Unresolved issues of ITC

 

It is now  4 years since the groundbreaking legislation changed the whole landscape of indirect taxes in India. But, the GST law is far from perfect and the anomalies become more apparent as the days go by. The legislation at the outset had numerous gaps, and the numerous amendments have played their part in increasing those gaps.

 

An acute situation is where the taxpayer can satisfy the material conditions of availing Input Tax Credit (ITC) on one or the other inward supplies but is unable to avail either because the procedure is dichotomous or the procedure is not there at all due to "the gaps in the statute".

 

Cenvat Credit available dehors gaps in the statute

 

In a recent decision the Hon'ble Delhi CESTAT in Mammon Concast Pvt. Limited vs Commissioner of CGST -  in the context of Central Excise Rules, has held that where the manufacturer-appellant bought the goods on high seas, and even when the duty paying documents were in the name of the original importer, then also the appellant is eligible to take Cenvat Credit of the CVD/ SAD.

 

Further, the Cenvat Credit was also held to be eligible on the service tax charged by service providers, even though the invoice was issued by the service providers on the intermediary, who subsequently claimed reimbursements from the appellant. In the words of the CESTAT "credit cannot be denied for some gaps left in the statute".

The view taken by the Tribunal follows the bulk of decisions, wherein the Cenvat Credit was allowed sans claimant satisfying procedural conditions such as invoices in the name of employees, invoice particulars not clear, duplicate invoices, endorsed invoice, etc. Notwithstanding which all conditions are substantial or procedural, the views of the Courts are unanimously clear that the procedural conditions do not curtail substantial benefit

including the tax credit on inputs.

 

 

Filing the gaps in deserving cases

 

The Courts in most occasions refrain from supplying the gaps (casus omisus), but when a yawning gap in the Statute, in the considered view of the Court, calls for a temporary patchwork of filling up to make the statute effective and workable and to sub-serve societal interests a process of judicial interpretation would become inevitable [Ritesh Singh vs State of Uttar Pradesh 2019 SCConline SC 956].

 

If the Rules are mandatory and the assessee did not comply, he would not be entitled to claim the Cenvat credit. If however, the said Rules are directory, based on substantial compliance of the same by the assessee, no prejudice is shown to the revenue and then, the assessee would be entitled to avail Cenvat Credit [Sri Ram Pistons & Rings.

 

Gaps in the GST legislation: There are numerous examples of such glaring gaps under GST, to illustrate a few;

 

Import IGST paid post-facto: There are numerous situations where the Import IGST is paid after the assessment, such as IGST paid upon regularization of advance authorization/ EPCG, IGST paid in pursuance of SVB re-assessment, de-bonding on account of wasting norms, payment in pursuance of withdrawal of exemption, where the tax is paid discharged through challans.

 

Rules 36 (1) (d) specifies duty paid document for import either a bill of entry or a similar document provided under the Customs Act, 1962 for assessment  Essentially, under the Customs Act, the re-assessment is either through amendment [Section 149] or through appeal [Section 28, cue ITC Limited. So this leaves a gap in as much as IGST paid in situations covered above are not backed by 'specified' duty paying document.

 

Expenses via reimbursements: The customs intermediaries who work under the agency model procures services (transportation, handling, storage) on behalf of the importer/ exporter. The number of times, due to oversight, the invoices issued by the actual service providers either do not comply with invoice content requirements or are not uploaded in their Form GSTR-1 along with the GSTIN of the importer/ exporter. This can happen literally with all aggregators, leaving the importer/ exporter with ITC, but without proper duty paying document.

 

Endorsed invoices/ Invoices in the name of employees: The organization that wants to claim ITC on travel costs/ hotels have made it mandatory for employees to book airlines/ hotels through the shared portal or specified agencies. Why? Because employees in their regular course expend on behalf of the organization, but the vendors (in most of the cases) issues invoices in the name of employees. Additionally, there are numerous examples, where the invoices are endorsed by one unit of the organization to another organization.

 

Jointly procured assets/ services: In rare cases, the organizations incur shared costs for buying/ procuring shared goods/ services [generators, transformer, other utilities]. In most cases, the service providers/ sellers of common utilities are government agencies, who are not interested in issuing separate invoices for the individual recipients. Leaving the recipients, with the inability to claim ITC based on one common invoice?

 

Conclusion

 

All the above situations and many others have either resulted in the organizations unnecessary waiving of their rightful claims (where they have not claimed ITC) and for others, who have availed are bound to face objections from the revenue authorities.

 

It's not those dreaded battles like ineligibility on material conditions, it's those irritating things that one has the least control over. The revenue authorities time and again exploit the gaps left by the statute and propose tax demands. But, the decision of the Hon'ble Tribunal in Mammon Concast supra would facilitate those who have availed ITC in contesting their claim.