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January 29, 2021

Matching of GSTR-2A Vs with GSTR-3B

by CA Shivam Jaiswal in Special Invitation Author

Matching of GSTR-2A VS with GSTR-3B

Off late the Central /State GST Department is insisting for the matching ITC availed as per GSTR-3B with GSTR-2A for the period 2017-18, 2018-19. The Officers merely marching Month on Month and directing the Registered persons to pay or debit the ITC when the ITC as per GSTR-2A is less than GSTR-3B. This apart, the Officers also insisting for the payment of interest at the rate of 24% even if there is sufficient balance in the Electronic register for debiting the excess amount. The action of the Officers is not warranted.

As per the GST Act, 2017 as it stood at time of enactment of GST, Input Tax Credit (ITC) would be available on the provisional basis, as per the action initiated by the recipient based on the outward supply furnished by Supplier in GSTR 1. In order to claim ITC, the recipient has to accept/ Reject/ Modify the details of auto populated in its GSTR 2. In case of any missing details of invoice, he was also allowed to add the details of missing invoice in GSTR 2, which was communicated to the Supplier as GSTR-1A, to acceptance of same by the selling dealer.

The modified details in GSTR-2 becomes GSTR-2A the recipient was allowed provisional claim of ITC subject in Electronic Credit Ledger. In case selling dealer fails to accept the same, the ITC so allowed earlier will be disallowed and recipient, the disallowed amount will be added to the liability of the recipient and has to pay the same along with interest. The above said processing is contemplated in Section 42. Matching, reversal and reclaim of input tax credit. However, the process of filing GSTR 2/GSTR-1A was suspended after Aug-2017 by the Government due to the complexity involved. So, the matching the ITC credit as per GSTR-2A and 3B insisted by the Department for the period 2017-18 and 2018-19 by the recipient supplier is not correct.

This apart, the GSTN has provided the details of uploading of the invoices by the supplier based on GSTR-1 in GSTR-2A excel file/json and has not provided details about the filing status of GSTR-3B. Verification of the details provide by the GSTN in GSTR-2A reveal this aspect. Also, in certain cases the report says seven GSTR-1 is not filed but the details are available. In view of the above facts the recipients are under the genuine belief that our availment of Input Tax Credit is as per the provisions of law. Had this information has provided the recipients would not have paid the amount to the said suppliers, instead have paid to the Government as per the provisions of law.

Further, in GSTR-9 there is a provision at Sl. No 8, to declare details of invoices uploaded by the recipient and the actual availment as per 3B. With reference the difference, between 2A and 3B, the Government vide Notification No: 56/2019 CT dated 14/11/2019, has informed that for the difference, the registered person has to uploaded the details of the invoices not available in GSTR-2A without auditors’ certificate and has not stated anything about denial of ITC.

The relevant portion is as under:

against serial number 8A, –

(I) after the entry ending with the words “auto-populated in this table.”, the following entry shall be inserted, namely: –

“For FY 2018-19, It may be noted that the FORM GSTR-2A generated as on the 1st November, 2019 shall be auto-populated in this table. For FY 2017-18 and 2018-19, the registered person shall have an option to upload the details for the entries in Table 8A to 8D duly signed, in PDF format in FORM GSTR-9C (without the CA certification).

This apart at the time of sanction of refund on account of export under bond /LUT, the department has verified the documents and sanctioned the refund after due verification.   The instruction of the department wrt to invoice not reflected in 2A is as under as per Circular No: Circular No. 59/33/2018-GST dated 04/09/2018.

Submission of invoices for processing of claims of refund:

It was clarified vide Circular No. 37/11/2018-GST dated 15th March, 2018 that since the refund claims were being filed in a semi-electronic environment and the processing was completely based on the information provided by the claimants, it becomes necessary that invoices are scrutinized. Accordingly, it was clarified that the invoices relating to inputs, input services and capital goods were to be submitted for processing of claims for refund of integrated tax where services are exported with payment of integrated tax; and invoices relating to inputs and input services were to be submitted for processing of claims for refund of input tax credit where goods or services are exported without payment of integrated tax.

In this regard, trade and industry have represented that such requirement is cumbersome and increases their compliance cost, especially where the number of invoices is large.

In view of the difficulties being faced by the claimants of refund, it has been decided that the refund claim shall be accompanied by a print-out of FORM GSTR-2A of the claimant for the relevant period for which the refund is claimed. The proper officer shall rely upon FORM GSTR-2A as an evidence of the accountable of the supply by the corresponding supplier in relation to which the input tax credit has been availed by the claimant. It may be noted that there may be situations in which FORM GSTR-2A may not contain the details of all the invoices relating to the input tax credit availed, possibly because the supplier’s FORM GSTR-1 was delayed or not filed. In such situations, the proper officer may call for the hard copies of such invoices if he deems it necessary for the examination of the claim for refund. It is emphasized that the proper officer shall not insist on the submission of an invoice (either original or duplicate) the details of which are present in FORM GSTR-2A of the relevant period submitted by the claimant.

From the above, time again the Department has instructed to admit the tax liabilities by the suppliers and has not denied the ITC availed by the recipient if the recipient has complied with the provisions of GST Act and Rule, 2017.

Further  the restrictions of ITC based on the GSTR-2A and GSTR-3B has been made applicable from October -2019 only as per the provisions of Rule 36(4) of GST Rules, 2017 introduced as per Notification No.49/2019-Central Tax dated 09.10.2019.  The said amendment restricted the availment of Input Tax Credit (hereinafter referred as ‘ITC’) by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of Sections 37, shall not exceed 20% of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of Sections 37.

Later, through another Notification No.75/2019-Central Tax dated 26.12.2019, further amended the above-mentioned Rule, thereby restricting the cap to maximum 10%.  In this connection it is pertinent to note that this legal provision also does not contemplate that the ITC has to be availed based on filing of GSTR-3B by the supplier.

In fact, the Madhya Pradesh High Court, in the case of Kabeer Reality Private Limited v/s The Union of India & Others held that the GSTR-1 is the declaration of tax liability and GSTR-3B is evidence of actual payment and further pronounced the tax recovery has to initiated aginst the such registered person only. The Court also observed that the credit availed by the recipient on the basis of invoices issued by the said registered person also became invalid/ineligible despite no fault on their part.

Similar view has been pronounced by various Courts on matching of input credit with reference to VAT and has held the similar provisions in erstwhile laws are arbitrarily and unconstitutional.

Apex court dismissed the petition filed by the revenue against the order of Delhi High Court in case of Arise India Limited (TS-314-HC-2017). Wherein Delhi High Court has held that similar provision of Delhi VAT act being arbitrary and unconstitutional. Court also held that purchasing dealer cannot be expected to keep track of whether the selling dealer has in fact deposited tax. Further, court also held that department is not helpless if selling dealer commits a default.

Also, Punjab & Haryana High Court in case of Geru Lal Bal Chand V. State of Haryana has held that “In legal jurisprudence, the liability can be fastened on a person who either acts fraudulently or has been a party to the collusion or connivance with the offender. However, law nowhere envisages to impose any penalty either directly or vicariously where a person is not connected with any such event or an act. Law cannot envisage an almost impossible eventuality”.

Similar view has been held by Karnataka High Court in case of M/s. Onyx Designs, wherein it was held that “the benefit of input tax cannot be deprived to the purchaser dealer, if the purchaser dealer satisfactorily demonstrates that while purchasing goods, he has paid the amount of tax to the selling dealer. If the selling dealer has not deposited the amount in full or a part thereof, it would be for the revenue to proceed against the selling dealer”.

Further, when once the recipient discharged his burden as per the statutory provision by producing the relevant Tax Invoices, ITC cannot be reversed as per the Hon’ble High Court of Madras judicial precedent reported in 50 VST 179 in the case of Tvl. Althaf Shoes (P) Ltd., Vs. Assistant Commissioner (CT), Valluvarkottam Assessment Circle, Chennai. The above said view has been also recently upheld in the following cases and thereby the Hon’ble High Court of Madras confirmed that production of ‘Tax Invoice’ alone enough for claiming ITC and there is no need to prove the payment of tax by the other end dealers.

  • Infiniti Wholesale Limited Vs. AC(CT), Koyambedu reported in 82 VST 457;
  • Sri Vinayaga Agencies Vs. State of Tamil Nadu reported in 60 VST 283;
  • V.V.V. & Sons Edible Oil VS. State reported in 20 TNCTJ 205;  
  • Sri Andal Co. Vs. State reported in 21 TNCTJ 67;
  • Bharat Steels Vs. State reported in 21 TNCTJ 76; 
  • Hafsa Trade Links Vs. State reported in 21 TNCTJ 82;
  • Nadeem Tanning Co. Vs. State reported in 21 TNCTJ 88;
  • Shanmuga Traders, Cuddalore Vs. CTO in W.P. No.18036 of 2015, dt.24.06.15;
  • Sri Lakshmi Textiles in W.P.(MD) No.17266 of 2015, dt.23.09.2015.
  • M/s. ABL Traders, Vs. CTO in W.P. (MD) No.16059 of 2015, dt.25.09.2015 &
  • Order passed by the Hon’ble Chairman, Sales Tax Appellate Tribunal (AB), Chennai in S.T.A. Nos.659/2015, 658/2015 and 791/2015, dt.20.04.2016 in the case of State of Tamil Nadu Vs. Kareema Leather Products, Periamet, Chennai.

Even though, the above judgements are pronounced in VAT laws but the same holds good under the GST laws also. Intention of the legislature is not to punish the honest purchaser. Further, in W.P. No.105/2016 dated 01.03.2017 in the case of M/s. JKM Graphics Solutions (P) Ltd., Chennai and others (Batch Cases), Hon’ble High Court has observed

“ Hence, for all the above reasons, all the Writ Petitions are allowed and the notices/orders either original or appellate or revisional are set aside and the matters are remanded to the respective Assessing Officers, to undertake a fresh exercise by conducting a thorough enquiry in consultation with the Assessing Officers of the other end dealer for which purpose the Commissioner of Commercial Taxes shall empower the Assessing Officers to seek information from other circles as well”

Furthermore, it is noteworthy to extract hereunder the judicial precedent rendered by the Division Bench of the Honourable High Court of Madras in the case of M/S. Inko Chemicals India (P) Ltd Vs. The Commercial Tax Officer (W.A.No.763 of 2015and M.P.No.1 of 2015). In the above said case law, the Honourable Division Bench, has framed one of the issues that has to be resolved by it as follows:

“Wrong claim of Input Tax Credit (in short, ‘ITC’) on the purchases effected from dealers, who had not reported the transaction in the returns filed by them”.

And given its finding that:

“ In Infiniti Wholesale Ltd. case, a Division Bench of this Court has held that merely because the selling dealer has not disclosed the transaction in his monthly return that cannot by itself furnish a cause to seek tax or reversal of ITC from the purchasing dealer. Similarly, in respect of the other aspect, that is, the impact of de-registration of selling dealer, the Division Bench of this Court in Bhairav Trading Company case, has come to the conclusion that it cannot lead to reversal of ITC or levy of tax on the Assessee.

From the above it seen that the Hon’ble courts has held that the assessment of the supplier has to be done before taking any action on the recipient.  With reference to GST, similar provisions are available for Assessment officer to conduct verification assessment of the suppliers who have filed file the tax return Viz GSTR-3B. The provisions are as under.

  • Scrutiny of returns
  • Assessment of non-filers of returns
  • Assessment of unregistered persons
  • Summary assessment in certain special cases

Thus, the above said case law rendered by the Division Bench of the Honourable High Court is also squarely applicable to the subject case on hand.

Regarding, the payment of interest for the reversal of credit through Electronic credit ledger, the GST Council has categorially recommended that as per the provisions of Section 50 of CGST Act, 2017, interest liability is only on cash payment made and to that effect amendment with retrospective effect from 01/07/2017 has also been made in the GST Act,2017. When the interest liability is not applicable for the utilisation of the Credit, how can interest will arise for the amount not utilised but debited based on adequate balance form the Electronic Credit Ledger.

Further interest on account of ITC arise as per sub section 3 of Section 50 of GST Act, 2017 only when there is undue excess claim, a term also not defined in Act, after matching of ITC is done as per Section 42. But the implementation of section is suspended after Aug-2017. The subsection reads as (3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.

Also, the rate has to be notified by the GST Council, but till date the rate has not been notified for the said sub section. So, interest liability for the reversal of ITC, if any made through the ECR also not required.

Hope the CBIC and State Apex bodies will issue suitable instructions to their filed formations and save the tax payers from unnecessary litigations.

Author: B. Venkateswaran IRS, Asst. Commissioner CGST (Retired)

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