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Scrutiny notices and intimations are floating in the recent times where department is alleging the taxpayers to reverse the excess input tax credit claimed in Form GSTR 3B as compared to credits appearing in GSTR 2A. What is the validity of such communications? Is the taxpayer legally required to reverse such credits? We will discuss the provisions of law to understand this much better.

Until 31st December 2021 the conditions to claim input tax credit were only four as per section 16(2) of the CGST Act, 2017 as below:

(a) The recipient is in possession of the tax invoice or debit note issued by the supplier

(b) Recipient has received the goods or services or both

(c) Supplier has paid the taxes and

(d) Recipient has filed his returns.

For the financial years 2017-18, 2018-19, 2019-20, 2020-21 and 2021-22 till December 2021, the recipient was required to satisfy only these four conditions to avail input tax credit.

Though Rule 36(4) of the CGST Rules 2017 was inserted from 9th October 2019, where the credits were restricted in excess of 20% of the eligible credits appearing in GSTR 2A which are not uploaded by the suppliers. This limit was further reduced to 10% from 01.01.2020 and then 5% from 01.01.2021. Effective 01.01.2022 the rule was amended removing the option to avail the input tax credit in excess. The question now is whether Rule 36(4) is constitutionally valid? Can a Rule restrict the credits which the Act does not give power. CGST Act lays down only four conditions to avail input tax credits and nowhere the Act restricts the credits based on GSTR 2A at least until 31st December 2021.

Further refer to the Hon Supreme Court Judgement in the case of Bharti Airtel Limited (Refer to my article ) where the court has clearly said that GSTR 2A is only a form for reference purpose and taxpayers have to avail the input tax credit on self-assessment basis.

Differences in input tax credit between GSTR 2A and GSTR 3B

When there is no law restricting the availment of input tax credit, how can a Rule restrict it.

Clause (c) of the sub section 2 of section 16 of the CGST Act says that input tax credit can be availed only if the supplier has paid his taxes. There is no provision in the law or in the portal for the recipient to check if the supplier has remitted the taxes correctly. We can check if the supplier has filed his GSTR 1 or GSTR 3B, but it necessarily does not confirm whether the supplier has or have not paid the taxes pertaining to recipient invoices. Can there be possibilities where the supplier might have paid the taxes, but such invoices are not appearing in recipient’s GSTR 2A. The situations can be as below:

1. The supplier instead of filing as B2B by mistake filed as B2C in GSTR 1 and paid taxes in GSTR 3B.

2. The supplier mentioned wrong GSTN of the recipient.

3. The supplier instead of IGST mentioned it as CGST and SGST or vice versa

In the above situations though the taxes are paid by the supplier, it will not appear in the GSTR 2A of the recipient.

When the systems itself has not provided for the recipient to verify the payment of taxes by the supplier, how can then they come now and question the validity of the claim. The system failure of the Government cannot be brought to the disadvantage of the taxpayer. When GST was introduced, the original provision was to bring in GSTR 1, GSTR 2 & GSTR 3 returns, but the last two returns never saw the light of the day and the implementation date was continuously extended for the convenience of the policy makers and one day they abolished GSTR 2 & GSTR 3. If these two returns would have been there in existence, the recipient would have options to check the payment of taxes as well as intimate the supplier if the invoices were not uploaded or any amendment. The taxpayers cannot be made scapegoat for the failure of the Government in implementing the systems as originally laid out.

Circular 183/15/2022 dated 27th December 2022 was issued by CBIC clarifying how to deal with the difference in input tax credit availed in FORM GSTR-3B as compared to that detailed in FORM GSTR-2A for FY 2017-18 and 2018-19. The circular says, if the difference is more than Rs.5 lakhs with a supplier, then a certificate from a Chartered Accountant or a Cost Accountant is required, 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. How can a Chartered Accountant or a Cost Accountant verify whether the supplies have actually been made and taxes paid? Secondly how can a circular be brought in without any authority of law? When the law does not prescribe any such procedure, how can circular give such instructions. Further the circular says if the difference is less than Rs. 5 Lakhs then a self-declaration from the concerned supplier to the effect that said supplies have actually been made by him to the said registered person and the tax on said supplies has been paid by the said supplier in his return in FORM GSTR 3B. In my view this kind of circulars does not have any legal standi.

In my view until 31st December 2021, if all the four conditions as per Section 16 sub section 2 is met by the registered person, he is eligible to avail and utilize input tax credit.

Subsequently with effect from 1st January 2022, they inserted clause (aa) in Section 16 sub section 2 of the CGST Act, which reads as follows:

“The details of the invoice or debit note referred to 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”.

With the insertion of the above clause in the Act itself, they have brought in legal sanctity to the condition that input tax credits can be availed only if it is appearing in GSTR 2A. This amendment is effective from 1st January 2022, which makes it amply clear that before 1st January 2022, there was no provision in law to restrict the input tax credit based on GSTR 2A.

It is advised to give a proper reply to all the communications and if the proper officer is not satisfied with your reply, the matter can be pursued further. There is always a light in the end of the tunnel.

Author Bio

Has passed out in the year 1999 & has been partner in the firm since November, 2000. Has completed Certification on Service Tax, Certificate Course on GST. Completed one year as Deputy Convenor & one year as Convenor in Hosur CPE Study Circle of SIRC of ICAI and was president of Krishnagiri View Full Profile

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8 Comments

  1. Nanda Kumar M Madathil says:

    Very nice observation . High time GST council studies ITC circulars and apprise from a practical approach .. As a professional I feel even GSTR 9 and 9C have some grouping issues… Many of the comparison suggested in GSTR 9 and 9C are not compatible figures … ICAI should really make some study on these Forms … Even I feel the meaning of ITC available, Availed , Utilized , etc have to be correctly defined

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