Wrong availment of ITC

[Sudhir Kumar]

Sir, I am a recipient and purchased some goods from the supplier. By fulfilling all the norms availed the ITC. Since my supplier has filed GSTR-1 so ITC for which I was eligible reflecting in my GSTR-2A. Now the department has sent notice to reverse the ITC as the supplier has filed only GSTR-1 , they have not filed GSTR-3B and also not credited the GST to the government account. But I have paid the GST as per invoice issued by the Supplier. Should I reverse the ITC as department noticed and pay the GST twice. Please suggest me.

[KASTURI SETHI]

Sh.Sudhir Kumar Ji,

The recipient of goods and services can take ITC only if the supplier has deposited tax with Govt. See Section 16(2)(c) of CGST Act. As per Section 155 of CGST Act, the burden of proof is cast upon the person who takes ITC.

Better option is to persuade the supplier to file GSTR 3B return at the earliest and after filing submit the proof of filing return to the department. After submission of proof, the department will not ask you to reverse the credit. The department may demand interest. You need not to pay GST twice.

[Shilpi Jain]

There were recently decisions of the High Courts- one was DY Beathel - 2021 (3) TMI 1020 - MADRAS HIGH COURT and one another...

Department should try to first collect it from the supplier and not the recipient.

[Shilpi Jain]

You can take a stand of not reversing the credit if it is sizable and take the notice and fight it. This issue will go up to the Supreme Court in many other cases and will take some time to settle. Until then your case would also have to move to the call book,

[Sudhir Kumar]

Thanks

[ARVIND JAIN]

In one similar case where even GSTR-1 was not filed, the dealer has already reversed and paid GST with interest but Anti Evasion officer is asking for the details of the Party for which the GST was reversed. You may note that we received notice from the department after reversal, is in that case department can bind us for providing the name of the party and as we have already paid it along with interest so No penalty is leviable on us or can he insist on Any penalty for showing Excess input and later reversing it.

Sorry for putting query in between responses but since facts were similar I thought it would be ok and hope someone would respond to this also.

[KASTURI SETHI]

Sh.Arvind Jain Ji,

Q. No.1 Is in that case department can bind us for providing the name of the party and as we have already paid it along with interest ? So No penalty is leviable on us or can he insist on Any penalty for showing Excess input and later reversing it.

A. Yes. The department has power to ask for any information and any document from any person about which the Proper Officer thinks is relevant in a case. See Sections 70 & 71 of CGST Act. Also peruse Section 72 which binds officers of various department to assist the proper officer CGST/SGST department for implementation of GST Acts.

2. Amount of credit (ITC/Cenvat Credit) reversed on one's own amounts to credit not taken. There are case laws to this effect. When an assessee reverses credit along with interest on one's own without, no loss of revenue is caused to the department. It proves bona fides of the assessee. Normally no penalty is imposed upon the assessee (for such procedural lapses) by the department.

3. Section 125 empowers the department for imposition of penalty on account of procedural lapses but in normal circumstances no penalty is imposed upon the assessee (for such procedural lapses) by the department.

[YAGAY and SUN]

Also refer the Section 79 of the CGST Act in this discussion.

[Ganeshan Kalyani]

Refer this article on the subject for information - https://www.taxtmi.com/article/detailed?id=9719

[Devang Bhasin]

Sudhir ji,

Please note that GST liability cannot be directly fastened upon recipient in case suppliers are traceable. You may file a befitting reply to such reversal notice, wherein you may ask GST authorities what reasonable including recovery steps have been intiated against the supplier. In this regard you may cite recent judgment of madras High court in DY enterprises and also circular issued by CBIC.

In case of any adverse action by the department, you may invoke writ jurisdiction of the High Court.

Regards,

Advocate Devang Bhasn

[Sudhir Kumar]

Kindly refer the circular no if issued by the government.

[Devang Bhasin]

Please refer Press release dated 04.05,2018. Inadvertently circular was mentioned in my reply. Stands corrected.

[YAGAY and SUN]

In Indirect Taxation, it is settled legal position that Suppliers do work as agents of the Government, who collects the tax from the supplier and deposit it to the Government. Therefore, non-deposition of collected tax should be recovered from the supplier first and under the provisions of Land Revenue Act, thereafter, provisions of section 79 of the CGST Act may be applied on the customers for the recovery of unpaid taxes, where customer hold the payments to the suppliers.

[KASTURI SETHI]

I support the views of M/s.Yagay and Sun, Sir. The buyer or service receiver must not suffer because of supplier's fault. Here the buyer has paid tax to the supplier. The supplier cannot retain tax collected from buyer in his kitty. Section 79 gives vast power to Govt. to recover tax from the supplier. Case law is in favour the person who takes ITC on the basis of valid documents.

Still the following legal aspects are to be taken care of :-

(i) Section 155 of CGST Act is the stumbling block.

(ii) Press release is devoid of statutory value.

AI Summary

Wrong availment of input tax credit: recipient may be required to reverse ITC if supplier fails to deposit tax.
A recipient who claimed ITC may be required to reverse credit if the supplier has not deposited the corresponding tax; the claimant bears the burden of proof and authorities can demand information and pursue recovery from the supplier, while voluntary reversal with interest and proof of supplier regularisation can mitigate penalties.