Can Input Tax Credit (ITC) for FY 2019-20 be claimed after September 2020? YES, YOU MAY
Few days ago, I came to know that Confederation of GST Professionals and Industries filed a writ petition before the Hon’ble Bombay High Court for the extension of due date of GSTR-9/GSTR-9C to 31st December 2020. The Petition stated the various problems which are being faced by professionals in view of severe restrictions on public transport and staff attendance of 10% in many places. Petition further argued that CA fraternity has heavy audit responsibilities & because of this mandate, CA fraternity has become “Corona Warriors”.
Yes, this is the fact. We all GST professionals and company people who are taking care of GST compliance are “Corona Warriors”.
This October 2020 is full of due dates under GST law. With very limited resources, limited time and family health issues, we need to observe many GST compliance. Some of them are listed in the below table:
|GSTR-1 for the month of September 2020||11th October 2020|
|GSTR-1 for the quarter July 2020 to September 2020||31st October 2020|
|GSTR-3B for the month of September 2020||20th/22nd / 24th October 2020, as the case may be|
|ITC-04 for the quarter July 2020 to September 2020||25th October 2020|
|GSTR-9 / GSTR-9C for FY 2018-19||31st October 2020|
Apart from this, we all GST professionals as well as all company people who are taking care of GST compliance, are going through the pain of GSTR-2A reconciliation for the FY 2019-20. In terms of provisions of section 16(4) of the CGST Act, 2020, pending ITC related to FY 2019-20 can be claimed upto due date of GSTR-3B return for September 2020. Thus, practically speaking, the last date for claiming pending / hold ITC related to FY 2019-20 is 20th / 22nd / 24th October 2020, as the case may be.
I guess this pain is still not sufficient. This is because as per the latest clarification issued by the CBIC vide Circular No. 142/12/2020-GST dated 9th October 2020, ITC for the months from February 2020 to August 2020, if availed as per books, is required to be reconciled with GSTR-2A in terms of rule 36(4) of CGST Rules, 2017 and excess ITC (as compared with 110% of eligible ITC reflected in GSTR-2A for February 2020 to August 2020) is required to be reversed in GSTR-3B for the month of September 2020. Moreover, separate ITC reconciliation for the month of September 2020 is to be done with GSTR-2A before filing of GSTR-3B. It is further clarified that failure to reverse excess claimed ITC for the period from February 2020 to August 2020 would be treated as “availment of ineligible ITC” which means such ineligible ITC would attract interest, if utilised against output GST liability for the respective months (i.e. from February 2020 to August 2020).
Considering the limited resources, health issues, many other restrictions due to this COVID-19 and most importantly, time constraints for availment of pending / hold ITC for the FY 2019-20, I wish to share some of the points for consideration.
While doing reconciliation of ITC with GSTR-2A, there are certain common things which are observed by all GST professionals and tax payers. Such common observations along with few practical suggestions are mention below. This may be useful to safeguard the interest of the company:
1. ITC for FY 2019-20 is on hold because certain suppliers have reported the sale transaction under B2C instead of B2B – I personally feel that this mistake cannot restrict the company from taking ITC. This is because as per section 16(2) of the CGST Act, 2017, there are following four conditions for claiming ITC:
a. ITC is availed on the basis of valid document, which is satisfied.
b. Assessee has received the goods / services, which is satisfied.
c. The supplier has paid GST to the Government, which is satisfied; and
d. The supplier has filed GST return u/s 39 (i.e. GSTR-3B), which is also satisfied.
Since all the four conditions are satisfied, the company can very well claim ITC even if respective purchase invoice is not reflected in GSTR-2A. In such cases, I would strongly suggest that company should obtain a declaration from the respective suppliers by mentioning details of tax invoices and the fact that such tax invoices are inadvertently reported in B2C instead of B2B. This declaration would certainly be one of the strongest documentary evidence for future reference / litigation.
2. ITC for FY 2019-20 is on hold because certain suppliers have wrongly reported GSTIN of the company – even in such case, I personally feel that this mistake cannot restrict the company from taking ITC. This is because as mentioned above, all the four conditions prescribed u/s 16(2) are satisfied. Even in this case, I would suggest to obtain a declaration from the respective suppliers by mentioning details of tax invoices and the fact that wrong reporting of GSTIN of the company.
3. ITC for FY 2019-20 is on hold because certain suppliers have not filed GSTR-1 – even in such case, I personally feel that this mistake cannot restrict the company from taking ITC. This is because even though rule 36(4) of CGST Rules, 2017, restricts ITC to 110% of the eligible ITC reflected in GSTR-2A, it cannot override the provisions of section 16(2) of the CGST Act, 2017. It is settled law that the Rule cannot override the provision of the Act under which the Rule is framed. Therefore, when all the conditions are satisfied u/s 16(2) of the CGST Act, 2017, ITC should be available even though GSTR-1 is not filed. This is subject to litigation or further clarification by the Government.
4. ITC for FY 2019-20 is on hold because certain suppliers have not filed GSTR-3B – GSTR-3B not filed means GST is not paid by the supplier. Since one of the basic conditions prescribed u/s 16(2) is not satisfied, ITC is not available. However, in future, many companies will be fighting on the ground that because of default by the supplier on account of non-payment of GST, ITC should not be denied when the transaction is genuine. I heard that M/s Bharti Telemedia Ltd. has filed a writ petition before the Hon’ble Delhi High Court challenging Section 16(2)(c) [i.e. condition of payment of GST by the supplier]. This writ petition has been admitted by the Hon’ble Delhi High Court which means there is question of law involved for discussion. We are now waiting for outcome of this decision. Based on this, companies may take a call whether to recover ITC amount from the respective supplier or still avail ITC.
After considering the above situations, legal provisions and time constraints for availment of pending / hold ITC related to FY 2019-20, I wish to share one mid-way. The mid-way is to avail all pending / hold ITC for FY 2019-20 in GSTR-3B for September 2020 and reverse the same in the same month. This mid-way is based on the below legal provisions and references:
1. As per section 16(4) of the CGST Act, 2017, restriction is on availment of “fresh credit” and not on availment of “re-credit”. Therefore, once ITC is availed and subsequently reversed, it gives time to the assessee to reconcile and re-avail ITC without any time restriction;
2. As per the Press Release dated 18th October 2018, in para 4, the Government has clarified that the apprehension that input tax credit can be availed only on the basis of reconciliation of between 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. Though this Press Release talks about ITC for FY 2017-18 but the principle remains that exercise of GSTR-2A reconciliation can be done at the later stage also;
3. There may be a situation that some of the suppliers would file GSTR-1 for FY 2019-20 after October 2020 and thus, pending ITC will be reflecting after filing of GSTR-3B for September 2020. Thus, even though the respective tax invoice will be reflected in GSTR-2A (though at later date), the same will not be eligible to claim, which is totally injustice to the taxpayer; and
4. Similar provisions regarding time limit for availment of CENVAT credit was prescribed under Rule 4(1) and 4(7) of Cenvat Credit Rules, 2004. In this connection, the CBIC had clarified vide Circular No. 990/14/2014-CX dated 19th November 2014 that time limit is not applicable in case of “re-credit” cases.
Whether this is the intention of the GST law or loophole in the GST law is the different issue however, considering the time constraint, one can consider this approach. This is just a thought after carefully going through the legal provisions of section 16 of the CGST Act, 2017 and other related provisions. I know there can be other side of thought also and therefore, it is open for discussion and arguments.