We are at the fag end of filing the annual return and audit certification (GSTR 9 & 9C) For FY 2018-19 (courtesy of multiple extensions) i.e., on 31st December 2020.
Taxpayers have an option to pay additional liability not declared in GSTR-1 or GSTR-3B, in GSTR-9 through Form DRC-03 based on para 4 of GSTR-9 instructions for FY 2017-20.
This article enumerates the utilization of ITC against GST liability for payment through DRC-03 during GSTR-9 filing which would be beneficial to many taxpayers having accumulated input tax credit balance. This would help assesses cash flow management. The additional liability may arise predominantly on two counts, i.e., outward tax unpaid or ITC reversal not done.
This article analyses possible way out for utilization of electronic credit ledger balance against DRC-03 liability in annual return which would be in line with the provision of GST Act as stated below: -
- Q1. Whether ITC can be utilized to discharge liability disclosed in annual return through DRC-03?
- Q2. Whether proof of credit availability as on liability date is required under GST?
- Q3. Whether ITC can be utilized against additional liability discharged through DRC-03 in GSTR-9C?
• All the payments under GST need to be made either from input tax credit available in electronic credit ledger or cash balance available in electronic cash ledger.
Relevant extract of the provision is as follows:
In terms of section 49(7) read with Rule 85(3) of CGST Rules,2017, subject to the provision of section 49, payment of every liability by a registered person as per his return shall be made by debiting the electronic credit ledger maintained as per Rule 86 or electronic cash ledger maintained as per Rule 87 and the electronic liability register shall be credited accordingly.
• By co-reading of section 49(4) and 49(8) of CGST Act, 2017, the amount available in electronic credit ledger would be utilized against any payment towards output tax liability arising through self-assessed tax, and other dues relating to returns (GSTR-3B) or any other amount payable under GST (say through DRC-03) including demand determined under section 73 and section 74.
• The word “output tax liability” could be interpreted as any other amount payable under GST which includes additional liability discharged in GSTR-9 by virtue of section 73(5) of the CGST Act.
Relevant extract of the provision is as follows:
In terms of section 49(4) of CGST Act, 2017, the amount available in the electronic credit ledger may be used for making any payment towards output tax under CGST Act or under the IGST Act.
In terms of section 49(8) of CGST Act, 2017, every taxable person shall discharge his tax and other dues under this Act, or the rules made thereunder in the following order namely: -
a) Self-assessed tax, and other dues related to returns of the previous tax period;
b) Self-assessed tax, and other dues related to returns of the current tax period;
c) Any other amount payable under the CGST Act or the rules made thereunder including the demand determined under section 73 and section 74.
In terms of section 73(5) of CGST Act, 2017, a person chargeable with tax may, before service of notice under (1) i.e. service of notice for tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or willful-misstatement or suppression of facts or, as the case may be, the statement under sub-section 3, pay the amount of tax along with interest payable under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.
• Upon analyzing theabove sections, it can be justified that Input tax credit can be utilized against any payment made through DRC-03 including in annual return.
• Rule 86(2) of CGST Rules, provides that credit can be utilized againstself-assessed tax and other dues determined through GSTR-3B returns or any other amount payable under GST.
Relevant extract of the provision:
In terms of Rule, 86(2) of CGST Rules, 2017, the electronic credit ledger shall be debited to the extent of any liability in accordance with the provision of section 49[49A or 49B].
• Para 9 of GSTR-9 instruction provides that additional liability discharged in annual return through DRC-03can be paid through electronic cash ledger only. However, this instruction was not amended when para 4 was included in the instructions. Earlier the annual return was envisaged to represent the compilation of the GST returns filed without allowing any changes to the same. Therefore, this instruction now seems redundant, and considering various interpretations above cannot override the provisions of the Act.
• It must be noted that the GST portal allows the taxpayer an option to either pay through an electronic cash ledger or electronic credit ledger if balance available at the time of making payment through DRC-03(including annual return).
However, the department may contendthis interpretation, and it is advised that taxpayers decide based on their risk appetite and quantum of the benefit earned.
• Proof of credit would not be required as on liability date, input tax credit if available can be utilized against past liabilities. There is no specific restriction in GST law.
Also, under the erstwhile regime, the above statement was in favor of assesses. Reference: -
• Excise circular 962/05/2012-CX 8 dated 28.03.2012 provides that arrears of duty can be paid by utilizing Cenvat credit which has accrued after the period to which the arrears pertains.
• In the case of Eicher Motors Ltd v. Union of India [1999(106) JLL/T.3] the court has held that credit under the Modvat scheme was “as good as tax paid”.
• Hon’ble High Court of Gujarat in the case of Advance Surfactants India Ltd Vs. Union of India- 2017(358) ELT 53 (Guj) – has held that proviso to Sub Rule (4) of Rule 3 of CENVAT credit Rules to be ultra vires to the scheme of Cenvat credit in as much it restricted the utilization of credit to the extent such credit was available on the last day of the month or quarter, for payment of duty relating to that month or quarter.
Note: Section 41 of CGST Act, 2017 provides for provisional credit and such credit is to be utilized against self-assessed tax only. As the concept of provisional credit was linked to GSTR-2 & GSTR-3 (which has been cancelled), the said provision may need to go through some amendment for practical implementation.
No, ITC cannot be utilized against additional liability discharged through DRC-03 in GSTR-9C based on the following points: -
• Para 8 GSTR-9C instructions provides for additional liability declared in this form shall be pay through electronic cash ledger in FORM DRC-03.
• Although, GSTR-9C is an audit certification, and therefore, is not a self-assessed return filed by the assessee. Similar instruction of disclosing and discharging additional liability for the first time as available for annual returns is not available for GSTR-9C.
• By virtue of section 44 (2) of CGST Act, 2017 read with Rule 80(3) of CGST Rules, 2017 GSTR-9C is a statement of reconciliation between the annual return in GSTR-9 filed for a financial year and the figures as per the audited annual financial statement. Therefore, this is not a ‘return’ under GST.
• In conjunction with above reading, Rule 85(3) of CGST Rule 2017, states that payment of every liability by a registered personas per his returnshall be made by debiting the electronic credit ledger or electronic cash ledger and electronic liability ledger shall be credited accordingly.
• In terms of Section 2(97) of CGST Act, 2017, “return” means any return prescribed or otherwise required to be furnished by or under this Act or the rules made thereunder.
• Hence, based on the above interpretation GSTR-9C is a reconciliation statement with auditor certification and shall not be considered as a return. Further, Rule 85(3) of CGST Rule, 2017, would not be applicable and therefore additional liability discharged in GSTR-9C must be paid through electronic cash ledger in FORM DRC-03.
• However, the GST portal allows the taxpayer an option to either pay through an electronic cash ledger or electronic credit ledger if balance available at the time of making payment through DRC-03(including reconciliation statement).
• Therefore, it is suggested to discharge any tax liability recommended by the auditor is cash only.
Upon three and half years of implementation of GST, still, there seem to be ambiguities on interpretation of law due to lack of clarity in provisions of the GST Act and rules. However, there is always a way out for the taxpayer to ensure they avail the benefit in line with the provision of the Act.
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