Excess Input Tax credit claimed in GSTR-3B Returns in respect of invoices not figuring in relevant GSTR-2A are being disallowed by Dept or additional proof asked for basis circular 183 and 193

One of the main reason for bringing GST ACT is to eliminate the cascading effect of taxes. However, restricting ITC under section 16(2) (c) CGST Act 2017 brings assessee to hardship. Assesses have availed  ITC  based on permissible limits as per Notifications issued from time to time but now Department has begun to ask for additional proof like declaration from the supplier, payment proof etc., When the credit was availed as per the respective notifications and within the limit, therefore disallowing ITC now or providing the payment proof is a unnecessary burden on the assessee.

In respect of period from 09.10.2019 to 31.12.2019, rule 36(4) of CGST Rules permitted availment of Input tax credit by a registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under sub-section (1) of section 37, in FORM GSTR-1 or using IFF to the extent not exceeding 20 per cent. of the eligible credit available in respect of invoices or debit notes, the details of which have been furnished by the suppliers under sub-section (1) of section 37 in FORM GSTR-1 or using IFF – Notification No. 49/2019 – Central Tax dt. 09.10.2019

For the period from 01.01.2020 to 31.12.2020, when rule 36(4) of CGST Rules allowed additional credit to the tune of 10% in excess of the that reported by the suppliers in their FORM GSTR-1 or IFF – Notification No. 75/2019 issued on 26th December 2019

For the period from 01.01.2021 to 31.12.2021, when rule 36(4) of CGST Rules allowed additional credit to the tune of 5% in excess of that reported by the suppliers in their FORM GSTR-1 or IFF – Notification  No 94/2020 dated 22/12/2020

GST council has clearly stated in the Press Release issued by the Central Board of GST Council dated 4 May 2018 which stated that in case where the supplier defaults in payment of tax, there shall not be any automatic reversal of input tax credit to the buyer unless an exceptional case can be made out. Instead, the recovery shall be made from the supplier first.

The Government’s intention behind ITC has further clarified in the 28th GST Council Meeting where it recommended that recovery of unpaid tax be done from the defaulting supplier.

Further, CBIC press release dated 18 October 2018 which clarified that GSTR-2A is in the nature of facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis as per Section 16 of the CGST Act therefore disallowing ITC or asking to prove whether the supplier has paid taxes does not arise.

Few cases in this regard supporting the assess to claim ITC given below

1. The Hon’ble Kerala High Court in Diya Agencies v. The State Tax Officer [WP(C) No. 29769 of 2023 dated September 12, 2023]held that, if the taxpayer is able to prove that tax amount is paid to the seller and the Input Tax Credit claim is bonafide so the Input Tax Credit cannot be denied merely on non-reflection of transaction in GSTR-2A.

2. Suncraft Energy Private Limited and Another v. The Assistant Commissioner, State Tax [MAT 1218 of 2023 dated August 02, 2023] wherein the Hon’ble Calcutta High court held that, before reversing the ITC by the assessee, the Adjudicating Authority should take action against the selling dealer if it is found that he has not deposited the tax paid by the assessee. Unless the collusion between the assessee and the seller dealer is proved, the ITC is not to be denied if the assessee has genuinely paid the tax to the seller dealer.

3. In a significant ruling in 2013, the Supreme Court in Commissioner of Central Excise, Jalandhar v. Kay Kay Industries, while allowing the recipient (respondent) to claim MODVAT credit even when the supplier had defaulted in his duty to pay tax received from the recipient on inputs to the department, held that “an assessee is not expected to verify with Department whether the supplier had paid duty on inputs or not supplied by Manufacturer-Supplier in order to avail deemed MODVAT credit.” 

Further Circular No. 183/15/2022-GST and Circular No. 193/05/2023-GST based on which Department is asking tax payers to prove ITC paid by supplier to avail credit are internal Department circulars and does not bind on the assessee. The circular mentions that “It may also be noted that these guidelines are clarificatory in nature and may be applied as per the actual facts and circumstances of each case and shall not be used in the interpretation of the provisions of law” which implies that it cannot be binding on assessee and ITC cannot be denied to assessee if the availment was based on notifications and limits prevailing in that period.

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