Reconciliation of Input Tax Credit with GSTR-2A for years 2017-18 and 2018-19 – whether mandatory or optional…..?

In the draft GST law, there was discussion about availment of Input Tax Credit (ITC) on the basis of GSTR-2. However, due to some practical and technical reasons it was never implemented. Accordingly, it was seen that taxpayers used to avail ITC on the basis of the below criteria:

♦ Receipt of valid invoice from the supplier;

♦ Receipt of goods / services; and

♦ Check whether goods / services are not covered under section 17(5) i.e. “block credit”.

Taxpayers followed this practice from July 2017 to September 2019. During this time, the Government introduced GSTR-2A and clarified that this is just a facility for the taxpayers for reconciliation of ITC, which was not mandatory as per law during this period of time. However, sub-rule (4) was inserted to Rule 36 of CGST Rules, 2017 w.e.f. 9th October 2019 wherein availment of ITC on the basis of GSTR-2A made mandatory. It is worth important to note here that this provision was inserted with prospective effect and not retrospective effect.

In spite of this prospective amendment, it is seen that reversal of ITC is demanded for the financial years 2017-18 and 2018-19. We all know that every coin as two sides, so in this article I am trying to discuss one side of the coin which is favourable to taxpayers.

As per section 16(2), taxpayers are required to satisfy the following conditions for availment of ITC:

  • the registered person is in possession of a tax invoice or debit note issued by a supplier registered, or such other tax paying documents as may be prescribed;
  • he has received the goods or services or both.
  • subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
  • he has furnished the return under section 39 (i.e. GSTR-3B)

Payment to the supplier within 180 days is also one of the conditions for availment of ITC. It may be noted that this is not a pre-condition before availment of ITC. Therefore, in case of non-payment within the prescribed time limit, ITC is requited to be reversed.

It is seen that taxpayers have received goods / services under the cover of valid tax invoice and in many cases, taxpayers have made full payment to the respective suppliers and thus, all the conditions from the recipient’s perspective are satisfied in order to prove that the transaction is genuine.

Further, as per Circular No. 26/26/2017-GST dated 29th December 2017, the filing of Form GSTR-2 and Form GSTR-3 was kept in abeyance.  Therefore, whether the tax invoice is appearing in GSTR-2A or not was not the criteria for availing of the ITC for FY 2017-18 and 2018-19.  Further, the Press Release dated 18th October 2018 issued by the Government also mentioned that the apprehension that ITC can be availed only on the basis of reconciliation between 2A and Form GSTR-3B conducted before the due date for filing of return in Form GSTR-3B for the month of March 2019 is unfounded as the same exercise can be done thereafter also. Also, Press Release dated 4th May 2018 states that there shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller.  In case of default in payment of tax by the seller, recovery shall be made from the seller however reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc

Secondly, denying ITC to a buyer of goods or services for default of the supplier of goods or services would tantamount to shifting the incidence of tax from the supplier to the buyer, over whom it has no control whatsoever.  This is arbitrary and irrational and therefore violative of the Article 14, Article 19(1)(g) and Article 300A of the Constitution of India. In this connection, I would like to draw your attention to the judgement pronounced by the Hon’ble Madras High Court in case of M/s. D. Y. Beathel Enterprises vs. The State Tax Officer (Data Cell), wherein it has been mentioned that recovery action has to be first initiated against the seller.

Further, the Hon’ble Delhi, Rajasthan and Orissa High Courts have also issued Notices to the Centre questioning the validity of Section 16(2)(c) and Section 16(2)(d) of the CGST Act, 2017 with respect to the provision of ITC denial to the recipient on account of supplier’s default.

Apart from above discussion from legal perspective, one need to see practical angles also. It is seen that tax invoices are also not reflected in GSTR-2A due to below reasons:

  • wrong GSTIN mentioned by the supplier while filing GSTR-1;
  • transaction is reported in B2C instead of B2B;
  • wrong invoice number is reported in GSTR-1.

Therefore, before arriving at any conclusion of reversal of ITC, we need to consider legal as well as practical view also.

I have tried to discuss one side of the coin. The second side of the coin will be discussed soon.

Hope you will find it useful.

Author Bio

Qualification: LL.B / Advocate
Company: Proficient Partners Consultancy Pvt. Ltd.
Location: Pune, Maharashtra, India
Member Since: 26 Dec 2019 | Total Posts: 4

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