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ITC reversal under GST in case of non-payment of consideration within 180 days

Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale. In other words, businesses can reduce their tax liability by claiming credit to the extent of GST paid on purchases. In order to avail the Input Tax Credit the following conditions must be satisfied by the taxpayer as per section 16 of the CGST act, 2017:

a. The taxpayer must have a valid tax invoice/ debit note/ prescribed document.

b. The taxpayer must have received the goods or services. In case goods delivered to 3^rd person on the direction of the registered person deemed to be received by the registered person and ITC will be available to registered person.

c. Tax paid on such supply is actually paid to government either in cash or through utilisation of input tax credit admissible in respect of the said supply.

d. He has furnished the return under section 39 i.e. GSTR 3B

e. In case goods are received in lots or instalment then ITC can be taken upon receipt of the last lot or instalment.

f. ITC is not admissible if depreciation is claimed on tax component

As per section 16(2) of the CGST act where a recipient fails to pay to the supplier of goods or services or both, other than the suppliers on which tax is payable on reverse charges mechanism basis, the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the Input tax credit availed by the recipient shall be added to his output tax liability along with interest thereon in the manner prescribed.

The above provision can be explained as follows:

Where the taxpayer do not make payment to the supplier within 180 days from the date of issue of invoice, an amount equal to the input tax credit by recipient shall be added to his output tax liability, along with interest thereon

The recipient shall be entitled to re avail the credit of input tax in case of subsequent payment of the amount towards the value of supply of goods or services or both along with tax payable thereon

In case taxpayer makes part payment of value of supply as well as tax amount within 180 days, reversal of credit shall apply only to the extent of proportionate amount not paid by recipient

Note:

(a) This payment time limits concept apply both supply of goods as well as services

(b) 180 days criteria is applicable only from the date of issue of invoice by the supplier. 180 days should be computed from date of invoice but irrespective of date of avail of ITC

(c) If supplier allowed the credit period beyond 180 days based on their contract terms may be in purchase order then may not be any requirement for reverse of ITC with genuine terms

As per Rule 37; registered person is required to furnish details in GSTR -2 of month following 180 days but since GSTR -2 is not operational, the reporting is required to be done in GSTR-3B with interest applicable on when made reverse of ITC. The interest is applicable from date of availing of credit and not from date of invoice.

Rule 37 (3) determine the period for the interest amount as registered person shall be liable to pay interest at rate notified under section 50 (1) of CGST Act for the period to start from the date of availing of credit on such supplies till the date when the amount is added to the output tax liability is paid & also interest would be cost to the recipient

The condition of payment of value of supply plus tax within 180 days does not apply in the following circumstances:

(a) Supplies on which tax is payable under reverse charges mechanism covered both section 9(3) & 9(4) of CGST Act

(b) Deemed supplies without consideration the value of supplies made without considerations as specified in schedule 1 of the said Act shall be deemed to be have been paid for the purposes of second provision to section 16 (2) Act. Hence ITC reversal will not apply

(c) The value of supplies on account of any amount added in accordance with the provision section 15(2)(b) of CGST Act ( on that part of VOS which is met by recipient )

Below are some of the FAQs with respect to ITC reversal:

(1) Can the taxpayer reclaim ITC revered earlier upon payment?

A receipt can reclaim the tax credit reversed earlier due to non-payment to supplier on following making the payment section 16(4) of the CGST Act for availing credit time period whichever is earlier before the due date for furnishing return for the month of September of the following year or annual return, but sec 16 (4) of the CGST Act shall not apply for re-claiming the credit which was reversed earlier under rule 37(4) of the CGST rule a receipt can re- claim at any time there is no time bar.

(2) Can taxpayer claim ITC on partial payment?

Yes the receipt can claim ITC on partial payment made , as per pro–rata basis on the value of tax paid by way of back calculations because rule 37 (1) of the CGST rules talks about reverse of the amount of ITC availed of proportionately to such amount not paid to the supplier.

(3) Can taxpayer adjust debit / credit entries in books of account by way of payment mode?

Second proviso to section 16 (2) of the CGST ACT only provides the ITC reverse shall apply in case of non payment to their supplier with time frame , there does not prescribe any particular mode of payment and also which mode neither indicated anywhere in CGST ACT nor CGST rules Ruling by AAR West Bengal; the applicant consideration paid by way of setting off book debt is proper payment & hence ITC reverse under second proviso to section 16 (2) is not applicable

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May, 10
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Gujarat High Court directs release of ITC available in the Electronic Credit Ledger

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

All eligible Input Tax Credit that is claimed by a registered dealer in the GST returns reflects in Electronic Cash Ledger. Credit in Electronic Cash Ledger can be used only for payment of tax. This means that balance of Electronic Credit Ledger cannot be utilised for payment of interest, penalty or late fees. Interest and Penalty can be paid only through actual cash payment.

Rule 86A provides vide powers to the Commissioner or an officer authorized by him to impose restrictions on ITC available in the electronic credit ledger (ECL), in a case where there were reasons to believe that the ITC was fraudulently availed or was ineligible.

The Commissioner had the authority to utilize the power under Rule 86A in the following cases:

non-existent supplier/recipient or not conducting business from its registered place
the tax has not been deposited with Government
issuance of invoice without supply, and
recipient not in possession of invoice/debit note

The said Rule also specifies that on account of the said restriction, the ITC would not be allowed to be used to discharge the output GST liability or claim refund of any unutilized amount for a period of 1 year.

Let us refer to the case of Nipun Bhagat vs State of Gujarat where the applicant sought to challenge the action of the respondent in blocking the ITC in exercise of power under Rule 86A of the CGST Rules, 2017 to the tune of Rs.17,94,723 allegedly towards effecting the recovery of dues under the Gujarat Value Added Tax Act, 2003 (GVAT Act) in the case of one Dolphin Metals (India) Ltd.

Facts of the Case:

The applicant was engaged in the business of manufacturing of brand kitchenware and home appliances and was registered under the provisions of the CGST Act.
The writ applicant, at one point of time, was a Director in a public limited company named Dolphin Metals (India) Ltd.
The writ applicant was also a director in one another company named Bhagat Marketing Private Limited.
The respondent sent a notice under Section 44 of the GVAT Act to the Union Bank of India proposing to attach the bank account maintained by Bhagat Marketing Private Limited, wherein the applicant was a Director, seeking recovery of the amount of outstanding tax and interest for the years 2006-07 to 2013-14 in the case of Dolphin Metals.
The bank declined to act as per the notice as the name and PAN of the account holder differed from that of the Dolphin Metals to whom the notices were addressed.
The respondent, on the very same day blocked the ITC of the amount of Rs.17,94,723 available to the applicant in his electronic credit ledger under the provisions of the CGST Act.
This action was with an intention to recover the amount of tax and interest due and payable by the Dolphin Metals under the GVAT Act for the period during which the writ applicant was not even the Director.
The applicant addressed a letter to the respondent requesting to release the ITC blocked for the recovery of the amount of tax and interest.
As the respondent declined to release the ITC, the applicant petitioned before the High Court (HC)

Observations of the High Court (HC)

The issue before HC was whether the respondent could have exercised power under Rule 86A of the Rules, 2017 for the purpose of blocking ITC available in the credit ledger account of the applicant for the purpose of recovering the dues of Dolphin Metals (India) Limited.
In HC’s opinion, the answer was in the negative.
Rule 86A could be invoked only if the conditions stipulated therein were fulfilled.
In other words, it was only if the Commissioner or an Officer authorized by him had reasons to believe that the credit of input tax available in the electronic credit ledger was fraudulently availed or was ineligible for the reasons stated in Rule 86A(1)(a) to (d) that the authority would get the jurisdiction to exercise the power under Rule 86A of the Rules.
HC failed to understand how Rule 86A could have been invoked in the present matter.
In view of the aforesaid, HC was left with no other option but to allow the application.

The respondent was therefore directed to unblock the input tax credit available in the credit ledger account of the writ applicant at the earliest.

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February, 10
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Companies approach Gujarat High Court over penalty, interest payment on ITC

Several companies have taken the indirect tax department to court over the slapping of penalties and interest on unpaid GST and ITC amounts.

Why have companies filed a writ petition against the indirect tax department?

Several companies have filed a writ petition in the Gujarat high court against the indirect tax department.
The input tax credit mechanism under the GST allows companies to set off part of the tax paid against future tax liabilities.
So, when companies pay GST, it is typically paid in two parts, tax and tax credit set-offs.
In cases where the tax department estimates a shortfall or mismatch between the GST a company is required to pay and the amount it has actually paid, penalties and interest are charged.
The companies say such penalties and interest should be applicable only on the actual GST to be paid and not the entire amount.
The issue was whether the restriction of benefit with respect to interest was applicable when there was utilisation from the credit register in case the investigation has started under the GST provisions or not.

Let us understand the same with the help of an example:

A company with a tax liability of Rs 10,000 that has Rs 7000 in its credit ledger should have to pay only Rs 3000 as tax. However, upon the discovery of any discrepancies in the tax payment, the question is whether penalty and interest should be levied on Rs 10,000 or Rs 3000.

The companies that have approached the court argue that penalty and interest should be charged only on the pending amount.

What are the interest and penalty provisions on late payment of GST?

According to the GST regulations, an interest will be charged at the rate of 18% per annum from the taxpayers who fail to pay their taxes on time. The interest will be levied for the days after the due date.

For instance, if your tax liability is Rs. 2,000 and you have not paid tax on time for a given month. Now, if you pay tax after one day from the due date, your interest will be calculated as 2000*18/100*1/365 = Rs. 0.98 Per day.

In case of fraud, an offender has to pay a penalty amount of tax evaded/short deducted etc., i.e., 100% penalty, subject to a minimum of Rs. 10,000.

In cases other than fraud, an offender not paying tax or making short-payments has to pay a penalty of 10% of the tax amount due, subject to a minimum of Rs.10,000.

Issues regarding revision of returns

Even when a company wishes to revise its tax payments, it is not possible due to the way the GST framework operates.

GST returns cannot be revised in the present filing system. The mistake made in a return can be rectified in the subsequent return when such mistake comes into notice.

Although, the rectification is not allowed in following cases:

An error is found as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities.
After any of the following dates
(a) due date of return of month of September or quarter July to September of following year
(b) actual date of furnishing annual return of the relevant year

The revision of returns is not possible for the financial year after September of the next year and this leads to problems in cases when differential tax has to be paid due to classification misunderstandings or interpretational clarity.

The denial of benefit of reduced interest after utilizing credit is arbitrary and is now challenged.

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January, 27
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Know all about Businesses with monthly turnover of over Rs 50 lakh will have to mandatory pay 1% of their GST liability in cash

Know all about Businesses with monthly turnover of over Rs 50 lakh will have to mandatorily pay at least 1% of their GST liability in cash

What do you mean by the Electronic Credit Ledger?

The electronic credit ledger reflects the amount of Input Tax Credit available to the taxpayer. Thus, every claim of input tax credit of the registered taxpayer eligible for claiming such a credit is credited to this ledger. The amount available in the electronic credit ledger is utilized in making payments towards outward tax liability by the registered taxpayer.

Insertion of new Rule 86B

A new rule 86B was inserted, requiring a certain unique segment of taxpayers to compulsorily discharge at least 1% of their output GST liability in cash. The Central Board of Indirect Taxes and Customs (CBIC) introduced Rule 86B in GST rules which restricts use of input tax credit (ITC) for discharging GST liability to 99%.

The Rule states that, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of 99% of tax liability, in cases where the value of taxable supply in a month exceeds Rs 50 lakh.

Who will this Rule be applicable to?

Businesses with monthly turnover of over Rs 50 lakh will have to mandatorily pay at least 1% of their GST liability in cash. Rs 50 lakhs limit to be checked for each month. This Rule was introduced to curb evasion by fake invoicing.

While calculating the turnover threshold, sales from GST exempt goods and zero rates supply would not be included.

What will be the effects of inserting Rule 86B on tax evasion?

Typically, the fraudsters tend to illicitly discharge the entire GST liability through ITC available, thus avoiding cash payments.

With this restriction, another check to trace fraudulent taxpayers was introduced by lawmakers considering the increase in daily fake invoicing spams. In a way, this shall ensure curbing mala fide acts and plug revenue leakages in the government’s treasury.

While this compulsory requirement of discharging GST liability of at least 1% through cash appears to be harsh during this time of the pandemic, analysis of these provisions gives a different perspective altogether in the form of exclusions outlined below from these strident compliances. As this rule is not applicable in the following cases:

Where the said person or the proprietor or karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than Rs 1 lakh as income tax in each of the last two financial years for which the time limit to file return of income under section 139(1) has expired; or
Where the registered person has received a refund amount of more than Rs 1 lakh in the preceding financial year on account of unutilized input tax credit under clause (i) of first proviso of section 54(3); or
Where the registered person has received a refund amount of more than Rs 1 lakh in the preceding financial year on account of unutilized input tax credit under clause (ii) of first proviso of section 54(3); or
where the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the said month in the current financial year; or
the registered person is –
1. Government Department; or
2. a Public Sector Undertaking; or
3. a local authority; or
4. a statutory body:

The Commissioner or an officer authorised by him in this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit.

For instance, In the FY 2020-2021, up to November 2020, output tax liability comes to Rs 20 lakh and taxpayer deposited Rs 22,000 in cash up to November 2020 then this rule is not applicable

The limitation here is given to the taxpayer or his principal officers in a case where either taxpayer or its principal officer has discharged income tax of more than Rs 1 lakh in each of the last two years. This exclusion criterion is extremely significant because:

Most of the large corporates would get excluded from this compliance as, more likely than not, these taxpayers or their principal officers would be covered under Rs 1 lakh income tax criteria.
Even if a corporate is making losses but if it has a turnover of Rs 6 crore annually, it is likely that it would be paying remuneration more than Rs 9 lakh per annum to the said top management personnel such as managing director, whole-time directors, partners, etc.
Thus, these top personnel would simply get covered under Rs 1 lakh income tax criteria, excluding the corporates or firm, i.e., taxpayer from the net of the present new rule.
It is beneficial that the lawmakers excluded the genuine bunch from the applicability of this compliance even if the said corporates/ taxpayers are making losses

In June 2020, A Memorandum of Understanding (MoU) was signed between the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC), for data exchange between the two organisations. A collaboration between the department of Income Tax and GST also could be seen in this provision where on the basis of the income tax payment of the taxpayer or its principal officers, relief was granted under GST. The shared data analytics between CBIC and CBDT probably listed the segment of potential fraudsters.

While the intention of the present rule is to single out unlawful taxpayers, a certain bunch of genuine taxpayers may face a cash crunch. ITC may be blocked in cases where there is an accumulation of stock due to the pandemic, for startups not having income tax records, for newly registered exporters who are yet to file their refund claims.

Not many taxpayers would fall under this category as they would ideally be discharging 1% or more of their output liability by cash ledger. Having said this, Taxpayers covered under this category would ideally be engaged in any seasonal commodity business, business of Contractors where Running Invoices are issued, businesses where instance of levy arises very few times in a year, annual Maintenance Contracts business etc.

However, for such cases, the authorities have provided a window by granting power to the commissioner to remove such restrictions after necessary verifications and safeguards. Hopefully, the commissioners would adopt a pragmatic approach and provide relief to genuine taxpayers facing the brunt of these provisions.

However, it is good to see lawmakers being sensitive about the stringent measures and applying new filters by granting relief in cases where income tax is paid by the taxpayer or principal officers.

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January, 22
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HC directs tax department to accept bank guarantee and release bank account

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

If the government attaches the property of a person, the person cannot transfer the said property to anyone else. Even if he does manage to transfer the attached property, the transfer shall be deemed void and thus not recognised by law. Even bank accounts can be attached and one will not be allowed to transfer his funds to any other account.

During the pendency of certain specified proceedings under the CGST Act 2017, the Commissioner can pass an order for attachment of property including bank accounts of the taxpayer to protect the interests of the revenue.

Such order may remain in effect up to one year if no action is taken.

A copy of this order may be sent to the concerned Revenue Authority, Transport Authority or any such authority to place an encumbrance on the said property. This encumbrance cannot be removed unless instructions have been received from the Commissioner to do so.

Let us refer to the case of Uflix Industries vs Union of India and Others (HC Delhi), where the petition was filed in challenge of orders directing attachment of the petitioner’s bank account.

What was contended by the petitioners?

In the present petition, it was maintained that that there were no proceedings pending against the Petitioner, which was a prerequisite for exercise of power under section 83 of the CGST Act.
The orders of provisional attachment was passed by the respondent who was from CGST, Delhi (East), whereas the petitioner’s jurisdictional office was CGST, Noida, Uttar Pradesh.
Consequently, it was submitted that the officers from CGST, Delhi (East) did not have the power or jurisdiction to initiate any proceeding against the petitioner under Sections 62, 63, 64, 67, 73 or 74 of the CGST Act, 2017.
Petitioner had stated that the he was willing to offer a bank guarantee to the respondent of a nationalised bank of the amount in dispute claimed to be fraudulent availment of ITC i.e. in terms of communication issued by the Respondent, placed on record in the petition.
Petitioner stated that the Bank account attached by the Respondents had a credit balance of more than Rs. 1 crore and that an appropriate amount therefrom could be retained as a security to safeguard the interest of the revenue.
He further submitted that on account of debit freeze in the account, the entire business of the Petitioner had come to standstill and it was not able to make payment for items imported during the Covid19 pandemic.

What was contended by the Respondents?

Respondents stated that they had instruction not to accept the bank guarantee.
He insisted on payment in cash of the entire disputed amount.
He further submitted that the amount claimed in the communication was tentative and was subject to further investigation and verification which is presently underway.

Order of High Court

Since the entire disputed amount as of now was being secured by the Petitioner, respondent was directed to retain Rs 45 lacs from Current Bank Account, the attached bank account of the petitioner as a security.
Respondent was directed to provisionally release/ lift the debit freeze instructions in respect of the said attached account to the petitioner, subject to the petitioner first depositing with the respondent, a bank guarantee of a nationalised bank for the balance amount of Rs. 15,08,750 for a initial term of one year.
The bank guarantee shall be renewed and kept alive during the pendency of the present petition and shall be subject to further orders.
The aforesaid amount and the bank guarantee shall be retained by the Respondent as a security which shall be subject to adjudication of the final demand.

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December, 21
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SC stays High Court’s order on Bharti Airtel claiming Rs 923 crore GST refund by revising GSTR3B

When one hears the word ‘refund’, we feel fortunate that we are going to be united with our funds which were once paid as taxes. There are many situations where a refund arises in direct as well as indirect taxation. Understanding the refund norms and criteria’s is extremely important so that we do not excessively partake with our money.

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.

Certain situations when ITC cannot be claimed:

A person cannot avail ITC wherein the given motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver)
A person cannot claim ITC for the tax paid for the following:
- Food and beverages
- Outdoor catering
- Beauty treatment
- Health services
- Cosmetic and plastic surgery
Services of general insurance, servicing, repair and maintenance
Sale of membership in a club, health, fitness centre
Rent-a-cab services, life insurance, health insurance
Travel, benefits extended to employees on vacation such as leave or home travel concession.
Works contract services for construction of immovable property
Construction of immovable property on own account
Composition scheme
Non residents
Supply for personal use
Free samples and goods destroyed
Restaurant services

Recently, the Delhi High Court allowed Bharti Airtel Ltd. to rectify GST returns filed between July and September 2017 after the telecom operator said it paid excess tax on inputs in absence of a purchase-related tax return form. The Supreme Court on Thursday stayed the Delhi High Court order, allowing Bharti Airtel Ltd to claim Rs 923 crore in tax refunds by rectifying its GST returns for July to September 2017.

What was the claim of Bharti Airtel?

The Sunil Mittal-controlled carrier said it paid an excess tax of Rs 923 crore as the details of the input tax credit.
The ITC during the period was offered based on estimates on account of non-operationalisation of the GSTR-2A form by the government.
So, it underreported its claim for credit.
The original scheme of the CGST Act provided for forms GSTR-1 with the details of outward supplies by a dealer, and GSTR-2 that had the inward supplies data of the other dealer to avail the benefit the input tax credit.
GSTR-3 electronically collated these details and the monthly tax return was to be filed based on the calculation in form 3.
While forms 2 and 3 were not operationalised, form-2A was introduced in October 2018 for availing input tax credit and GSTR-3B to file summary returns of the monthly tax.
In the absence of the GSTR-2A form during July-September 2017, Bharti Airtel submitted the input tax credit details based on estimates.

And in October 2018, the telecom service provider said, it noticed the underreporting and sought to file the rectified returns.
The company argued that the central government failed to introduce GSTR-2 and 3 as mandated under the CGST Act and instead introduced GSTR-3B in the interim to file summary returns.
The GSTR-3B form required data to be filled in manually and does not permit data validation before it is uploaded.
The inability of the respondents to run their IT system as per the structure provided under the CGST Act could not prejudice the rights of a registered person.

What was the claim of the Government?

The central government, however, opposed the carrier’s plea and said the rectification of mistakes of an earlier tax period could not be done in any subsequent period.
The government had contended that Bharti Airtel had under-reported input tax credit from July to September 2017.
The telco contested this argument saying that it had paid excess tax of Rs 923 crore on inputs based on estimates since the GSTR-2A form was not operational during the error period.

Observations of the High Court

Indisputably, if the statutorily prescribed returns, GSTR-2 and GSTR-3 had been operationalised by the government, the petitioner would have known the correct ITC amount available to it in the relevant period, and could have discharged its liability through ITC.
As a consequence, the deficiency in reporting the eligible ITC in the months of July-September 2017 in the form GSTR-3B resulted in excess payment of cash by the petitioner.
The High Court found favour in the arguments put forward by Bharti Airtel. The high court asked the central government to verify the refund claim after the rectified return is filed.
The High Court held that the rectification of the return for that very month to which it related was imperative and any restriction on this rectification was ultra vires the provisions of CGST Act and contrary to Articles 14, 19 and 265 of the Constitution of India.

Order by Supreme Court

The Supreme Court stayed the judgment of Delhi High Court in the case of Bharti Airtel wherein Court had allowed Petitioner to rectify Form GSTR-3B for the period to which the error relates. The three-judge bench while listing the matter at the first week of March 2021, granted the interim relief to the department by staying the judgment of Delhi High Court.

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December, 21
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A vegetable seller of Rourkela served GST notice for Rs 110 crore for tax evasion

Government functions with the help of the taxes collected from the citizens. Tax evasion is the major field, were Government revenue is lost. On account of non-payment of taxes by tax evaders, Government stands to lose revenue. For the past 6-7 months the COVID 19 pandemic had forced India into a lockdown. Most of the countries small businesses which relied on physical availability of customers have had the most hit. Small business revenues have plunged everywhere.

Nevertheless, tax evaders have proved to be an exception to this rule, who no matter what the situation persists, find a way to evade tax. It is not only the Government who loses revenue due to tax evasion, but sometimes the common man also falls prey to certain tax evaders.

A vegetable seller of Rourkela has fallen prey to GST fraud as a notice for Rs 110 crore tax evasion has been served to him. Kartik Kamila, who runs a small vegetable shop, was taken aback after getting the notice. He has been fraudulently represented as the owner of a market complex at Koelnagar in the steel city by the Lingaraj Trading company.

This apart, an amount of Rs 10 crore has allegedly been misappropriated as input tax credit through fake bank accounts. Kamila suspected that someone might have committed the offence using his electricity bills. Earlier, several students, housewives, owners of small eateries, labourers, and auto-rickshaw drivers in Rourkela were also victimised in similar ways by the scamsters.

According to Section 16(1) of the CGST Act, every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

According to Section 132(1), Whoever commits any of the following offences, namely:

supplies any goods, services or both without issue of any invoice, with the intention to evade tax
issues any invoice or bill without supply of goods, services or both leading to wrongful availment/utilisation of ITC or refund of tax;
avails ITC using such invoice or bill referred to in clause (b)
collects any amount as tax but fails to pay the same to the Government beyond 3 months from the date on which such payment becomes due
evades tax, fraudulently avails ITC or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d)
falsifies/substitutes financial records or produces fake accounts/documents or furnishes any false information with an intention to evade payment of tax due
obstructs or prevents any officer in the discharge of his duties
acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation
receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions
tampers with or destroys any material evidence or documents
fails to supply any information which he is required to supply or supplies false information
attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section

Shall be punishable as follows:

Quantum of Offence	Punishment
cases where the amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken exceeds Rs 500 lakh	imprisonment for a term which may extend to 5 years and with fine
cases where the amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken exceeds Rs 200 lakh but does not exceed Rs 500 lakh	imprisonment for a term which may extend to 3 years and with fine
case of any other offence where the amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken exceeds Rs 100 lakh but does not exceed Rs 200 lakh	imprisonment for a term which may extend to 1 year and with fine
cases where he commits or abets the commission of an offence specified in clause (f) or clause (g) or clause (j)	imprisonment for a term which may extend to 6 months or with fine or with both

GST follows a system of levying tax at each stage of the value addition in the industry. By relying heavily on technology, GST mechanism has made it easier for the authorities to profile tax payers based on their compliance track record. Fraudulent claiming of ITC has always been a complicated issue with officials trying to make sure fraudulent claims are not granted, while businesses claim that delays in ITC processing affects their liquidity. Claiming ITC fraudulently has sadly been a common practice of tax evasion in the industry.

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December, 18
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Assessee should not be prejudiced from availing ITC that they are otherwise legitimately entitled to – Madras HC

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

The GSTR-3B is a consolidated summary return of inward and outward supplies that the Government of India had introduced as a way to relax the requirements for businesses that have recently transitioned to GST. In other words, it is a simplified method that helps to declare the summary of GST liabilities for a given tax period. GSTR-1 is a monthly or quarterly return that should be filed by every registered dealer. It contains details of all outward supplies i.e sales. GSTR 1 once filed cannot be revised. However, can an error which is inadvertently made in filing the GST Returns be corrected to avail the benefit of Input Tax Credit? Let us find out about the same in the case of Sun Dye Chem Vs The Assistant Commissioner (ST) (Madras High Court).

Facts of the Case:

The petitioner is a partnership firm, a registered dealer under the GST Act, 2017.
Regular returns of turnover are being filed computing the tax payable after setting off Input Tax Credit (ITC) as against the output tax liability. The ITC claimed is the cumulative amount of Central (CGST), State (SGST) and Intra-state (IGST).
Monthly returns were filed for the period August 2017 to December 2017 in the GST portal in Form GSTR-3B.
The returns were accompanied by annexures in Form GSTR-1 that reflected the total credit in regard to the transactions – CGST, SGST and IGST.
There was however, an error in reporting the credit in Form GSTR-1 in regard to the outward supplies and Intra-state sales were erroneously reported as inter-state sales, as a result the CGST and SGST credit was reflected in the IGST column.

The error was noticed by the petitioner when its customers brought to its notice the fact that the tax credit has been reflected in the IGST column instead of CGST/SGST columns posing a difficulty to the customers to avail the said credit.
The petitioner submitted a request for amendment of Form GSTR-1 that came to be rejected on the ground that there was no provision to grant the amendment sought, in any event, not after 31.03.2019 as Notification 71/2018 had extended the time for submission of the amended GSTR-1 till 31.03.2019, for the period 2017-18.
The petitioner was thus unable to correct the error.
The petitioner therefore, petitioned seeking a mandamus directing the Assistant Commissioner to permit it to correct Form GSTR-1 for the period August 2017 to December 2017 and redistribute the credit available from the IGST column to the CGST and SGST fields.

Observations of the High Court (HC) on the Provisions of Law

The scheme for filing of Returns is set out under Chapter IX of the Act and the procedure for availment of credit relating to outward and inward supplies is provided in Sections 37 and 38respectively.
Section 37(1) states that every registered person other than an input service distributor, a non-resident taxable person and a person paying tax under the provisions of Sections 10, 51 or 52 shall electronically furnish details of onward supply of goods or services before the 10th of every month succeeding the tax period in question.
Rule 59(1) of the CGST Rules 2017 corresponding to Section 37(1) prescribes the format as Form GST 1.
The aforesaid details are also to be communicated to the recipient in the manner prescribed.
Section 37(2) states that every registered person (recipient) who has been communicated the details (in terms of Section 38(3), relating to any modification, deletion or inclusion by the recipient of the forms or details pertaining to inward supplies of input service distributor under Section 38(4)), shall either accept or reject the details so communicated within a stipulated period and if accepts the same, the details furnished under Section 37(1) shall stand amended accordingly.
Rule 59(2) sets out the details that are to stand included in GSTR-1 including:
1. invoice details of all inter and intra-state supplies effected to registered persons
2. inter-state supplies of value more than two and a half lakh rupees effected to unregistered persons
3. consolidated details of (1) and (2) as aforesaid and
4. debit and credit notes, if any, issued in respect of the aforesaid invoices.
Rule 59(3) stipulated that the details of outward supplies furnished by the supplier shall be made available/communicated to the concerned registered persons/recipients in Form GSTR-2-A, 4-A and 6-A after the due date of filing Form GSTR-1.
Section 37(3) provided for the rectification of an error or any omission in a return filed under Section 37(1) and the proviso therein stated that no rectification of error or omission shall be allowed after the furnishing of a return under Section 39 for the month of September following the end of the financial year to which such details pertain or the filing of an annual return, whichever is earlier.
The second proviso, provided further that the rectification or omission in respect of details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September 2018 till the due date for furnishing the said details for the month of march 2019 or quarter 2019.
Admittedly in the present case, the time for rectification expired, after extension thereof, on 31.03.2019.

Section 38 stated that every registered person other than an Input Service Distributor or a non-resident taxable person or one paying tax under the provisions of Sections 10, 51 or 52 shall verify, validate modify or delete the details pertaining to outward supplies and credit and debit notes communicated under Section 37(1) to prepare the details of his inward supplies and credit or debit notes in respect of such supplies that have not been declared by the supplier under Section 37(1).
Section 38(2) stated that every registered person other than an input distributor or a non-resident taxable person or a person paying tax under the provisions of Section 10, 51 or 52 shall furnish electronically certain categories of inward supplies of taxable goods or services or both and the credit or debit notes received in respect of such supplies within a stipulated period in the prescribed manner.
The prescription is set out in Rule 60 dealing with form and manner of furnishing details of inward supplies in Form GSTR-2A.
Section 38(3) provides that the details of supplies modified, deleted or included by the recipient and furnished under Section 38(2) shall be communicated to the supplier in the prescribed manner.

Section 38(5) deals with the mismatch of particulars provided in terms of Section 38(2) and those mentioned in Sections 42 and 43 and states that upon discovery of any error or omission the registered person shall rectify the same.
The proviso states that no rectification shall be permitted after the expiry of the time beyond the financial year to which the details pertain or before the last date for furnishing of theannual return, which is earlier.
Section 39(1) requires the filing of a return in Form GSTR-3B.
A registered person who files a return under Section 39(1) involving intra-State outward supply is to indicate the collection of taxes customer-wise in monthly return in Form GSTR-1 and the details of tax payment therein are auto populated in Form GSTR -2A of the buyers.
Any mismatch between Form GSTR-1 and Form GSTR-2A was to be notified by the recipient by way of a tabulation in Form GSTR-1A.
Admittedly, Forms in GSTR-2A and GSTR-1A were yet to be notified as on that date.
The statutory procedure contemplated for seamless availmentwas, as on date, unavailable.

Observations of the High Court on the Present Case

Undoubtedly, the petitioner in this case had committed an error in filing of the details relating to credit.
What should have figured in the CGST/SGST column has inadvertently been reflected in the IGST column.
It was nobody’s case that the error was deliberate and intended to gain any benefit.
In fact, due to the error, the customers of the petitioner were denied credit which they claimed to be legitimately entitled to, owing to the fact that the credits stood reflected in the wrong column.
The present petition was filed, to ensure that the suppliers did not lose the benefit of that credit.
Admittedly, 31stMarch, 2019 was the last date by which rectification of Form – GSTR 1 could be sought.
However, the Forms, by filing of which the petitioner could have noticed the error and sought amendment, viz. GSTR-2A and GSTR-1A were yet to be notified.
Had the requisite Forms been notified, the mismatch between the details of credit in the petitioner’s and the supplier’s returns would have been noticed and appropriate and timely action could be taken.
The error was noticed only later when the petitioners’ customers brought the same to the attention of the petitioner.
In the absence of an enabling mechanism, HCwas of the view that assessee should not be prejudiced from availing credit that they were otherwise legitimately entitled to.

The error committed by the petitioner was an inadvertent human error and the petitioner should be in a position to rectify the same, particularly in the absence of an effective, enabling mechanism under statute.
The petitioner is permitted to re-submit the annexures to Form GSTR-3B with the correct distribution of credit between IGST, SGST and CGST within 4 weeks from date of uploading the order and the respondents were directed to take the same on file and enable the auto-population of the correct details in the GST portal.

In conclusion,assessee’s should not be prejudiced from availing credit that they are otherwise legitimately entitled to. If the error committed by the assessee is an inadvertent human error and the assessee should be in a position to rectify the same, particularly in the absence of an effective, enabling mechanism under statute.

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November, 9
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Starbucks guilty of profiteering to the tune of Rs 1.04 crore finds NAA

In its 47-year history, Starbucks has transformed from a single coffee bean store in Seattle to a billion-dollar international coffee power house. Seattle-based coffee monolith achieved something every entrepreneur dreamt of — establishing a new culture and becoming the leading provider in their own industry.

But massive expansion hasn’t come without growing pains.TATA Starbucks Private Limited, formerly known as Tata Starbucks Limited, is a 50:50 joint venture company, owned by Tata Consumer products and Starbucks Corporation, that owns and operates Starbucks outlets in India.Anti-profiteering watchdog, the national anti-profiteering authority (NAA) has ordered Tata-Starbucks to deposit Rs 1.04 crore, that it allegedly profiteered by overcharging customers and not passing on GST rate cuts to them.

The National Anti-Profiteering Authority (NAA) is the statutory mechanism under GST law to check the unfair profiteering activities by the registered suppliers under GST law. The Authority’s core function is to ensure that the commensurate benefits of the reduction in GST rates on goods and services done by the GST Council and of the Input tax credit are passed on to the recipients by way of commensurate reduction in the prices by the suppliers.

Reduction of GST Rate

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output.
When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.
According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
The GST Council had reduced the rate from 18% to 5% without the benefit of input tax credit on restaurant services.

Anti-profiteering measures under GST

According to Section 171 of the CGST Act, any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.
The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
However, no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority.
The expression “profiteered” means the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both.

What was the charge against Starbucks?

Tata Starbucks, had hiked the base price of a specific coffee product after the GST Council cut tax rates on restaurant services from 18% to 5% with effect from November 15, 2017.
This kept the retail sale price of the product (pre- and post-GST rate reduction) the same.
The NAA order stated that it was established that Tata Starbucks had profiteered to the tune of Rs 1.04 crore during the period from November 15, 2017, to June 30, 2018, which it was required to pass on to the buyers by commensurately fixing prices of products after taking into account the impact of denial of the input tax credit, which it has not done.
According to the anti-profiteering rules under GST, benefits of the input tax credit should have been passed on to the recipient by way of commensurate reduction in prices.
Since consumers cannot be identified, the profiteering amount has to be deposited in the consumer welfare fund of the Centre and states.

Argument by Tata Starbucks rejected by NAA

The NAA rejected Tata Starbucks’ arguments stating it was a part of a regular bi-annual price increase in October, but did so in November 2017 as it was upgrading its information technology system due to GST implementation.
It argued that it followed a policy of revising prices twice a year by 7-8%, depending on the prices of the products and adopted a practice of differential pricing, depending on the area of operation.
According to the complaint, the coffee chain had increased the price of its ‘short cappuccino’ from Rs 155 to Rs 170, when the GST rate reduction came into effect.
The directorate general of anti-profiteering had, in fact, calculated profiteering to the tune of Rs 4.51 crore.

Since the penal provisions under the anti-profiteering law came into effect in January, Tata Starbucks cannot be imposed a penalty since the case pertains to an earlier time.A Tata Starbucks spokesperson said thatas a responsible business, Tata Starbucks will comply with the ruling. Tata Starbucks intends to explore legal options on the basis of the belief that it has followed the law in accordance with the revision of the GST structure.

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November, 6
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Interest u/s 50 can be demanded only on the net liability and not on gross liability of GST

According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

For any law to be effective, it is important that persons should comply with the legal requirements specified in the law. A fear of interests and penalties inculcates timely compliances and adherence to the legal requirements mentioned in the law. It is important to note the both the terms ‘interest’ and ‘penalty’ have not been defined anywhere in the GST law. But from a general meaning, it can be understood that interest is paid for non-compliance to the provisions of the law while payment of penalty arises only in case of intentional non-compliance.

The primary function of the interest charged is to put the injured party as far as possible in the position in which he would have been had the payment of tax been made as intended by the law.

Let us refer to the case of KLT Automotive and Tubular vs Union of India and Others [2020], where contentions were raised revolving around section 50 of the CGST Act, 2017. The petition was filed with the primary contention that interest could be demanded only on the net liability and not on gross liability.

Facts of the Case:

Petitioner is a limited company engaged in the business of manufacture of automotive components, registered under GST.
Petitioner stated that it was availing ITC of the taxes charged by the suppliers and remitting the GST on its output supplies after deducting the ITC.
However, it was admitted by the petitioner that there was some delay in filing the monthly returns in form GSTR-3B and GSTR-1.
When the petitioner was intimated about the payment of interest on delayed payment of taxes for certain periods, it remitted the interest computed on net tax liability.
Respondent levied interest of Rs.5,06,06,060 for late payment of GST for the months from July, 2017 to December, 2019. The interest was computed on gross liability.
Respondent then revised the demand of interest to Rs.7,62,15,267 for late payment of GST for the months from July, 2017 to March, 2020, which was also computed on the gross liability.

Observations of the HC on the Provisions of Section 50 (prior to the amendment)

Section 50 of the CGST Act, 2017 as it stood prior to amendment read as under:

Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding 18%, as may be notified by the Government on the recommendations of the Council.
The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.
A taxable person who makes an undue or excess claim of input tax credit under section 42(10), or undue or excess reduction in output tax liability under section 43(10), 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 24%, as may be notified by the Government on the recommendations of the Council.

Observations of the HC on the amendment of Section 50

By Finance (No.2) Act, 2019, section 50 was amended by insertion of a proviso in sub-section (1).
According to the said proviso, the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceeding under section 73 or 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.
The said amendment was given effect from 01.09.2020 vide notification No.63/2020-Central Tax dated 25.08.2020.
A press release dated 26.08.2020 was issued by the CBIC on the subject ‘interest on delayed payment of GST’.
Board clarified that the notification dated 25.08.2020 relating to interest on delayed payment of GST was issued prospectively due to certain technical limitations.
However, CBIC had assured that no recoveries shall be made for the past period as well by the central and state tax administration in accordance with the decision taken in the 39^th meeting of GST Council.
It was stated that this would ensure full relief to the taxpayers as decided by the GST Council.

Observations of the HC on the Instructions of CBIC

In the written submissions filed on behalf of the respondents, a copy of the administrative instructions of the Board was annexed. It appeared to the HC that the said administrative instructions addressed the grievance of the petitioner. HC examined the administrative instructions dated 18.09.2020. According to the said instructions:

The provision of section 50 was amended vide section 100 of the Finance (No. 2) Act, 2019 to provide for charging interest on the net cash tax liability.
The said provision was made effective vide notification No. 63/2020 – Central Tax dated the 25th August, 2020, w.e.f. 01.09.2020.
The GST Council, in its 39th meeting, recommended interest to be charged on the net cash tax liability w.e.f. 01.07.2017 and accordingly, recommended the amendment of section 50 of the CGST Act retrospectively w.e.f. 01.07.2017.
The retrospective amendment in the GST laws was to be carried out in due course through suitable legislation.
Post issuance of notification 63/2020 – Central Tax dated the 25th August, 2020, there were apprehensions raised by taxpayers that the said notification was issued contrary to the Council’s recommendation to charge interest on net cash liability w.e.f. 01.07.2017.
Consequently, a press release, dated 26.08.2020 was issued to clarify the position. Further, in order to implement the decision of the Council in its true spirit, and at the same time working within the present legal framework, it was decided to address the issue through administrative arrangements, as under:
- For the period 01.07.2017 to 31.08.2020, field formations in respective jurisdiction were instructed to recover interest only on the net cash tax liability (i.e. that portion of the tax that has been paid by debiting the electronic cash ledger or is payable through cash ledger); and
- wherever SCNs were issued on gross tax payable, the same would be kept in Call Book till the retrospective amendment in section 50 of the CGST Act was carried out.

Conclusion by the High Court

From a perusal of the above, it was seen that amendment to section 50 of the CGST Act, 2017 was introduced by Finance (No.2) Act, 2019 for charging interest on the net cash tax liability.
The said amendment was made effective prospectively from 01.09.2020 vide the Central Government notification No.63/2020-Central Tax dated 25.08.2020.
GST Council in its 39^th meeting recommended that interest should be charged on the net cash tax liability with effect from 01.07.2017.
Recommendation was made for making the amendment to section 50 retrospectively with effect from 01.07.2017.
It was stated that retrospective amendment in the GST laws would be carried out in the due course through suitable legislation.
After issuance of the notification dated 25.08.2020, views were expressed by tax payers that the said notification is contrary to the recommendation of GST Council to charge interest on the net cash tax liability with effect from 01.07.2017.
To clarify this position press release was issued on 26.08.2020. However, in order to implement the decision of the GST Council in its true spirit within the present legal framework, the above instructions were issued.
Firstly, for the period 01.07.2017 to 31.08.2020, field formations have been instructed to recover interest only on the net cash tax liability i.e., that portion of the tax that has been paid by debiting the electronic cash ledger or is payable through cash ledger.

Secondly, in those cases where show cause notices were issued on gross tax payable, to keep those show cause notices in the call book till retrospective amendment in section 50 of the Central Goods and Service Tax Act, 2017 is carried out.

Therefore, the central issue raised in the writ petition i.e., whether interest under section 50 of the CGST Act, 2017 is to be levied on the gross tax liability or on the next tax liability was answered by the Board in the administrative instructions by categorically stating that the interest would be on the net cash tax liability for the period prior to the amendment i.e., from 01.07.2017 to 31.08.2020.

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November, 5
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Section 16(1) of the CGST Act