“Dive into the complexities of GSTR 3B and GSTR 2A discrepancies! Explore the legal nuances and principles behind Input Tax Credit (ITC) refutation. Learn about challenges like non-uploading, delays, and erroneous filings, and how delays in claiming ITC and IGST errors impact taxpayers. Understand the judicial perspective on genuine errors and the importance of balancing tax compliance and protecting taxpayer rights. Stay informed to navigate the complexities of GST seamlessly.”
In analysing the refutation of Input Tax Credit (ITC) due to discrepancies between GSTR 3B and GSTR 2A, it is crucial to keep in mind the underlying principles of law and the spirit of the Goods and Services Tax (GST) system. As the legal maxim goes, “The essence of law lies in the spirit, not its letter, for that letter is significant only as being the external manifestation of the intention that underlines it” (Salmond).
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1. Non-uploading / Delay / Erroneous Filing of Returns by the Supplier:
The basic issue in this case is when a supplier fails to upload or delays in filing their returns, which can result in a mismatch between the buyer’s GSTR 3B and GSTR 2A. This discrepancy should not automatically be the burden of the buyer. The law does not compel individuals to do the impossible. It is not the responsibility of the buyer to ensure that the seller pays the tax, especially when the transaction is bona fide. “Lex Non Cogit Ad Impossibilia,” which means the law does not compel a person to do that which they cannot possibly perform. Taxpayers cannot enforce their suppliers to file returns, and the legal mechanisms are insufficient for that purpose.
Section 41 of the CGST Act allows registered persons to claim ITC as self-assessed in their return, but conditions and restrictions for this provision are not yet prescribed. Additionally, the common portal’s limitations, which do not allow taxpayers to file returns without making payments, have restricted taxpayers from complying with Section 41. Refutation of ITC due to procedural lapses violates Article 300A of the Indian Constitution, which protects individuals from being deprived of their property without lawful authority.
Section 41:
*Section 41. 1[Availment of input tax credit]
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to avail the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited to his electronic credit ledger.
(2) The credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest, by the said person in such manner as may be prescribed:
Provided that where the said supplier makes payment of the tax payable in respect of the aforesaid supplies, the said registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed.]
Example: Consider a scenario where a buyer purchases goods from a seller who fails to upload their returns on time due to technical difficulties. The buyer has proper invoices and fulfils all eligibility conditions. Refutation of ITC to the buyer in such a case would be unjust.
Article: 300A:
Article 300 A provides that no person shall be deprived of his property save by authority of law. The State cannot dispossess a citizen of his property except in accordance with the procedure established by law.
2. Delay in Claiming ITC as Prescribed within Time Limit under Section 16(4):
Section 16(4) of the CGST Act prescribes a time limit for claiming ITC. However, many details are already available in GSTR-2A before the due date specified in Section 16(4). If a taxpayer files their return belatedly but pays late fees and interest, the delay is regularized. The common portal, which restricts taxpayers from filing returns without making payments, is a significant hurdle in availing ITC within the prescribed time frame.
Section 16(4) :
Understanding Section 16(4) of the CGST Act
Section 16 (4) of the CGST Act stipulates that a registered person can claim input tax credit only if the goods or services received are used in the course or furtherance of their business. Personal use of goods or services disqualifies them from claiming ITC. Moreover, the registered person must possess a tax invoice or debit note from the supplier, containing essential details such as the GSTINs of both parties, the description and value of goods or services, and the amount of tax charged.
Exceptions to the rule include cases where goods or services are used to make taxable supplies. However, ITC cannot be claimed if the goods or services are utilized for exempt or nil-rated supplies. Additionally, timely filing of GSTR-1 and GSTR-3B returns is mandatory for claiming ITC. Failure by the supplier to remit the collected tax to the government also renders the registered person ineligible to claim ITC.
For example Ajay Enterprises arranges for an office party for its employees. Ajay Enterprises will not be able to claim ITC on the food & beverages served or if ABC Ltd. offers a travel package to its employees for personal holidays. ITC on GST paid by ABC Ltd. for the holiday package will not be allowed. ITC will be allowed for travel for business purposes and any expense for personal purposes will be invalid for ITC.
Like for example a business owner going on a vacation or on a family trip will be ineligible for ITC.
Example: A taxpayer avails ITC within a reasonable time after the due date due to the common portal’s restrictions. They have fulfilled all other conditions for claiming ITC. Refutation of ITC in such cases would be unreasonable.
3. IGST Instead of CGST/SGST in GSTR 2A:
Sometimes, errors occur when suppliers enter wrong taxes while submitting GSTR-1, leading to mismatches in GSTR 2A. In a recent case, the Madras High Court ruled in favour of a taxpayer, recognizing inadvertent human errors and the lack of an enabling mechanism under the statute. This highlights the importance of rectifying genuine errors to ensure that taxpayers are not unfairly prejudiced.
Example: A supplier inadvertently enters IGST instead of CGST/SGST in GSTR-1. This results in a mismatch with the buyer’s GSTR 2A. Recognizing such errors and allowing corrections is a fair approach.
The judiciary is increasingly considering the genuine hardships faced by taxpayers and passing orders in their favour. However, strict actions should be taken when a nexus is established between the buyer and seller with the intent to evade taxes. A system should penalize those who fraudulently avail ITC or evade taxes while protecting the interests of honest taxpayers.
Example: If an investigation reveals a conspiracy between a buyer and seller to evade taxes, strict legal actions should be initiated against them.
In summary, the fundamental principle of “Salus Populi Est Suprema Lex,” which means the welfare of the people is the supreme law, should guide the interpretation and application of tax laws. The GST system should be designed to facilitate ease of doing business and protect the rights and interests of taxpayers while ensuring compliance with the law.
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