Claim of GST ITC - Against own Credit Note

[Ashish Jain]

A company dealing in apparel has supplied goods to modern trade like big bazaar, reliance retail, metro etc in FY 2018-19. Such unsold products after sales are returned by the customer back to the company.

In the above case, at the time of return of goods back to the company, credit note was issued against multiple tax invoice. Since in the FY 2018-19, there was no provision in GSTR1 to report credit note without reference of original invoice, the company claimed ITC on such sales returns. Now the department is seeking reversal of ITC claimed as ineligible. What are the remedies to the same?

[Padmanathan KV]

Prima facie, the view of the department is correct as Credit note is not a valid document for claiming ITC under Section 16(2)(a).

However, you will have argue that the whole process is revenue neutral (as instead of reducing OPT u have added to ITC). Procedural irregularties should not come in between, when in substance there is no loss of revenue to Dept.

However, the matter will most likely be settled in appellate forums only.

[Shilpi Jain]

Agree. The department does not pay any consideration to the procedural irregularities which do not have any effect on the revenue to the exchequer.

It is merely a wrong disclosure of the amount, something which should have been reduced from output liability has been mistakenly taken as credit.

These kind of instances are many since at such time the GSTR-3B did not accept negative figures so to reduce the liability many had in such instances shown it as ITC.

[Vijay kumar]

Ideally, you should have claimed refund of the excess tax paid, subject of course to the conditions involved

[KALLESHAMURTHY MURTHY K.N.]

Issue Id: - 118759

You have to explain the concern AA with reference to the books of accounts stock receipt entries, and P&L Account for having taken into credit such returned apparel. Show even the delivery challans, payment details and other relevant documents. You need not reverse ITC or go for an appeal unnecessarily.

[Arti Negi]

Does any one have any reference or case law to quote in SCN . In respect of claim of excess ITC against it's own credit note issued.

[Naveen G]

Is there any case law on this ? 

AI Summary

Credit note validity for ITC may be contested by asserting revenue neutrality and furnishing documentary proof to authorities.
Dispute arises from claiming ITC on sales returns where credit notes were issued; department treats credit notes as invalid documents for ITC under Section 16(2)(a) and seeks reversal. Taxpayers should document returns with books, stock entries, delivery challans, P&L and payment records to show revenue neutrality, consider refund remedies where applicable, and, if required, pursue appellate remedies. Reporting constraints in GSTR 3B led many taxpayers to record negative adjustments as ITC rather than reduce output tax.