GST has recently completed 7 years of implementation since its inception on 1st July 2017. Amongst many hits and misses, one of the major issues concerning almost every taxpayer is input tax credit matching with GSTR-2A and GSTR-2B.
With the due dates approaching for completion of adjudication proceedings, for FY 2019-20 and FY 2020-21, we have been witnessing rise in issue of show cause notices. The majority of notices being issued alleging excess availment of input tax credit (ITC) as compared to GSTR-2A.
In this article, we discuss upon validity of such notices, issued for FY 2019-20, and possible submissions which can be made by the taxpayers in response to such notice. For easy comprehension, submissions can be made under below headings:
i. Absence of Statutory Provision Mandating matching of ITC prior to January 2022
ii. ITC cannot be denied when mechanism of Form GSTR-2A was not fully functional
iii. ITC cannot be denied in case of bona fide transactions and where tax has been paid to the supplier
iv. Non-payment by Supplier in Form GSTR-3B – Beyond the control of the Noticee
v. Rule 36(4) introduced w.e.f October 2019 – Buffer of 20%/10% provided
vi. Submission of declarations – Circular No.193/05/2023 – GST
i. Absence of Statutory Provision Mandating Matching Prior to January 2022
There was no requirement to match ITC with Form GSTR-2A under Section 16 of the CGST Act, 2017, prior to January 2022. Further, section 16(2) of the CGST Act, 2017 prescribes certain conditions to be complied for the purpose of availment of ITC. In the said conditions, the Government vide Finance Act 2021 has inserted Section 16(2)(aa) of the CGST Act, 2017 w.e.f. 01.01.2022 thereby making the requirement to match ITC with Form GSTR-2A, a condition for availment of ITC.
The said condition inserted under Section 16(2) of the CGST Act, 2017 reads as follows:
“The details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under Section 37
The above amendment makes the position clear that prior to implementation of the said condition, there is no requirement to match ITC with Form GSTR-2A. In specific, during the disputed period there was no legal requirement to match ITC with Form GSTR-2A.
In this regard, Noticee can place reliance on the following judicial precedents, which have held that the law as prevailed during the period of dispute should be considered and not based on law which was introduced at a subsequent date.
a. THIRUMALAI CHEMICALS LTD. v. UNION OF INDIA [2011 (6) SCC 739]
b. M/S CIT v. VATIKA TOWNSHIP PRIVATE LTD. [TS57-SC-2014]
Considering that Section 16(2)(aa) of the CGST Act,2017 was introduced only from 01.01.2022, it is clear that there was no requirement to match ITC availed by the registered person with Form GSTR-2A, prior to January 2022. Hence there cannot be a demand to deny ITC on the allegation of mismatch with Form GSTR-2A prior to January 2022.
ii. ITC cannot be denied when mechanism of Form GSTR-2A was not fully functional
Without prejudice to the above, at the time of introduction of the CGST Act, 2017 in 01.07.2017 the statute provided a mechanism for filing of returns, which comprised of Form GSTR-1, Form GSTR-1A, Form GSTR-2, Form GSTR-2A and Form GSTR-3. Due to the unpreparedness of the GSTN portal, a simplified return filing mechanism was implemented using Form GSTR-1 and Form GSTR-3B along with Form GSTR-2A. The requirement to file Form GSTR-2 and Form GSTR-3 was deferred.
Section 37 of the CGST Act, 2017 (as prevailed during the period of dispute) which provides the mechanism of furnishing details of outward supplies read as follows:
“Every registered person, other than an Input Service Distributor, a non-resident taxable person and a person paying tax under the provisions of section 10 or section 51 or section 52, shall furnish, electronically, in such form and manner as may be prescribed, the details of outward supplies of goods or services or both effected during a tax period on or before the tenth day of the month succeeding the said tax period and such details shall be communicated to the recipient of the said supplies within such time and in such manner as may be prescribed”
Accordingly, Rule 59(3) of the CGST Rules, 2017 provided the manner of communication to the recipient as follows:
“The details of outward supplies furnished by the supplier shall be made available electronically to the concerned registered persons (recipients) in Part A of FORM GSTR- 2A, in FORM GSTR-4A and in FORM GSTR-6A through the common portal after the due date of filing of FORM GSTR-1.”
In other words, every registered person other than those specified, shall disclose the details of outward supplies made during a tax period in Form GSTR-1 and the same shall be communicated to the recipient of such supplies in Form GSTR-2A as provided in Rule 59(3) of the CGST Rules, 2017.
Form GSTR-2 as enumerated in the GST statute is a dynamic auto-populated statement containing the details of outward supplies reported in Form GSTR-1 by various suppliers. However, Form GSTR-2A effective during the time of dispute is a mere statement of inward supplies unlike the mechanism put forth under Section 38 of the CGST Act, 2017.
Section 38 of the CGST Act, 2017 provides for the mechanism to be adopted in respect of furnishing of details of inward supplies. The provision reads as follows:
“Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52, shall verify, validate, modify or delete, if required, the details relating to outward supplies and credit or debit notes communicated under sub-section (1) of section 37 to prepare the details of his inward supplies and credit or debit notes and may include therein, the details of inward supplies and credit or debit notes received by him in respect of such supplies that have not been declared by the supplier under sub-section (1) of section 37.”
In other words, Form GSTR-2 as contemplated in the CGST Act, 2017 provided for a mechanism whereby the registered person shall verify, validate, modify or delete if required the details of outward supplies, credit or debit notes disclosed by the supplier in their respective Form GSTR-1. The statute also provided for a mechanism to add the details of inward supplies, credit or debit notes which have been received and not disclosed by the supplier in his Form GSTR-1.
The mechanism contemplated by the statute in respect of Form GSTR-2 was not effective and the existing Form GSTR-2A/2B is a mere statement reflecting the outward supplies disclosed by the suppliers in their Form GSTR-1 which can only be viewed by the recipient and cannot be altered.
Further, Section 42 of the CGST Act, 2017 read with Rule 69 of the CGST Rules, 2017 provides for matching, reversal and reclaim of ITC which reads as follows:
“The details of every inward supply furnished by a registered person (referred as “recipient”) for a tax period shall, in such manner and within such time as may be prescribed, be matched—
a) with the corresponding details of outward supply furnished by the corresponding registered person (referred as “supplier”) in his valid return for the same tax period or any preceding tax period;
Rule 71(1) of the CGST Act, 2017 which provides for communication and rectification of discrepancy in claim of input tax credit and reversal of claim of input tax credit reads as follows:
“Any discrepancy in the claim of input tax credit in respect of any tax period, specified in sub-section (3) of section 42 and the details of output tax liable to be added under sub-section (5) of the said section on account of continuation of such discrepancy, shall be made available to the recipient making such claim electronically in FORM GST MIS-1 and to the supplier electronically in FORM GST MIS-2 through the common portal on or before the last date of the month in which the matching has been carried out.”
In summary, the requirement to match of ITC as contemplated under Section 42 of the CGST Act, 2017 is directly linked to filing Form GSTR-2 under Section 38 of the CGST Act, 2017. When the mechanism of filing Form GSTR-2 in itself was not effective, the concept of matching as per Section 42 of the CGST Act, 2017 cannot be enforced during the disputed period.
The Finance Act, 2022 had omitted Section 42 of the CGST Act, 2017 vide Notification No. 18/2022 – CT dated 28.09.2022 which substantiates the fact that the Government had intended to remove the inoperative provision Section 42 of the CGST Act, 2017. Further, the CBIC had entirely substituted Rule 59 of the CGST Rules, 2017 and also omitted Rule 69 of the CGST Rules, 2017 in order to bring the Act in line with the prevailing practice.
As per Notification No. 11/2019 – Central Tax dated 07.03.2019 the mechanism for matching of credit had been deferred and was not in practice during the period of dispute and the same reads as follows
“The time limit for furnishing the details or return, as the case may be, under sub-section (2) of section 38 and sub-section (1) of section 39 of the said Act, for the months of July, 2017 to June, 2019 shall be subsequently notified in the Official Gazette.”
In Para 76 of the minutes of the 23rd GST Council meeting held on 10th November 2017 in respect of Agenda item 12(iii) which is “Simplification of return filing process” the Council approved the following:
- To decide subsequently on the filing of GSTR-2 and GSTR-3 till March 2018 for all taxpayers;
- GSTR-2A delinked from GSTR-1 till March 2018 and no automatic input tax credit reversal on account of any mismatch between GSTR-1 and GSTR-2 till March 2018;
- Rolling GSTR-2A to be available to taxpayers for view till March 2018.
The GST Council comprises of the Union Finance Minister as the Chairman and all the State Finance Ministers as its members. The GST Council has also provided a clear mandate that ITC would not be liable to be reversed, merely on account of mismatch of ITC with Form GSTR-2A till March 2018. The same mechanism continued till 31st December 2021 covering entire period of dispute.
In the case of SUN DYE CHEM v. ASSISTANT COMMISSIONER (ST), TIRUPUR [2021 (44) G.S.T.L. 358 (Mad.)], the Madras High Court held as follows:
“Any mismatch between Form GSTR-1 and Form GSTR-2A is to be notified by the recipient by way of a tabulation in Form GSTR-1A. Admittedly, Forms in GSTR-2A and GSTR-1A are yet to be notified as on date. The statutory procedure contemplated for seamless availment is, as on date, unavailable. Undoubtedly, the petitioner in this case has committed an error in filing of the details relating to credit note. What should have figured in the CGST/SGST column has inadvertently been reflected in the IGST column. In the absence of an enabling mechanism, I am of the view that assessees should not be prejudiced from availing credit that they are otherwise legitimately entitled to. The error committed by the petitioner is an inadvertent human error and the petitioner should be in a position to rectify the same, particularly in the absence of an effective, enabling mechanism under statute”
Therefore, when the matching requirement under Form GSTR-2 in itself was not effective and the specific decision taken by the GST Council, the proposed demands in notices to deny ITC merely due to non-reflection in Form GSTR-2A appears bad in law.
Further, introduction of rule 36(4) w.e.f. 9th October 2019 does not change the above propositions. The CBIC vide Notification No. 49/2019- Central Tax dated 09.10.2019 read with Notification No. 75/2019 – Central Tax dated 26.12.2019 inserted sub-section (4) in Rule 36 of the CGST Rules, 2017.
As per Rule 36(4) of CGST Rules, 2017 as originally introduced, “Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.”
The said buffer provided under Rule 36(4) of the CGST Rules, 2017 was subsequently reduced to 10% w.e.f. 01.01.2020 and later to 5% w.e.f. 01.01.2021. Merely based on the introduction of Rule 36(4) of the CGST Rules, 2017 there cannot be a condition for availment of ITC, in the absence of any such condition under the GST law.
Further, nowhere under the provisions of Section 16 or any other applicable provision (which was operative) of the CGST Act, 2017 there is a condition for matching of invoices with Form GSTR-2A/2B, for the purpose of availment. It is settled principle of law, that rules cannot override the statute. In cases where the contrary is proved, the said rule would be struck down as ultra vires.
In this regard, reliance can be placed on the decision in the case of BABAJI KONDAJI GARAD ETC. v. THE NASIK MERCHANTS CO-OPERATIVE BANK LTD., NASIK [1983 (10) TMI 270 – Supreme Court]. In this case, the Apex Court ruled as follows
“If there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the bye-law if not in conformity with the statute in order to give effect to the statutory provision the rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with.”
Therefore, the proposed demands in notices to deny ITC lack statutory backing.
iii. ITC cannot be denied in case of bona fide transactions and where tax has been paid to the supplier
Notices propose to deny ITC on the sole grounds that the invoices are not reflecting in Form GSTR-2A and therefore it is presumed that the Supplier had not paid the tax to the Government. In this regard, it is important to bring about in the submissions that there is no allegation or dispute in the notice with regard to the genuineness of such transactions and also on the fact of payment of tax by the supplier, and also by Noticee to such suppliers.
The default of the supplier, if any, should be considered as an offence / contravention in the hands of the supplier and not to impact the eligibility of ITC in the hands of the recipient. The onus would be on the Department to recover the said tax dues from the supplier and not burden the recipient, by virtue of denying the otherwise eligible ITC. In this regard, Noticee reliance can be placed on SUNCRAFT ENERGY PVT. LTD. VERSUS ASSISTANT COMMISSIONER, STATE TAX [(2023) 9 CENTAX 48 (CAL.)] where the Hon’ble High Court of Calcutta held that the authorities have to make enquiry against the supplier more particularly before demanding the recipient to reverse the ITC held as follows.
“Therefore, before directing the Noticee to reverse the input tax credit and remit the same to the government, the first respondent ought to have taken action against the fourth respondent the selling dealer and unless and until the first respondent is able to bring out the exceptional case where there has been collusion between the Noticee and the fourth respondent or where the fourth respondent is missing or the fourth respondent has closed down its business or the fourth respondent does not have any assets and such other contingencies, straight away the first respondent was not justified in directing the Noticee to reverse the input tax credit availed by them. Therefore, we are of the view that the demand raised on the Noticee dated 20-2-2023 is not sustainable.”
It is pertinent to note that the Department had filed appeal against the said Order before the Hon’ble Supreme Court, wherein the Appeal was dismissed and accordingly the order of the High Court was restored.
Further, reliance can be placed in the recent ruling of the Hon’ble High Court of Kerala in the case of DIYA AGENCIES v. STATE TAX OFFICER [(2023) 10 Centax 266 (Ker.)] wherein it was held that credit cannot be denied in the hands of the recipient merely on account of non-reflection in Form GSTR-2A and the Department should proceed against the Supplier for the same.
Further, reliance can be also placed on the following judicial precedents, wherein the benefit of availment of credit has been allowed in case of default by the supplier
a. LOKENATH CONSTRUCTION PVT LTD VS GOVERNMENT OF WEST BENGAL [(2024) 18 Centax 97 (Cal.)]
b. JOSEPH TEA COMPANY LTD. v. THE STATE TAX OFFICER [2020-TIOL-1441-HC-Kerala-GST]
d. ARISE INDIA LIMITED v. CTT [2017 (10) TMI 1020]
… and many more.
Therefore, based on the above decisions it can be submitted that ITC cannot be denied when GST has been paid to the supplier. Further, when there is no dispute on the genuineness of the said transaction, the recipient cannot be held liable for the tax that he has already paid to the supplier.
iv. Non-payment by Supplier in Form GSTR-3B – Beyond the control of the Noticee
The notices propose to demand the input tax credit availed along with interest and penalty on the presumption that the Supplier had not paid the taxes to the Government in Form GSTR-3B.
In this regard, it can be submitted that Section 16(2) of the CGST Act, 2017 puts forth certain conditions to be satisfied by the registered person in order to avail ITC. The said specific conditions (as prevailed during the disputed period) reads as follows:
a) The registered person is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed.
b) The registered person has received the goods or services or both.
c) Subject to the provisions of [section 41 or section 43A], 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
d) he has furnished the return under section 39
However, there is no mechanism put forth in the Statute to make the recipient aware on payment of tax by the Supplier. The condition imposed with regard to payment of tax by the supplier, to make the recipient eligible to avail his due benefit is against the legal principle of “Lex non cogit ad impossibilia” (i.e., the law does not compel anyone to do anything vain or impossible).
Since the availment of benefit depends on the fulfilment of condition by another person i.e., the supplier, the possibility of fulfilling the condition in the hands of the recipient is almost impossible. This would lead to vexatious denial of benefit in the hands of the recipient. Therefore, the said condition imposed under Section 16(2)(c) of the CGST Act, 2017 is irrational and unreasonable.
In this regard, reliance can be placed on the following judicial precedents which have held that law cannot compel another to do an act which is impossible.
a. R.S. INFRA-TRANSMISSION LTD. V. STATE OF RAJASTHAN [2018 (4) TMI 1800 – RAJASTHAN HIGH COURT]
b. INDIAN SEAMLESS STEEL AND ALLOYS LTD. v. UNION OF INDIA [2003 (156) E.L.T. 945 (Bom.)]
c. COMMISSIONER OF CUSTOMS (IMPORTS) v. HICO ENTERPRISES [2008-TIOL-246-SC-CUS]
Based on the above demands, it can be submitted that Notices demanding recovery of Input Tax Credit on account of non-payment of tax by the Supplier is improper and arbitrary and the said condition in Section 16(2) of the CGST Act, 2017 should be struck down on grounds of impossibility.
v. Rule 36(4) introduced w.e.f. October 2019 – Buffer of 20%/10% provided
CBIC vide Notification No. 49/2019- Central Tax dated 09.10.2019 read with Notification No. 75/2019 – Central Tax dated 26.12.2019 inserted sub-section (4) in Rule 36 of the CGST Rules, 2017.
As per Rule 36(4) of CGST Rules, 2017 as originally introduced, Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.
The said buffer provided under Rule 36(4) of the CGST Rules, 2017 was subsequently reduced to 10% w.e.f. 01.01.2020.
Without admitting to the requirement of matching of ITC with GSTR-2A for the said period, even otherwise, a buffer of 10%/20% is provided to the taxpayer on the eligible credit.
Further, without admitting to the legal validity of the said rule, it becomes clear that there was no requirement to match ITC availed by the registered person with Form GSTR-2A, prior to the introduction of Rule 36(4) i.e., before 09.09.2019.
In this regard, the CBIC had also issued Circular No. 123/42/2019-GST dated 11.11.2019 emphasising the fact that prior to 09.10.2019 there was no requirement for matching of ITC in the following words:
| Sl. No | Issue | Clarification |
| 1. | What are the invoices/ debit notes on which the restriction under rule 36(4) of the CGST Rules shall apply? | The restriction of availment of ITC is imposed only in respect of those invoices / debit notes, details of which are required to be uploaded by the suppliers under sub-section (1) of section 37 and which have not been uploaded. Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD etc., which are outside the ambit of sub-section (1) of section 37, provided that eligibility conditions for availment of ITC are met in respect of the same. The restriction of 36(4) will be applicable only on the invoices/debit notes on which credit is availed after 09.10.2019. |
The above submissions are summarised in the table below for FY 2019-20.
| Period | ITC as per Rule 36(4) |
| April 2019 – September 2019 | No requirement to match ITC availed by the registered person with Form GSTR-2A |
| October 2019 – December 2019 (20% Buffer) | 120% of eligible ITC in Form GSTR-2A |
| January 2020 – March 2020 (10% Buffer) | 110% of eligible ITC in Form GSTR-2A |
Considering, the buffer available, the credit availed by the Noticee during the disputed period could be well within the eligible credit as provided in the rule 36(4).
vi. Submission of declarations – Circular No.193/05/2023 – GST
The CBIC has issued Circular No. 183/15/2022-GST dated 27th December 2022 providing clarification to deal with the difference in Input Tax Credit availed in Form GSTR – 3B as compared to that detailed in Form GSTR 2A.
In the said Circular, the CBIC had stated that for mismatch in ITC up to Rs.5 lakhs per Supplier, the proper officer shall consider the certificate/declaration produced from the concerned suppliers acknowledging the actual supply being made and tax having been paid and close the dispute. However, if difference is more than Rs. 5 lakhs then, certificate from a CA/CMA would be required to be submitted.
Similar Circular was also issued for dealing with the said difference for the period 01.04.2019 to 31.12.2021 vide Circular No.193/05/2023-GST dated 17.07.023. The relevant paragraph of the ibid circular reads as follows:
“In respect of period from 09.10.2019 to 31.12.2019, rule 36(4) of CGST Rules permitted availment of Input tax credit by a registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under sub-section (1) of section 37, in FORM GSTR-1 or using IFF to the extent not exceeding 20 per cent. of the eligible credit available in respect of invoices or debit notes, the details of which have been furnished by the suppliers under sub-section (1) of section 37 in FORM GSTR-1 or using IFF. Accordingly, the guidelines provided by Circular No. 183/15/2022-GST dated 27th December, 2022 shall be applicable for verification of the condition of clause (c) of sub-section (2) of Section 16 of CGST Act for the said period, subject to the condition that availment of Input tax credit by the registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under sub-section (1) of section 37, in FORM GSTR-1 or using IFF shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been furnished by the suppliers under sub-section (1) of section 37 in FORM GSTR-1 or using IFF.
Similarly, for the period from 01.01.2020 to 31.12.2020, when rule 36(4) of CGST Rules allowed additional credit to the tune of 10% in excess of the that reported by the suppliers in their FORM GSTR-1 or IFF, the guidelines provided by Circular No. 183/15/2022-GST dated 27th December, 2022 shall be applicable, for verification of the condition of clause (c) of sub-section (2) of Section 16 of CGST Act for the said period, subject to the condition that availment of Input tax credit by the registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under sub-section (1) of section 37, in FORM GSTR-1 or using the IFF shall not exceed 10 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been furnished by the suppliers under sub-section (1) of section 37 in FORM GSTR-1 or using the IFF.”
Without admitting to the validity of the said Circulars directing to submit declarations from vendors, considering the possibility of avoiding unnecessary litigation by virtue of submission of declarations, the Noticee can submit the request for time, for obtaining declarations and submitting the same to the extent possible. Views of the author are personal. Feedback and suggestions can be sent to author at [email protected]
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