ITC availability in case of cancellation of GST

[RAGHAV SHARMA]

Hello Everyone,

The GST return for the financial year 2022–2023 was not filed, leading to cancellation of GST registration in February 2023, with effect from March 2022. No revocation application has been submitted to date. Subsequently, a DRC-01 notice has been issued, demanding tax liability for FY 2022–2023 based on GSTR-7 data.

However, the state GST officer is not considering the Input Tax Credit (ITC) reflected in GSTR-2B.

Query:

Can the ITC available in GSTR-2B for that period be adjusted against the tax liability demanded in DRC-01, even though the registration is cancelled and revocation has not been filed?

Thanks

[KASTURI SETHI]

Have you any solid reason for not filing GST return for the year 2022-23 ?

Have you any solid reason for not filing application for revocation of cancelled registration ? 

Was SCN issued before passing the order for retrospective cancellation of registration ? If so, whether reply to the SCN was filed ?

Your account on Common Portal  System will be opened only after restoration GSTIN. You will have to approach High Court for restoration of cancelled registration.

ITC cannot be denied due to retrospective cancellation of GSTIN. There are case laws in favour of tax payers depending upon facts and circumstance of each.

[KASTURI SETHI]

The following case law can be useful to you. Study deep and study wide.

2024 (7) TMI 171 - MADRAS HIGH COURT - PETER RAMASWAMY Versus ASSISTANT COMMISSIONER (CIRCLE), CHENNAI

 

[YAGAY andSUN]

Applicability of Input Tax Credit (ITC) in Case of Retrospective Cancellation of GST Registration.

In the matter concerning the demand raised under DRC-01 for the financial year 2022–2023 on the basis of GSTR-7 data, it is submitted as follows:

The GST registration of the taxpayer has been cancelled with retrospective effect from March 2022 due to non-filing of returns for the said financial year. Consequent to such cancellation, the registration stands deemed to have never existed during the period commencing March 2022 till the date of cancellation. In terms of Section 29 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), cancellation of registration retrospectively renders the taxpayer unregistered ab initio for the affected period.

It is a well-established principle under Section 16 of the CGST Act that input tax credit is admissible only to a registered person who complies with the stipulated conditions. Given the retrospective cancellation of registration, the taxpayer was not a registered person during the said period and is, therefore, ineligible to claim or utilize input tax credit for the same period.

The ITC figures reflected in GSTR-2B for the financial year 2022–2023 are auto-generated based on supplier returns and are provisional in nature. The availability of such ITC is contingent upon the taxpayer maintaining valid registration during the relevant period and satisfying all legal conditions for credit admissibility. Since the registration has been cancelled retrospectively and no revocation application has been filed to date, the taxpayer cannot legitimately claim or adjust the ITC shown in GSTR-2B against the tax liability demanded in DRC-01.

Accordingly, the tax authority is justified in disallowing the input tax credit adjustment against the tax demand. The taxpayer is obligated to discharge the outstanding tax liability as determined. If the taxpayer desires to regain the benefit of input tax credit, the appropriate remedy lies in filing an application for revocation of cancellation of registration under the provisions of Section 30 of the CGST Act within the prescribed time frame. Upon successful revocation, the registration will be deemed to have continued, thereby enabling the taxpayer to claim ITC subject to compliance with other conditions.

In absence of revocation, the tax demand raised must be complied with and any ITC erroneously availed during the cancelled period shall be liable to reversal along with interest and penalties as applicable.

***

[Sadanand Bulbule]

The experts have clarified the legal position. As such ITC claim can not be rejected solely on the ground that the GST registration was cancelled with retrospective effect. However, upon restoration of GSTIN, you may be called upon to prove that the transactions were genuine by providing relevant documents such as tax invoices, e-way bills, lorry receipts, delivery challans, proof for payment and the like to support the statement of inward supplies manifest in GSTR-2B.

[KASTURI SETHI]

On the date of taking ITC GST registration was valid. The party was having GSTIN duly issued by Govt. of India.

Hence the party was a registered person during the material period as required, inter alia, under Section 16 (1) of CGST Act..

[Shilpi Jain]

Pls refer to section 16(6) of the CGST Act that has been recently introduced

(6) Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order of cancellation of registration, the said person shall be entitled to take the input tax credit in respect of such invoice or debit note for supply of goods or services or both, in a return under section 39,––

(i) filed up to thirtieth day of November following the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier; or

(ii) for the period from the date of cancellation of registration or the effective date of cancellation of registration, as the case may be, till the date of order of revocation of cancellation of registration, where such return is filed within thirty days from the date of order of revocation of cancellation of registration,

whichever is later.]

AI Summary

GST Registration Cancellation Challenges Taxpayer's Input Tax Credit Claims Under Section 16 of CGST Act A taxpayer's GST registration was cancelled retrospectively for non-filing of returns in 2022-2023. The tax authority issued a DRC-01 notice demanding tax liability and refused to consider Input Tax Credit (ITC) reflected in GSTR-2B. Legal experts suggest that while ITC cannot be automatically claimed during cancelled registration, restoration of GSTIN may allow credit adjustment upon providing supporting transaction documents and meeting specific statutory conditions under Section 16 of the CGST Act.