[Opinion] Why Reversal of ITC for the Tax Period from 01-07-2017 to 01-10-2022, When Supplier Has Not Paid to Government

S.V.S. Raghavendra Rao & S.V.S.N. Sasidhar Rao – [2023] 156 taxmann.com 631 (Article)

Section 41(2) of GST came in to effect from 01-10-2022

GST Section 41 (2) The credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest, by the said person in such manner as may be prescribed: (Added vide Finance Act No 6/2022 Dt 30/03/2022). By Notification 18/2022 effective from 01-10-2022.

AND Rule 37A came in to effect from 26-12-2022.

CGST/SGST Rule 37A. Reversal of input tax credit in the case of non-payment of tax by the supplier and re – availment thereof. (This rule was inserted by notification No 26/2022-CT Dt 26-12-2022 with effect from 2022, December 26th.)

Hence the recipient is not obligated to reverse the input tax credit claimed based on tax invoice supplied by the supplier till 01-10-2022. And the input tax credit is a concession given to the recipient by the act and can claim on self-assessment based on tax invoice. No obligation can be kept on recipient to check that the tax paid to supplier has been remitted to government of not, since the supplier is an authorized agent to government to collect tax from the recipient.

Primary Conditions to Claim Input Tax Credit Under GST

Section 16 (1) – Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specifed in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 41 – Claim of input tax credit and provisional acceptance thereof – (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger.

Therefore, it is pertinent to note that when the GST acts mandates the Buyer/Recipient to pay related tax to the supplier on his inwards supply of goods or services. And such amount of tax paid to the supplier is a legitimate credit to the buyer/recipient. Accordingly the recipients have claimed the input tax credit based on payments made to supplier along with tax. Hence no tax is payable by recipient as if he is the supplier. Other than the liability under RCM.

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