Ineligible ITC claimed and reversed- 74A

[Deepak Bubna]

Hello,

Can penal provisions of section 74A be invoked if ineligible ITC which department deems as bogus ITC is claimed and reversed in same month in GSTR-3B ?

Thanks in advance.

[Raam Srinivasan Swaminathan Kalpathi]

in such cases, invoking of Sec.74A simply does not arise, as the ITC availed is not utilised.  Thanks

[Sadanand Bulbule]

Also refer the following judgement:

2024 (6) TMI 667 - MADRAS HIGH COURT - M/S. GREENSTAR FERTILIZERS LIMITED, REP. BY ITS CHIEF OPERATING OFFICER, E. BALU VERSUS THE JOINT COMMISSIONER (APPEALS) THE ASSISTANT COMMISSIONER OF GST AND CENTRAL EXCISE, TUTICORIN

Legality of the imposition of penalty u/s 74(1) and 74(5) of the CGST Act, 2017 - Input Tax Credit (ITC) availed wrongly but not utilized - It is only after the issuance of the show cause notice, the petitioner has reversed the amount - HELD THAT:- The impugned order sustaining the penalty under Section 74(1) and 74(5) of the CGST Act is unsustainable.

Reliance placed in an identical issue in M/S. AATHI HOTEL, VERSUS THE ASSISTANT COMMISSIONER (ST) (FAC) , NAGAPATTINAM DISTRICT. [2022 (1) TMI 1213 - MADRAS HIGH COURT] where it has been that 'Though under Sections 73(1) and 74(1) of the Act, proceedings can be initiated for mere wrong availing of Input Tax Credit followed by imposition of interest penalty either under Section 73 or under Section 74 they stand attracted only where such credit was not only availed but also utilised for discharging the tax liability. The proper method would have been to levy penalty under Section 122 of TNGST Act, 2017.'

The imposition of penalty under the peculiar facts and circumstances of the case is unjustified - considering the fact that the petitioner has availed input tax credit, which was not eligible to be availed, but could have resulted in wrong utilization of input tax credit, a token penalty of Rs. 10,000/- is imposed on the petitioner - petition allowed.

[KASTURI SETHI]

No revenue loss is here but the culpable state of mind is present. It cannot be denied that an attempt was made to hoodwink the department in the present scenario.

[Sadanand Bulbule]

Dear Sirji

I endorse your view as regards to culpable state of mind under Section 135, if prosecution is to be launched under Section 132 on establishing the offences listed therein.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, The Madras High Court judgement posted by you at serial no. 2   is the best answer/solution to the query raised by the querist.

[Sadanand Bulbule]

So kind of you for swift acknowledgment Sir. 

[Deepak Bubna]

Dear all,

Acknowledging all the responses with gratitude. Genuinely appreciate the efforts and time taken to respond to my query. 

Regards

[Ganeshan Kalyani]

Sir, Circular 170/02/2022-GST dated 06.07.2022 requires a taxpayer to furnish full ITC first in table 4(A) and then reverse it via table 4(B) either (1)  [permanent reversal] or (2). [temporary reversal]. So, even if the credit is assumed to be bogus it has to be shown first and then reverse in same month GSTR-3B as per the circular cited above. 

[KASTURI SETHI]

I agree with Sh.Ganeshan Kalyani, Sir.

[Deepak Bubna]

Dear everyone,

I thank you all once again. Views and resources shared in response to my query are very insightful and have been of immense help.

Regards

AI Summary

Ineligible input tax credit may not attract enhanced fraud penalty if reversed before utilisation, subject to intent and reporting rules.
Ineligible ITC claimed but reversed in the same period generally does not attract the enhanced fraud penalty where the credit was not utilised; case law favours that such penalties are unsustainable absent utilisation and revenue loss. However, culpable intent or attempts to mislead may engage other penal or prosecutorial provisions, and taxpayers remain subject to the procedural requirement to first declare and then reverse ITC through the prescribed return mechanism.