2023 (11) TMI 1012 - HC - GST

Excess input tax credit assessment set aside due to GSTR-2A and GSTR-3B discrepancies during initial GST implementation

Kerala HC allowed writ petition challenging excess input tax credit assessment for 2017-18. Court relied on Circular No. 183/15/2022-GST dated 27.12.2022 ... Input tax credit - reconciliation of GSTR-3B and GSTR-2A - application of Circular No. 183/15/2022-GST dated 27.12.2022 - possession of tax invoice, receipt of goods/services and payment to supplier (conditions of Section 16) - remand for reconsideration of claim irrespective of GSTR-2A - preliminary deposit as condition for reconsiderationInput tax credit - reconciliation of GSTR-3B and GSTR-2A - application of Circular No. 183/15/2022-GST dated 27.12.2022 - remand for reconsideration of claim irrespective of GSTR-2A - Lawfulness of denying input tax credit solely because the credit claimed in Form GSTR-3B does not reflect in Form GSTR-2A for FY 2017-18. - HELD THAT: - The Court, having regard to Circular No. 183/15/2022-GST dated 27.12.2022 and earlier decision in Diya Agencies , held that denial of input tax credit merely because the amount claimed in Form GSTR-3B is not reflected in Form GSTR-2A is not sustainable. The matter was remitted to the Assessing Authority for fresh consideration of the petitioner's claim for input tax credit for financial year 2017-18, directing that the Assessing Authority examine the evidence tendered by the petitioner and apply the procedure and safeguards set out in the Circular (including verification of conditions relating to possession of tax invoice, receipt of goods/services and payment to the supplier and the relevant certification requirements where applicable). The Court emphasised that bona fide reporting errors in 2017-18 may be addressed under the Circular and that the claim must be considered on its merits irrespective of its non-reflection in GSTR-2A. [Paras 4]Impugned orders dated 14.06.2023 and 16.06.2023 set aside and matter remitted to the Assessing Authority to reconsider the petitioner's claim for input tax credit for financial year 2017-18 in accordance with law and Circular No.183/15/2022-GST.Preliminary deposit as condition for reconsideration - remand for reconsideration - Interim procedural condition imposed by the Court for remand and consequences in case the Assessing Authority rejects the claim. - HELD THAT: - The Court conditioned the remand on the petitioner depositing 10% of the amount assessed within fifteen days and directed the petitioner to appear before the Assessing Authority with all documents and evidence. The Court further directed that if, upon reconsideration, the Assessing Authority finds the petitioner's claim unjustified, the petitioner would be liable to remit the remaining amount; the 10% deposited would be subject to the final decision of the Assessing Authority. The directions set a timetable for appearance before the Assessing Authority and require compliance with the Circular and examination of evidence on merits. [Paras 4]Remand granted subject to deposit of 10% of the assessed amount within fifteen days and appearance before the Assessing Authority; deposit to be subject to the final decision and remaining liability to be determined after reconsideration.Final Conclusion: Writ petition allowed; impugned assessment orders set aside and matter remitted to the Assessing Authority to reconsider the petitioner's claim for input tax credit for financial year 2017-18 in accordance with Circular No.183/15/2022-GST and law, subject to the petitioner making a 10% preliminary deposit and complying with the directions given. ISSUES PRESENTED AND CONSIDERED 1. Whether denial of input tax credit (ITC) solely because the credit claimed in Form GSTR-3B is not reflected in Form GSTR-2A is sustainable under the CGST legal framework for the financial year 2017-18. 2. Whether the administrative clarification in Circular No. 183/15/2022-GST (27.12.2022) permitting reconciliation and acceptance of bona fide differences between GSTR-3B and GSTR-2A (subject to specified documentary/CA/CMA certification and conditions) applies to claims for ITC for FY 2017-18 and 2018-19 and constrains assessing officers from mechanically disallowing ITC. 3. Whether, in view of the Circular and judicial precedents, the matter should be remitted to the assessing authority for fresh adjudication with opportunity to the claimant to produce evidence, and whether interim conditions (deposit) can be imposed pending fresh adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of denying ITC solely because GSTR-3B claim is not reflected in GSTR-2A Legal framework: Section 16 (and subsections) of the CGST Act sets out eligibility conditions for availing ITC including possession of tax invoice, receipt of goods/services, and payment of consideration including tax to the supplier; provisions for time limits and reversal (sections 17, 18, and section 16(4) proviso relevant to FY 2017-18) also apply. Precedent treatment: The Court relied on an earlier High Court decision which directed that denial of ITC solely because it did not reflect in GSTR-2A was not sustainable and remanded for giving opportunity to establish the claim. Interpretation and reasoning: The Court reasoned that mechanical denial based solely on absence from GSTR-2A ignores the statutory conditions in section 16 and relevant provisos and fails to consider documentary evidence proving possession of invoice, receipt, and tax payment by supplier. For FY 2017-18, the proviso to section 16(4) limits certain relaxations but does not justify summary disallowance without enquiry into the claimant's compliance with statutory conditions. Ratio vs. Obiter: Ratio - Assessing authorities cannot deny ITC merely because the amount claimed in GSTR-3B does not appear in GSTR-2A; they must examine statutory conditions and evidence. Obiter - Observations on general administrative difficulties in the initial year and the intent behind reconciliation guidance. Conclusion: Denial of ITC solely on the GSTR-2A mismatch is unsustainable; matter requires fresh adjudication based on evidence of statutory conditions being met. Issue 2 - Applicability and effect of Circular No. 183/15/2022-GST (27.12.2022) Legal framework: Executive clarification/Circular interpreting reconciliation procedures between GSTR-3B and GSTR-2A for FY 2017-18 and 2018-19; sets out stepwise verification and document/certification requirements (CA/CMA certificate with UDIN where differences exceed Rs.5 lakh; supplier certificate where difference is up to Rs.5 lakh) and notes limitations under proviso to section 16(4) for late-filed returns. Precedent treatment: The Court applied the Circular as a clarificatory guidance addressing bona fide errors in initial years and as a tool for assessing officers to verify ITC claims rather than for mechanical denial. Interpretation and reasoning: The Court viewed the Circular as recognizing practical difficulties and prescribing procedures to satisfy clause (c) of section 16(2) (tax on supply paid by supplier) and other eligibility conditions. The Circular requires assessing officers to seek details, check possession of documents, fulfillment of section 16 conditions, consider reversals under sections 17/18, and apply time limits; it prescribes different evidentiary thresholds depending on amount of discrepancy. Ratio vs. Obiter: Ratio - The Circular's procedural safeguards should be applied by assessing officers to reconcile genuine mismatches and to allow claimants opportunity to substantiate ITC claims. Obiter - Remarks on verification tools (UDIN verification links) and administrative background explaining the Circular's issuance. Conclusion: The Circular is applicable to bona fide reporting errors for FY 2017-18/2018-19 and must guide assessing officers' enquiries; it limits the scope for denying ITC without appropriate verification and documented proof. Issue 3 - Remedial course: remitment for fresh adjudication and permissibility of interim deposit Legal framework: Article 226 writ jurisdiction empowers courts to set aside administrative orders that are unsustainable and remit for fresh consideration in accordance with law; assessing authority's duty to afford opportunity and examine evidence per statutory tests. Precedent treatment: Following the earlier High Court decision referred to, the Court directed remittal with opportunity to produce evidence and specified interim terms. Interpretation and reasoning: Given the Circular and prior judicial approach, the Court found it appropriate to set aside the impugned orders and remit the matter for reassessment irrespective of GSTR-2A reflection. To balance revenue protection and claimant's rights, the Court required payment of 10% of the assessed amount within 15 days as an interim deposit, subject to final outcome. Ratio vs. Obiter: Ratio - Where denial of ITC is based solely on GSTR-2A mismatch, the proper remedy is remittal for fresh adjudication under the Circular with opportunity to produce evidence; courts may impose reasonable interim deposit conditions. Obiter - The precise quantum/timing of deposit specified in this matter (10% and specific date) is procedural to the case remittal. Conclusion: Impugned orders set aside; matter remitted to assessing authority to reconsider claim for ITC in light of Circular and statutory tests, after the claimant deposits 10% of the assessed amount and produces all evidence. If assessing authority rejects claim after fresh consideration, claimant will be liable for remaining amount; deposited 10% is subject to final decision. Cross-references See Issue 1 and Issue 2 interrelationship: denial based on GSTR-2A mismatch must be tested against section 16 conditions and the Circular's procedural requirements; remittal (Issue 3) implements that corrective framework.