Non issue of invoices as per clause (f) of sub section 3 of Section 31 of CGST Act,2017

[RAKESH SHARMA]

Sir

During GST audit of 2017-18 conducted by the department,the department has raised a demand of ₹ 5 Lac on account of ITC availed by the taxpayer on account of GST paid by taxpayer under RCM.The taxpayer has paid GST first and then claimed ITC on freight and loading/unloading exps etc.

But the department has raised a demand with the reason that taxable person has availed ITC in contravention of Rule 36 of CGST Rules, 2017 by not issuing invoice as per clause (f) of subsection 3 of Section 31 of CGST Act,2017.

Please advise the course of action in this regard.

[Mahadev R]

Dear Mr.Rakesh,

Can be contested as procedural lapse and substantial benefit not to be denied. If we strictly refer the provisions, though there is time of supply, there is no provision providing for time limit for issue of tax invoice in case of RCM

[KASTURI SETHI]

What is the status of supplier ?

[Alkesh Jani]

Shri

The eligibility and condition for availing ITC is Invoice or debit note (in your case Section 16(2)(a)). Therefore, department is right in this situation, however, as suggested by our expert, you can contest in either case you can also reverse the ITC and re-avail on issuance of Invoice.

Thanks

[Ganeshan Kalyani]

I would say it is a procedural lapse. Penalty could be applied in this case. However, denied of input tax credit in total is not fair. The department should consider that the due tax has been deposited by the taxpayer under RCM and the claim of ITC is genuine as per provision.

[KASTURI SETHI]

When there is no revenue loss, demand cannot be raised on this ground. However, SCN can be issued for imposition of penalty under Section 125 of CGST Act on account of procedural lapse.. Maximum imposable penalty is ₹ 25,000/-. and it is the discretion of the proper officer to impose minimum penalty due to the absence of the element of, mala fide, intention.

If demand is raised, the case must be fought legally.In this aspect you are on a strong wicket regarding merits.

[Alkesh Jani]

Sh.

To take ITC, without possession of Invoice or debit note, can be considered as wrongly availed ITC, in other words to take ITC without any documentary evidence, is surely contravention of provisions of Section 16, it is not a procedure rather it is the condition which is required to be fulfilled.

This is my view.

Thanks

[KASTURI SETHI]

Dear Querist,

Ensure that tax involved must be debited from your Electronic Cash Ledger and transferred into Govt. account. Then we can say that there is no revenue loss.

[Ganeshan Kalyani]

Since, it is a self invoice which is not required to be actually issued to anyone. You could have prepared it at the time of audit. It is procedural lapse. Emphasize on the revenue nutral point to the auditor. Also, as suggested by Sri Kasturi Sir take extract of Electronic Cash and Credit Ledger and highlight the amount of credit taken.

[KASTURI SETHI]

Yes. The querist is to prove that he has taken credit after making payment to Govt. from Electronic Cash Ledger. If tax does not stand transferred to Govt. account, then it is not a procedural lapse. In that situation, it will be revenue loss. Amount credited in Electronic Cash Ledger but not debited from your Electronic Cash Ledger shall amount to revenue loss.

AI Summary

Input tax credit eligibility depends on invoice possession and payment to government; absence risks disallowance or penalty. ITC taken without a supplier invoice conflicts with Section 16 documentary conditions and Rule 36; absence of an invoice can justify disallowance. If tax paid under RCM was debited from the Electronic Cash Ledger and transferred to government, taxpayer can argue no revenue loss and contest demand or seek limited penalty under Section 125. Practical remedies include reversing the ITC and re-availing it upon issuance of the invoice; where tax was not transferred to government account, disallowance and revenue-loss findings are sustainable.