Reverse of ITC TAKEN ON SUPPLIER INVOICE WHO HAVE NOT FILE GST 3B NOR PAID GST AMOUNT REG.

[BHAKTIKANT BHATT]

Sir.

We have purchase Material from Party A.in the month of May,June-2018.Recently we have received letter from GST DEP.PROVISION OF SECTION 41 OR SECTION 43A

ASKE US TO REVERSE OF ITC TAKEN ON SUPPLIER INV.A.WHO HAVE NOT PAID GST NOR FILE GSTR-3B RETURN.SUPPLER ALREADY WINDUP THEIR BUSINESS ACTIVITY FROM YEAR 2020 ONWARDS.

SIR kindly give your valuable suggestion in the above matter and oblige

Thanks.

[KASTURI SETHI]

ITC cannot be denied due to default on the part of supplier-----Delhi High Court in the case of Tele Media Limited. Stay granted. on 14.6.2019. Trace out the status. There are case laws on the issue which can help you in this regard. Relief is not possible without litigation.

[Kiran Tahelani]

I agree with Kasturi Sir.

Constitutional validity of Section 16(2)(c) has been already challenged many times before the various high courts. There are many cases as specified above wherein it is categorically held that ITC cannot be denied if the supplier has not complied with the provision of the act. Moreover condition specified in clause (c) seems to be impossible, since assesee cannot verify whether payment of tax with respect to his purchases have actually been discharged by the supplier or not. The taxpayers have challenged that the provisions on the ground- being arbitrary, discriminatory, and impossible of compliance by bona fide taxpayers;

Recently Delhi HC directed tagging of writ petition of NGKA & Associates LLP along with Bharti Telemedia, which is listed for final hearing on August 16,2023, challenging constitutional validity of Section 16(2)(aa) and Section 16(2)(c) of the CGST Act, 2017 i.e. provisions deny ITC to a recipient if the supplier has failed to pay GST or it has not declared the details of its outward supplies in GSTR-1 and as a consequence the same do not form part of GSTR-2A/2B of the recipient respectively.

[KASTURI SETHI]

Madam,

A big thank you for the following :

(i) A comprehensive reply has culminated into a finishing touch.

(ii) Giving full name of the appellant.

(iii) Status of the appeal/stay order. I could not trace out status because of incomplete name of the appellant.

[Shilpi Jain]

Agreed with both the experts. Department is trying to demand and recover as much as possible until the matter is being settled by Courts. The recipients being the affected persons here.

[Alkesh Jani]

Shri

In agreement with the views expressed by our experts, I wish to add that if the tax cannot be recovered from the supplier in accordance with the law, then only ITC can be disputed or recovery proceeding can be initiated from the recipient end, or else it may lead to double taxation on the same transaction.

The decision of Hon’ble High Court of Madras in case of M/s. D.Y. Beathel Enterprises Vs. The State Tax Officer, - 2021 (3) TMI 1020 - MADRAS HIGH COURT is squarely applicable in the present fact and circumstances.

Thanks

[Padmanathan KV]

My personal experience,

A. In various cases cited by the experts above, the Courts have admitted writ challenging the constitutional validity of section 16(2)(c) and in some cases, stay has been granted. More than 35 cases are also pending in different High Courts on same issue as observed by Hon'ble SC. To the best of my knowledge, the Courts have not struct down the said clause yet.

B. Also, many cases such as LGW, M/s. D.Y. Beathel Enterprises Vs. The State Tax Officer, - 2021 (3) TMI 1020 - MADRAS HIGH COURT, recent Pinstar of Mad HC are highly fact specific and so are the reliefs granted by Courts.

C. Quoting the decision of PINSTAR AUTOMOTIVE INDIA PVT. LTD. VERSUS ADDITIONAL COMMISSIONER, OFFICE OF THE COMMISSIONER OF GST AND CENTRAL EXCISE CHENNAI 2023 (3) TMI 1168 - MADRAS HIGH COURT:

9. There can be no dispute on the position that the provisions of Section 16 are to be observed strictly, such that, there is no jeopardy to the interests of the revenue. The provisions of the Central Goods and Services Tax Act, 2017 has, assimilating wisdom of experience from the erstwhile tax regimes, gone one step further to ensure that the interests of the revenue are protected by providing for a mandate that the tax liability is defrayed/met either at the hands of the supplier or the purchaser, the petitioner in this case. Thus, no fault can be attributed to the revenue in this regard.

D. So getting relief from adjudicating officer or even first appellate authority is going to be tough. Therefore, you have to object to the demand and keep litigating until it goes to High Court (since there is no GST tribunal yet).

E. If the demand is substantial, file writ before jurisdictional HC with prayer for interim relief of stay.

[KASTURI SETHI]

Dear Sh.Padmanathan Kollengode Ji,

Well explained. Perfect advice by you.

AI Summary

Debate on Reversing Input Tax Credit Under Section 16(2)(c) of CGST Act Due to Supplier's Non-Compliance A discussion on a forum addresses the issue of reversing Input Tax Credit (ITC) claimed on invoices from a supplier who neither paid GST nor filed GSTR-3B returns. The supplier ceased operations in 2020. Participants in the forum, including legal experts, discuss the challenges of Section 16(2)(c) of the CGST Act, which denies ITC if the supplier fails to pay GST. The Delhi High Court and other courts have been involved in related cases, with some stays granted. Experts suggest litigation as a potential solution, given the complexity and ongoing legal challenges surrounding the issue.