CA Umesh Sharma
Arjuna (Fictional Character): Krishna, The festival of Raksha Bandhan is around the corner, but there are many bandhans on recipient for availing ITC. How should a taxpayer take Raksha from these bandhans?
Krishna (Fictional Character): Arjuna, While Raksha Bandhan signifies the protective pledge of brothers towards their sisters, creating a joyful bond, it's interesting to note that the world of Input Tax Credit takes a different path. In the GST realm, there seems to be "more Bandhan" than Raksha when it comes to the recipient availing ITC. Just as the festival symbolizes protection and care, the Input Tax Credit concept aims to protect businesses from double taxation. Yet, the mechanism isn't as straightforward. The recipient faces intricacies while claiming this credit. The system ties them with various rules, conditions, and complexities, creating a different kind of bond – a Bandhan – that they must navigate to avail the benefits they deserve.
Arjuna (Fictional Character): Krishna, What are the bandhans, or restrictions, on availing Input Tax Credit for the recipient?
Krishna (Fictional Character): Arjuna, Let's break down the bandhans, or constraints, that recipients face when availing Input Tax Credit:
1. Delayed GSTR-1 Filing: If a supplier doesn't file their GSTR-1 by the 11th of the next month, the invoices won't be reflected in the recipient's GSTR-2B. As a result, even if the recipient has met all conditions for availing ITC, they won't be able to claim it for those invoices. This showcases the dependency on the supplier's timely filing.
2. Failure of Supplier to pay tax: The recipient may encounter another bandhan when the supplier's GSTR-1 data appears in their GSTR-2B. But if the supplier doesn't file their GSTR-3B or neglects to pay the GST liability, an unexpected consequence follows. The recipient receives a notice stating that due to the supplier's lapse, their input tax credit will be disallowed. This situation is paradoxical as it penalizes the recipient for the supplier's non-compliance, affecting the recipient's rightful claim.
3. Restricted Time Frame for Availing ITC: In the GST law, there exists a provision allowing the recipient to avail input tax credit that wasn't claimed during a financial year, but within the month of November of the following financial year. This provision appears to offer flexibility, but it comes with its own intricacies.
For Example- Mr. A fails to avail their input tax credit until November of the next financial year. Now, Suppose a liability arises for Mr. A, after two years. Now, Even though Mr. A is liable to discharge the output liability, he won't be able to utilize the unclaimed input tax credit for the payment, because the opportunity to claim that credit was only available within the confined window of the preceding November.
4. Unbalanced Set-off Scenario: Where a recipient faces a liability in Integrated GST (IGST), but they have available credits in Central GST (CGST) and State GST (SGST) accounts. Ideally, one would expect to set off these credits proportionately against the IGST liability. However, the portal's behavior creates an unexpected outcome. When the recipient attempts to set off the credits, the portal first instructs them to use the entire credit available in the CGST account, leaving only the balance to be taken from the SGST account.
Now, in the next month. The recipient needs to file their return and there's a liability in both CGST and SGST. Due to the previous month's set-off, the CGST balance is depleted since it was utilized for the IGST liability. But there's still a carry forward in the SGST account. This twist presents an issue for the recipient. They face a liability in one tax (CGST) and a carry forward in another (SGST).
Arjuna (Fictional Character): Krishna, How can taxpayer take Raksha?
Krishna (Fictional Character): Arjuna, When it comes to remedies for the recipient facing challenges with Input Tax Credit, there are indeed only a few available options.
Litigation: The first recourse is litigation. In cases where the recipient is denied ITC due to various complexities, they might need to take their case to the court of law. It's akin to a battle, where the recipient fights for their rightful claim before a legal authority.
Precedent Case Laws: Interestingly, there are also a few case laws that support the notion that even if the ITC isn't reflected in GSTR-2B, the recipient can still avail the credit. This is based on the premise that the recipient possesses all the requisite documents and has complied with all the relevant sections. One such landmark case is the case of M/S. D.Y.Beathel Enterprises vs The State Tax Officer.
GST Appellate Tribunal: From 1st January 2024, a new avenue opens up. The formation of the GST Appellate Tribunal offers the recipient a more structured path to address their grievances. This tribunal serves as an intermediate body where the recipient can present their case and seek the input tax credit that they rightfully deserve.
Arjuna (Fictional Character): Krishna, what should one learn from this?
Krishna (Fictional Character): Arjuna, Just like how the Indian Space Research Organization (ISRO) sent Chandrayaan to the moon to uncover mysteries of space, taxpayers are also on a quest to find answers right here on Earth. It's like a search for hidden treasure, where sometimes the answers are hard to find, even if all the provisions of law have been followed. Raksha Bandhan teaches us about protection and care, much like how Input Tax Credit is meant to protect businesses from paying taxes twice. But just as in the GST world, the bond of protection comes with the bandhan of rules and complexities. The government should bring some changes in law to provide Raksha to recipient for availing ITC, which is rightfully of the recipient.
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