Feasibility of claiming ITC on the basis of GSTR-2A reconciliation

GSTSUTRA |
Abhinav Srivastava , Partner
Indirect Tax
|

15 April 2019

A. Scenario: 

  • The Company has availed input tax credit through GSTR-3B for the period 2017-18, without reconciling with GSTR-2A. The credit has been availed based upon the physical copies of the invoices.
  • Pursuant to a post-facto reconciliation, out of the total number of invoices from a single vendor, some of the invoices are appearing in GSTR-2A and some are not appearing in GSTR-2A. Further, even with respect to the invoices which are being reflected in GSTR-2A, the status is shown as submitted/Not submitted. 
  • Also, the Company is not in a position to ascertain as to whether the vendor has filed GSTR-3B return (and paid the taxes).

B. Issues: 

  • Whether the Company can avail the credit on the basis of invoice appearing in GSTR-2A – Whose status is “submitted”. 
  • Whether the Company can avail credit on the basis of invoice appearing in GSTR-2A – Whose status is “not submitted”. 

C. Analysis 

The law is ambiguous with respect to above issues and hence it can be argued either ways as evident from the below literature -

1. Arguments in favour of the position that credit cannot be claimed - 

As per Section 16 2 (c) of CGST Act 2017, one of the condition to avail the input tax credit is, payment of tax should be made by vendor to Government.  The same is reproduced below for your consideration 

“the tax charged in respect of such supply has been actually paid to the government, either in cash or through utilization of input tax credit admissible in respect of the said supply” 

Therefore, on a reading of above provisions it can be concluded that payment of taxes by the vendor is a mandatory requirement before availment of credit by the vendor.  Assuming that vendor has not paid tax (which cannot be conclusively confirmed though), it can be contended that the Company may not be in a position to claim credit. 

2. Arguments in favour of the position that credit can be claimed (these are illustrative and not exhaustive) - 

Ground 1: Provisional availment of input tax credit 

As per Section 16 (2)(c) of CGST Act 2017, credit can be availed subject to payment of tax by vendor, the extract of same has been reproduced below: 

“Subject to Section 41 and 43A of CSGT Act 2017, the tax charged in respect of such supply has been actually paid to the government, either in cash or through utilization of input tax credit admissible in respect of the said supply.”             

However, Section 16(2)(c) is subject to Section 41. Section 41 of CGST Act, 2017 provides for provisional availment of credit, where it states as under: 

“Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger. 

The law simultaneously allows for taking provisional credit under Section 41. And there is no timeline that has been prescribed as to till what point of time this credit can be carried forward in the books/ returns. The only timeline is the one mentioned in respect of Section 37(1), which talks about uploading of the invoices. 

Thus, to conclude even if the vendor has not paid GST, the Company should be allowed to avail credit (even provisionally though) provided, the vendor has uploaded the invoice details which gets duly reflected in GSTR-2A report within the prescribed time limit. 

Ground 2: Refund Claims also processed basis uploads appearing in GSTR-2A 

As per Circular No. 59/33/2018-GST dated 4th September 2018, the Government has clarified that if the credit appearing in GSTR-2A, it is sufficient to process the claim of refund and submission of hard copy of invoice is not required.  The relevant extract of the Circular has been reproduced below: 

“2.3. 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-2Aas an evidence of the accountal of the supply by the corresponding supplier in relation to which the input tax credit has been availed by the claimant….” 

As per the Circular, the proper officer shall rely upon FORM GSTR-2A as an evidence of the accountable of the supply by the corresponding vendor in relation to which the input tax credit has been availed by the claimant. Thus, even for refund purposes, upload in 2A is the key criteria.

Ground 3: Order 02/2018-Central Tax dated 31st December 2018 that sets the time-limit for uploading of the invoices in the portal for the purposes of availing input credit 

The relevant extract of the Order has been reproduced below: 

“AND WHEREAS, the financial year 2017-18 was the first year of the implementation of the Goods and Services Tax in India and the taxpayers were still in the process of familiarising themselves with the new taxation system and due to lack of said familiarity….. 

as a result whereof certain difficulties have arisen in giving effects to the provisions of subsection (4) of section 16 and sub-section (3) of section 37;  

NOW, THEREFORE, in exercise of the powers conferred by section 172 of the Central Goods and Services Tax Act, 2017, the Central Government, on recommendations of the Council, hereby makes the following Order, to remove the difficulties, namely:– 

  1. Short title––This Order may be called the Central Goods and Services Tax (Second  Removal of Difficulties) Order, 2018.- 

In sub-section (4) of section 16 of the said Act, the following proviso shall be inserted, namely: 

Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.”.    

The above mentioned order has been with respect to last date for availment of input tax credit against the invoices pertaining to 2017-18 and not for clarifying the condition of availment of credit (i.e. to avail the credit, payment of tax should be made by vendor as mentioned section 16 (c) of CGST Act, 2017). However, given that this Order has been issued to remove difficulties faced by the industry for availing credit, it can be reasonably inferred that the intention of the Government has been to allow the Companies to claim credit the moment the corresponding invoice has been uploaded by the vendors in GSTR-1. This view gets further fortified by the fact that there is no specific provision requiring the Companies to verify as to whether payment of tax has been made by the vendor. 

Ground 4: Practical difficulty to verify the credit availed by the recipient against the payment of tax made by the vendor. 

One of the condition to avail the credit is that, the tax shall be paid by the vendor to the Government. Payment of tax is on the basis of GSTR-3B and not on the basis of GSTR-1. GST authority does not have a bifurcation of invoice wise details, against which vendor has made the payment through GSTR-3B. In the absence of such bifurcation, GST authority has to rely on the GSTR-2A, to compare the credit availment with the credit availed in GSTR-3B. Since the invoice is appearing in GSTR-2A of the Company, it can be argued that it can avail the credit. The only caution point is that this ground gets diluted if the vendor hasn’t filed 3B for that relevant tax period at all. However, as stated in the earlier paras, uploading of the invoices in the portal should suffice the requirement. 

Ground 5: GST portal currently not in a position to do tax payment level matching 

This issue would have been automatically addressed if GSTR-2 and GSTR-3 was functional. Since the GSTR-2 and GSTR-3 was not functional, the matching provision was not applicable and in the absence of such matching provision, one cannot identify, whether the payment of tax has been made by the vendor in respect of any particular invoice. Thus, for the time being, the only viable option is to rely upon uploaded data (whether submitted/ paid or not). 

Conclusion 

It can be argued that even though the substantive requirement of payment of tax by the supplier under Sec.16(2)(c) of CGST Act has not been satisfied (which does weaken the position of availing credit), the entire IT backbone/infrastructure as envisaged in Sec.37, 38, 42, 43 has failed to take-off, which made it impossible for the taxpayer to fulfil the procedure of taking credit. Thus, the credit should not be denied.

“The views in the article are authors’ personal and do not reflect the views of the organization, he is working for.”

Source: http://gstsutra.com/experts/column?sid=515#head