Introduction
Hon'ble Justice Manmohan of the Supreme Court, in one of his recent speeches highlighted that taxpayers, both GST (Goods and Services Tax) and IT (Income Tax) are often not treated kindly by the assessing officers. This kind of treatment towards taxpayers leaves them with no impetus to innovate or think bigger, thereby impeding on the growth of the country. A persistent challenge faced in the GST world is the routine mechanical comparison of GSTR-2A and GSTR-3B forms by assessing officers. This leads to the rejection of the ITC (Input Tax Credit) claimed since there would be an obvious mismatch given the clashing timelines. Recent judgements of the Kerala High Court and the Madras High Court has clarified that such mechanical comparison of forms without affording the assessee an opportunity to present relevant documents to back his/her claim would be invalid.
Background
In GMA Pinnacle Automotives (P) Ltd vState Tax Officer[2024] 161 taxmann.com 145 (Kerala), judgment dated 6 March 2024,the company's (GMA Pinnacle's) claim for ITC was under scrutiny for the apparent mismatch in the amounts under GSTR-2A and GSTR-3B. At the outset, it is important to understand the timelines and nature of operation of the aforementioned forms to truly understand the conflict in this case. GSTR-2A form is auto populated based on the sale invoices and amounts in form GSTR-1 (filled by the seller). GSTR-3B is filled by the buyer and contains information regarding sales, purchases etc. The conflict appears when the timelines of these forms don't match. For instance, a seller may upload the invoice for the month of January in the last week of February and if a buyer tries to claim ITC for this amount, a conflict arises. The reason is that GSTR-3B is submitted within 20th of the following month for the current month assessment and won't consider late invoices. In Sri Shanmuga Hardwares Electricals v State Tax Officer[2024] 159 taxmann.com 756 (Madras), judgment dated 20 February 2024, the assessing officer had rejected the ITC claim of the petitioner on the grounds that the claim amount did not reflect in the GSTR-3B form. More precisely, no ITC was claimed under GSTR-3B at all. The petitioner sought theperusal of GSTR-2A and the GSTR-9 (Annual Returns)forms by the assessing officer. These weren't considered at all and the ITC was rejected.
Legal Issue
The assessment officers in the cases at hand, did not ask the assessee to furnish any documents to support the ITC claim and mechanically rejected it. The assessee on his own volition mailed the assessing authorities expressing his intention to furnish supporting documents in the GMA Pinnacle case. Despite these efforts, no due consideration was given to the assessee in this case. The case of Sri Shanmuga Hardwares wasn't too different either. The issue at hand therefore, is whether an assessing officer can reject a claim on the grounds of a mismatch between forms and without affording the assessee a chance to be heard.
Statutory Framework
For the sake of completeness, it is pertinent to discuss the legal provisions that govern ITC. Section 16(2) of the CGST act elucidates the conditions which are necessary to avail ITC. The onus is on the person claiming ITC to fulfil all the conditions. Once these are met, ITC can be claimed. The next steps to be taken in the process is by the proper officer who is bound by Section 61 read with Rule 99 of CGST Rules. The officer is bound by a strict timeline and available actions when scrutinizing. Based on the correctness of the claim, the officer will either take no further action or may notify the assessee on the status or may escalate the assessment as well. Their actions will be of course subject to the GST Acts and Rules and various judgements of the Supreme Court, High Courts and Tribunals.
Holding
The Hon'ble High Court of Kerala in the GMA Pinnacle case held that assessing officers cannot act mechanically when dealing with mismatches between forms. There has to be an effort by the assessing authorities to ascertain the true nature of transactions in case of a mismatch or discrepancies. The assessee must be given an opportunity to present documents that support his claim. These must be duly considered by the assessing authorities, failing which would violate the principle of natural justice. The Madras High Court in the Sri Shanmuga Hardwares case has ruled similarly. His lordship held that all necessary efforts should be taken by the assessing officer to analyze all the relevant documents. The officer was also ordered by the Hon'ble Court to provide a reasonable opportunity to the assessee to be heard which included a personal hearing as well.The courts in both the cases reiterated that the proper officer, when scrutinizing, should be prudent. Prudent in this case includes: Issuing show cause notice in case of any discrepancy, giving 30 days' time to reply as per rule 99 of CGST rules, careful examination of all necessary documents submitted etc.
Practical Implications for Practitioners
There are two major takeaways for the tax fraternity. The major takeaway is that the assessing officer is bound to not be mechanical in analyzing the forms submitted and to afford an opportunity to the assessee to produce relevant documents to support his/her claim. Violation of providing such an opportunity is against the principles of natural justice. The other takeaway is that assessees must be wary of timelines when responding to notices and mails from the assessment officers. Original documents such as invoices, paid amounts etc must be organized and kept safely to submit in case of any discrepancy.
The safer form to rely on when claiming ITC is GSTR-2B. It is a much safer bet for easier analysis since it freezes on the 14th of every month. All invoices raised post this date can be recorded before the freeze date of the subsequent month. This nature of the forms allows for a more streamlined claim process.
The holdings of the aforementioned cases will prove to be extremely useful when a proper officer is either auditing or scrutinizing the claims and returns. There have also been circulars by the CBIC that lay down the rules to be followed by the authorities when dealing with assessees. It is therefore important for both tax practitioners and businesses to be aware of the procedures to be followed by both assessor and assessee in an assessment.
Conclusion
The decisions of the High Court are binding on all lower courts and tribunals in that State. In other words, the principles laid outby the High Court in a decision cannot be subject to interpretation by Tribunals or District Courts. It must be accepted by all lower judicial and quasi-judicial bodies. The trend on rulings with respect to ITC claims is that the proper officer should not be callous and mechanical in his/her dealings during scrutiny. While the precedents set by the High Courts are only binding within the State, it still carries high persuasive value, given the trend on ITC rulings across India. These judgements, read with CBIC circulars and the statutes would be a potent tool kit for tax practitioners, advocates and GST registered individuals and firms.
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