• Notification Date: 16-08-2023
• Notification No: N/A

GST: Actions taken against Fake ITC claims

Amid a successful ongoing GST drive to bust fake companies and bogus input tax credit (ITC) claims, reports have emerged of genuine companies having to suffer untoward consequences owing to data mismatch. 
 
In these cases, data mismatch between the GST filings of the buyer and the seller has left the former unable to claim ITC, a report said on August 14. 

ITC refers to GST credit for tax paid while buying goods or services to be used for business. One example of ITC is the GST paid on raw material. There is a provision to offset the ITC value in the tax liability of the buyer. 

Data mismatch has forced many genuine buyers to reverse their ITC claims. In case the buyer is a large company, the sum involved might run into crores of rupees. 
 
Most ITC issues arise from erroneous filing or non-filing by the supplier. In such cases, GST authorities conclude that the supplier has not paid the tax, Ankit Kanodia, an advocate, reported. When this happens, the taxman concludes that the buyer is not entitled to ITC against the purchase. 

According to Yusuf Hakim, indirect tax partner at CNK & Associates, "During GST audit, a common question relates to the reconciliation of ITC in the buyer’s Form GSTR 2A/GSTR-2B, with monthly returns uploaded by the dealer in Form GSTR 3B. In case of a mismatch, the buyer may be required to reverse the ITC arising from these mismatches." 
 
"A recent roll-out of the automated scrutiny mechanism has made buyers more prone to scrutiny and demands. It is a double whammy for genuine buyers as they have already paid the GST to the seller (as part of the invoice amount) and are made to pay it again, via a reversal of the ITC claim. Typically, an 18% interest and penalties, which can be up to 100% of the mismatched ITC figure, are also imposed," Hakim stated. 

In a recently ruling in the Suncraft Energy case, the Calcutta HC held that before demanding reversal of ITC from the buyer, the authorities must act against the seller. The court also brought up two press notes issued in 2018, which emphasised that "non-payment of tax by the seller does not automatically result in reversal of ITC in the buyer’s hands". 
 
However, according to report, amendments in the GST law have diluted the impact of this decision.  

"16(2) (aa) came into effect from 2022. It provides that a buyer is eligible for GST only if the supplier reports invoice details in its outward return (GSTR-1). This gets auto-populated in the buyer’s Form GSTR-2B," Kanodia, who represented the matter, told the newspaper.