OCTOBER 22, 2018

By Pritam Mahure, CA

THE entire movement towards GST was with an underlying assumption that in GST there will not be any tax cascading and credit will flow seamlessly. It is pertinent to note that input tax credit (ITC) is heart of GST regime.

GSTR-3B for the month of September 2018 appears to be the return which will effectively finalise/freeze most critical details, including input tax credit, of FY 2017 - 18.

Law

Section 16 of CGST Act, inter-alia, states that the buyer can claim ITC provided the vendor deposits GST as well as files GST return under section 39 (one can contend that return referred in section 16 is GSTR-3 - which is yet to be made operational yet and not GSTR-3B!).

Effectively, through this provision, the GST payer is burdened with the responsibility of ensuring that all their vendors pay GST and file returns. Casting such onerous condition on GST payer (and for that matter on every GST payer) leads to un-manageable burden.

GSTN glitches

Earlier, to ensure the ITC to GST payer, the GSTN had created a work-flow which involved filing of GSTR-1, GSTR-2 and GSTR-3. However, given initial portal glitches, the Government made available to the business GSTR-1 and GSTR-3B.

It may be noted that the dismantling of the detailed process took away the right of the GST payer to view, on continuous basis, and take credit basis uploaded GST invoices.

Challenges from vendor side

At present, the ITC is availed by the GST payer on self-assessment basis in the GSTR-3B. However, although, filing of GSTR-2 is kept in abeyance, still there is requirement to reconcile GSTR-3B with auto populated GSTR-2A for nine months (from July 2017 to March 2018).

Additionally, while the due date for filing GSTR-1 has been extended upto 31 st October 2018, its incorrect to expect credit finalisation till 20th October 2018.

GST payer is able to view/download the GSTR-2A in Excel only recently, from mid-August 2018 (earlier it was only viewing facility - which was of no use to large taxpayers). Further, the details were downloadable in monthly format whereas the credit was appearing in subsequent months.

How GST payer is penalised without his fault?

The reconciliation between GSTR-3B and GSTR-2A reveals three aspects:

1.  Vendor has not filed GSTR-1

2.  Vendor has filed GSTR-1 and credit is appearing in the buyers GSTR-2A but vendor has not deposited GST

3. Vendor has filed GSTR-1 and due to technical glitches, credit is not appearing in the buyers GSTR-2A

As regards, sr. no. 1 above, its pertinent to note that except follow-up with the vendor, the GST payer is not able to proceed further. Real challenges are faced by GST payers in case of one-time vendors (as it is difficult to trace the missing vendors). The GST law does not enable the buyer to issue notices/summons to recover the GST un-paid by vendor and thus denies natural justice.

As regards, sr. no. 2 aforesaid, how the buyer understand whether the vendor has deposited GST or not (in the downloaded file). As regards, sr. no. 3, how can buyer be expected to resolve the GSTN technical glitches.

Also, the entire mechanism of denial would have worked if the envisaged system of ITC matching (Form GSTR-2 and GSTR-3) was made operational and now making it applicable retrospectively for FY 2017 - 18 is unjust.

Further, neither the GST Authorities made the GST Compliance Rating (refer section 149 of CGST Act) of the vendors available to enable the buyer to make informed decision about vendors.

Also, even at present there is no mechanism provided to intimate the GST Authorities regarding GST non-payers or non-filers or missing invoices.

Additionally, the GST Authorities are yet to initiate actions against non-compliant vendors or de-register them.

Will denial of credit mean recovery for Government?

It is pertinent to note that denial of credit may not tantamount to 'recovery' of GST for Government, particularly in cases where the credit was anyways covered in 17(5) of CGST Act (i.e. negative list of credits). Thus, in such cases denial of credit will not serve any purpose to the Government. 

Will this credit denial have political ramification?

Loss of credit (due to mis-match) even if assumed to be 7.50% may mean GST revenue of INR 30,000 crore per month (7.50% of 4 lacs crore credit claimed p.m. as per new reports) from the genuine GST payers pockets (than defaulting suppliers).

With approaching general elections, it won't come as a surprise if the credit denials will be taken-up by the political parties to highlight prejudice or injustice against honest/ bonafide buyers in GST.

What the GST payer should do?

In case GST payer intends to claim ITC, even though its not appearing in the GSTR-2A, then to mitigate the allegation of suppression, GST payer should submit a letter (reproducing the aforesaid analysis, list of claimed credit, list of missing credit etc) with the jurisdictional CGST/ SGST Authorities and email the same to GSTN.

What the GST Authorities should do?

On 18th October a Press Release was issued states that '… last date for availing ITC in relation …July, 2017 to March, 2018 is ... 20th October, 2018' . It also further states that 'The apprehension that ITC can be availed only on the basis of reconciliation between FORM GSTR-2A and FORM GSTR-3B conducted before the due date for filing of return in FORM GSTR-3B for the month of September, 2018 is unfounded as the same exercise can be done thereafter also.' That means the Authorities wants the GST payer to avail credit now and reconcile late. This may well mean subsequent reversal with interest even though the GSTN was unable to provide matching/ mis-matching for FY 17-18 even upto August 2018!

The extension of GSTR-3B upto 25th October 2018 will help non-filers and filers will suffer as GSTR-3B cannot be modified. Now, after 15 months in GST regime, the GST payer expects the Authorities to anticipate the challenges than resorting every time on quick-fixes.

As all the returns as well as e-way bills are filed online, enabling the GST Authorities to track non-payers / non-filers, appropriate proceedings should be initiated against the vendors than penalizing the bonafide buyers.

(The Author was supported by CA Sachin Totla, Sr. Manager, Pritam Mahure and Associates. The views expressed are strictly personal)