Introduction
The Goods and Service Tax (GST) was and is a transformation change implemented in July 2017 with an aim to subsume various taxes and allow a seamless flow of credit. Doing away with various points of taxation, GST introduced the simple “Supply” as a concept to trigger the taxation.
Even after almost 5 years into GST, Input Tax Credit (ITC) is constantly undergoing a change. Sec 16 of the CGST Act, 2017 provides for the conditions to be fulfilled for availing the input tax credit.
The Central Board of Indirect taxes and Customs (CBIC) has initiated Computed Assisted automated selection of returns under GST., specifically aiming to mitigate the risks laid on claiming ITC.
The Revenue Department has been preparing itself and its officials to undertake GST scrutiny in a professional way and is now introducing a Standard Operating Procedure. The increase in in GST revenues and the regular detection of ITC frauds are proof that GST department has acquired technical skills in the last few years and is much equipped to undertake scrutinies.
The CBIC has issued Instruction No. 02/2022-GST vide file no. CBIC-20006/4/2022-GST dated 22 March, 2022 with regard to Standard Operating Procedure (SOP) for Scrutiny of returns for FY 2017-18 and 2018-19. It refers to the Section 61 of CGST Act read with Rule 99 of CGST rules which provides for scrutiny of GST returns and related particulars.
The Directorate General of Analytics and Risk Management (DGARM) was set up in July 2018, to provide intelligence inputs and carry out big data analytics to assist the tax officers for better policy formulation and to keep a check on the tax evaders. They have in fact earlier last week rolled out (internal) parameters to be analysed for identified GSTNs with a specific focus on Input Tax Credit availment.
As India is progressing, the Government is infusing artificial intelligence and technology in its day to day activities. DGARM will also play a major role scrutinising the returns and identifying the discrepancies. The Authorities also aim to reduce the interface to minimum.
With the above mega verification which is going to put India Inc., under a microscopic scrutiny, we have shared our thoughts on the issue by setting out the contours of ITC and of course what needs to be done and how we can help in the process.
Basic Contours of Input Tax Credit (ITC)
With the above mega verification which is going to put India Inc., under a microscopic scrutiny, we have shared our thoughts on the issue by setting out the contours of ITC and of course what needs to be done and how we can help in the process.
Basic Contours of Input Tax Credit (ITC)
The primary condition that is to be satisfied for entitlement of any ITC under GST is that the goods, services, or both should be used or intended to be used in course and furtherance of business.
If the supply qualifies the above, it needs to be examined whether it satisfies the pillars of eligible ITC given below:
1. Possession of valid GST invoice/debit note, or such other documents prescribed including Self invoice, Bill of Entry, Documents issued by ISD.
2. Receipt of Goods or Services
3. Tax charged in respect of supply has been paid to Government
4. Taxpayer has furnished prescribed returns
Further conditions are imposed on ITC apart from the above such as:
• Payment of vendors made within 180 days from the date of invoice.
• No depreciation is claimed on ITC component.
• Time limit for availment of ITC.
Notification 39/2021 was issued on 21 Dec 2021, the same was to come in effect from 01 Jan 2022. The inclusion of the above clause from 01 Jan 2022 would be deemed to have been inserted from 01 Jul 2017.
The section 109 seeks to insert a clause adding an additional condition to the restrictions on availment of ITC set out in section 16(2) of CGST Act, 2017. The relevant extract is below:
“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37”
This essentially means that the registered person shall claim the ITC only if such details have been furnished by the supplier in his Form GSTR 1 and the same has been communicated to the registered person vide Form GSTR 2A/2B. Therefore, this restricts the condition for availment of such input tax credit to the extent of such credit being communicated to the registered person.
Therefore, as based on the above reading we can conclude, that the ITC can be availed on invoices or debit notes and the same is reflected in the supplier’s outward return and communicated to the recipient (GSTR 2A/2B), and is possession of such invoice, has received the goods or services, the tax liability has been discharged to the government and the same has been furnished through the returns.
GSTR-2A and GSTR-2B and fundamentally different, even though they show similar data. GSTR-2B is a static statement and will be made available for each month on the 14th day of the succeeding month (earlier it was generated on 12th day of the succeeding month). For example, for the month of July 2020, the statement will be generated and made available to the registered person on 12th August 2020.
GSTR-2B for a month (M) will contain the details of all the document filed by his suppliers in their respective GSTR-1, 5 and 6 between the due date of furnishing of GSTR-1 for previous month (M-1) to the due date of furnishing of GSTR-1 for the current month (M). For example, GSTR-2B generated for the month of July 2020 will contain the details of all the documents filed by suppliers in their GSTR-1, 5 and 6 from 00:00 hours on 12th July, 2020 to 23:59 hours on 11th August 2020. Presently after the 2B generation date was changed, the same methodology will be followed, except for the fact that data from 00:00 hours on 14th to 23:59 hours on 13th of next month will be considered.
Further, the documents furnished by the supplier in any GSTR-1, 5 and 6 would reflect in the next open GSTR-2B of the recipient irrespective of the date of issuance of the concerned document. For example, if a supplier furnishes a document INV-1 dt. 15.05.2020 in the FORM GSTR-1 for the month of July 2020 filed on 11th August 2020, the details of INV-1, dt. 15.05.2020 will get reflected in GSTR-2B of July 2020 (generated on 12th August 2020) and not in the GSTR-2B of May 2020.
Based on the above, GSTR-2B would be the advised document to identify the total amount of ITC to be considered for Rule 36(4). However, care should be exercised to ensure that only those invoices having ITC which are eligible under GST can be availed. Availment of ITC available in 2B without application of mind would lead to excess availment of ITC.
Since GSTR-2B is not available for a major part of months where Rule 36(4) is applicable, GSTR-2A may be used. However, all invoices pertaining to each month will have to be extracted separately (at least identified separately) for the computation of amount of ITC to be availed. The requirement to identify ITC which is eligible holds good here as well.
With the introduction of the above measure, it is very important that India Inc. gear itself for the assessments coming its way. It is very important to understand that the way the GST laws have been framed especially in relation to ITC availment is vastly different from the way ITC laws were contoured in the legacy laws, say the Service tax or Central Excise and it is very important to India Inc., as well to shed the mindset of what was available before and to focus on the eligibility and entitlement of ITC in the GST ecosystem.
Right before the implementation of GST and during the handholding of transition to GST and thereafter, as Individuals and for the last two years at Novello, we have always been advocating the importance of being cautious about the availment of ITC as well as to do a very vibrant Vendor Management System to ensure that clients are always on the right side of the law. We have always stressed the important of GSTR 2A/2B for the purpose of availing credit and how the same should function in symphony with GSTR 3B.
As part of the measure, we have been supporting our clients in providing assistance with GSTR 2A/2B Reconciliation even prior to the announced of such scrutiny.
We would be happy to connect and take this discussion forward to understand the importance to undertaking this activity at an Early stage. Please contact NV Raman at +91 97038 03250 or [email protected].