“Explore the controversial aspects of GST Circular 183/15/2022, impacting Input Tax Credit (ITC) claims. Understand the legal nuances, judicial precedents, and challenges. Stay informed for effective compliance.”
Sub rule (4) to Rule 36 of the CGST Rules, 2017 restricting the claim of eligible ITC to the credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub section (1) of section 37 viewed in GSTR -2A, has been inserted by way of Notification No. 49/2019 – Central Tax dated 9th October 2019 with prospective effect. Accordingly, the ITC availed for the Financial Year 2017-18 & 2018-19 on satisfaction of conditions specified in sub section (2) of section 16 and sub section (4) of section 16, cannot be revisited in the light of insertion of Rule 36(4) operating prospectively with effect from 09th October 2019.
CBIC Press Release dated 18th October 2018 has clarified that the facility to view the input tax credit in FORM GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC. The relevant excerpt of said press release is reproduced below:
It is clarified that the furnishing of outward details in FORM GSTR-1 by the corresponding supplier(s) and the facility to view the same in FORM GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis in consonance with the provisions of section 16 of the Act.
CBIC Press Release dated 4th May 2018 has clarified that there shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller. However, reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.
The Hon’ble Madras High Court in the case of D.Y Beathel Enterprises Vs State tax officer (Data cell) (WP No. 2127 of 2021) vide its judgement dated 24th February 2021 in the has held that no recovery action shall be initiated on the recipient assessee if the supplier has not deposited the taxes collected from the recipients with the government unless strict actions have been initiated against the defaulting suppliers.
The Hon’ble Kerala High Court in the case of St. Joseph Tea Company Ltd. Vs State Tax Officer WP(C) No. 17235 of 2020 vide its judgement dated 17th June 2021 held that ITC shall not be denied only on the ground that the transaction is not reflected in GSTR 2A.
The Hon’ble Jharkhand High Court in the case of M/s. Nkas Services Private Limited vs The State of Jharkhand W.P.(T) No. 2444 of 2021 vide its judgement dated 6th October 2021 held that mismatch between GSTR -3B and GSTR -2A is not sufficient as the foundational allegation for issuance of notice and the demand for tax basis such notice is not legally valid as the same does not fulfill the ingredients of a proper show-cause notice and thus amounts to violation of principles of natural justice.
The Hon’ble Calcutta High Court in the case of M/s LGW Industries Limited & Ors vs. Union of India. (WPA No. 23512 of 2019) vide its judgement dated 13th December 2021 has held that if it is found upon considering the relevant documents that all the purchases and transactions in question are genuine and supported by valid documents, the benefit of input tax credit shall be given to the assessee notwithstanding anything contained in clause (c) of sub section 2 of section 16 of the CGST Act, 2017.
Section 9(2)(g) of the Delhi VAT Act on similar lines as Section 16(2)(c) of the CGST Act, 2017 was stuck down as being unconstitutional by the Delhi High Court in the case of Arise India Limited [2017 (10) TMI 1020], in as much as it disallowed ITC to the purchaser due to the default of selling dealer in depositing tax. The Supreme Court has maintained the said decision in Arise India [2018 (1) TMI 555]. The Hon’ble Delhi High Court held that the purchasing dealer cannot be expected to keep track of whether the selling dealer has in fact deposited the tax collected with the Government or has lawfully adjusted it against his output tax liability. The purchasing dealer can, of course, ascertain if there is any mismatch of Annexures 2A and 2B but, assuming it is on account of the seller’s default, there is little he can do about it. The bona fide buyer cannot be put in jeopardy when he has done all the law requires him to do so. The purchasing dealer has no means to ascertain and secure compliance by the selling dealer. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution
The Hon’ble Madras High Court in the case of Sri Vinayaga Agencies vs. The Assistant Commissioner (CT) [W.P.Nos.2036 to 2038 of 2013] held that the authority is not empowered to revoke the input tax credit availed on a plea that the selling dealer has not paid the tax. The court observed that if the selling dealer has not paid the collected tax that liability has to be fastened on the selling dealer. It cannot be mulcted on the petitioner-purchasing dealer, which had shown proof of payment of tax on purchases made. The case was related to TNVAT Act which had provisions similar to Section 16(2)(c) of the TNGST Act, 2017 / CGST Act, 2017. Section 19(1) of TNVAT Act placed onus on the registered dealer who claims input tax credit to establish that the tax due on such purchase has been paid by him in the manner prescribed.
The aforementioned judgements from the pre-GST era have a persuasive value under the GST regime as well.
But however Circular No. 183/15/2022 – GST dated 27th December 2022 issued by the CBIC attempts to unsettle the settled position of law with respect to ITC for the F.Y 2018-19 by requiring the registered person to obtain a certificate from the supplier or a Chartered Accountant or Cost Accountant certifying that supplies in respect of the said invoices of supplier have actually been made by the supplier to the said registered person and the tax on such supplies has been paid by the said supplier in his return in FORM GSTR 3B. It is pertinent to note that there is no such requirement envisaged under any of the provisions of the CGST Act, 2017 as an eligibility condition for availment and utilization of Input Tax Credit.
Further the circular itself states that the guidelines mentioned therein are clarificatory in nature and are not to be used as a tool in the interpretation of provisions of the law.
The Hon’ble Supreme Court in the case of Commissioner of Customs, Calcutta vs Indian Oil Corporation Ltd (2004) 3SCC 488 2004 (165) E.L.T 257 has held that Circulars are not binding on the assessee. In case, such circular is not beneficial, assessee can choose not to follow them or challenge the issuance of the circular.
The Hon’ble Supreme Court in the case of Bengal Iron Corporation and Anr. Vs Commercial Tax Officer 1993 AIR 2414, 1993 SCR (3) 433 has held that quasi-judicial authorities shall be bound only by ‘law’ which does not include administrative instructions, opinions, clarifications and circulars. Adjudicating authorities are afforded the flexibility to use independent interpretations which may deviate from departmental circulars. Judiciary cannot direct that a circular shall be given effect to over any interpretation of Hon’ble Supreme court or High Courts on the question of law.
The provisions of Circular No. 183/15/2022 – GST dated 27th December 2022 are ultra vires the provisions of the Act and the judicial precedents set upon by the Hon’ble Supreme Court and High Courts and is thus not to be relied with.
Circulars cannot be used as a measure to circumvent the provisions of the parent legislation to legitimize notices seeking recovery of tax on account of ITC mismatch between GSTR 2A & GSTR 3B for F.Y 2017-18 & F.Y 2018-19 when there is no such provisions requiring certification from the supplier or by a Chartered Accountant / Cost Accountant as a pre-requisite for availment of ITC during the said period.
The Circular only addresses the cases where tax has been paid through GSTR -3B but fails to clarify the board’s stand where the supplier has paid the taxes through GST DRC -03 at the time of filing GSTR -9 and GSTR -9C. Ideally, in the interest of revenue neutrality, the circular ought to have taken a stand on the same footing with respect to either of the situations. However, the circular fails to address the same.
Circulars cannot state anything contrary to the parent legislation in which case the provisions of the law would prevail. Such circulars stepping up on extra territorial jurisdiction are liable to be quashed by the courts.
It is not open to the Revenue to raise a contention contrary to a binding Circular by the Board. When a Circular remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the Statute. It is not open to the Revenue to advance an argument or file an appeal contrary to the Circulars. Even if the Circular is inconsistent with the provisions of law, the Department cannot plead that it is not binding on them. Accordingly, the revenue would be bound to enforce compliance of taxpayers with the circular. The Assessee however can contest on the same as circulars are not binding on the assessee.
Circulars can be issued only to clarify the ambiguity and not enhance the liability.
Beneficial Circulars must be applied retrospectively by the Assessee while an oppressive circular must be applied prospectively. Thus, when the circular is against the Assessee, they have the right to claim enforcement of the same prospectively. Where a Circular tends to confuse the taxpayer even more by providing two or more interpretations, the Assessee could take that interpretation which is beneficial to him. Where two opinions are possible, the assessee should be given the benefit of doubt and that opinion which is in his favour should be given effect to
The above principles have been time tested and upheld by the courts in various pronouncements.
Taxpayers can take shelter of the beneficial provisions of the circular by providing the requisite certificates to ensure the resolution of disputes on mismatch notices.
Given the complexity and dynamism of the practical business scenarios in the current day context, even CAs and CMAs at times might not be in a position to certify that impugned supplies have actually been made by the supplier to the registered persons and tax on the said supplies have been paid by the supplier in FORM GSTR -3B owing to the non-availability of sufficient data, reluctance from the supplier of the registered persons for providing relevant records for verification in the absence of any statutory mandates etc.
In such cases where taxpayers are unable to produce the requisite certificates, the taxpayers can contest the notices on the aforementioned grounds.
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