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

Supply and consideration: recoveries for lost input tax credit or missing certificates may attract GST if they meet the supply test.
Recoveries from a supplier or customer for loss of input tax credit or non issuance of statutory certificates may be taxable if they meet the statutory tests of supply and consideration; each case must be assessed in light of relevant circular guidance. Interest and penalties may be treated as fines and outside the tax net depending on their nature. Consequences include reversal of input tax credit where applicable and documenting recoveries through financial debit notes, with a common accounting approach to treat recoveries as reductions of expenses rather than other income.