Introduction:
The Goods and Services Tax (GST) authorities are currently conducting inquiries into the input tax credit (ITC) claimed by taxpayers in cases where the registration of their suppliers has been retrospectively cancelled. These inquiries have resulted in demand notices being issued, proposing the recovery of ITC, along with interest and penalties. This article examines the background of this issue and the views surrounding it.
Eligibility for Input Tax
Credit:
Section 16 of the CGST
Act outlines the conditions for the eligibility of ITC. Under Section 16(2)(c)
of the CGST Act, the payment of tax is an essential condition for the availment
of ITC. However, it is crucial to note that the validity or cancellation of a
supplier's registration is not an essential condition under the CGST Act for
the availment of ITC.
Impact
of Cancellation of Supplier's Registration:
Even where a supplier's
registration has been cancelled due to reasons such as failure to file GSTR-3B,
there is no mechanism available on the GST portal for taxpayers to determine
whether their supplier has paid tax to the Government or not. In the absence of
a stipulation for the validity of a supplier's registration, the ITC of
bona-fide taxpayers cannot be faulted due to the retrospective cancellation of
a supplier's registration where the recipient undertook due diligence, such as
checking whether the supplier's registration was valid at the time of
procurement.
Legal
Views on the Issue:
In the cases of LGW
Industries Limited v. UOI, 2021-VIL-868-CAL and Sanchita Kundu v. ACST,
2022-VIL-362-CAL, the Calcutta High Court held that ITC cannot be denied due to
the cancellation of a vendor's registration where the transactions took place
before the cancellation.
However,
in the case of ECom Gill Coffee Trading Pvt, a company that deals in green
coffee beans, the tax credit was denied despite the company presenting
invoices, cheques and other particulars of the transaction. The company was
denied tax credit on the ground that some of the sellers were de-registered and
the others failed to file returns and taxes as required.
Conclusion:
Taxpayers should be aware
of the impact of these developments as the issues and discussions revolving
around the eligibility of input tax credit may further increase the woes of
businesses that already find it onerous to claim it. It is crucial for
taxpayers to undertake due diligence and check the validity of their supplier's
registration at the time of procurement to avoid any retrospective
cancellations impacting their eligibility for ITC
1 comment:
Extremely apt article at this juncture. Very well presented 👏 👌
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