The GST department have issued plethora of notices to the registered persons disallowing the ITC availed in respective GSTR 3B due to mismatch with GSTR 2A. The tax officers have raised demands of crores of rupees on this basis alone without inquiring into the bonafides of the purchase transaction.
This article attempts to throw light on legal remedies for the genuine hardships faced by the taxpayers regarding demand for this mismatch along with interest and penalty. The article has been presented in form of “Grounds of Appeal” for disallowance of GST ITC due to ‘Mismatch between GSTR-3B and GSTR-2A’.
The appellant states and submits that the disallowance of input tax credit of Rs. XXX due to mismatch between GSTR-3B and GSTR-2A should be deleted.
1. In the impugned order in Form GST DRC-07, the learned State Tax Officer has disallowed the input tax credit of Rs. XXX based on parameter no. 73 – “Excess ITC claimed in GSTR 3B/9 which is not confirmed in GSTR 2A or 8A of GSTR 9”.
2. Section 16 of the MGST Act, 2017/CGST Act, 2017 provides for eligibility conditions for availing input tax credit.
The relevant extract of Section 16 is as follows:
16. Eligibility and conditions for taking input tax credit. –
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) 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,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed
(b) he has received the goods or services or both.
(c) 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; and
(d) he has furnished the return under section 39.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.
3. It is respectfully submitted that the appellant has complied with the conditions prescribed under clauses (a), (b) and (d) of subsection (2) of section 16 of MGST Act, 2017. However, it is impossible for the appellant to comply with Section 16(2)(c) as the appellant does not have any control over the sellers. It is respectfully submitted that the legal maxim ‘lex non cogit ad impossibilia’ merits your honour’s attention. This maxim postulates that law cannot compel a man to do that which cannot possibly be performed.
4. The appellant submits that the denial of benefit of ITC to the appellant on account of default of the seller, over whom the appellant has no control would cause grave injustice to the appellant.
5. In case of St. Joseph Tea Company Ltd. Vs State Tax Officer, Hon’ble Kerala High Court held that ITC shall not be denied only on the ground that the transaction is not reflected in GSTR 2A.
6. It is respectfully submitted that a similar provision, i.e., Section 9(2)(g) of Delhi VAT Act was stuck down as being unconstitutional by the Delhi High Court in Arise India Limited [2017 (10) TMI 1020 – Delhi High Court], 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 made following observations:
“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.”
7. The Hon’ble Madras High Court in the case of Sri Vinayaga Agencies vs. The Assistant Commissioner, CT Vadapalani, it was 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 it is another matter that the selling dealer has not paid the collected tax and 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 MGST 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.
8. The appellant also relies on below mentioned cases where various High Courts have upheld the proposition that ITC cannot be denied to the recipients due to the defaults of the supplier:
- R.S. Infra-Transmission [2018 (4) TMI 1800 – Rajasthan HC]
- D.Y. Beathel Enterprises [(2021) 127 Taxman. Com 80 (Madras High Court)]
9. Without prejudice to above, the appellant respectfully submits that according to press release dated 18.10.2018 issued by CBIC, 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. The apprehension that ITC can be availed only on the basis of reconciliation between FORM GSTR-2A and FORM GSTR-3B conducted before the due date for filing of return in FORM GSTR-3B for the month of September, 2018 is unfounded as the same exercise can be done thereafter also.”
10. Press release issued by the GST council on 4th May, 2018 mentioned 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.”
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Disclaimer: Please note that above arguments are for education purpose and may not fit each case equally.
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