UTILISATION OF ITC

[GAURAV SHARMA]

Mr. X has output of ₹ 50L & ITC of ₹ 30L in June.

Mr. X has NIL output & ITC of ₹ 40L in July.

By mistake Mr. X didn’t report his output liabilities in June GSTR-3B.

He rectified the same and reported his output in July GSTR-3B and adjusted the entire liability with ITC of June & July along with Interest.

Whether Mr. is correct?

Kindly advise.

[ABHISHEK TRIPATHI]

Dear Gaurav Ji,

Shouldn't be a problem. Mr. X has discharged his liability paying due tax along with interest. I think, you need to pay late fee also, wont be much.

[DR.MARIAPPAN GOVINDARAJAN]

I agree with the advice of Shri Abhishek.

[SHARAD ANADA]

As per Sec 59 of CGST Act Every registered person shall self assess the taxes payable under this Act and furnish a return for each tax period as specified under section 39.

For the tax period June your self assessed tax liability (input for June less out put of june) is 20 lakh. This 20 lakh is required to pay in cash along with int under sec 50. You can not utilise ITC of next month i.e. July for the payment of tax of the current month i.e. June.

[Shilpi Jain]

There is no restriction under law on utilizing credit for past liabilities. The sec 59 does not anywhere bring this out.

Further, on reading sec 49(8) of the CGST Act, it indicates that the taxpayer is required to first discharge his past liabilities.

Also, no revision of returns allowed in gst is not the fault of the taxpayer.

So the payment of past liability with current itc is not restricted and can be done.

[KASTURI SETHI]

It appears to me that this query is hypothetical one.

Anyhow my views are as under :-

It is not in dispute that X has insufficient balance of ₹ 20 lakhs in his Electronic Credit Ledger in June,21. X has done it knowingly in order to avoid payment of tax amounting to ₹ 20 lakhs in cash.

Mr. X has no legal right to use ITC of ₹ 20 lakhs for output liability pertaining to June, 21 (in July,21), when he was not having sufficient balance in June, 21 In case Mr.X does not pay tax of ₹ 20 lakhs in cash along with interest, Mr.X will invite SCN proposing recovery of interest and imposition of penalty (mala fide intention).

There is no issue of late fee as return was filed in time. Only payment of tax was delayed, that too knowingly as detailed above.

[GAURAV SHARMA]

Thank you to all the experts for sharing their views.

Just for the sale of academic discussion I will be happy to learn from Sri Kasturi Sethi Sir, the provisions under the Act which restricts payment of past liabilties with current ITC

[KASTURI SETHI]

Sh.Gaurav Sharma Ji, Such scenario tantamounts to 'overdrafting' . I thing it is clear now. You may or may not agree. It is your prerogative. I have made you aware in advance. So you should be proactive to sageguard your interests.

[KASTURI SETHI]

Sh.Gaurav Sharma Ji,

As per your query, the following facts are undisputed :-

1. In June, 21 output tax liability was ₹ 50 lakhs

2.In June, 21 credit available in Electronic Credit Ledger was ₹ 30 lakhs.

3. In June, 21 there was insufficient/inadequate balance in Electronic Credit Ledger was ₹ 20 lakhs (50-30).

Now I lay emphasis on ₹ 20 lakhs (insufficient balance) and regarding ITC of ₹ 20 lakhs, the following facts cannot be denied:-

(i) In June, 21, Mr. X was not in possession of tax paying document.(₹ 20 lakhs).

(ii) In June, 21, Mr.X did not receive the goods and services involving GST of ₹ 20 lakhs in question.

(iii) In June,21, tax of ₹ 20 lakhs charged on the supply was not actually paid to Govt.

In order to avail ITC, tax payment proof and invoice both are required in terms of Section 16 of CGST Act and Rule 36 of CGST Rules. In the instant case, Mr.X paid tax (₹ 20 lakhs) in July, 21 only. Hence Mr.X will be entitled/allowed to avail the same only in July, 21 and it is natural that he will use that ITC only for discharging the tax liability of July, 21 in July, 21 and thereafter. The ITC of ₹ 20 lakhs earned in July, 21 cannot be utlilized for discharging tax liability pertaining to June, 21 inasmuch as Mr.X neither received the goods/services nor paid tax to Govt. in June, 21.

In case Mr.X does so that will be in contravention of Section 16(a),(b) & (c) of CGST Act, 2017 read with Rule 36 of CGST Rules, 2017 and Mr.X will face the music i.e. departmental proceedings.

[Ganeshan Kalyani]

I fully agree with the views of Sri Kasturi Sir. It is obvious that one has to satisfy the conditions laid down u/s 16 to become eligible for ITC claim. When the goods were not received then obviously the condition laid down in said section is not satisfied so the ITC claim is also not justified. It is hypothetical situation in the sense that GSTR 3B is prepared very carefully by all the taxpayers as it involves liability and ITC and also if liability is underpaid then interest and penalty is involved. It is acceptable in case of GSTR 1 that one invoice is missed out, but in 3B such situation should be very very minimal but not to an extend of 20 lacs. I guess this query was raised for brain storming. In any case, the reply by Sri Kasturi Sir has cleared all the doubts and also it suggests the querist to take suo-moto corrective action and if not taken then SCN is sure to be come.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Your in-depth study of the issue, interpretation and analysis of the issue are par excellence. I term your reply as finishing touch to my reply. Thanks a lot.

[GAURAV SHARMA]

I am very thankful to the experts for sharing their valuable interpretations. I would request to kindly throw some light on:-

Section 16 speaks about "Eligibility & conditions for taking ITC" and does not talk about payment of output liabilities. In my query section 16 is getting fully satisfies and thus ITC has been claimed. I have no query regarding that aspect.

My query is payment of past liability with current ITC & not about the eligibility conditions wrt ITC.

Thank you

[KASTURI SETHI]

Dear Gaurav Sharma Ji,

ITC and output tax liability are integrally correlated for the purpose of availment of ITC and utilisation thereof.

If 'entry' is not in letter and spirit of Section 16 of CGST Act, 'exit' cannot be legally correct in this scenario.

[KASTURI SETHI]

With reference to my reply at serial no.12 above, I correct my reply as under: - Taking ITC in July, 21 is correct but the payment of GST for the liability of previous month .June, 21 out of Credit EARNED in July, 21 is NOT correct.