Input Tax Credit - RCM

[Ethirajan Parthasarathy]

A dealer pays GST under RCM on some transaction on which no RCM tax is not payable. Eg: Fee paid to Government costing less than Rs.5000/ -

Is he eligible for ITC on such payment. One view is GST paid erroneously can only be claimed as refund and not as ITC. Can anybody clarify on this point.

[Amit Agrawal]

In my view, ITC - against taxes wrongly paid under RCM - is available to you and same need not be claimed as refund.

In this regard, your attention is invited to the case of BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD. Versus COMMR. OF C. EX., PUNE-III as reported in 2014 (8) TMI 787 - CESTAT MUMBAI wherein in Para 7.5, it is held that as under:

"From the above discussion, it is very much clear that the insurance auxiliary services provided by the agents in the State of Jammu & Kashmir are not taxable. Therefore, the appellants are not liable to pay Service Tax for the said services of the insurance agents. In these terms, whatever credit is taken by the appellant is nothing but the refund of tax erroneously paid by them. Similar issue came before the Hon’ble Supreme Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. - 1967 (5) TMI 4 - SUPREME COURT wherein the Hon’ble Supreme Court held that -

“5. By the first question the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities is canvassed. Under sub-s. (4) of s. 33 of the Indian IT Act, 1922, the Tribunal is competent to pass such orders on the appeal “as it thinks fit”. There is nothing in the IT Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal : If for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief.”

Furthermore, in Para 7.6 of above-said order, it was also held as follows:

"We further find that in the case of Nitco Tiles Ltd. v. CCE, Mumbai -2007 (8) TMI 542 - CESTAT, MUMBAI, this Tribunal observed as under :-

“Further, the bar of unjust enrichment will also not apply in the present case. The appellants have taken credit of the tax paid by them; therefore the same cannot be said to be passed on to the customers.”

In these circumstances we hold that the Cenvat Credit taken by the appellant is nothing but refund of the Service Tax paid by them on the services on which they were not required to pay Service Tax."

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

In other words, claiming ITC - against taxes wrongly paid under RCM - is nothing but 'claiming & getting refund' there-against.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Presuming that you are referring to 'exemption' available under Notification No.8/2017-Central Tax (Rate), as prevalent between 01.07.2017 & 12.10.2017, please note that said exemption are not absolute / unconditional.

So, in terms of 'explanation' given u/s 11, deal was not under any legal obligation to claim said exemption (i.e. even if available).

Consequently, whatever taxes paid by you under RCM was never taxes paid erroneously. And hence, ITC cannot also be denied on the ground that 'gst was paid erroneously'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

Agree. Also that the Tribunals and Courts will look at it wholistically and as was held in the past, utilisation of credit of taxes paid wrongly under RCM will be as good as reversal of the credit and there would be no further liability. Some more cases

Swarnandhra Ijmi Integrated Township Development Co Pvt Ltd 2022 (5) TMI 142 - CESTAT HYDERABAD

INDU EASTERN PROVINCE PROJECTS PVT. LTD. 2019 (1) TMI 1111 - CESTAT HYDERABAD

[Ethirajan Parthasarathy]

Thanks to both of you for quick feed back supported by case Laws. I raised the doubt keeping inview that RCM Tax paid, when not required, may not fit in to definition of “input Tax” (section 2(62) and also not listed in the eligible refunds as per section 77.

[Padmanathan KV]

Agree with the views of the experts. The decision of Bajaj Alliance by Hon'ble CESTAT is directly on this issue wherein the Tribunal has held that the ITC of RCM is nothing but refund of RCM wrongly paid.

AI Summary

Input Tax Credit on reverse charge: credit for RCM paid when not payable may be treated as refund-equivalent via ITC. Input Tax Credit against taxes paid under the Reverse Charge Mechanism when those taxes were not payable has been treated in tribunal decisions as effectively constituting a refund of taxes erroneously paid and may be claimed as ITC; utilisation of such credit is regarded as reversal without further liability. However, where exemptions are conditional and a dealer was not under a legal obligation to claim them, taxes paid under RCM may not be deemed erroneous and ITC cannot be denied solely on the premise of erroneous payment. Tribunals examine the facts holistically when allowing credit as refund-equivalent.