Draft Reply for Reply to ITC denial for Late Return filing by the Supplier
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 ……………. , …., Delhi – 110 0XX, are in receipt of above mentioned Notice. This Notice directs us to reverse the Input Tax Credit claimed from M/s …… as our supplier has filed the return after sept of Next Financial Year. The allegations levied in the above mentioned notice is as follows:
You have claimed ITC from M/s ….. . This Notice (Form DRC-01) is issued for disallowance of Rs. … as your supplier has filed the return after sept of Next Financial Year, hence ITC is not allowed as per the provision of Section 16(4). Therefore, you are instructed to reverse such ITC on the ITC on purchase invoices uploaded by supplier in GSTR-3B filed after last date of availment under section 16(4) at Rs…..
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 received Supplies from M/s ….during the Financial Year 20XX-20XX on the basis of supplies received by us. The amount we have claimed as credit was visible in our Form GSTR-2A/2B. In our humble understanding the claim of ITC is linked with GSTR-2A/2B therefore, we have claimed the credit.
- Our objections are based on following understandings:
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 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 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.
Discussions and Submissions
6. With reference to the above subject, we would like to submit our understanding as follows:
6.1 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:
6.1.1. 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.
6.1.2. Mandatory Conditions for Availing ITC:
6.1.2.1. 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.
6.1.2.2. Receipt of Goods or Services: The taxpayer must have actually received the goods or services or both.
6.1.2.3. 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.
6.1.2.4. Furnishing of Returns: The taxpayer must have furnished the return under section 39 of the GST Act.
6.1.3. Special Conditions:
6.1.3.1. 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.
6.1.3.2. 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.
6.1.3.3. 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.
6.1.3.4. 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.
6.1.4. 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.
6.1.5. 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.
6.2 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:
6.2.1. Documents Based on Which ITC Can Be Availed:
6.2.1.1. An invoice issued by the supplier in compliance with section 31.
6.2.1.2. An invoice issued under clause (f) of sub-section (3) of section 31, with tax payment.
6.2.1.3. A debit note issued by a supplier as per section 34.
6.2.1.4. A bill of entry or similar document under the Customs Act, 1962, for the assessment of integrated tax on imports.
6.2.1.5. An invoice or credit note issued by an Input Service Distributor in accordance with rule 54(1).
6.2.2. Conditions for Availing ITC:
6.2.2.1. 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.
6.2.3. 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.
6.2.4. Additional Condition for Availing ITC on Invoices or Debit Notes:
ITC on invoices or debit notes can be availed only if:
6.2.4.1. 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.
6.2.4.2. The details of ITC in respect of such invoices or debit notes have been communicated to the registered person in FORM GSTR-2B.
6.2.5. 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.
6.3 Detail Note on Timelines on claim of ITC
Sub-section 4 of Section 16 of the Indian GST Laws outlines the conditions under which a registered person is not entitled to take input tax credit (ITC) for invoices or debit notes related to supplies of goods or services, or both. This provision essentially places a time limit on claiming ITC to ensure timely compliance and to facilitate the proper closing of books of accounts and tax records for a given financial year. Here’s an in-depth summary:
6.3.1. Time Limit for Claiming ITC: A registered person cannot claim input tax credit on any invoice or debit note for supply of goods or services or both after the 30th day of November following the end of the financial year to which such invoice or debit note pertains, or upon the furnishing of the relevant annual return, whichever is earlier. This means that the entitlement to claim ITC is not indefinite and is subject to a specific deadline. The purpose of this deadline is to encourage taxpayers to reconcile their invoices timely and to ensure that the credit is claimed within a reasonable period after the end of the financial year to which the purchases relate.
6.3.2. Exception for Financial Year 2017-18: There's a provision that allowed registered persons to claim ITC for invoices or debit notes related to supplies made during the financial year 2017-18 until the due date of furnishing the return under Section 39 for the month of March 2019. This was a one-time relaxation to help taxpayers transition into the GST system and clear any backlog of unclaimed ITC from the initial period of GST implementation. For invoices or debit notes pertaining to FY 2017-18, the details must have been uploaded by the supplier under Section 37 by the due date for the month of March 2019 to be eligible for this extended period to claim ITC.
6.3.3. Rationale Behind the Provision: This provision aims to:
6.3.3.1. Ensure that taxpayers complete their ITC claims within a specified timeframe, helping in the timely closure of accounts and reconciliation of tax records.
6.3.3.2. Prevent indefinite accumulation of unclaimed ITC, which could complicate tax administration and enforcement.
6.3.3.3. Encourage both suppliers and recipients to report their transactions within the financial year or shortly thereafter, promoting compliance and reducing the risk of tax evasion.
6.3.4. Impact on Taxpayers: Taxpayers need to be diligent in tracking their purchases and the corresponding tax invoices to claim ITC timely. They should also ensure that their suppliers comply with their reporting obligations, as the ability to claim ITC is also contingent on the supplier's actions, such as uploading the details of invoices on the GST portal.
6.4 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. |
6.5 Sub-section 4 of Section 16 of the Indian GST Laws establishes a time limit for a registered person to claim the Input Tax Credit (ITC) on any invoice or debit note related to the supply of goods or services or both. Specifically, it states that the ITC for a given financial year cannot be claimed after the thirtieth day of November following the end of that financial year, or the date of furnishing the relevant annual return, whichever is earlier.
6.5.1. The critical aspect to understand here is that this time limit is explicitly tied to the actions of the registered person claiming the ITC, not the supplier's actions in filing their returns. The provision sets a deadline by which the recipient (the registered person) must claim the ITC, based on the timing of their own compliance actions (i.e., the filing of their annual return or the specified date following the financial year-end).
6.5.2. The language of this sub-section focuses on the recipient's responsibility to claim the ITC within a specific timeframe. It does not directly link the ability to claim ITC to the timeliness of the supplier's return filing. Thus, if a registered person has filed their return within the due date, their entitlement to claim ITC is governed by their adherence to the deadlines specified in Sub-section 4, irrespective of when their supplier files their return.
6.5.3. This provision underscores the importance of timely compliance and accurate bookkeeping in the GST regime, ensuring that the benefits of ITC are availed in a manner that supports the integrity and efficiency of the tax system.
6.5.4. In conclusion, the time limit prescribed under Sub-section 4 of Section 16 is based on the return filing of the registered person (recipient) seeking to claim the ITC, not on the supplier's return filing.
Relevant Case Laws
7. 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:
UnityOoh Media Solutions Pvt. Ltd. vs DEputy State Officer, Cochin
Kerala High Court [WP(C) NO. 42429 OF 2023, dated 21-Dec-2023]
1) Facts of the Case
The petitioner, a registered assessee under the GST/CGST Act of 2017, filed GSTR-1 and GSTR-3B returns for the period of July 2017 to March 2018, claiming input tax credit (ITC) for purchases made from registered dealers. Notices were issued through the GSTIN portal, to which the petitioner failed to respond. Consequently, the 1st respondent passed an assessment order denying the ITC claim on the grounds that some suppliers had not filed GSTR-1 by the due date of 30.04.2019, as per Section 16(4) of the Act.
2) Issue
The core issue revolves around the denial of ITC to the petitioner due to the non-filing of GSTR-1 by their suppliers, despite the petitioner having filed their returns within the extended timeframe. The petitioner's lack of response to the notices and inability to represent their case due to difficulties accessing the GST portal and understanding the new tax regime further complicated the matter.
3) Court Judgment
The High Court of Kerala, referencing the precedent set by the case of M/s Henna Medicals, directed the matter back to the assessing authority for a fresh assessment. The court ordered that the petitioner be given an opportunity to present evidence supporting their ITC claim. The judgment emphasized that the absence of tax details in Form GSTR-2A should not automatically lead to the denial of ITC if the claim is bona fide and genuine.
4) Impact Analysis of this Judgment
This judgment underscores the judiciary's recognition of the teething issues in the implementation of the GST system and its willingness to ensure fairness by allowing taxpayers to substantiate their claims. It signals to the tax authorities the need for a more flexible approach in dealing with compliance issues that arise from system limitations or initial confusion among taxpayers. This decision may lead to a broader interpretation of ITC eligibility criteria, potentially affecting future assessments and encouraging a more evidence-based approach in the verification of ITC claims.
Heena Medicals vs State Tax Officer, State of Kerala
Kerala High Court [WP(C) NO. 30660 OF 2023, dated 19-Sep-2023]
Kerala High Court Advocates Fair Review of GST Input Tax Credit Claims, Overruling Technical Discrepancies.
1) Facts of the Case
The petitioner contested an assessment order and recovery notice issued by the tax authorities, claiming an input tax credit (ITC) of Rs. 2,58,116, along with interest and penalty, totaling approximately Rs. 4,58,156. The dispute centered on the discrepancy between the figures reported in GSTR-2A and GSTR-3B forms.
2) Issue
The primary issue was whether the input tax credit could be denied based on discrepancies between GSTR 2A and GSTR 3B forms, a common contention point in GST compliance.
3) Court Judgment
The High Court of Kerala, referencing precedents set by the Supreme Court and Calcutta High Court, ruled that the denial of ITC solely on the basis of differences between GSTR 2A and 3B forms is not justifiable. The court remanded the matter back to the assessing authority to reassess the petitioner's ITC claim, emphasizing the need for a bona fide and genuine assessment of the evidence provided by the taxpayer.
4) Impact Analysis of this Judgment
This judgment is a significant affirmation of the principle that technical discrepancies in GST filings should not automatically result in the denial of ITC claims. It reinforces the need for tax authorities to consider the substantive correctness of claims over procedural discrepancies. This could lead to a more lenient approach towards minor errors in GST compliance, encouraging a more understanding and evidence-based assessment process.
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.
In conclusion, the claim for Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime is a fundamental right of every registered taxpayer, intended to ensure the seamless flow of tax credits throughout the supply chain. The conditions for claiming ITC, as stipulated under Section 16 of the GST laws, are designed to ensure compliance, prevent tax evasion, and maintain the integrity of the tax system.
The timing of the supplier's return filing, while crucial for the overall compliance framework, should not, in isolation, adversely affect the legitimate ITC claims of a compliant recipient. It is essential to recognize that the recipient taxpayer has limited control over the actions of their suppliers. Holding recipients accountable for suppliers' compliance challenges undermines the principle of ease of doing business and places an unreasonable burden on taxpayers, potentially disrupting the financial planning and tax compliance of businesses operating in good faith.
Therefore, it is respectfully pleaded that any demand or denial of ITC claims solely on the basis that a supplier has filed their return late is reconsidered. Such a stance disregards the recipient's compliance efforts and penalizes them for factors beyond their control. The GST framework's spirit is to foster compliance and facilitate business operations, not to create punitive barriers for compliant taxpayers.
We urge for a fair and reasonable interpretation of the GST laws that upholds the right to claim ITC for eligible taxpayers who have fulfilled their compliance obligations. Denying ITC claims on the grounds of a supplier's delayed return filing does not align with the GST regime's objectives of promoting voluntary compliance and ensuring the free flow of credit across the supply chain. It is in the interest of justice and the efficient operation of the GST system to support taxpayers who adhere to the law and contribute faithfully to the nation's economy.
In light of these considerations, it is respectfully requested that the claim for ITC be evaluated based on the recipient's compliance with the GST laws and regulations, independent of the timing of the supplier's return filing, provided all other conditions for claiming ITC as stipulated under Section 16 are met. This approach not only aligns with the principles of fairness and equity but also supports the GST regime's overarching goal of simplifying tax compliance and fostering a cooperative tax environment.
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.
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
