wrongly availing of Input tax credit in GST

[HELEN JUDE]

The Tax payer had made a purchase in the month of August 2017, from Chennai for which eligible IGST credit amounting to Rs.69751.12 was available. while filing returns the same was claimed as CGST Rs.34875.56 and SGST Rs.34875.56. Hence there was a mismatch in GSTR-2A and GSTR 3B.he was not aware while filing the annual return too. Now the DRC-07 order has been received by him demanding to pay Rs.157812.Any related judgements or case laws regarding it

[Shilpi Jain]

There is no case as of now as per my knowledge for same facts. Though one should try and argue on the grounds of revenue neutrality.

[Padmanathan KV]

Agreed. But it is better to keep the issue alive by filing appeal. In due course, Govts has to come out with some resolutions both in the Statute and in the portal to appropriately address this issue.

[KASTURI SETHI]

Dear Querist,

Pl. peruse the following case law along with the judgements mentioned therein. In these case laws, many issues are involved and one of the issues is relevant for you. The ratio of the judgements is applicable to your case. You can take cue from these case laws and apply cognitively to your case.

2023 (3) TMI 628 - MADRAS HIGH COURT - DEEPA TRADERS VERSUS PRINCIPAL CHIEF COMMISSIONER OF GST & CENTRAL EXCISE CHENNAI, TAMIL NADU, SUPERINTENDENT OF GST, CENTRAL EXCISE, COIMBATORE GOODS AND SERVICES TAX NETWORK (GSTN) , NEW DELHI

 

[Padmanathan KV]

A. Pls note that DEEPA TRADERS VERSUS PRINCIPAL CHIEF COMMISSIONER OF GST & CENTRAL EXCISE CHENNAI, TAMIL NADU, SUPERINTENDENT OF GST, CENTRAL EXCISE, COIMBATORE GOODS AND SERVICES TAX NETWORK (GSTN) , NEW DELHI 2023 (3) TMI 628 - MADRAS HIGH COURTis on totally different facts as the error was made in reporting outward supply as seen from Para 2 of the decision:

A.1. The petitioner has, in respect of the returns for a few months during the period 2017-18, admittedly, committed certain errors. The errors are of following nature.

i) Recipients GSTIN/name has been wrongly mentioned.

ii) The invoice number/date have been wrongly mentioned.

iii) Supply details were correctly supplied in GSTR 3 and tax duly remitted. However, some of the invoice wise details have been omitted to be reported in Form GSTR 1.

iv) IGST was inadvertantly remitted under the heads SGST and CGST.

A.2 Therefore the courts have permitted the petitioner's GSTR-1 to be modified to correct the outward tax declared therein.

A.3 The Querist's case however is ITC wrongly availed in GSTR-3B. It is not with regard to output tax declared by him in GSTR-1 and so, there is no requirement of amending GSTR-1 here at all. Therefore, the judgement referred above may not be of any direct application here.

B. Pls note that there is also one more very recent decision of Madras High Court in Kondamma Trading vs The Assistant Commissioner of CGST & Central Excise -2023 (10) TMI 794 - MADRAS HIGH COURT (see https://mhc.tn.gov.in/judis/index.php/casestatus/viewpdf/1077164), wherein, in the identical issue as yours, the Court has directed the petitioner to file a rectification application u/s 161.

B.2. However, in this case revenue had erroneously submitted before the Court that section 161 is invocable whereas as per provisions of section 161, it cannot be invoked in case of returns filed by TP. Therefore, with due respect to the decision, it may not be correct in law.

B.3. Nevertheless, in my opinion, these decisions do not provide any immediate practical solution to tax payer for the reason that GSTN portal is not designed in such a way as to allow amendment/modification to GSTR-3B once filed. Therefore, it would require technical changes in GSTN level.

[Padmanathan KV]

Purely for academic discussion:-

A. One view which prevails is that if IGST is availed as CGST and SGST (not vice-versa), it is revenue neutral in nature as the IGST credit could anyways be used to set-off CGST and SGST liability. Hence, there is no wrong utilization per se from tax payers' point of view.

B. However, from Settlement of Funds point of view, the IGST collected and paid by the supplier in "supplying State" (and reflected in GSTR-2A of recipient of "recipient State") may not be fully passed on to the recipient State as the same is never claimed in the returns of the recipient.

B.2. This IGST credit only goes to credit pool and it shall be distributed to all the States in certain ratio as per GST settlement of fund. In other words, the "recipient state" may receive x% of this IGST credit, which may be higher/ lower/ equal to 50%.

B.3. Whereas when the recipient utilizes CGST & SGST, the "recipient State" will lose 50% (i.e. SGST portion) whereas the share received by the recipient State maybe x%.

B.4. Therefore, is a simple clerical error in GSTR-3B return really revenue neutral for State and Centre from settlement of funds point of view?

B.5. Nevertheless, I am of the view that tax payers should NOT be subjected to hardship for internal settlement of Centre-State, when the policy of GST is 'one nation, one tax'.

C. The situation above in B.2. also holds good where any ineligible IGST credit passed on the recipient State is not availed in the recipient state and then reversed.

C.1. For example, Recipient registered in State A purchases goods from State B which is blocked credit. If the IGST credit is never availed by Recipient in GSTR-3B and then reversed, the State A will not get 50% of its share of taxes.

C.2. This seems to be the rationale behind the Circular 170/02/2022 dated 6-7-2022 esply Para 4.3 thereof.

Experts kindly correct me in case my understanding of settlement of fund is not correct

[Amit Agrawal]

In my humble view, there is NO wrong availment of ITC in given scenario.

Disclosure of ITC against IGST paid on inward supply under the head of CGST & SGST does not mean that it is wrong availment of ITC per se requiring determination & recovery following procedure of Section 73 / 74.

As per Section 2(62), ITC includes CGST, SGST & IGST charged on any inwards supply of goods / services. And this is precisely what is taken as ITC by the tax-payer in given scenario under discussion here and there is no wrong availment.

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

At best & strictly subject to checking of facts in each case individually, it may result into wrong utilisation of ITC (Reference: Section 49(5), 49B). However & generally specking, Dept. never bother bothers to check and allege wrong utilisation while issuing SCN based on mismatch in ITC between GSTR-2A & GSTR-3B. And as per Section 75(7), no demand shall be confirmed on the grounds other than the grounds specified in the notice.

Method of fund settlement between states / UT & Centre cannot change above-said legal position. Fund-settlement is matter to be sorted between them and tax-payer cannot be penalised by way of denial of ITC for wrong disclosure (i.e. under wrong heads) of otherwise due ITC.

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

[Padmanathan KV]

Learned Friend Amit ji,

I beg to disagree that there is no wrong availment. In my view, section 16(2)(a) is not satisfied as the tax invoice (s) does not reflect CGST and SGST as availed by the tax payer. To that extent, in my opinion the department is right in saying wrong availment.

[KALLESHAMURTHY MURTHY K.N.]

Issue ID -118843

wrongly availing of Input tax credit in GST.

The RTP can apply for rectification u/s 161 if within the time limit of 3 months using the provisions of section 77 to get remedy.

[HELEN JUDE]

Thanks for your views and updates. but let me also share my contention that the tax payer has not claimed the IGST credit and so it has not come into the credit ledger, instead he has availed excess ITC in CGST & SGST.

[KALLESHAMURTHY MURTHY K.N.]

Issue ID 118843:

To Helen Jude,

Dear Sir/ Madam,

I am sorry that I have misconceived the issue.

If the ITC is not availed within the time limit attracts sec. 16(4) by which lose the unclaimed ITC. At the same time wrongly availed ITC attracts sec. 16(2)(c). It is only a technical mistake and not the wrong availment of ITC in excess. It cannot be said that the ITC was not availed but different head only. The remedy is appeal.

Thanks for making me to correct my mistake.

AI Summary

Taxpayer Faces IGST-CGST Mistake, DRC-07 Order Issued; Experts Suggest Arguing Revenue Neutrality, Clerical Error Defense A taxpayer mistakenly claimed IGST credit as CGST and SGST, leading to a mismatch in GSTR-2A and GSTR-3B filings. The taxpayer received a DRC-07 order demanding payment of Rs. 157,812. Responses suggest there is no direct case law on this issue, but it is advised to argue on revenue neutrality grounds and consider appealing. Some experts argue it is a clerical error rather than wrong availment of ITC, suggesting the taxpayer should not face penalties for internal settlement issues between states and the center. The consensus is to pursue rectification or appeal.