Input Tax Credit taken on registration-cancelled-vendor’s invoices & its impact

1. Situation arises:

1.1 Assessee found; invoices given by some suppliers are not appearing in GSTR-2A during verification of GSTR-2A for filling GSTR-3B return as per notification No. 49/2019-CT, dated 9^th October, 2019 and circular 123/42/2019-GST, dated 11^th November, 2019.

1.2 Further Assessee verified GSTN of those suppliers in GST portal to check the return filed history, where found that GSTIN of the some vendors are cancelled by department.

2. Applicability of GST Provisions

2.1 As per clause(c) of subsection(2) of section 16 of the CGST Act , 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–

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.

2.2 As per subsection(1) of section 41 of the CGST Act, every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger.

2.3 As per sub-section(2) of section 41 of the CGST Act, the credit referred to in sub-section(1) shall be utilised only for payment of self assessed output tax as per the return referred to in the said subsection.

2.4 As per subsection (6) of section 43A of the CGST Act, the supplier and the recipient of supply shall be jointly and severally liable to pay tax or to pay the input tax credit availed, as the case may be, in relation to outward supplies for which the details have been furnished under subsection (3) or subsection (4) of this Act but return thereof has not been furnished.

3. Documentary requirements and conditions for claiming input tax credit

3.1 As per sub rule (1) of the Rule 36 of the CGST Rules, 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 subsection (3 ) of section 31, subject to 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 similar document prescribed under the custom 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 any Input service Distributor in accordance with the provisions of sub rule(1) of rule 54.

4. Reversal of input tax credit in the case of non payment of consideration

4.1 As per rule 37 of the CGST Rules prescribes that the credit is required to reverse in proportion to unpaid amount in GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice.

The amount of input tax credit reversed as per this provision shall be added to the output tax liability of the registered person for the month in which the details are furnished. The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability.

5. Analysis of the case

5.1 Here Assessee verified GSTN of those suppliers which GSTN was cancelled by the department for non filing of GST return. As per the provision of the GST the suppliers should be filed their outward details and the tax charged in respect of such supply has been actually paid to the Government.

5.2 GST law provides that the ITC would be confirmed only if the inward details filed by the recipient are matched with the outward details furnished by the supplier in his valid return.

5.3 In case of the mismatch between the inward and outward details, the supplier would be required to rectify the mismatch within a period of two months and if the mismatch continues, the ITC would have to be reversed by the recipient.

5.4 Here the major issue is cascading effect that is Tax on Tax and therefore GST was proposed with the intention of having seamless flow of credit. In simple words, ITC means reducing the “taxes paid on inputs from the taxes to be paid on outputs”.

6. Query raised

Question Whether assessee can avail the credit of GST paid on those supplier invoices which were cancelled by the department?

Ans. As per the said analysis and provision of the GST Act, in case of a registered person purchased goods or services from a GST supplier and after availed ITC on this but if the same supplier not filed any return with proper payment of tax then the registered person should liable to reverse the input tax credit on this.

Question If credit cannot be availed by assessee then what remedies are available in that case in GST Act?

Ans. Though such types of cases are not particularly mentioned in GST Act, here assessee should be reversed the availed input tax credit which are not reflected in GSTR-2A during the financial year. Such amount should be paid with proper interest in FORM GST DRC-03 at the time of filling annual return.

Question Is it matter need to be taken up with the GST department?

Ans. The reason for which purpose ITC reversed and the list of such suppliers may be provided to the department for acknowledgement. The department may take any action on such suppliers but it is the duty of the department not in assessee hand.

7. Conclusion

It is the duty of the assessee to remind the defaulting suppliers regarding such matter and reimbursed the reversed ITC amount from the supplier.

Source:-

1. https://www.cbic.gov.in/resources//htdocs-cbec/gst/notfctn-49-central-tax-english-2019.pdf

2. https://www.cbic.gov.in/resources//htdocs-cbec/gst/circular-cgst-123_New.pdf

3. https://www.cbic.gov.in/resources//htdocs-cbec/gst/cgst-act.pdf

4. https://www.cbic.gov.in/resources//htdocs-cbec/gst/09.10.2019_CGST%20Rules,%202017_(Part-A_Rules).pdf

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