GST update on denial of substantial benefit for technical glitches

It has been four months since GST has been implemented but still, GST network is not free from technical glitches. Not a single return utility is error-free, whether it is online or offline. This update is about the technical errors in GST network and its impact on the admissibility of ITC.

Input tax credit (ITC) is the most crucial area of any indirect tax regime. In fact, the arrival of GST was hyped by saying that there will be free flow of ITC which was lacking in the service tax and Central excise regime. On the other hand, the free flow of ITC seems to be a dream as there are a number of cases where the availment of ITC is being hindered due to technical errors. Some of such cases are given as follows:-

1. If any invoice is not uploaded by the supplier and mistakenly the GSTR-1 is filed. Suppose the buyer also forgets to show the invoice in missing invoices and files his GSTR-2. Now, whether the supplier can upload this invoice in the GSTR-1 of next month? If not, whether the ITC on that invoice will lapse?

2. Further, assume, an invoice was uploaded but the return was not filed by the supplier. Accordingly, it didn't auto-populated in the buyer's GSTR 2A and if the buyer also forgets to show it in missing invoices and he files his GSTR-2. Subsequently, as the date of filing GSTR-1 is extended, the supplier files his GSTR-1. Now, as the buyer has already filed the GSTR-2, where will that invoice be shown? Whether it will auto-populate in the GSTR 2A of the buyer of next month or will it lapse? It is not yet clear.

3. Also, if there is a case where the supplier has made a "B to B sale" but mistakenly shows it in the head of "B to C". In such a case, tax is already paid by the supplier but since it was shown in "B to C"; it didn’t  auto-populate in the GSTR-2A of the buyer. Now, following actions are possible in such a case:-

• The buyer shows it in missing invoices and it is accepted by the supplier. However, once it is accepted, the tax will be again payable by the supplier on the same. This will not be acceptable to supplier as he had already paid the tax on the said invoice; only mistake was that it was wrongly shown in the "B to C" column.
• The buyer does not opts to show it in missing invoice and issues a credit note to supplier. If the supplier accepts the same, he shall have to issue a fresh invoice and it will again create a liability on him which has already been paid.  

Therefore, both the options are available in this case are not practicable. In such case also, there seems the possibility that the ITC will lapse. If not, how it will be made workable by GSTN, it is not understandable.

There are a number of similar problems that the assessees are facing everyday while filing the various returns on GSTN. There seems no solution to such problems as of now and assessees have a fear that the ITC involved in such cases will lapse. But whether the substantial right in the form of ITC can lapse on account of technical faults at the government site?

It has been held by the Hon'ble Supreme Court in the case of FORMICA INDIA DIVISION Versus COLLECTOR OF CENTRAL EXCISE. [1995 (77) E.L.T. 511 (S.C.)] that substantial benefit cannot be denied on account of procedural lapses. In this cases, the assessee had not followed the proper procedure for claiming the exemption notification. Therefore, the departmental authorities have denied the benefit of notification by invoking the proceedings against them by alleging that they had not followed the proper procedure as prescribed in that notification. However, the Hon'ble Supreme Court had held that though there was a mistake on part of assessee by not following the proper procedure, but it is merely a technical lapse for which the substantial benefit cannot be denied.

In view of above judgment of Hon'ble Supreme Court, one thing is clear that if the assessee is legally eligible for some benefit, it cannot be denied on account of some errors, even if the same has occurred at the end of assessee himself. Going by the above analogy, in the given cases also, we can say that if the assessee forgets to upload the invoice or if the invoice is uploaded but the return is not filed due to some error at the site of GSTN; it will be termed as a technical lapse only. Therefore, the analogy drawn by the Supreme Court in the case of Formica India will be equally applicable in the GST regime too and the substantial benefit of ITC cannot be denied because of these technical lapses.

Further, some civil writ petitions are being filed against the working of GSTN and errors occurring there. One such decision has been given by Hon'ble Rajasthan High Court's Jaipur bench in the civil writ petition no. 15239/2017 on 5.10.2017. This writ was filed by Rajasthan Tax Consultants Association against the working of GSTN. In this case, relief was granted to the petitioner if the non-responding of system is instantly reported to District information officer through e-mail. However, the benefit of this decision was granted to the petitioner only and it was not generally allowed. There are much more such petitions in the pipeline which are going to consume the time, money and energy of both government and assessees. Therefore, in order to avoid these unnecessary litigations, it is better that the government issues some clarification at the earliest.