India stands in the fifth year of the Goods and Service Tax regime, while the assessees and CFOs are still facing problems. GST was executed to draw clarity to the system and prevent cascading effects of the taxes and seamless flow of the ITC.
One of the bigger problems beneath GST is the process of matching and reconciliation the ITC availed in the GSTR-3B with the information shown in the auto-generated GSTR-2A. GST act motivates the flow of ITC, while the government is providing the notices for the mismatches of the ITC to the assessee.
GSTR-3B is the self-declared tax summary for essential filing by the assessee for the monthly grounds giving the summary of the tax furnished on the outward supplies and the Input tax credit availed on the inward supplies.
GSTR-2A is a buying concern to the dynamic tax return that is automatically provided by the GSTN portal for every recipient. When the seller furnishes his GSTR-1, then the data gets auto-populated in the recipient GSTR-2A. The same pose details of the goods and services which has been bought in the mentioned month from his sellers GSTR-1.
Input Tax Credit Issues
With ITC, The industry faced the issue of the supplier with credit that everything must be shown in the credit ledger.
And if it is not reconciled then the ITC would not be provided, whose outcome will be the working capital that gets stuck.
Even a small clerical error or mismatch makes the credit gets stuck. The errors are not concerned with the tariff or the amount however it is concerned with the product numbers.
For instance, the tariff varies for a normal glass product and would be prescribed beneath the ABC number however processed glass or glass used on the device is prescribed beneath the XYZ product list which makes a big mismatch inside the system and the transactions would be held.
The auto industry gets hit the most which logs 20 cr transaction per annum between the recipient and the supplier for Rs 4000 cr. it chooses 6 to 8 months to fix the problem when a conflict arises.
The Latest ITC Rule
Through the asked omission of sections 42, 43, and 43A, the redundant provision has been ditched after 5 years. The government’s resolve to permit the ITC founded on credit matching has directed the introduction of rule 36(4) to limit the GST credits up to 5% of the qualified credit when the supplier is unable to follow, pointing to the essential cash flow restrictions to the assessee.
But the elimination of the old and the introduction of the new processes casts the obligation on the CFO or the finance professional to ensure supplier compliance before choosing the tax credits.
This seems to oppose the decisions of different courts in which it was held that the recovery of ITC from the recipient cannot be sought without first exhausting the remedy of recovery from the suppliers, who collected GST via recipient however losses to remit that to the government. The modification seems to reopen the controversy for new judicial review when the assessee was to challenge this as draconian, especially in the absence of any locus standi for the recipient to press the supplier to follow.
Under Section 41 of the CGST Act, every enrolled individual will be subject to these conditions and limitations as mentioned, be qualified to avail the credit of qualified input tax, as self-assessed, in his return and this amount would be credited on a provisional ground to his electronic credit ledger. But, since the process of uploading data in GSTR-2 has been stopped the process envisaged beneath Section 41 is not practically possible. moreover, section 43A of the CGST Act is not yet reported to be influential.
GST ITC Rejection After Defaulting of the Supplier
Denial of ITC on the default of the supplier in a violation of Article 14 of the Constitution.
The recipient is treated as a defaulter under Section 16(2)(c) of the CGST Act and on the identical footing as defaulting supplier, Section 16(2)(c) is totally in denial of the mandate included under Article 14 of the Constitution of India which inter alia delivers that the equals are to be treated equally, while it indeed lays down that the unequal must not be treated equally.
The Supplier Error in Not Uploading
Supplier error in not uploading / delay in filing / incorrectly filing returns Section 16(2)(c) read with Section 41 and Section 43A:
Under Section 16(2)(c) of the CGST Act, credit can be claimed for the tax paid by the vendor, the concerned provisions specified that:
“Subject to Section 41 and 43A of CSGT Act 2017, the tax charged in respect of such supply has been actually paid to the government, either in cash or through the utilization of GST input tax credit admissible in respect of the said supply.”
Section 16(2)(c) pointed to Section 41 and Section 43A. Section 41 of the CGST act furnishes the provisional claim of the credit and section 43A furnished the process of the claim of the credit in the mentioned way. The outcome of section 41 is specified as:
“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.”
Section 38 asks that an auto-generated statement will be created via government or portal, taking the information of the inward supplies on which the credit is available and the inward supplies on which the credit would not opt, for the supplier is in default or non-compliance. The modalities in the execution of this procedure are not available. Various clarifications are expected prior to the execution of the same revised credit claim process.
Drawing the Industry Views into Consideration
The views of the industry and the trade must seek to know the challenges of the daily business operations. While the government is forced to take tough measures to restrict the risk of bogus invoices, the assessees are not satisfied and sad with the additional load from the law. When the experience of the former 5 years is any indication, the success of the newly made procedure will majorly rely on the technological capabilities and capacity making.
An exemption in this whole proposal seems to be the facility to claim the tax credit when the supplier ultimately compiles, but it is not clear if the interest furnished by the assessee for the default of the supplier will be returned.
The government has intensified its commitment to minimum government and maximum governance. FM specified that “right balance between facilitation and enforcement has engendered significantly better compliance”
