Input Tax Credit is the soul of GST both the Revenue and for the stake-holders and hence its understanding, execution and interpretation will continue to be a tug of war between the tax collectors and tax payers – and unavoidable consequence as it is dealing with money.
2. The GST and its interplay with the ITC Mechanism is intertwined with the provisions of Section 2 ) dealing with definitions of input, input service, input tax credit, input tax, supply etc. ) and all such definitions a sine non qua of the appreciation and understanding of the GST ITC Mechanism – that the Government had promised as a seam less credit to all the stake-holders!
3. The GST and its interplay has to be understood from the combined reading of definitions, section 16 read with Section 17, Section 49 and Sections 73 and 74. All these deal with the conceptual framework of input tax credit mechanism. Penalties linked with input tax credit are omni present in the GST Law.
4. Section 16 (1) and Section 16(2) of the DGST Act and CGST act lay downs the substantial conditions to be satisfied and Section 16(3) and 16(4) deal with limitations. But all the subsections are relevant for allowing or disallowing the input tax credit. Section 16 mainly deals with ELIGIBILITY to claim input tax credit subject to its availment in returns and utilization as per section 49 of the CGST ACT.
5. Section 16(1) mandates that before your claim input tax credit for receiving goods or services or both, you must prove, beyond doubt, that these are to be or intended to be used in the course of or in furtherance of business (Defined in section 2 of the CGST Act). If you fail here, there is no question of input tax credit notwithstanding that you had exported the goods or services. Further Section 16 (2) lays down, rather onerously, conditions that you must fulfill before you can avail the input tax credit in your returns and set it off against your output tax liability. And this is further subject to Section 17, all the first sub sections, that deal with blocked input tax credit – especially the conditions that you must make taxable supplies (other than zero rated supplies where this condition be relaxed i.e. even for tax free sale of goods that are exported refund of unaccumulated input tax credit may be available subject to other conditions specified in Section 16 (1) AND (2). That if you make the outward supplies tax free or without consideration or gifts or your goods are lost, stolen or destroyed etc. etc. the input tax credit will not be available to be taken in your returns. You can read Section 17(5) that deals with blocked input tax credit, as we call it. Do read section 17(5) © and 17(5)(d) that deal with blocking of input tax credit for real estate constructions including construction in the course and in furtherance of business where input tax credit may not be available except when plant and machinery are purchased or constructed.
6. Section 16(1) mandates that you could be eligible to take input tax credit only when you buy the goods from a registered tax payer (defined in section 25) and if the supplier was not registered at the time of supply then even if you have tax invoices duly signed and issued by the supplier, no input tax credit can be given to you as per provisions of the law. The issue of retrospective cancellation of registration certificates as per provisions contained in sub-section (2) of Section 29 of the CGST Act deal with this issue and this is the prime reason for retrospectively disallowing the input tax credit – because after invocation of provisions of Section 29(2), only those provisions mentioned therein, the registration certificate of the supplier may be cancelled from the back date and once that happens, revenue may claim that on the date of supply the supplier was not registered and hence no input tax credit. Of course, we are yet to get the final decision on this crucial issue from the apex court, but High Courts have been mixed in giving or not giving relief – especially the Calcutta High Court has been favoring giving of credit through Judgment of Gargo Traders – which you may read.
7. Before we go further remember ITC that you are eligible for is a concession given by the Legislature and it is not a fundamental right to claim and avail ITC. Supreme Court has been consistent with this issue now and it is more or less now settled that ITC can be claimed subject to the tax payer satisfying all the conditions, cumulatively, and if the conditions are not satisfied then ITC claim can be in jeopardy. And the onus to prove and satisfy these conditions are on the tax payer and Section 155 of the CGST Act clearly states so without any confusion.
The benefit is one conferred by the statute and if the conditions prescribed in the statute are not complied; no benefit flows to the claimant. [ALD. Automotive Pvt. Ltd. v. The Commercial Tax Officer & Ors. (Civil Appeal Nos. 10412-10413 of 2018)]
Burden of Proof of ITC lies with Claimant of ITC: The dealer who claims Input Tax Credit has to prove beyond doubt, the actual transaction by furnishing the name and address of the selling dealer, details of the vehicle delivering the goods, payment of freight charges, acknowledgment of taking delivery of goods, tax invoices and payment particulars etc. To sustain a claim of Input Tax Credit on purchases, the purchasing dealer would have to prove and establish the actual physical movement of the goods & genuineness of transactions, by furnishing the details referred to above and mere production of tax invoices would not be sufficient to claim ITC. [Hon’ble Supreme Court in The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited]
The conditions for enabling ITC benefit, are available in Clauses (a) (b) and (c) of Section 16(2) which are in seriatim; the existence of a tax invoice or debit note issued by the supplier, proof of receipt of goods or services or both and the tax charged in respect of such supply having been actually paid to the Government, either in cash or through utilization of Input Tax Credit admissible in respect of the said supply.
The said conditions for availing ITC are to be satisfied together and not separately or in isolation, and these are the conditions and restrictions which would regulate the availment of Input Tax Credit. Input Tax Credit by the very nomenclature contemplates a credit being available for the purchasing dealer in its credit ledger by way of payment of tax by the supplier to the Government.
Producing invoices, account details and the documents evidencing transportation of goods does not absolve the assessee from the rigor provided under sub-clause (c) of Section 16(2) of the BGST Act, which requires the credit of tax, collected from the purchasing dealer; either in cash or through utilization of admissible Input Tax Credit, being available in the context of the supplier having actually paid tax to the Government.
This in effect is a burden of proof cast on the purchasing dealer who claims Input Tax Credit, which is a right created under statute; sustained only under the specific terms of the statute.
The Recipient Purchaser cannot content for double taxation since the claim of ITC is denied only when the supplier who collected tax from the purchaser fails to pay it to the Government.
The word ‘Input Tax Credit’ itself postulates a situation where the purchasing dealer has a credit in the ledger account maintained by it with the Government. The said credit can only arise when the supplier pays up the tax collected from the purchaser. The mere production of a tax invoice, establishment of the movement of goods and receipt of the same and the consideration having been paid through bank accounts would not enable the Input Tax Credit; unless the credit is available in the ledger account of the purchasing dealer.
The seller and purchaser have an independent contract without the junction of the Government. The statute provides for a levy of tax on goods and services or both, supplied by one to the other which can be collected but the dealer who collects it has also the obligation to pay it up to the State. The statutory levy and the further benefit of Input Tax Credit conferred on the purchasing dealer depends not only upon the collection by the seller but also the due payment by the seller to the Government. When the supplier fails to comply with the statutory requirement, the purchasing dealer cannot, without credit in his account claim Input Tax Credit and the remedy available to the purchasing dealer is only to proceed for recovery against the seller. Even if such recovery from the supplier is effected by the purchasing dealer; the State would be able to recover the tax amount collected and not paid to the exchequer, from the selling dealer since the rigor of the provisions for recovery on failure to pay up, after collecting tax, enables the Government so to do.
8.We have seen in the past the department is denying the input tax credit due the reason of not appearing in GSTR-2A or GSTR-2B as the case may be. We will discuss these issues in details in the following article.
Now we will discuss the conditions laid down by Section 16 of the Act to claim the input tax credit.
Section 16. Eligibility and conditions for taking input tax credit.
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;
(b) he has received the goods or services or both.
1[Explanation.—for the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services:–
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) Where the services are provided by the supplier to any person on the direction of and on account of such registered person.]
6[“(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;]
(c) subject to the provisions of [section 41 the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be 9[paid by him along with interest payable under section 50], in such manner as may be prescribed: [Rule 37]
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him 10[to the supplier] of the amount towards the value of supply of goods or services or both along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the 8[thirtieth day of November] following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. [Rule 37(4)]
[Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.]
So it is clear that to claim the input tax credit one has to fulfill all the conditions of this section simultaneously. The recipient won’t get the input tax credit in the absence of any of these conditions rather the proceedings of the section 73 or 74 of the Act may also be conducted against him.
Burden of Proof Section -155
Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person. Accordingly , it is the recipient of the goods or services or both who is under obligation to provide the genuinity of the transaction.
Other than SC Judgment in E Com Gill ( supra ), KERALA HIGH COURT WP(C) NO. 31165 OF 2023
Ansil Ibrahim-Appellant versus Assistant Commissioner Second Circle
In this case the Honorable justice rejected the present petition stating that the petitioner did not appear in pursuance of the show cause notice nor did he provide any document or evidence to discharge his burden under Section 155 of the GST Act, the Assessing Authority has no other material before them except for denying the input tax credit. The application was rejected by the honorable court.
Can an input tax credit be denied if the supplier failed to file the return well within the time prescribed under section 16(4) of the ACT?
Section 16(4) deals with the claiming of input tax credit by the recipient before the 30 the day of November (20th October for financial year 2018-19 to 30.09.2022) vide Finance Act 2022 and Notification no. 18/2022 Central Tax. This clause is silent for the supplier to file his return on or before the time prescribed under this clause.
This issue was also dealt with in the case of Unity Ooh Media Solutions Pvt. Ltd. vs Deputy State Tax Officer.
Kerala High Court WP(C) NO. 42429 OF 2023
Unity Ooh Media Solutions Pvt. Ltd.-Appellant vs Deputy State Tax Officer
The writ was filed against the ex-party order passed by the proper officer rejecting certain amount of the input tax credit merely on the ground that certain suppliers of the goods did not file their GSTR-1 before the cutoff date of 30.04.2019 though the petitioner has filed his GSTR-1 and GSTR-3B well before the extended time.
Considering the aforesaid fact and the judgements passed in M/s Heena Medical and Diya Agencies, the court was of the view that the input tax credit should not be denied merely on this ground and the Assessing Officer must go through the other details of the case. Hence the matter is remitting back to the file of the assessing authority to consider the issue afresh in the light of judgment in Diya Agencies (supra) and pass a fresh order after hearing the petitioner.
So It is clear from the above case the Assessing Officer must go in details and check and verify other documentary evidences to allow the input tax credit.
The matter is pending in SC and we have to wait for the final verdict of the Supreme Court on the interpretation of section 16(4) and its impact on Section 16(2) – both non obstante clauses.
9. CAN INPUT TAX CREDIT BE DENIED IF THE SUPPLIER HAS NOT FILED THE RETURN OR THE REGISTRATION OF THE SUPPLIER IS CANCELLED WITH RETROSPECTIVE DATE?
Though the recipient has made bona fide transactions but still in most cases the input tax credit is denied due to either the input was not available in GSTR-2A or GST registration of the supplier was sue moto cancelled by the department.. The different high courts have given variable judgements in these regards. We will discuss some favourable judgements of various high courts.
KERALA HIGH COURT WP(C) NO. 32070 OF 2023
Geetha Agencies-Appellant Versus Deputy Commissioner of State Tax Kannur
Held that-The writ petition challenging the assessment order and recovery notice that denied the petitioner's input tax credit due to a mismatch in GSTR 2A and GSTR 3B has been allowed. The court granted the petitioner an opportunity to prove their case with relevant documents before the Assessing authority. If the authority is satisfied, the petitioner's claim for input tax credit should be granted, and a revised order issued.
KERALA HIGH COURT WP(C) NO. 30660 OF 2023
Heena Medicals-Appellant versus State Tax Officers, Deputy Commissioner
The writ petition contests Ext. P1 assessment order and Ext. P2 recovery notice, seeking input tax credit of Rs. 2,58,116/- with interest and penalty totaling around Rs. 4,58,156/-. The petitioner argues that denial of input tax credit solely based on the difference between GSTR 2A and GSTR 3B is unjust, citing precedents. Referring to Diya Agencies v. The State Tax Officer, the court remands the matter to the Assessing Authority, directing them to examine evidence beyond GSTR 2A and granting the petitioner an opportunity to prove their claim for input tax credit. As a result, the writ petition is allowed, with the petitioner instructed to appear before the Assessing Officer with evidence on 03.10.2023.
KERALA HIGH COURT WP(C) NO. 30670 OF 2023
Mina Bazar-Appellant Versus State Tax Officer, Deputy Commissioner
Held that-The writ petition challenges an assessment order and a recovery notice issued to the petitioner. The assessment order primarily disputes the input tax credit claimed by the petitioner based on the variance between GSTR 2A and GSTR 3B. However, a court precedent clarifies that such discrepancies alone cannot justify denial of input tax credit. Consequently, the petition is allowed, and the matter is remitted back to the Assessing Authority for reevaluation of the evidence regarding the petitioner's claim for input tax credit, disregarding the GSTR 2A variance. The petitioner is instructed to appear before the Assessing Officer with evidence supporting the claim on a specified date.
KERALA HIGH COURT WP(C) NO. 29769 OF 2023
Diya Agencies-Appellant versus the State Tax Officer, Union of India
Held that-The writ petition challenges an assessment order denying the petitioner's input tax credit, emphasizing that the mere absence of the amount in GSTR 2A should not be sufficient grounds to deny the credit, and it is remanded back to the Assessing Officer for reconsideration with an opportunity for the petitioner to provide evidence supporting their claim.
MADRAS HIGH COURT Writ Petition No. 3505 of 2024 And W.M.P.Nos. 3758 & 3759 of 2024
Engineering Tools Corporation, Represented by its Partner Versus The Assistant Commissioner (ST) , Chennai
The petitioner challenges an assessment order reversing their Input Tax Credit due to the retrospective cancellation of their supplier's GST registration. Despite providing evidence of genuine purchases, the reversal was based solely on the cancelled registration. The court deems the assessment unsustainable, quashing it and remanding for reconsideration, stressing the need to examine all relevant documents and prohibiting rejection based solely on registration cancellation. The writ petition is disposed of without costs.
Conclusion:-
In light of the section 16, section 155 and various judgments mentioned above, my view is that input tax credit should not be denied merely on the grounds that it is not reflecting in GSTR -2A or registration of the supplier is sue moto cancelled. The assessing officer must go in depth to check the genuinity of the transactions and the recipient must provide the enough and sufficient evidences with documentary proof to prove that the transaction is bonafide to claim the input tax credit.
The Honorable Supreme Court also held in the leading case of M/s Bharti Airtel that the GSTR-2A is just a facilitation and not the full proof to deposit the tax.
The input tax credit should not be denied on the grounds that the GST registration is cancelled suo moto. If the recipient has made bonafide purchases and have all the documentary evidences to prove his claim he should be allowed the input tax credit. Also if the purchases are made before the cancellation of GST registration of the supplier, the input tax credit should be allowed after due verification of the other documents.
For more details and better understanding please refer my you tube channel :https://youtu.be/vAPyvkTpp28?feature=shared
Narender Ahuja
Advocate in Practice
Mobile -9810764296
Email : ahujankassociate@gmail.com
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