At the inception of GST, it was envisaged that there would be a seamless flow of input tax credit. But with the lots of conditions attached with availment of ITC, it doesn’t seem to be correct. There were the following four conditions primary to avail the ITC.
1. The recipient should have a tax invoice or debit note issued by the supplier in the prescribed form (i.e., GST invoice)
2. The recipient should have received goods or services
3. Tax in respect of such supplies has been paid to the government by the supplier
4. The recipient has furnished the return GSTR 3B
The condition mentioned at point 3 is not possible to be checked at the recipient level, hence the ITC was continuing to be available without complying with such condition on a self-assessment basis. Further in the case of Bharti Telemedia Ltd. Vs. Union Of India & Ors. the Delhi High Court while issuing the notices to the Centre ruled that Input Tax credit (GST) can not be denied to the recipient for default on part of the supplier. Many courts have also decided on similar lines.
As a fifth condition, the government was continuing to try to implement the matching of the ITC with GSTR 2A through rule 36(4) of CGST rule 2017. But in absence of a backing provision in the CGST Act for rule 36(4) and in view of the dynamic nature of GSTR 2A, it couldn’t be implemented in an effective way. Further various courts have held that ITC can not be denied on account of not being available in the GSTR 2A. GSTR 2A is just a facility, not the deciding factor to avail the ITC.
w.e.f. 1st Jan 2022, a new clause (aa) was added to section 16(2) was added, that required the detail of invoice should be reflected in GSTR2B before availing the ITC, and hence the requirement of GSTR 2A has been done away with.
Now with Finance bill 2022, a new 6th condition has been proposed to add in section 16(2) which is as given below:
“(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;”;
GST was intended to be a two-way communication system, (like filling of various returns in the flow of GSTR 1, GSTR 2A, GSTR 2, GSTR 1A, and GSTR 3), but it could not be implemented in this way. So, finance bill 2022 proposed to omit sections 42, 43 43A and resubstitute section 38.
New proposed section 38 further puts certain restrictions for availing the ITC. Now the ITC would be available only if it is not restricted by section 38. All the restrictions mentioned in section 38 relate to the compliance of the supplier.
So now onwards it would be important to know your supplier very well, as the recipient’s ITC would be connected to supplier GST compliance.
Section 41 also re-substituted to give legal backing to the condition in section (16)(2)(c). It is proposed in new section 41 that ITC availed by the registered person shall be reversed with interest if taxes have not been paid by the supplier on such supplies. Such credit can be reavailed once payment is made by the supplies.
Availing of ITC is really going to be challenging in time to come.
Not only on taking the ITC but conditions are proposed on utilization of such ITC. Finance Bill 2022 proposed subsection 12 to section 49 that provides that government may specify such maximum proportion of output tax liability under the Act which may be discharged through the electronic credit ledger by a registered person.
Restriction to use the ITC is already therein rule 86B of CGST rule, but there is no backing of such rule in the act, above proposal, is aimed to give legal backing to rule 86B.
The moot question is once the registered person has availed the ITC after fulfilling all the conditions, how the government can restrict the utilization of the same. It is like depriving someone of the use of his own property.