Genuine enterprises suffer even as taxmen bust networks of fake entities and bogus input tax credit (ITC) claims running into hundreds of crores of rupees. GST data mismatch between the filings of the buyer and the seller debar the former from claiming ITC.
ITC means GST credit for tax paid on purchase of goods or services that will be used for business – say GST paid on raw material. This ITC value can be reduced from the buyer’s GST liability.
Genuine buyers, due to data mismatch, have to reverse their ITC claims – the sum involved for a large company could run into crores of rupees.
Most ITC-related issues relate to incorrect or non-filing by the supplier, leading GST authorities to conclude that the supplier has not paid the tax, Ankit Kanodia, an advocate, said. In turn, the authorities hold that the buyer (recipient of goods or services) is not entitled to ITC against such a purchase.
During GST audit, a common question relates to the reconciliation of ITC in the buyer’s Form GSTR 2A/GSTR-2B, with monthly returns uploaded by the dealer in Form GSTR 3B. In case of a mismatch, the buyer may be required to reverse the ITC arising from these mismatches,” Yusuf Hakim, indirect tax partner at CNK & Associates, said.
According to Hakim, “A recent roll-out of the automated scrutiny mechanism has made buyers more prone to scrutiny and demands. It is a double whammy for genuine buyers as they have already paid the GST to the seller (as part of the invoice amount) and are made to pay it again, via a reversal of the ITC claim. Typically, an 18% interest and penalties, which can be up to 100% of the mismatched ITC figure, are also imposed .
Recently, the Calcutta HC, in the case of Suncraft Energy, held that before demanding reversal of ITC from the buyer, the authorities must take action against the supplier. The HC also referred to two press notes issued in 2018, which emphasised that non-payment of tax by the seller does not automatically result in reversal of ITC in the buyer’s hands. However, amendments in the GST law have diluted the impact of this decision.
Kanodia, who represented the matter, said, “16(2)(aa) came into effect from 2022. It provides that a buyer is eligible for GST only if the supplier reports invoice details in its outward return (GSTR-1). This gets auto-populated in the buyer’s Form GSTR-2B.”