the supplier insolvent through NCLT and not paid GST in 2018-19

[Nagarajv]

My firm have purchased material from Panayam cements, Andhara Pradesh in 2018_2019.Panyam cements neither paid tax nor filed the respective GSTR-3B in respect of supplies made. In 2019 case was filed in NCLT amaravathi bench for insolvency of panayam cemnets. NCLT declares as insolvent in 2021. Now GST department is demanding reversal of ITC for the material which we have purchased during 2018-19 along with interest and penalty and issued show cause notice under section 74(1) of the KGST ACT 2017. Kindly advice how to get out of this.

 

[Shilpi Jain]

If it is declared insolvent there could be a need for reversal of ITC. Though you could also take a stand that at the time of purchase there was no such fact known and credit was availed. It was not possible at that point of time to even chk whether 3b of vendor was filed. However, department would certainly not give in to this unless you consider approaching the courts.

[Nagarajv]

hi madam,

thank you for the replay,i want one more thing to tell you that we had received show cause notice under section 74(1) of the KGST ACT,2017.READ WITH Rule 142(1) 0f the KGST RULES 2017.

can you please suggest what to do further since the GST officer of our zone is not accepting the NCLT order judgement regarding the insolvency of the supplier .

and he is demanding us to pay the amount mentioned in the notice(includes penalty and interest)

 

[Vijay kumar]

As per Section 16(2)(c) of the CGST Act"17 r/w Sn.20 of the IGST Act"17, ITC is not eligible unless tax is actually paid to the Government. AS per the query, tax has not been paid since 3B return was not filed.  CBIC issued Circular 183 in this regard for FYs 17-18 and 18-19, which also is subject to the said provision. Courts have only held that action should also be taken against the supplier in such cases. The said provision has not been held ultra vires. Hence the demand will sustain, in my view, subject of course to suppression clause.

[Nagarajv]

hi sir,

thank you for the replay, i want one more thing to tell you that we had received show cause notice under section 74(1) of the KGST ACT, 2017. READ WITH Rule 142(1) 0f the KGST RULES 2017.

can you please suggest what to do further since the GST officer of our zone is not accepting the NCLT order judgement regarding the insolvency of the supplier, and he is demanding us to pay the amount mentioned in the notice(includes penalty and interest).

AI Summary

Firm faces GST input tax credit reversal under Section 74(1) due to supplier's unpaid taxes and non-filing of returns A firm purchased materials from a supplier who was declared insolvent by the NCLT in 2021, with the supplier having neither paid GST nor filed returns for 2018-19. The GST department issued a show cause notice under section 74(1) of the KGST Act, 2017, demanding reversal of input tax credit (ITC) along with interest and penalty. The firm contends it was unaware of the supplier's non-compliance at the time of purchase and challenges the GST officer's refusal to acknowledge the insolvency order. Legal responses indicate that under Section 16(2)(c) of the CGST Act, ITC is only available if tax is paid to the government, and non-payment due to the supplier's failure to file returns justifies the demand. Courts have upheld such provisions, requiring action against the supplier. The firm may need to pursue judicial remedies as administrative authorities are unlikely to waive the demand despite the insolvency declaration.