GST Daily

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Today’s newsletter analytically summarizes the top GST stories reported at?taxmann.com .

Rejection of revocation application solely on ground of delay in moving such application is not sustainable: HC

Umesh Kumar v. State of U.P. - [2023] 147 taxmann.com 208 (Allahabad)

The department issued SCN to the petitioner due to the non-filing of returns, which remained unattended. Thereafter, an order was passed, and the GST registration of the petitioner was cancelled. It filed an application for revocation of cancellation after filing returns, but the same was rejected. The appeal was also rejected merely on the ground that the application was time-barred. It filed a writ petition and contended that it deposited tax amount and applied for revocation of cancellation of registration, but the application seeking revocation was rejected though returns were filed.

The Honorable High Court noted that the revocation application was rejected on grounds that the return was not filed within the time and the revocation application was time-barred. As per records, the petitioner deposited the entire tax & filed returns. Once the department accepted the returns and there would remain no dues then the department should not obstruct the business of an assessee. Moreover, the Act and rules are brought to see that business is run smoothly and is not hampered by the intricacies of the provisions of the Act. Thus, it was held that the action of rejecting registration solely on grounds of delay in moving the revocation application was not sustainable.

Decoding amendments to provisos to Section 16(2)

Surbhi Premi & Akshi Narula - [2023] 147 taxmann.com 207 (Article)

The Goods and Services Tax law provides for safeguard to the supplier by denying the benefit of ITC to the recipient where he fails to pay consideration within 180 days. However, the ramifications of the provision have been haunting genuine recipients since the inception of the GST law.

The Finance Bill 2023 proposes to amend the second proviso to Section?16(2) ?of the CGST Act to provide that where the recipient fails to pay to the supplier, the amount towards the value of supply along with tax payable within 180 days from the issue of invoice by the supplier, an amount equal to ITC availed by the recipient shall be paid by him along with interest payable under Section?50 ?in such manner as may be prescribed.

Hence, where the recipient has an obligation to pay and does not make the payment within 180 days from the date of invoice, he shall be required to pay or reverse the amount of value not paid and proportionate ITC along with interest.

The existing provision states that the aforesaid amount equal to ITC availed by the recipient shall be added to his output tax liability along with interest thereon.

According to the Memorandum explaining the provisions in the Finance Bill, 2023, the said amendment has been brought in order to align the said sub-sections with the return filing system provided in the said Act. However, it is imperative to note that the words 'shall be added to his output tax liability' have been substituted.

A. Pay or reverse the amount of value and proportionate ITC

• For understanding the purpose of the aforesaid change, the changes to the corresponding Rule 37 of the CGST Rules are to be noted. The said rule before its substitution w.e.f. 01.10.2022, stated that ITC on account of delay in payment was to be added to the output tax liability of the recipient for the month in which the amount of value not paid, and proportionate ITC is furnished in GSTR-2. The same was substituted and now states that the recipient shall 'pay or reverse' such proportionate ITC while furnishing GSTR-3B.
• Meaning thereby, it was only after the above amendment that Rule 37 clearly specified that ITC, on account of delay in payment, was to be reversed/paid in GSTR-3B.
• However, even in light of the same, the existing provision was not amended to the said effect to incorporate an enabling clause stating that the recipient shall 'pay or reverse' the said ITC.
• Also, Table 4 of the GSTR-3B was amended?to provide for reporting of reversal of ITC in case of failure to make payment to the supplier within 180 days from the date of invoice under Table 4(B)(2) of GSTR-3B.

The unamended provision was requiring the amount to be added to output tax liability instead of payment/reversal. The proposed amendment has aligned the provision with the format of return to provide for reversal.

B. Interest payable under Section 50

• Presently, the second proviso does not specify the charging provision under which interest is to be levied and computed on account of delay in payment of the amount towards the value of supply along with tax payable. However, Rule 37 provides that interest for the said purposes is to be computed under Section 50.
• It is a settled position of law that interest can only be charged or recovered where a specific enabling provision with respect to the applicability of interest is present in the statute.
• In this background, certain taxpayers were contending that interest cannot be levied on delay in payment of the amount since the second proviso to Section 16(2) does not provide for a charging provision under which interest can be levied.
• The Finance Bill 2023 proposes to amend the second proviso to Section 16(2) to insert an enabling provision to state that an amount equal to ITC availed by the recipient shall be paid by him along with interest under Section 50.

It needs to be seen whether post amendment, Section 50 can be made applicable where ITC has been availed and is proposed to be reversed due to non-payment of consideration within 180 days.

Section 50(3), amended retrospectively from 01.07.2017?by the Finance Act, 2022, read with Rule 88B, provides for payment of interest where ITC has been "wrongly availed and utilised".

Hence, in light of Section 50(3), one may argue that no interest shall be charged where ITC is availed & reversed later without utilizing it against output tax liability.

C. ITC available on payment made to Supplier

The third proviso to Section 16(2) has been amended to state that the recipient shall be entitled to avail ITC on payment made by him 'to the supplier' of the amount towards the value of supply along with tax payable thereon.

'Supplier' has been defined under Section?2(105) ?of the CGST Act to mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both.

It is to be noted that there are certain instances where payments are made to persons other than 'to the supplier', such as payment made to third persons on the instruction of the supplier, netting off of payments, assignment of receivables, etc.

The scope of the said amendment needs to be clarified so as to make the bona fide recipients eligible for ITC in such cases.

Way Forward

It appears that the purpose of the amendment is to incorporate enabling provisions, first, to specify that ITC was to be reversed/paid in Form GSTR-3B and second, to charge interest under Section 50 for the delay in making payment to the supplier.

Therefore, it is imperative to revisit the positions taken in the past in this regard.

That’s it from us for today! Stay Tuned for more updates from?Taxmann.com.

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