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Monthly End To End Indirect Taxes Updates

Will ITC be reversed on Mismatch between the supplier and recipient?

Critical Provisions for Denial of ITC Mismatch

  1. As per Sec 16(2)(c) of CGST Act, ITC shall be claimed only in case, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through the utilization of input tax credit admissible in respect of the said supply

2. S 42 (2) The claim of ITC that matches with the details of corresponding outward supply ….. shall be finally accepted and such acceptance shall be communicated, ….. to the recipient.

3. S 42 (3) Where the ITC claimed by a recipient is in excess of the tax declared by the supplier ……. the discrepancy shall be communicated to both such persons

4. S 42 (5) The amount in respect of which any discrepancy is communicated u/s 42(3) and which is not rectified by the supplier ….. shall be added to the output tax liability of the recipient….

Press Release Dated 04.05.2018: GST Council approves principles for filing of new return design based on the recommendations of the Group of Ministers on IT simplification

iv. No automatic reversal of credit: There shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller however reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets, etc.

Court Decisions

Madras HC: D.Y. BEATHEL ENTERPRISES Vs THE STATE TAX OFFICER (DATA CELL), (INVESTIGATION WING) COMMERCIAL TAX BUILDINGS, TIRUNELVELI

  • In the said press release, it has been mentioned that there shall not be any automatic reversal of input tax credit from the buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller. However, reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by the supplier or the supplier not having adequate assets, etc. Section 16(1) & (2) of Tamil Nadu Goods and Services Tax Act, 2017, also makes the position clear 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. In the case on hand, the respondent does not appear to have taken any recovery action against the seller
  • Charles and his wife ought to have been examined. They should have been confronted. I do not understand as why the respondent did not ensure the presence of Charles and his wife Shanthi, in the inquiry.
  • Therefore, the impugned orders are quashed and the matters are remitted back to the file of the respondent. Charles and his wife Shanthi will have to be examined as witnesses. Parallelly, the respondent will also initiate recovery action against Charles and his wife Shanthi.

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Monthly End to End Indirect Taxes Updates

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