Issuing demand notice on the account of mismatch between GST Returns (GSTR) are daily routine practice for the Revenue Officers, which can be settled/argued by reverting it with proper reconciliation along with its proper documentary evidences. Especially, after the 50th meeting of GST Council[1] and issuance of eight new circulars[2]; present matter is in the spotlight nowadays. Elaborating on this issue, present write-up shall attempt to analyze the legal sustainability of such situation affecting the substantial right ITC of the any taxpayer/assessee. Before that, it also provides, brief glimpses of department’s intention, practical aspects and judicial perspective.
Background with Legal Interpretation
Going beyond the diminishing limits[3] of Input Tax Credit (ITC) claims; Central Board of Indirect Taxes and Customs (CBIC) has nought down the bottleneck by restricting the same as per the figures showing in static GSTR-2B i.e., auto-drafted ITC statements. Accordingly, w.e.f. 01 January 2021; ITC can be avail up to the extent it is reflected in GSTR-2B [static] only. Therefore, while filing GSTR-3B i.e., details of outward & inward supplies with its payment of taxes; a taxpayer/assessee is eligible to claim ITC in terms of values communicated in GSTR-2B only and rest of the ITC showing in dynamic GSTR-2A could not be considered during discharging the exigible GST at the time of filing of GSTR-3B. With the objective to further tightening the impugned restriction, the 50th meeting the GST Council has recommended to introduce system-based intimation through a new form i.e., DRC-01C by incorporating Rule 88D in CGST Rules, 2017[4] which will help in reducing ITC mismatches/ misuses.
Accordingly, it can be emerged that in future, every taxpayer shall be served with a demand notice on the account of mismatch happened in GSTR-2B & 3B; on mandatory basis.
Practical Difficulties
As we all know, values reflected in the static GSTR-2A/2B are the inward supplies which is an auto-drafted supplies/ITC statement communicated by the vendors or suppliers of a taxpayer/ assessee and from the year 2021, ITC can be claimed as per the same restrictively; immaterial of the fact that valid reconciliation is available. Previously, the taxpayer has the limited liberty to submit for claiming credit which were not shown in GSTR-2A by submitting proper backing of the ITC claims like, CA certificate or vendor declaration etc. Before moving forward, it is pertinent to highlight the common reason behind the mismatch of GSTR-2A/2B & 3B; which is non-compliance happened on the part of the vendor who has not properly furnished details in their GSTR-1 [details of outward supplies of goods/services]. Due to such mistake the same could not reflected in the GSTR-2A (up to 31 Dec. 20221) or 2B (after 01 Jan. 2022) and consequently, it can’t be used by the taxpayer while filing the GSTR-3B.
Therefore, it can be understood that after Jan. 2021, even though the assessee has all the valid documents for claiming the credit (not ineligible or blocked ITC) for substantiating the eligibility of the ITC, it cannot be available to the taxpayer as its inward suppliers has not complied with the provided procedure. It is doubtless that it is impossible to track each and every vendor/supplier that it’s filing its returns properly or not. However, no other option is left behind to the taxpayers to check such compliances, currently few software like, Bill Mantra[5] etc. are available in the market which can assist such tracking.
Litigation on Eligibility of ITC
The question of ITC claim as a vested right were always in litigation, one of the best defense used by the petitioners is ‘substantive right of credit cannot be denied on procedural lapse grounds.’ Likewise, after the introduction of GST regime; fight of eligible/ineligible credit is again remains one of the most litigative issue, but now tip of the weight scale is going towards revenue department. As the government always attempts to restrict the credit to its utmost level which affects the taxpayer drastically.
Before going into the legal credibility of aforesaid concern, it is imperative to clarify that, even if the department’s approach is to minimize the ITC claim by raising the eligibility standards; but in few cases, courts has allowed benefit accepting the ground of technical glitches or procedural lapse. One of the best live examples, is reopening of GST portal for filing TRAN-1 and its extension allowed by Hon’ble Supreme Court (SC) in the case of UOI v. Filco Trade Centre Pvt. Ltd.[6] which was referred by several taxpayers seeking similar benefit highlight the vested right of ITC claims and got consequential benefit granted by the Hon’ble Apex Court.
ITC is Vested Right or a Concession granted by the Government
Irrespective of the pre & post GST era, right of ITC is urged as a substantial vested right which should not be denied on mere ground of non-compliance/mistake committed by other person or other aspects like procedural/technical lapse. Such averment has been addressed in few cases pertains to erstwhile regime; for example, ALD Automotive Pvt. Ltd. v. CTO (now upgraded as Asst. Commissioner)[7] wherein, fiscal legislation of Tamil Nadu VAT Act, 2006 was challenged. Hearing both the side, the Division Bench of Hon’ble Supreme Court has dismissed the petition by concluding that ITC is not a vested right and concluded it to be a concessional benefit which can be strictly constructed in terms of the conditions enumerated in the statutory provisions. Similar stand was also taken in case of Jayam & Co. v. Asst. Commissioner & Anr.[8]
In line of the above judicial precedents, it can be traced that though it’s a trite law that ITC claim could be considered as substantive right, but not as vested right as it’s a concession granted by the legislature which has full authority to restrict the same with pre-conditions required to be fulfilled.
Legal Sustainability: Denial of ITC of Eligible Credit
It is relevant to clarified that though it’s a trite law that ‘no innocent should be punished’. However, in present scenario; the taxpayer is losing its eligible ITC due to the default of its vendor, which may also affect the principle of natural justice.
Here it necessary to note; that such plea can be accepted in terms of the stipulated eligibility criteria in the applicable provisions only, as discussed in preceding paras. The said significance is also explained in one of the latest CBIC Circular No. 197/09/2023- GST dated 17 July 2023 wherein, it specifically clarified that GST refund claims pending for adjudication shall be examined in terms of GSTR-2B (w.e.f. 01 Jan. 2021).
Closing Statement and Suggestive Measures
Likewise, the burning issue of fake invoices; demand on the account of mismatch in GSTRs are trigger points for the revenue department which will be used grape each defaulter with the stick of compliance. From the side of the department superlative efforts are being made to reduce scope for the taxpayer for claiming credit and the judiciary is also operating in hand in hand. Hence, it is better to set a goal have Zero Non-Compliance and maintain records of the inward as well as outward supplies. For achieving such target, it is suggested to cautiously check credibility of the inward supplies after a particular interval of time; through paid software or to the least by GSTIN portal search taxpayers. Additionally, a mechanism can be designed wherein, certificate /declaration can be taken by them showing the tax payment on which ITC can be claimed by a taxpayer.
[1] Conducted on 11 July 2023 https://pib.gov.in/PressReleasePage.aspx?PRID=1938812\
[2] https://taxinformation.cbic.gov.in/content-page/explore-circulars
[3] In terms of Rule 36 (4) of CGST Rules and clarified in Circular No. 193/05/2023-GST dated 17 July 2023; additional credit was allowed to the extent not exceeding 20% (09 Oct. 2019 to 31 Dec. 2019), 10% (01 Jan. 2020 to 31 Dec. 2020) & 5% (01 Jan. 2021 to 31 Dec. 2021) respectively, with proper declaration. Further, it may be noted that before 08 Oct. 2019, there were no such restriction.
[4] GST Council has proposed some changes/improvements for the smooth and restrictive enforcement of GST laws. The same would be given effect through the relevant circulars/ notifications/ law amendments which alone shall have the force of law.
[5] https://billmantra.com/ui/login/#/
[6] Misc. Application Nos.1545-1546/2022 in SLP(C) No. 32709-32710/2018
[7] Civil Appeal Nos. 10412-10413/2018
[8] Civil Appeal Nos. 8077-8146/2016
