Reclaim of ITC (through TRAN-1) after reversal - redrafted issue id 121043

[Raam Srinivasan Swaminathan Kalpathi]

Dear experts

One of the client had on account of a technical glitch in the portal while filing TRAN-1 reversed the eligible ITC in the books of account in 2018. Subsequently, when the GST department provided one more chance to avail the lapsed ITC the client had successfully filed the same in 2022 through TRAN-1 and an acceptance letter was also received from the department.

The reversed ITC was reclaimed in the books of account by way of credit to the statement of profit and loss account. Now, department has issued notice claiming GST on this ITC reclaim as the same was credited to the statement of profit and loss. One point is this amount does not amount to supply and outside the purview of the GST department. Is there any other legal issue which I am overlooking? Experts please advise. Thanks

AI Summary

Transitional input tax credit reclaim raises whether a profit and loss accounting credit can constitute a taxable GST supply. Reclaimed transitional input tax credit, initially reversed because of a portal technical glitch and later accepted through TRAN-1, was credited to the statement of profit and loss. The issue is whether that accounting entry can be treated as a taxable supply for GST purposes. The query contends that reclaim of eligible credit does not constitute a supply and is outside the GST levy, while seeking consideration of further issues raised by the departmental notice.