer conducts operations related to their business. This can include warehouses, stores, offices, or any premises where the taxpayer stores goods, performs services, or maintains books of accounts. Essentially, it encompasses any location that contributes to the business’s ability to offer services or goods, even if it's not the main site where the business's central operations are managed.
  • Comparison between these three terms:
  Principal Place of Business Place of Business Additional Place of Business
Definition The main location within a State or UT where the taxpayer's business operations are primarily conducted and where the books of accounts are kept. Any location where the taxpayer conducts business activities, including the principal place, branches, warehouses, etc. Locations other than the principal place of business where the taxpayer conducts business activities.
Purpose Serves as the central location for GST compliance, including filing returns and paying taxes. Broad term encompassing all places related to the business's operations. Enables businesses to legally operate in locations other than their principal place, ensuring compliance across all operational areas.
  • It is submitted that we have already complied the condition of the Section 16 read with Rule 36 on such purchase, the compilation of the condition is described below table:
Sr. No. Conditions Compliance Status
1 ITC can be availed only if such goods or service used for business purpose. This purchase is our business purpose and also matched in the RC Certificate HSN of our business.
2 Taxpayer should have tax invoice or E-invoice, as the case may be Invoice Reference No  Dated is enclosed.

We can produce the original invoice for verification also, if needed.
3 Taxpayer should receive goods or service Documentary evidence of goods received is attached.
4 ITC should reflect in the GSTR 2B of taxpayer. Copy of GSTR 2B for month/period/year is attached.
5 Tax should be paid on such purchase by the supplier either cash ledger or credit ledger. GSTN Portal screenshot is attached, it is mentioned that supplier has filled GSTR 3B for relevant period
6 Taxpayer should file its GSTR 3B Copy of our GSTR 3B is attached.
7 Taxpayer should require to avail ITC of any FY before 30th Nov* of next financial Year.

*30th September in old cases.

 Yes, we availed ITC before 30th Nov* of next year, infect we have in next month itself.

The assertion is made that under the existing regulatory framework, there is no stipulation mandating the disqualification of the Input Tax Credit (ITC) for a taxpayer on the grounds that ancillary operational sites, such as manufacturing facilities or storage warehouses, have not been enumerated in the taxpayer's GST Registration certificate. The necessity for registering additional places of business within the ambit of GST compliance is primarily a procedural mechanism designed to facilitate the monitoring of the locations where the taxpayer stores goods outside the confines of the officially registered business premises.

Relevant Case Laws

8. In support of our above-mentioned submission, we rely on the following judicial pronouncements rendered by the various Honourable High Courts or/and Authority for Advance Rulings and/or Tribunals in IDT and/or GST:

KM Trans Logistics Private Limited Authority for Advance Rulings – Rajasthan [Advance Ruling No. RAJ/AAR/2018-19/29, dated 09-Jan-2019]

Background: The applicant, a company incorporated with a registered office in Jaipur, Rajasthan, provides transport services to vehicle manufacturers. These services include transporting vehicles from factories to various cities across India where the manufacturers' authorized dealers are located. To facilitate these services, the company has leased vacant lands in various cities for parking its trucks and trailers. All billing, account maintenance, and operational control are centralized at the Jaipur office, which is also the address listed on the lease deeds.

Issue at Hand: The applicant sought an advance ruling on the following questions:

1. The appropriate place of business for registration purposes.

2. Whether registration is required only in Jaipur, given that all billing and input services billing occur there, and not in any other state.

3. The necessity of registration in various cities for leased vacant lands used for operational purposes, considering centralized billing, control, and management in Jaipur.

Legal Action: The inquiry involved interpreting various sections of the CGST Act, 2017, and the Rajasthan GST Act, 2017, specifically focusing on the definitions and provisions related to the location of the supplier of services, place of business, and usual place of residence.

Court's Decision: It was determined that the applicant, being a service provider registered in Rajasthan and conducting operations from Jaipur, satisfies the criteria for determining the place of business as per section 22(1) of the GST Acts. The transport services supplied originate from Rajasthan, and the operational and billing activities conducted from Jaipur align with the legislative definitions of the place of business and location of the supplier of services. Therefore, the applicant's registration in Rajasthan is appropriate and fulfills the legal requirements for the supply of transport services.

Legal Reference: The ruling was based on a harmonious interpretation of sections 22, 2(71), 2(85), and 2(113) of the CGST Act, 2017, and the Rajasthan GST Act, 2017. These sections define key terms and lay down the criteria for determining the place of business and the implications for GST registration. The Authority for Advance Ruling concluded that the applicant's business activities, centralized in Jaipur, necessitate registration only in Rajasthan. The issue regarding the registration of leased lands outside Rajasthan for parking and operational purposes was deemed beyond the Authority's jurisdiction and was not addressed in the ruling.

Implications: The implication of this Rajasthan Authority for Advance Ruling (AAR) judgment on Input Tax Credit (ITC) primarily revolves around the clarification regarding the place of business for GST registration purposes and how this affects the eligibility and claiming of ITC. Here are the key implications:

Centralized Registration and ITC Claiming: Since the AAR confirmed that the applicant's place of business for GST registration purposes is Jaipur, Rajasthan, where it centralizes its billing and operational control, the applicant can claim ITC on inputs and input services that are used in providing the transport services from this location. This centralized approach simplifies the process of claiming ITC, as all GST-related compliance, including the claiming of ITC, is consolidated at the registered place of business.

No Need for Multiple State Registrations: The judgment implies that businesses providing services from a centralized location do not need to obtain GST registrations in each state where operational activities, such as parking of vehicles on leased land, take place. This reduces the complexity of managing ITC across multiple state registrations, as ITC can be claimed based on the centralized registration in the state from where the services are provided and controlled.

Compliance with Legal Provisions: The ruling ensures that the applicant complies with the GST Act's provisions regarding place of business and registration. This compliance further solidifies the applicant's right to avail ITC on the tax paid on inputs and input services that are used for the purpose of the business, in accordance with the GST law. Proper compliance reduces the risk of disputes over ITC claims.

Focus on Documentation and Record-Keeping: For businesses taking a similar stance on centralized registration based on this judgment, it becomes imperative to maintain thorough documentation and records of all transactions, including those related to leased spaces used for business operations in other states. This is essential for substantiating ITC claims, ensuring that all inputs and input services are duly accounted for and eligible for credit under the central registration.

Commissioner of Customs and CentraL Excise, Vapi vs DNH Spinners cited in 2016 Taxo.online 113 CESTAT Ahmedabad Bench [FINAL ORDER NO. A/1476 OF 2009-WZB APPEAL NO. ST/116 OF 2009, dated 10-Jul-2009] Credit Cannot be denied on Procedural Grounds.

Background: The assessee availed Cenvat credit for input services received. However, the revenue authorities denied this credit on the technical ground that the documents supporting the credit claim were not in the name of the assessee’s factory but were instead issued in the name of the head office.

Issue: The core issue revolves around the procedural adherence to Rule 9 of the Cenvat Credit Rules, 2004, and whether such procedural requirements can override the substantive right to avail credit of input taxes, especially when there is no dispute regarding the actual receipt and use of the input services by the assessee.

Judgment: The ruling held that since there was no dispute about the actual receipt of input services by the assessee, the substantive benefit of availing Cenvat credit cannot be denied on mere procedural grounds. This decision underscores the principle that substantive rights should not be compromised by procedural lapses, particularly when the essence of the claim (receipt and use of input services) is undisputed.

Implication: This judgment has significant implications for the interpretation and application of the CENVAT Credit Rules. It emphasizes the importance of substance over form, ensuring that businesses are not unduly penalized for procedural discrepancies as long as the underlying conditions for availing credit (receipt and utilization of inputs or input services) are met. This approach promotes fairness and avoids unnecessary impediments to the seamless utilization of credit, which is a fundamental aspect of the input tax credit mechanism.

Commissioner of Central Excise, Salem vs Chemplast Sanmar Ltd.  cited in 2016 Taxo.online 52 Madras High Court [R.C.P. No. 9 of 2004, dated 24-Mar-2005]

Credit to the assessee cannot be denied on the technical ground that the procedure prescribed for availment of credit has not been followed.

Background: The issue arose regarding the eligibility to pay duty on chlorine, an intermediate product. The duty payment obligation only became clear when the matter was brought before the Tribunal. Until that point, the assessee had been claiming an exemption from the payment of duty on chlorine and, consequently, had not followed the procedural requirements for availing Modvat credit on this input.

Core Issue: The central question was whether the assessee should be denied Modvat credit on the technical ground that the procedural steps prescribed for the availment of such credit were not adhered to at the relevant time. The complicating factor was that the assessee was under the impression that it was exempt from duty payment on chlorine and, therefore, believed it unnecessary to comply with these procedural requirements for credit availment.

Judgment: The Tribunal decided that Modvat credit should not be denied to the assessee based on the technicality that the prescribed procedures for credit availment were not followed. This decision was grounded in the context that, at the time, the assessee was operating under the assumption of exemption from duty on chlorine, making it impractical for them to meet the procedural prerequisites for Modvat credit. Essentially, the Tribunal recognized the impossibility of complying with procedures for a credit claim when the assessee was not aware of the duty obligation.

Implication: This judgment underscores a pragmatic approach to the interpretation and enforcement of tax credit rules, emphasizing fairness and the substantive rights of taxpayers over strict procedural compliance. It highlights the principle that taxpayers should not be penalized for procedural non-compliance when such non-compliance results from a reasonable interpretation of their tax obligations (in this case, the belief in an exemption). The decision also implies that the spirit of the law, aimed at ensuring fair treatment and avoiding undue penalization of taxpayers, should prevail over rigid adherence to procedural formalities.

Conclusion: The Tribunal's ruling reinforces the idea that technical grounds should not be used to deny substantive rights, especially when the context justifies the non-compliance. This approach facilitates a more equitable and less punitive administration of tax laws, ensuring that taxpayers are not unfairly disadvantaged by procedural complexities, particularly in situations where the legal obligations were not clear or were subject to interpretation.

Conclusion and Request for Relief

It is hereby humbly submitted that in our opinion we are not liable for the reversal of ITC based upon the above-mentioned submission and the relevant case laws.

As there is no dispute regarding the receipt of goods or services or both and utilisation of the same as Inputs and/or Input Services for providing Taxable Output Supplies. The substantive benefit of input tax credit cannot be negated on mere procedural grounds. This principle underscores the essence of substance over form, ensuring businesses are not unjustly penalized for minor procedural deviations. That our entitlement of ITC be recognized based on the substantive receipt and use of Input/Input Services, notwithstanding the procedural discrepancy regarding the place  on the documentation. The substantive benefits cannot be denied on mere procedural grounds, especially when the essence of the claim—the receipt of Input/Input Services—is undisputed.

Your favorable consideration of this prayer would not only redress the immediate issue at hand but also reinforce the broader principle that the tax system should serve the ends of justice and fairness, aligning with the legislative intent behind the GST and ITC.

Also, we have suo-motto got our additional place registered later and due to this late there is no tax evasion and max to max it can be subject to general penalty under section 125.

We would request you to drop the Notice and we would further request your lordship to provide us “Opportunity of Being Heard” before passing any order against us.

Thanks and Regards

For ….

Authorised Signatory

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