GST amount recovered from supplier

[Kaustubh Karandikar]

1) Amount of GST with interest and penalty on GST recovered from the supplier for loss of ITC towards not filing the Return GSTR – 1 by the supplier. Whether GST is required to be paid on such amount recovered from the supplier?

2) Amount recovered from the customer towards ‘C’ Form not issued. Whether GST is required to be paid on such recovery?

[KASTURI SETHI]

Answer to both questions is YES. All three kinds of amounts are covered under Schedule-II (5)(e) of CGST Act.

[Kaustubh Karandikar]

Thanks Kasturi Ji for your kind advice.

[KASTURI SETHI]

Dear Sir,

Acceptances of opinion by you also boosts my morale. I am also grateful to you.

[Nikhil Virkar]

Sir, is this recovery will be construed as consideration? As per Circular 178/10//2022 of 3rd Aug 22 whether this would be covered under the term supply? In my view ITC needs to be reversed in terms of Section 16 of CGST and to be recovered from the supplier as business call. Recovery of Interest and penalty would be out of tax net since these are in the form of fine/penalty. All such recoveries must be under financial debit notes. Please correct me if my view is incorrect.

[KASTURI SETHI]

Sh. Nikhil Virkar Ji,

Yes each and every case has to be examined in the light of above circular.Every case has different facts and circumstances. You are right. Transaction/activity must conform to the definition of 'supply' and 'consideration' under CGST Act. for leviability of GST. If the transaction does not conform to 'supply' and 'consideration' , there will be no liability of tax under CGST Act.

[Kaustubh Karandikar]

Thanks Nikhil ji for highlighting the recent circular and taking a different view.

[Shilpi Jain]

While accounting in the books take these amounts as deduction to expenses and do not account it as other income.

It could be regarded to be in the nature reduction in the expenses.Agree that there is no separate supply and so no gst.

[Ganeshan Kalyani]

This is favourable Circular for the taxpayer.

AI Summary

GST Applicability on Non-Compliance Recoveries Debated; Schedule-II (5)(e) and Circular 178/10/2022 Examined A discussion on a forum addresses whether GST is payable on amounts recovered from suppliers and customers due to non-compliance issues, such as not filing GSTR-1 returns or failing to issue 'C' Forms. One participant confirms that such recoveries fall under Schedule-II (5)(e) of the CGST Act, thus attracting GST. Another participant questions if these recoveries constitute 'consideration' under the CGST Act, suggesting that interest and penalties might be exempt. The conversation highlights differing interpretations, referencing Circular 178/10/2022, and advises careful examination of each case's specifics. Participants also discuss accounting implications, suggesting these recoveries be treated as expense deductions.