In a regulatory filing, the Pharma company Dr Reddy’s Laboratories Ltd was reported saying that it has received a tax demand notice from the Additional Commissioner of Central Tax, Hyderabad GST Commissionerate with a total penalty (plus interest) of Rs 74.22 crore. The said demand was issued in response to the company’s recent incorrect availing of input tax credit.
The demand order has been passed by the GST authority on the basis that the company failed to reverse the input tax credit that was wrongly availed by it under provisions of the CGST/SGST/IGST Act, 2017. The original tax amount, which was Rs 67,47,37,495, is reportedly liable for an additional interest or penalty of Rs 6,74,73,752, taking the total liability of the company to over Rs 74 cr.
The pharma giant, however, denied the liability and said that it is ready to file an appeal in response to the notice received. “The company will file a necessary appeal with the appellate authority in this regard,” Dr Reddy’s said. It further added that the demand notification of GST doesn’t, in any way, impact the regular operations or financials of the company.
What does the Wrong Availment of Input Tax Credit Under GST mean?
Under GST, businesses are allowed to claim an Input Tax Credit (ITC) for the goods & services tax (GST) paid by the company on business purchases of taxable supplies, i.e. products or services on which they have paid tax. Wrong availing of ITC means a business has claimed or availed of ITC when they were not entitled to do so according to GST rules.
Here are some Common Scenarios where Businesses Wrongly Avail of ITC:
ITC on exempt supplies: ITC claims on supplies that are exempt from GST are considered wrong.
ITC on personal expenses: Businesses can only claim ITC on expenses made for business purposes and not on personal expenses.
Mismatched ITC: If there’s a discrepancy between the ITC claimed by the business and the GST paid by them per the supplier’s invoice due to human or technical errors or intentional manipulation, the claim might be rejected.
ITC on fake invoices: Using fake or invalid invoices of purchases that were never made to claim ITC is considered illegal and liable for penalty.