Reversal of input tax credit in the case of non-payment of tax by the supplier and re-availment

 The rule 37A deals with reversal of input tax credit in the case of non-payment of tax by the supplier and re-availment thereof. 

“Where input tax credit has been availed by a registered person in the return in FORM GSTR-3B for a tax period in respect of such invoice or debit note, the details of which have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1 or using the invoice furnishing facility, but the return in FORM GSTR-3B for the tax period corresponding to the said statement of outward supplies has not been furnished by such supplier till the 30th day of September following the end of financial year, the said amount of input tax credit shall be reversed by the said registered person, while furnishing a return in FORM GSTR-3B on or before the 30th day of November following the end of such financial year:

Provided that where the said amount of input tax credit is not reversed by the registered person in a return in FORM GSTR-3B on or before the 30th day of November following the end of such financial year during which such input tax credit has been availed, such amount shall be payable by the said person along with interest thereon under section 50.

Provided further that where the said supplier subsequently furnishes the return in FORM GSTR-3B for the said tax period, the said registered person may re-avail the amount of such credit in the return in FORM GSTR-3B for a tax period thereafter”

Analysis of Rule 37A of the CGST Rules 2017:

The advisory on Rule 37A published on the GST portal makes it mandatory to reverse the ITC availed by the taxpayer on the invoices of the suppliers who have not filed their GSTR 3B returns. 

The very intention of the GST law was to avoid the cascading effect of taxes. Citing Section 155 of the CGST Act, 2017 to provide with proof the veracity of the claim made is only to the extent of what taxpayer can influence. It was notified that the benefit of the endorsement shall not be availed. The credit available is further restricted to that are available only in GSTR 2B. A check till this stage would be the duty of the taxpayer to provide proof. The taxpayer would be in a position to enjoy the benefit of the credit only if the payment is made. 

A further check, if the supplier has filed his GSTR 3B returns would hinder the business process & shifts the burden of the proper officer to the tax payer. The insertion of the rule from 2nd January 2023, has created an ambiguity on the claim.  To facilitate the taxpayers, such amount of ITC required to be reversed on account of Rule 37A of CGST Rules for the financial year 2022-23 has been computed from system and has been communicated to the concerned recipient. The email communication to this effect has been sent on the registered email id of the taxpayer.

The same is violative of Article 19(1)(g) of the constitution of India where it is a disproportionate restriction on trade. The very motive of implementing GST is defeated as the taxpayer is penalized severely for the non-compliance of the supplier. It can be argued that the rule allows for the reclaim of the credit, but the interest paid on such credit still remains as a cost to the tax payer. 

The Hon’ble High Court of Kerala in the case of Galaxy trader has adjudged that “Section 155 of the GST Act, 2017, takes care of such a situation wherein the fact that the assessee/dealer has taken inward supply, and the dealer has prepaid the admissible GST to the supplier-dealer and the supplier-dealer has not deposited the said tax amount to the Government, in such a situation the burden is on the person who claims the Input Tax Credit to prove his claim. The paid person in such a situation is required to furnish documentary evidence to prove that such tax has been paid by him”. 

The Hon’ble High Court has also cited the decision held by the Hon’ble Supreme Court that “in the case of THE STATE OF KARNATAKA VERSUS M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED has held that the assessing officer is required to give an opportunity to the assessee in respect of his claim for Input Tax Credit, if there is difference between GSTR- 2A and GSTR-3B. If on examination of the evidence submitted by the assessee, the assessing officer is satisfied that the claim is bonafide and genuine, the assessee should be given the Input Tax Credit. Merely on the ground that in Form GSTR-2A the tax to an extent of Input Tax Credit being claimed by the petitioner is not reflected should not be a sufficient ground to deny the claim of the assessee for Input Tax Credit”.

When the Hon’ble courts have interpreted that the grounds to claim credit should be to validate only if the tax payer has suffered the credit but why the rules contradict the interpretation. 

- KN Akshaya MA LLB