APRIL 22, 2020

By Abhijit Saha

IT is said that input tax credit (ITC) is a benefit given to the assessee for optimizing the payment of tax. The question is whether such statement is true or not. If one sees the taxation policy, then it is loud and clear that since inception, the object and purpose of legislation is to levy tax on value addition only so that there is no double taxation by way of cascading of tax. Hence it is very clear that ITC is not a concession to the assessee but an integral part of the taxation law. The integration of the ITC in the grain of taxation law is as important and indispensable as the levy of tax itself.

In view of the above macro-economic position of tax law, the right to enjoy the credit is as important and significant as the responsibility to pay the tax. Once the supplier has charged the tax and the recipient has paid the said tax to the supplier, then the legal responsibility of the recipient is complete on an overall basis. The eligibility to avail the credit and utilize the same should be based on that.

However, section 16(2)(c) of the CGST Act, 2017 states that recipient cannot avail the credit unless the tax is paid by the supplier. The second proviso to Section 16(2) also stipulates that the payment to the supplier should be made by the recipient within 180 days from the date of issue of the invoice. Hence both the supplier must pay tax as well as the recipient must pay the supplier.

The most striking feature of the above scheme is that although the revenue is not affected, still there is an insistence that the recipient must pay the supplier. If the recipient must pay the supplier and the recipient has paid the supplier, then why the credit should be denied for the lapse of the supplier. If revenue protection is the sole intention, then what is the purpose of mandating the recipient to pay the supplier? Moreover, the protection of the revenue should be by ensuring supplier to pay as the liability is on the supplier. The law cannot deprive the recipient only because the supplier is not caught. So long as the recipient has paid the supplier, the recipient is out of pocket. Law should not deprive him the right to avail the credit to the extent he has paid to the supplier.

The procedural laws to check the leakage of revenues are okay as long as it does not impinge on the bonafide rights of the recipient. The leakage of the revenue is to be plugged at its source and not at the other end of the pipeline. Such procedural measures affect the bonafide rights of the recipient and is in violation of the provision of Article 14 read with Article 19(1)(g) of the Constitution of India.

In view of the above, the stipulation in Rule 36(4) of the CGST Rules, that the assessee can avail 110% of the matching credit is itself an unlawful mechanism. For example, if the supplier has charged Rs.200/- as tax and uploaded Rs.100/- in GSTR-2A as tax paid, and the recipient has paid the supplier Rs.200/- towards tax, then as explained above, the recipient has discharged his responsibility to the extent possible for him and required under the GST law as well as the law of contract. Then there is no justification to restrict the credit to Rs.110/- only because the supplier cannot be caught by the government. The mechanism to plug the revenue leakage should be stringent at the source and not elsewhere.

The Government vide Notification No. 30/2020-Central Tax dated 3 April 2020 has inserted a Proviso under Rule 36(4) of CGST Rules. The relevant extract of Rule 36(4) of CGST Rule along with newly inserted Proviso is reproduced below:

It is evident, that the above proviso is introduced to give the assessee, the procedural benefits due to the unforeseen emergency prevailing now.

Generally, when a benefit is given, it should not be given at the cost of an incremental adversity. It is like giving a benefit by one hand only to be taken back in another form, by another hand. Hence in the given circumstances, as per the principles of law, there should not be any interest charged to the assessee because of the deferral schemes introduced. If that is done, then the object and purpose of the benefit schemes would be defeated in addition to it being in violation of the provision of Article 14 read with 19(1)(g) of the Constitution of India.

[The views expressed are strictly personal.]