AAR rejects advance ruling application on ITC reversal due to pending Section 61 proceedings under Section 98(2)

The AAR-Kerala rejected an advance ruling application filed by the applicant regarding ITC reversal and credit note treatment. While questions on ITC liability reversal and eligibility based on original invoices fell within Section 97(2)(d) of CGST Act, questions regarding GSTR-3B and GSTR-2A mismatch and supplier's incorrect output tax liability reduction were outside AAR's jurisdiction. The application was rejected under Section 98(2) first proviso as proceedings under Section 61 (GST ASMT-10 notice dated 09.07.2020) were already pending against the applicant when the advance ruling application was filed on 19.08.2021.

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Issues Involved:
1. Liability to reverse input tax credit (ITC) based on credit notes.
2. Eligibility to claim ITC based on original supply invoices.
3. Rejection of ITC claims due to mismatch between GSTR-3B and GSTR-2A.
4. Impact of supplier's incorrect output tax liability reduction on applicant's ITC claim.

Detailed Analysis:

Issue 1: Liability to Reverse Input Tax Credit Based on Credit Notes
The applicant, a distributor of consumer products, received post-supply discounts from the supplier (HUL) through credit notes, which the applicant treated as financial/commercial credit notes without acknowledging any tax element. The applicant sought clarity on whether they would be liable to reverse ITC to the extent of the tax element in such credit notes if there was no agreement stating otherwise. The ruling stated that since the question is already pending in proceedings, it is rejected under Section 98(2) of the CGST Act.

Issue 2: Eligibility to Claim ITC Based on Original Supply Invoices
The applicant claimed ITC based on the original supply invoices and paid output tax after deducting the eligible ITC. The applicant questioned whether they could claim ITC as per the purchase invoices shown in GSTR-3B, given that there was no agreement with the supplier to reduce the ITC claim. The ruling reiterated that the query is pending in proceedings and thus rejected under Section 98(2) of the CGST Act.

Issue 3: Rejection of ITC Claims Due to Mismatch Between GSTR-3B and GSTR-2A
The applicant faced discrepancies between ITC claimed in GSTR-3B and GSTR-2A due to the supplier's incorrect treatment of credit notes. The applicant argued that Section 43(5) should be invoked, which addresses mismatches due to non-declaration of credit notes by the recipient or excess reduction in the supplier's output tax liability. The ruling stated that questions 3 and 4 do not fall within the matters specified under Section 97(2) of the CGST Act, and hence, the authority has no jurisdiction to issue a ruling on these questions.

Issue 4: Impact of Supplier's Incorrect Output Tax Liability Reduction on Applicant's ITC Claim
The applicant contended that the supplier's incorrect reduction of output tax liability based on financial/commercial credit notes led to a mismatch in ITC claims. The applicant sought clarity on whether such actions by the supplier would affect their ITC claim. The ruling confirmed that the authority lacks jurisdiction to issue a ruling on this matter as it is not specified under Section 97(2) of the CGST Act.

Conclusion:
The application for advance ruling was primarily rejected due to ongoing proceedings related to the issues raised. The authority emphasized that it cannot admit applications where questions are already pending or decided in any proceedings under the CGST/SGST Act. The ruling highlights the importance of ensuring no active proceedings are underway before seeking an advance ruling on tax matters.

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