W.e.f. 01.01.2022 – Mandatory Matching of Input Tax Credit ITC Can Be Availed Equal to ITC Reflected in GSTR 2a/2b

1. W.e.f. 01.01.2022 ITC in GSTR-3B can be availed only when the invoice details have been furnished by the Supplier in its GSTR-1 and the same has been communicated to the recipient in GSTR-2A/ 2B.
2. Section 16(2)(aa) of the CGST Act (as inserted by Finance Act 2021) provides the above condition to avail of Input Tax Credit. The said condition has been made effective from 01.01.2022 vide recent N.No. 39/2021-CT it. 21.12.2021. Section 16(2)(aa) reads as under:

• (aa) the details of the invoice or debit note referred to in clause (a) have 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.

Journey of Matching Provisions under GST Law till date

01.07.2017 to 08.09.2019

No Legal Provisions into effect. Sections 42 & 43 were ineffective due to the non-workability of GSTR-2 & GSTR-3.

09.10.2019 to 31.12.2021

Rule 36(4) is put into effect for matching of ITC. However, Writ Petitions have been filed by taxpayers to challenge the condition of Rule 36(4) mainly on the ground that the said condition is imposed through Rules only and is not provided under the CGST/SGST Act. It is to be noted that Section 43A provides only for the PROCEDURE of availing credit in a prescribed manner. It does not empower the Government to provide any restrictions on availing of ITC through Rules.

W.e.f. 01.01.2022

Statute (CGST Act) itself provides for the matching of ITC as a condition of availing ITC [i.e. Section 16(2)(aa)].

Matching of ITC vs. Non-Payment of GST by Supplier

1. It is important to note that Section 16(2)(c) of the CGST Act provides another condition that the tax has been actually paid to the Government for availing of input tax credit by the buyer.
2. Non-reflection of ITC in GSTR-2A/2B is possible due to multiple reasons and one of the reasons can be that the Supplier has not filed the returns and evaded the payment of due tax to the Government.
3. Sometimes the Suppliers file GSTR-1 and the details are also reflected in GSTR-2A/2B but the Suppliers do not pay tax to the Government. In such cases, Rule 16(2)(c) comes into play. However, to curb such issues the Government has mandated the filing of GSTR-3B before filing GSTR-1 of the subsequent period [Rule 59(6)] and also inserted the provision for recovery of tax without the issuance of SCN where the liability is self-assessed in GSTR-1 but not paid through GSTR-3B.
4. Now, denial of ITC on non-payment of tax by Supplier under GST Law is under the scrutiny of the Indian judiciary. Section 16(2)(c) has been challenged before multiple High Courts through various Writ Petitions. The Present Position of the same is discussed as under:

i) D.Y. Beathel Enterprises, 2021-TIOL-890-HC-MAD-GST

a. If the tax had not reached the kitty of the Government, then the liability may have to be eventually borne by one party, either the seller or the buyer.

b. The Court has given relief to the buyer that the seller must be examined in such cases and recovery proceedings must be initiated against the seller in the first place.

ii) M/S. Bharat Aluminium Company Limited 2021 (6) TMI 1052 – Chattisgarh High Court

a. The Input Tax Credit which was claimed by the petitioner cannot be denied for the reason that the seller has not uploaded their invoices on time.

b. The Hon’ble High Court found merit in the arguments and admitted the case for hearing as well as directed that no coercive steps be taken against the petitioner. The final order is yet to come.

iii) Hon’ble Supreme Court – Transfer Petition (Civil) No. 1481-1482/2021, order dated 20.09.2021

a. The Government has approached the Hon’ble Supreme Court to hear and decide the petitions pending before multiple High Courts wherein the constitutional validity of Section 16(2)(c) of the CGST Act, 2017 has been challenged.

b. The Apex Court diligently observing that the said matter has been challenged in 34 other writ petitions, which are stated to be pending across nine High Courts in the country, has directed the petitioners to bring this Order to the notice of the concerned High Courts and seek expeditious disposal of their cases.

iv) LGW Industries Limited, 2021 (12) TMI 834 – Calcutta High Court

a. Although the constitutional validity of Section 16(2)(c) was challenged, the court did not deliberate on this issue as denial of ITC in this matter was not on the ground of non-deposit of tax but related to fake and bogus Suppliers.

b. The Hon’ble Court has observed that the buyer with their due diligence has verified the genuineness and identity of the suppliers through the Government Portal.

c. Thus, the Hon’ble Court has held that if the buyer has not faulted in compliance with any obligation required under the statute before entering the transactions in question or for verification of the genuineness of the suppliers, the benefit of input tax credit should be extended to the buyer. The Court has remanded back the matter to the department to verify the ITC based on the purchase documents and payment details submitted by the buyers and its genuineness.