Facts:
Company is engaged in the business of supplying alcoholic liquor (exempt supply under GST) and also effecting various taxable supplies (such as sanitisers, animal feed supplement etc.).
As per sub-section (2) of section 17, “Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies”.
In this regard, Rule 42/43 of CGST Rules, 2017 provides for detailed manner in which ITC on common inputs, input services and capital goods required to be reversed needs to be computed.
Company has by mistake (either due to ignorance of law or industry wide uniform practice) considered excise duty and VAT leviable on supply of alcohol as part of the turnover while computing ITC reversal of FY 2017-18 to FY 2020-21. This has resulted in excess reversal of ITC. This was brought to the knowledge of the company basis a legal opinion provided recently in April, 2022 to the company.
Under the given facts, whether it is possible for the company to re-avail ITC which was earlier availed basis invoice/debit note in terms of Section 16 (2) of the CGST Act, 2017 and was reversed in the same tax period by complying with Section 17(2) of the CGST Act, 2017 read with Rule 42/43 of the CGST Act, 2017.
Relevant provisions:
As per Section 16 of the CGST Act, “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”.
Rule 37 of the CGST Rules is reproduced below:
Reversal of input tax credit in the case of non-payment of consideration.-
(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof, the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section (2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice:
Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16:
[Provided further that the value of supplies on account of any amount added in accordance with the provisions of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.
(3) The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for reavailing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.
Analysis:
a. It is undisputed fact that the timeline for “taking” credit in respect of “invoice” or “debit note” as provided by Section 16(4) has expired long back in the given facts. However, an inference can be drawn that the timeline provided in Section 16(4) is for taking the ITC for very first time since the provision links “taking” of ITC to invoice/debit note level details.
b. In the given facts of the case, ITC would not be “taken” in respect any invoice/debit note. Instead already taken ITC which was reversed, would be “re-taken” in GST returns. Maximum such action of re-taking can be said to be re-availment of an “amount” as ITC which is otherwise also duly eligible.
c. As per Rule 37(4), timeline as provided in Section 16(4) shall not apply for re-availing any ITC in accordance with the provisions of this chapter. This Rule and Rule 42 forms part of “Chapter V- Input Tax Credit”. As such, Rule 37(4) specifically allows such re-availment without any timeline.
d. An argument that Rule 37 is applicable only in cases where ITC was reversed earlier due to non-payment of consideration to supplier basis the heading of the Rule 37 is not tenable. It is trite principle that “heading” can’t control the plain and clear meaning of the provision. Heading can be referred by the Courts only when there is any ambiguity or more than one interpretation is possible of the provision. There are end no. of court judgments and all affirmed by Hon’ble Supreme Court on this. Few are M/s. Frick India Ltd. v. Union of India, (1990), Bhinka v. Charan Singh, (1959), Krishnaiah v. State of A.P. and Ors (2005), etc. It is relevant to note that Headings are not passed by the Legislature but they are subsequently inserted after the Bill has becomes Act.
e. This issue was prevalent during erstwhile indirect tax regime also. Hon’ble High Court / CESTAT has time and again confirmed that there is no-timeline for re-availment of CENVAT credit which availed and reversed earlier. It is relevant to note that in these cases “cause of action”/ “timing difference between availment/reversal with re-availment” of ITC may not be the same as present case i.e. basis a change in opinion on a legal advice. However, operative part of these judgments clearly allows such re-availment of the ITC in the current facts also. Also, it is relevant to note that these decisions are accepted by the department since no further appeal against the judgments has been filed by the department. Gist of few of the cases are reproduced below:
Vinayak Steels Ltd. v/s Commisssioner of C Ex., Hyderabad (2016 (2) TMI 1030) – CESTAT HYDERABAD:
The allegation in the show cause notice is that credit has been availed without proper documents – Held that: – As the issue whether they could take credit on MS items was being contested by them for the periods May, 2005 to December, 2008 and August, 2009 to April, 2010, they informed the department that they are not bound to reverse the credit. They thus took credit after informing the department about their intention. It is only thereafter that the present show cause notice is issued alleging that suo motu taking of credit is not legal or proper.
It has also to be mentioned that appellant took re-credit within a period of about two months. In the peculiar facts presented by this case, the credit having been reversed as per the letter issued by department, there would be no impediment in taking re-credit of the same.
M/s Krishnav Engineering Ltd. Versus CESTAT and another (2015 (12) TMI 234) – Allahabad High Court
Appellant had claimed Cenvat credit and had filed the proper invoice bills. The authority was satisfied and credit was allowed for which there is no dispute. However, for whatever reasons, the appellant reversed these Cenvat credit entries and debited the said amount in its books but subsequently, realised that they were eligible for Cenvat credit, inasmuch as furnace oil was an input as defined under the Rules, based on which, the assessee issued a letter dated 25th April, 2005 indicating its intention to again make the reversal of its Cenvat credit entries and also enclosing the original invoice bills. – show cause notice was wrongly issued on a wrong premise that no permission was taken or that original documents were not filed. In fact, we find that the appellant had not only intimated the department about its intention but also had filed the necessary documents. The letter indicated the details of the description of the goods, the invoice bills and the credit to be taken. This was in consonance with the provisions of Rule 9. If the authority had any objection they should have immediately asked the appellant for further clarifications, which in the instant case was not done. – Consequently, the reversal of entry made by the appellant was justified in the given facts and circumstances of the case.
COMMR. OF C.E.,C. & S.T., BANGALORE VERSUS STUMPP, SCHEULE & SOMAPPA P. LTD. (2015 (9) TMI 1375) – CESTAT BANGALORE
Taking of credit on the basis of available documents, without disputing their genuineness, cannot be equated with the case of self refund. – There is no stipulation in the Cenvat statute that an assessee is required to obtain prior permission from the jurisdictional Central Excise authorities for making any debit entry in the Cenvat records. Hence, in absence of any specific prohibition to that effect, it is not appropriate to disallow the Cenvat benefit, to which the respondent is statutorily entitled to. This Tribunal in the case of Visakhapatnam Steel Plant v. CCE [2002 (3) TMI 169 – CEGAT, BANGALORE] has held that correction of errors and omissions in the entries would not require permission of the Department.
Conclusion: As such, in our considered view, ITC can be re-availed for period beginning FY 2017-18 till FY 2020-21.
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Very useful article