TaxTMI 
TaxTMI 
2026 (10) TMI 212
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....san, Karnataka is engaged in the business of manufacture and supply of parts suitable for use with engines of heading 8407/8408; manufacture of electrical apparatus for switching or protecting electrical circuits, etc and registered under GST with GSTIN No. 29AAJCM3003H1ZM. Adjudication proceedings 3.1 During the GST audit of the Appellant's accounts for the period July 2017 to March 2020, the audit team observed as follows: 3.2 The Appellant had purchased the 3 Nos. of Capital Goods (Spot Welding Machine) from M/s. Kirpekar Engineering Pvt. Ltd. during March 2018 and availed the Input Tax Credit on the same. But due to some reasons the Appellant has not paid the partial amount of Rs. 15,32,152/- to the supplier and booked the same as 'other income' as a 'Liabilities No longer payable'. An Audit note was issued to pay/reverse the proportionate ITC of Rs. 2,33,718/- (IGST: Rs.2,33,718/-) in terms of section 16(2) of the CGST /KGST Act read with Section 20 of the IGST Act. 3.3 The Audit observation culminated in to a notice dated 16.03.2022 issued under Section 74 of the Act proposing to demand ITC amount of IGST of Rs. 2,33,718/- along with applicable interest and pe....
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....vailed by the recipient. (iii) There was no dispute that the ITC availed had not been reversed and that the full value of goods procured not been paid to the supplier. Further the said Proviso 2 to Sec 16(2) talks only about the payment against the Invoice and does not reflect on Credit note / debit note related transactions. Therefore, provision and conditions of Sec 16(2) will clearly apply in the instant case. (iv) Section 74 is invokable in the present case since the said transaction was not reflected in the returns filed nor was it disclosed to the department. 4.2 Aggrieved by the above decision of the First Appellate Authority the Appellant has filed the present appeal before this Tribunal. Submissions by the Appellant: 5.1 The Learned Counsel for the Appellant Adv Anand N appeared and submitted as follows: (i) The Appellant purchased/procured 3 Nos. of Spot Welding Machine from the supplier, viz., M/s. Kirpekar Engineering Private Limited, Pune (GSTIN: 27AAACK8683L1ZW) vide Invoice Nos.331 & 332 dtd.05.03.2018 & No.353 dtd.31.03.2018 totally valued at Rs.1,19,18,000/- with total IGST of Rs.21,45,240/. Copies of tax invoices issued by the s....
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....ntravened 2nd proviso to section 16(2) inasmuch as said reduced value was not paid by the Appellant within 180 days and hence the Appellant should pay/reverse proportionate ITC. (ix) It is the submission of the Appellant that the above contention of the Revenue is untenable inasmuch as even as per GST Flyer on 'Input Tax Credit Mechanism' and also CBIC Circular no. 92/11/2019-GST dtd.07.03.2019 and Circular no. 251/08/2025-GST dtd 12.09.2025 - value of supplies shall be deemed to have been paid and ITC shall not be reversed in cases where - Value representing discounted payments for which financial credit notes have been issued by the supplier. Hence, the impugned orders of lower authorities are contrary to law and binding Board Circulars. (x) On the invocation of Section 74 it is submitted that mere omission to give correct information was not suppression of fact unless it was deliberate to stop the payment of tax, and relied on the decision of the Honourable Supreme Court in the case of Continental Foundation Jt Venture Vs Commr. of C. Ex. Chandigarh I 2007 (216) ELT 177 (SC) and Jaiprakash Industries Ltd Vs Commr. of C. Ex. Chandigarh 2002 (146) ELT 481 (SC). ....
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....ond proviso to section 16(2) of the CGST Act, 2017? (ii) Whether ITC is deniable when value discount is given by supplier through commercial/financial credit note? (iii) Whether impugned order is contrary to the binding Board Circulars & GST Flyers? (iv) Whether Section 74 of the CGST Act was rightly invoked, and what liability, if any, survives? 7.4 Records show that the Appellant purchased 3 Nos. of Spot Welding Machine from the supplier, viz., M/s. Kirpekar Engineering Private Limited, Pune vide Invoice Nos.331 & 332 dtd.05.03.2018 & No. 353 dtd.31.03.2018 with total taxable value of Rs. 1,19,18,000/- and total IGST of Rs. 21,45,240/-. The Appellant availed the ITC of IGST of Rs. 7,27,200 Rs. 7,27,200 and Rs 6,90,840 pertaining to the 3 invoices totalling Rs. 21,45,240/- in the month of March 2018 and disclosed the same in the monthly return in Form GSTR-3B filed for said month. 7.5 True copy of the Ledger in the books of the Appellant produced for the period 1st July 2017 to 31st March 2020 in respect of M/s Kirpekar Engineering Pvt Ltd shows that the Appellant had paid only Rs. 1,25,35,100/- towards the purchase of above Capital Goods as on 1st....
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....t the value of supplies on account of any amount added in accordance with the provisions of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16. (2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished. (3) The registered person shall be liable to pay interest at the rate notified under subsection (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid. (Omitted w.e.f 01.10.,2022 vide notification 19/2022-CT dated 28.09.2022) (4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for reavailing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier. 7.8 Therefore prior to 01.10.2023 in case a recipient of goods or service or both failed to pay the amount towards the value of supply along with tax....
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.... amount. Subsequently the Appellant received value discount from the supplier through a Credit note No. 01 dated 9th November 2021 for Rs. 15,28,140/-. 8.2 At this juncture we would like to refer to CBIC Circular no. 92/11/2019-GST dtd.07.03.2019 and Circular no. 251/08/2025-GST dtd 12.09.2025. Relevant paragraphs of the circular dated 07.03.2019 are extracted below: D. Secondary discounts - (i)..... (ii)...... (iii) Representations have been received from the trade and industry that whether credit notes(s) under sub-section (1) of section 34 of the said Act can be issued in such cases even if the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. It is hereby clarified that financial/commercial credit note(s) can be issued by the supplier even if the conditions mentioned in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. In other words, credit note(s) can be issued as a commercial transaction between the two contracting parties. (iv) It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as suc....
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....n paid and ITC shall not be reversed in such cases: • Value of supplies made without consideration as specified in Schedule-I • Value of supplies on account of any amount added in accordance with the provisions of section 15(2) (b), i.e. any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both (Notification No. 26/2018-Central Tax, dated 13.06.2018) • Value representing discount for which financial credit notes have been issued by the supplier. [Emphasis in bold] 8.5 The Circulars no. 92/11/2019-GST dtd.07.03.2019 and Circular no. 251/08/2025-GST dtd 12.09.2025 that further clarified the earlier circular and Flyer on "Input Tax Credit Mechanism" makes it clear that the recipient of goods or service or both will not be required to reverse the Input Tax Credit attributed to the discount provided on the basis of financial/commercial Credit notes issued by the supplier. 8.6 Section 168 makes the Department bind the clarifications issued by the Board. Section 168(1) of the....
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....ceiver such document would get credited to the 'Discount received A/c' and accordingly nullify the liability to pay the balance amount. 8.10 Now the issue to be examined is whether the Financial credit received by the Appellant would enable them to take back or retain the input tax credit that ought to have been reversed in terms of Second proviso to Section 16(2) of the Act. 8.11 It is held in the impugned order that the second proviso 2 to Sec 16(2)(d) talks only about the payment against the Invoice and does not reflect on Credit note / debit note related transactions. 8.12 In this regard we refer to the Third proviso to Section 16(2) of the Act which deals with re-availing of input tax credit. The proviso as available during the relevant period reads as follows: Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. (As available prior to 01.10.2023). 8.13 The Third proviso states that receiver is eligible to re-credit the ITC on payment made by him of the amount towards the value of supply of goods or....
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....redit attributable to the value of the financial credit received by them. 8.18 Issue (ii) and (iii) are answered accordingly. 9.1 It remains to consider the period between the credit availed and the waiver of the balance on receipt of the Financial credit note. During that period, Rs 15,28,140/- was payable and unpaid, and the Appellant continued to hold the full credit. The second proviso to Section 16(2), as it then stood, required the proportionate credit to be added to the output tax liability along with interest. The later waiver entitles the Appellant to retain the credit. It does not wipe out the interest that accrued while the amount remained unpaid. 9.2 What is forthcoming from the above is that the Appellant has availed and retained the Input tax credit attributable to the value not paid to the supplier in contravention to the Second proviso to Section 16(2) of the Act. 9.3 Sub-Rule (3) to Rule 37 as existing during the relevant period provides that: The registered person shall be liable to pay interest at the rate notified under subsection (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount....
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....pondent that the issue came to light only in audit. In our view detection in audit does not, by itself, prove suppression. The Appellant recorded the unpaid balance in its ledger and wrote it back openly in its audited accounts for 2019-20. The audit team found the facts in those very accounts. The Appellant's view that no reversal was needed was a bona fide view, and the Board has since accepted it in Circular No. 251/08/2025-GST by referring to the earlier circular. It was held by the Hon'ble Supreme Court in Continental Foundation Joint Venture v. Commissioner of Central Excise, Chandigarh-I, 2007 (216) E.L.T. 177 (S.C.) that a mere omission to give correct information is not suppression of facts unless it is deliberate and meant to evade duty. The Appellant should, however, have reversed the proportionate credit after the 180th day and re-availed it on the waiver, as Rule 37 contemplates. That lapse is the reason why interest is now payable. 10.3 Sub-section (2) to Section 75 also is relevant here which reads: (1) ........... (2) Where any Appellate Authority or Appellate Tribunal or court concludes that the notice issued under sub-section (1) of sectio....