22.08.2020
From
………………..
………………..
………………..
To
………………..
………………..
………………..
Sir,
Sub: Reply to
your Notice – ASMT 10, dated ……….. for the Period July, 2017 to March, 2018
– Direction for Reversal of ITC due to mismatch in GSTR 2A as compared to ITC
availed in GSTR 3B.
Ref: Notice
No: ……………… dated ………...
We
have been directed by the above-mentioned Scrutiny Notice to remit Rs. 32,924.00 (CGST Rs. 16,462.00 and SGST Rs.
16,462.00) due to mismatch in Input Tax Credit claimed by us in GSTR 3B and
ITC reported by our suppliers in our GSTR 2 A for the period July, 2017 to
March, 2018.
As
per your Notice, ITC availed by us in GSTR 3 B for the above period is Rs. 11,71,434.00
and ITC reported by our suppliers is Rs. 11,38,510.00 only. Due to this
mismatch, we are directed to explain the reason for the difference and also
directed us to pay the mismatch amount of Rs. 32,924.00 immediately.
The
demand of the mismatch amount, at present, is not legally correct due the
following reasons:
1.
We have availed Input Tax Credit in GSTR
3B as per the GST law and based on the valid Tax Invoices received from the
Suppliers and we have made payments to
the suppliers through proper banking channels. We are in possession of these
tax invoices. Therefore, the ITC claimed by us in GSTR 3B is valid and does not
require any reversal of ITC as directed in your notice.
2. As
per Section 41 of Central Goods and Services Tax Act, 2017, we are eligible to
claim ITC provisionally on self-assessment basis. The provisional credit so
availed shall be matched, as per Section 42(3), with the outward supply details
furnished by suppliers and the mismatch so identified, if not rectified by the
supplier, shall be added to the output tax liability of the recipient.
3. For
the purposes of Section 41 and 42, detailed rules are prescribed in CGST Rules, 2017. As per Rule 69, 70 and 71,
the mismatch of ITC shall be determined in the prescribed manner and cannot be
taken arbitrarily as mentioned in your notice.
4. Rule
69, 70 and 71 envisage that the ITC matching process entirely depends on filing
of GSTR 1, GSTR 2 and GSTR 3. The first proviso to Rule 69 specifically state
as follows: -
Provided that where the
time limit for furnishing FORM GSTR-1 specified under section 37and FORM GSTR-2
specified under section 38 has been extended, the date of matching relating
to claim of input tax credit shall also be extended accordingly
5. As
you are well aware, the matching process as per Section 42(3) will take place
only if the Return filings of GSTR 1, GSTR 2 and GSTR 3 are made active
together. Till date, GSTR 1 is only made active and GSTR 2 and GSTR 3 are not
yet made active and therefore, the matching process envisaged in Section 42(3)
is not operational. Accordingly, as per first proviso to Rule 69, the matching
process shall be extended till GSTR 2 is made operational and active.
6. Based
on above, since matching envisaged in Section 42(3) is not made operational at
present, the reversal of ITC, as directed in your scrutiny notice, is not
legally valid.
7. We
further wish to submit that, vide Notification No: 49/2019 Central Tax Dated 09.10.2019,
Rule 36(4) was inserted with effect from 9th October, 2019. Rule
36(4) is reproduced below: -
(4) Input tax credit to
be availed by a registered person in respect of invoices or debit notes, the
details of which have not been uploaded by the suppliers under sub-section (1)
of section 37, shall not exceed 20 per cent of the eligible credit available in
respect of invoices or debit notes the details of which have been uploaded by
the suppliers under sub-section (1) of section 37.
8. The
limit of 20% in Rule 36(4) was subsequently reduced to 10%, vide Notification
No: 75/2019 Central Tax Dated 26.12.2019, with effect from 01.01.2020.
9. As
can be seen from the above Rule 36(4), even now, we are eligible to avail ITC
on invoices which were not uploaded by the suppliers subject to the condition
that the mismatch shall be within the limit of 20%/10% of ITC reflected in GSTR
2 A. The Rule 36(4) is made effective only on 09.10.2019 and not applicable
retrospectively.
10. CBIC
Circular No: 123/42/2019 -GST dated 11.11.2019, vide Sl. No: 1, have clarified
that the restriction of Rule 36(4) will be applicable only on the invoices and
debit notes on which credit is availed after 09.10.2019.
11. In
your notice, we are directed to reverse ITC availed by us due to mismatch
between ITC availed in GSTR 3B and ITC reported in GSTR 2A. The Notice is
issued to us based on the wrong interpretation of law that ITC is available
only if ITC is reported in GSTR 2 A even for Financial Year 2017-18. This is
not legally correct. If this interpretation is accepted, then, what is the
purpose of newly inserted Rule 36(4) in CGST Rule, 2017?
12. We
bring to your kind notice the following extract from the 37th GST
Council Meeting held on 20th September, 2019: -
Agenda
Item 7(iv): Restrictions in availing input tax credit in respect of outward
supplies not furnished under Section 37 of the CGST Act, 2017
22.
The Co-Convenor of the Law Committee introduced the agenda and stated that
there was a large gap in filing of FORM GSTR-1 and FORM GSTR-3B which resulted
in huge unmatched credits. In absence of matching, the taxpayer availed ITC in
FORM GSTR-3B on self-assessment basis without any restriction or in relation
with the ITC reflected in his FORM GSTR-2A. With a view to impose reasonable
restriction (to encourage the suppliers to file GSTR-1 ), the Law Committee
recommended that ITC allowed to a registered taxpayer in respect of those
invoices, the details of which have not been uploaded by the supplier as required
under sub-section (1) of Section 37 of the CGST Act i.e. which is not reflected
in FORM GSTR-2A shall not exceed 20% of the eligible credit available in
respect of invoices and debit notes, the details of which have been uploaded by
the supplier under Section 37(1) of GST Act. The Advisor (Financial Resources)
to the Chief Minister of Punjab wondered as to whether the restriction imposed
was supplier wise or on the total credit available. The Co-Convenor, Law
Committee clarified that it was with respect to the total credit available and
the wording would be changed accordingly (by the suppliers). The Additional
Chief Secretary (E&T), Haryana stated that the credit may not be restricted
and instead the existence of the supplier should be verified in a fixed time
frame. He added that if the decision was in favour of the proposal then it was
acceptable to him. The Hon'ble Minister from Bihar stated that by this proposal
the genuine taxpayers who were availing ITC on the basis of FORM GSTR-3B were
being encouraged to file FORM GSTR-1. The Hon'ble Minister from Odisha
suggested that there should be a check in GST System where a registered
taxpayer should not be allowed to file FORM GSTR-1 unless he/she had file FORM
GSTR-3B in previous month.
23.
For Agenda item 7(iv), the Council recommended imposition of restrictions such
that ITC allowed to a registered taxpayer in respect of those invoices, the
details of which have not been uploaded by the suppliers as required under
sub-section (I) of section 37 of the CGST Act i.e. which is not reflected in
FORM GSTR-2A shall not exceed 20% of the eligible credit available in respect
of invoices and debit notes, the details of which have been uploaded by the
suppliers under Section 37(1) of CGST Act . The Council also approved that
suitable notifications shall be issued after due vetting by the Union Ministry
of Law and that pari materia changes shall be carried out in the SGST Rules.
As
can be seen from the above extract of the minutes, the reasonable restriction
on availment of Input Tax Credit on the
basis of mismatch between data in GSTR 3B and GSTR 2 A is applicable only
prospectively and not applicable for Financial Year 2017-18 as alleged in your
notice.
13. We
bring to your kind notice the relevant CBIC Circulars which clarified that
reporting of invoices in GSTR 2A is not mandatory during the Financial Year
mentioned in your notice.
14. We invite your attention to CBIC Circular No:
59/33/2018-GST Dated 04.09.2018 in which it is stated as follows: -
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-2A as 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. It may be noted that
there may be situations in which FORM GSTR-2A may not contain the details of
all the invoices relating to the input tax credit availed, possibly because the
supplier’s FORM GSTR-1 was delayed or not filed. In such situations, the proper
officer may call for the hard copies of such invoices if he deems it necessary
for the examination of the claim for refund. It is emphasized that the
proper officer shall not insist on the submission of an invoice (either
original or duplicate) the details of which are present in FORM GSTR-2A of the
relevant period submitted by the claimant.
15. We invite your attention to Para 36 in CBIC
Circular No: 125/44/2019 GST dated 18.11.2019, the relevant part of which is
extracted below for your easy reference: -
Guidelines for refunds of unutilized
Input Tax Credit
36.
Applicants of refunds of unutilized ITC, i.e. refunds pertaining to items
listed at (a), (c) and (e) in para 3 above, shall have to upload a copy of FORM
GSTR-2A for the relevant period (or any prior or subsequent period(s) in which
the relevant invoices have been auto-populated) for which the refund is
claimed. The proper officer shall rely upon FORM GSTR-2A as an evidence of the
accountal of the supply by the corresponding supplier(s) in relation to which
the input tax credit has been availed by the applicant. Such applicants shall
also upload the details of all the invoices on the basis of which input tax
credit has been availed during the relevant period for which the refund is
being claimed, in the format enclosed as Annexure-B along with the application
for refund claim. Such availment of ITC will be subject to restriction imposed
under sub-rule (4) in rule 36 of the CGST rules inserted vide Notification No.
49/2019-CT dated 09.10.2019. The applicant shall also declare the eligibility
or otherwise of the input tax credit availed against the invoices related to
the claim period in the said format for enabling the proper officer to
determine the same. Self-certified copies of invoices in relation to which
the refund of ITC is being claimed and which are declared as eligible for ITC
in Annexure – B, but which are not populated in FORM GSTR-2A, shall be uploaded
by the applicant along with the application in FORM GST RFD 01. It is
emphasized that the proper officer shall not insist on the submission of an
invoice (either original or duplicate) the details of which are available in
FORM GSTR-2A of the relevant period uploaded by the applicant.
16. We
also bring to your kind notice CBIC Circular No: 135/05/2020 - GST dated
31.03.2020. The relevant para of the circular is given below:-
5.
Guidelines for refunds of Input Tax Credit under Section 54(3)
5.1
In terms of para 36 of circular No. 125/44/2019-GST dated 18.11.2019, the
refund of ITC availed in respect of invoices not reflected in FORM GSTR-2A was
also admissible and copies of such invoices were required to be uploaded.
However, in wake of insertion of sub-rule (4) to rule 36 of the CGST Rules, 2017
vide notification No. 49/2019-GST dated 09.10.2019, various references have
been received from the field formations regarding admissibility of refund of
the ITC availed on the invoices which are not reflecting in the FORM GSTR-2A of
the applicant. 5.2 The matter has been examined and it has been decided that
the refund of accumulated ITC shall be restricted to the ITC as per those
invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and
are reflected in the FORM GSTR-2A of the applicant. Accordingly, para 36 of
the circular No. 125/44/2019-GST, dated 18.11.2019 stands modified to that
extent.
17.
As is evident from the above CBIC
Circulars, the availment of ITC to the extend of ITC reflected in GSTR 2 A is
effective only from 31.03.2020. (I.e, the date of CBIC Circular No: CBIC
Circular No: 135/05/2020 - GST dated 31.03.2020)
18. Based
on above legal provisions, your Scrutiny Notice directing to pay Rs. 32,924.00 (CGST Rs. 16,462.00 and SGST
Rs. 16,462.00) due to mismatch in Input Tax Credit claimed by us in GSTR 3B
and ITC reported in our GSTR 2 A for the period July, 2017 to March, 2018, is
legally not correct.
19. We
also request you to drop the proceedings initiated through the above scrutiny
notice.
Yours Truly,
For XXXXXXXXXXXX
Managing Partner.
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