Recipient rejected ITC in GSTR-2A (IMS) after filling GSTR 3B by Supplier. What should Supplier do with such tax paid?

[Bishal]

In a case, the supplier is facing a situation where:

E-invoice was raised by in January.

Recipient rejected ITC in GSTR-2A (IMS) after filling GSTR 3B by Supplier.

Supplier paid tax on the supply in February.

Now, the recipient has rejected the supply (someone stole those goods now they are in view that no amount will be paid by them), and

Credit note is not viable (as recipient will not accept it because he rejected input on the original invoice).

Amendment in invoice can not be made as buyer does not accepting the invoice.

-what should the supplier do to save the taxes paid by them not be received from the recipient?

[Shilpi Jain]

What is it that you want to do? Do you want to not pay the tax as well since you are not getting money from the recipient?

Is this legally permitted unless you are reversing the credit?

[Shilpi Jain]

Pls give your question in the light of what result you want to achieve (for supplier and recipient) so that reply can be given by experts accordingly.

[KASTURI SETHI]

Dear Querist,

You need to know the meaning and definition and scope of the following terms as per GST Acts :-

(i) Taxable event

(ii) Supply

The scope of supply is very  wide.

[YAGAY andSUN]

Alternate Solutions to your issue (may be workable)

In the given scenario, the supplier has already paid the tax on the supply in February, but the recipient has rejected the Input Tax Credit (ITC) in GSTR-2A and has now refused to accept the goods and will not pay for them. Additionally, a credit note is not an option, and amendment of the invoice is not possible because the buyer is not accepting the invoice.

To resolve this situation and avoid being stuck with the taxes paid, the supplier can consider the following steps:

1. File a Refund Claim under GST (Section 54)

Since the recipient has rejected the goods and is unwilling to pay, the supplier may be eligible for a refund of the tax paid on the supply. Under the GST law, a refund of taxes paid on supplies that are not accepted by the buyer can be claimed in the following manner:

• Section 54(3) of the CGST Act allows for a refund in cases of non-payment or non-receipt of goods/services by the recipient.
• The supplier should apply for a refund of the input tax credit (ITC), which they would have paid when filing the GSTR-3B in February.
• The refund claim would need to be filed through Form GST RFD-01, providing proper justification for the rejection of the goods by the recipient.

For this, the supplier may need to provide supporting documents, including:

• Evidence of the rejection of goods (such as communication from the recipient).
• Proof of payment of taxes.
• Any other documentation proving that the recipient has not accepted the goods and no consideration will be paid.

2. Provide Documentary Evidence

It is crucial to maintain proper records of all communications with the recipient, including any correspondence or documentation related to the rejection of goods. The supplier may need to prove that the recipient never accepted the goods (e.g., proof of theft or return of goods). This will help substantiate the claim for the refund.

3. Check with GST Authorities for Possible Solutions

If there is any ambiguity regarding the refund or specific documentation required, the supplier can consult with the GST authorities. They may provide further guidance on how to proceed, especially if the recipient’s rejection of the goods is due to unforeseen circumstances like theft.

4. Adjustments in GSTR-3B (if applicable)

If a refund claim is not possible or takes time, another option could be adjusting the taxes in the GSTR-3B for the subsequent months. However, this will require detailed justification, and it may not always be accepted.

5. Explore Other Legal Recourses

In extreme cases where the recipient has outright rejected the goods and no credit notes can be issued, the supplier may also want to explore legal avenues to recover the amount due from the recipient, although this is typically a more complex and time-consuming process.

Conclusion:

The supplier should primarily focus on applying for a refund under Section 54 of the CGST Act. The supplier should ensure that all necessary documentation is in place, such as evidence of the rejection of the goods, payment of taxes, and correspondence with the recipient.

If the refund is not processed quickly, it may be necessary to consult with GST authorities or legal professionals to explore further options.

*** 

[Bishal]

Thank you dear experts for your valuable Suggestions.

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

It is a case of rejection of goods. So, cancel the invoice and raise the Credit notes. There is no impact on ITC since the recipient has not availed of ITC.

AI Summary

Supplier Seeks GST Refund After Invoice Rejection, Navigating Complex Tax Credit Dispute Under Section 54 A supplier faces a complex GST scenario where goods were invoiced, tax paid, but the recipient rejected the invoice and input tax credit. The recommended approach involves filing a refund claim under Section 54 of the CGST Act, providing documentary evidence of goods rejection, and maintaining comprehensive records to substantiate the tax refund request. Consulting GST authorities and exploring legal recourses are additional potential steps to resolve the tax liability issue.