GST – Availing Missed ITC now in GSTR 3B?

One of the GST objectives is to ensure the seamless flow of the credit & avoiding the cascading effect. The success of ITC is directly proportionate to the success of GST and equally, the business pricing, hence any detriment caused by the ITC would directly impact the business. The ITC claim is the area where the business would like to take aggressive decisions and any benefit would yield the better economic result & fetch them the competitive edge. More specifically in the current COVID-19 Crisis, the ITC is the area that requires special focus under GST which helps in cost reduction.

GST has completed 3 years recently and still, the issues of transitional credit were not settled & many taxpayers have knocked the doors of HC’s and GST council. If this is the position with the transitional credits [ eligible as on 1.7.2017], it is not clear how long it takes to settle the regular issues.

Knowingly or unknowingly, the taxpayers have missed availing ITC for various reasons. The most common areas of missing ITC are outlined below:

1. Missing claiming Transitional credits:

Several taxpayers missed filing Form GST Tran-01, in turn, missed claiming the transitional credit due to various reasons. The various HC’s in a catena of judgements held that said transitional credit can be claimed now irrespective of the technical difficulties faced or not. For detailed analysis, please refer our previous articles on this subject. https://taxguru.in/goods-and-service-tax/gst-retrospective-amendment-transitional-credit-claims-past-disentitled-now.html, https://taxguru.in/goods-and-service-tax/gst-chance-claiming-transitional-credit.html

2. Mistakes in claiming Transitional ITC leads to less availment:

Certain taxpayers though filed Form GST Tran-01 has committed certain mistakes while filing which lead to less transfer of credit than eligible. Here again, the courts have been ordering the GST authorities to allow the rectification. The above link can be seen for a detailed analysis of the issue.

3. The closing balance of ‘Cess credit’ into GST:

The closing balance of various cesses like Education Cess, Secondary & Higher Education Cess (SHEC), Krishi Kalyan Cess (KKC) etc. though eligible for carrying forward into GST as per the original law framed, the Revenue department has denied the same and followed by the Retrospective amendment to validate the department action. There was an HC decision in case of Sutherland Global Services Pvt. Ltd. Vs. Asst. CGST 2019 (30) G.S.T.L. 628 (Mad.) holding that Cess credit is eligible for the carry forward and further, the authors strongly believes that the retrospective amendment is insufficient to deny the rightly accrued credit.

4. Construction credit – Orissa HC decision:

The ITC on the construction expenses of factory building, commercial buildings meant for lease etc., is a restricted item under section 17(5) of CGST Act, 2017 as amended. However, the Hon’ble Orissa HC in case of Safari Retreats Pvt Ltd Vs C.C CGST 2019-TIOL-1088-HC-ORISSA-GST read down the said restriction and held that ITC shall be eligible. For detailed analysis, readers may refer to the article published at https://hiregange.com/a/gst-itc-on-the-construction-of-immovable-properties-orissa-high-court.

5. Unclaimed ITC due to non-reflection in GSTR-2A:

Certain taxpayers conservatively have not availed the ITC of the invoices not reflected in GSTR-2A on the belief that same is ineligible. Since the section 42, 43 & 43A of CGST Act, 2017 are not yet implemented, the matching requirement is not required and the Rule 36(4) of CGST Rules, 2017 (introduced w.e.f 09.10.2019) also is not legally sufficient to impose such condition of reflection in GSTR-2A to allow the ITC.

6. ITC on RCM paid later under Self-invoice:

In some cases, the taxpayers have paid RCM liability belatedly after the end of the time limit prescribed for such FY u/s. 16(4) of CGST Act, 2017 as amended. It can be argued that the time limit is linked with the ITC document date i.e. self-invoice for RCM credit and not linked with transaction date thereby the RCM liability paid after the time limits u/s. 16(4), ibid and raised Self-invoice belatedly, the same gets the life from the date of payment thereby all RCM liabilities paid in FY 2019-20 though pertains to previous FY’s of 2017-18 or 2018-19 still has the chance to avail the credit.

7. ITC on Employee welfare expenses:

The section 17(5) of CGST Act, 2017 as amended restricts the ITC on certain employee-related expenses like Food, Beverages, catering etc. but not all employee-related expenses are restricted like Travel expenses incurred by the Marketing team/Directors are eligible.

8. Pre-registration ITC:

It is implied that ITC on procurements made before registration under GST is not eligible. However, such inference is not coming out from the any of the GST provisions leaving some chance to claim ITC on the pre-registration expenses. The case would become stronger when the pre-registration output Turnover was offered to GST.

And the host of many other areas where potential ITC would have been missed to avail.

Now the stoppage point for many who wished to claim aforesaid credits is the timelines given under GST law. For instance, the time limit given u/r. 117 of CGST Rules, 2017 as amended for availment of transitional credit is 27.12.2017 (extended to 31.03.2020 for the taxpayers who faced the technical difficulties on the common portal), which got expired now thereby the taxpayers though intends to claim now has missed the deadlines.

The general rule is that provisions of the fiscal statute more specifically, the tax law shall be construed strictly, and equity has no role. Further, whenever any time limits are specified under a particular law, the provisions of Limitation Act, 1963 would not apply. The conjoint effect of this legal position is that the credits which are missed availing within the time limits specified would be time-barred and not available for availment now. This  is a settled legal position. However, the observation of the Delhi HC decision in case of Brand Equity Treaties Ltd v. UOI 2020-TIOL-900-HC-DEL-GST[1] are worth noting:

“After all, a completely new system of accounting; reporting of turnover; claiming credit of prepaid taxes; and, payment of taxes was introduced with the implementation of the GST regime. A basket of Central and State taxes were merged into a single tax. New forms were introduced and, as aforesaid, all of them were not even operationalised. Just like the respondents, even the taxpayers required time to adapt to the new systems, which was introduced as a completely online system. Apart from the shortcomings in the system developed by GSTN Ltd., the assessees also faced the challenges posed by low bandwidth and lack of computer knowledge and skill to operate the system. It is very unfair on the part of the respondents, in these circumstances, to expect that the taxpayers should have been fully geared to deal with the new system on day-one, when they themselves were completely ill-prepared, which led to creation of a complete mess. The respondents cannot adopt different standards – one for themselves, and another for the taxpayers. The GST regime heralded the system of seamless input tax credits. The successful migration to the new system was a formidable and unprecedented task. The fractures in the system, after its launch, became visible as taxpayers started logging in closer to the deadline. They encountered trouble filing the returns. Petitioners who are large and mega corporations – despite the aid of experts in the field, could not collate the humongous data required for submission of the statutory forms. Courts cannot be oblivious to the fact that a large population of this country does not have access to the Internet and the filing of TRAN-1 was entirely shifted to electronic means. The Nodal Officers often reach to the conclusion that there is no technical glitch as per their GST system laws, as there is no information stored/logged that would indicate that the taxpayers attempted to save/submit the filing of Form GST TRAN-1. Thus, the phrase “technical difficulty” is being given a restrictive meaning which is supplied by the GST system logs. Conscious of the circumstances that are prevailing, we feel that taxpayers cannot be robbed of their valuable rights on an unreasonable and unfounded basis of them not having filed TRAN-1 Form within 90 days, when civil rights can be enforced within a period of three years from the date of commencement of limitation under the Limitation Act, 1963.

…………….

“22. We, therefore, have no hesitation in reading down the said provision [Rule 117] as being directory in nature, insofar as it prescribes the time-limit for transitioning of credit and therefore, the same would not result in the forfeiture of the rights, in case the credit is not availed within the period prescribed. This however, does not mean that the availing of CENVAT credit can be in perpetuity. Transitory provisions, as the word indicates, have to be given its due meaning. Transition from pre-GST Regime to GST Regime has not been smooth and therefore, what was reasonable in ideal circumstances is not in the current situation. In absence of any specific provisions under the Act, we would have to hold that in terms of the residuary provisions of the Limitation Act, the period of three years should be the guiding principle and thus a period of three years from the appointed date would be the maximum period for availing of such credit.”

Despite having the prescribed timelines for transfer of transitional credit, the Hon’ble HC proceeded to apply the provisions of Limitation Act, 1963 on premise that the both Government & Taxpayers are new to the GST law and it requires a reasonable time to adopt the new law. The rationale can be extended to other credits also. Accordingly, the maximum period for availing any missed out credits even applying the provisions of Limitation Act, 1963 is 3 years. Hence, it is suggested to avail the transitional credits in June 2020 GSTR-3B returns and other cases also, the earliest time is suggested.

It is important to note that the availing credits (which missed the deadlines specified) are highly likely to be disputed by the Revenue department and the taxpayers shall ready to contest in the Judicial forums till its logical conclusion. Hence the cost-benefit analysis is highly recommended while taking the decision of taking or not taking the credit now.

Conclusion:

The suggested course of action is as under:

• Claim any missed out Transitional credits, ITC of FY 2017-18 & 2018-19 in June GSTR-3B and inform to the department by RPAD. Any objection reverse under protest in writing.
• Alternatively, Take & reverse in June GSTR-3B under protest and inform the department that same would be re-availed in future once the SC confirms by RPAD.

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[1] Stayed by the Hon’ble SC as of now reported in 2020-TIOL-115-SC-GST-LB