Input Tax Credit (ITC) : A question of concern to the taxpayer

[Ganeshan Kalyani]

The Input Tax Credit (ITC) is a privilege given to the taxpayer by the Govt. The taxpayer is thankful for it but the condition put forward (by the Govt.) for enjoying it is not simple. The taxpayer has to ask himself a lot of questions as to whether he should claim ITC as per his books of accounts or as per GSTR-2A or as per GSTR-2B or as per rule 36(4) or simply when he fulfills the conditions laid down under section 16 of GST Act. Looking into these questions it makes the taxpayer to think that GST though Good but the compliance is certainly not Simple. 

In my view, the taxpayer should claim ITC as per his books of accounts, the reason being that the taxpayer while accounting any inward supplies in his books of accounts ensures that the goods are received and the services are also availed by him. The taxpayer may carry out GSTR 2A reconciliation but only to ascertain if the invoices on which ITC is claimed by him are appearing in the report. And in case it is not appearing then he may instruct his supplier to upload those invoices. But in no case should the taxpayer be restricted to claim ITC only as per GSTR 2A. The reason are many as for instance instead of repeated instruction, requests made by taxpayer the supplier did not pay head to the request and have not uploaded the invoice or by mistake he uploaded as B2C invoice and is not taking corrective action to report it as B2B invoice. Why the taxpayers should be deprived of the privilege given by Govt. for no mistake of his own. This would not be the intention of the Govt. to punish the taxpayer who could not convince his supplier to do compliance correctly.

GSTR 2B is introduced by the Govt. for reference of the taxpayer and revenue. The taxpayer can compare his ITC claim with the one appearing in GSTR 2B. And the revenue can use it to compare the ITC taken by taxpayer with GSTR 2B and ask question if it wants. However, GSTR 2B only indicates the compliance done by taxpayer’s supplier on time and in no way it can become a basis for claiming ITC by the taxpayer. If it becomes a base then even a day delayed by the supplier in filing his GSTR 1 could take away the ITC claim of the taxpayer. This would also not be the intention of the Govt. to punish the taxpayer because of no fault of his own but that of his supplier. 

Rule 36(4) is another provision which restricts the taxpayer to claim ITC as per his books. It punishes the taxpayer for the fault of his supplier. But it gives some relief (to the extent of 5%) to the taxpayer to claim ITC. How could this be the intention of the Govt. to punish the taxpayer for no fault of his own but that of his supplier?

In spite of all these difficulties the taxpayer puts his sincere efforts to do GSTR 2A reconciliation, to match with GSTR 2B and also tries to comply with Rule 36(4). However, there is no straitjacket formula a taxpayer can apply i.e. every time the taxpayer will not be in a position to follow all these provision because it directly impacts his working capital. 

In my view the Govt. does not want to punish the taxpayer for no fault of his own. The Govt. also wants the supplier to comply and for that the taxpayer is made agent. In other words, the Govt. has delegated the duty of revenue to the taxpayer asking (indirectly) him to go to the supplier and ask him to comply. It is like reverse charge mechanism (RCM) where the revenue can’t go and ask certain class of person to pay tax on their supply and therefore asks the recipient to pay tax on their suppliers behalf. The Govt. in this way has chosen shortcut method of performing its duty. The taxpayer is delegated with the duty of revenue but not with the power to perform the duty of revenue.

The taxpayer is trapped between his supplier and revenue for want of ITC. On the fear of action from revenue the taxpayer commands his supplier to upload invoice, but if supplier does not pay head to the taxpayer’s request or delays in taking corrective action then the taxpayer refrain taking ITC on the fear that the revenue may issue notice. The taxpayer, thereby, prefer to take hit on his working capital. The looser is the taxpayer. This is flaw in law. [only for e.g. - If a complainant goes to the police department to lodge a complaint then the police officer instead of investigating the case by himself asks the complainant to bring proof and thereby delegating his duty on the complainant. The complainant do not have one and thus prefers to go home instead of wasting time in law procedure and thereby killing his conscience of seeking justice.] Such is the condition of law. 

ITC claimed as per books of accounts is justifiable in various ways by the taxpayer like Gate entry – when the goods is received it is entered in factory gate entry book. Quality check – once goods is received quality department checks the quality of the goods. Store department – once goods passes the quality check it comes to stores department for getting unloaded and then Goods Receipt Note (GRN) is made in books. Accounts department – once all the previous process is completed, the invoice comes to accounts department for verification of the GRN with reference to the invoice and then proceeds with the process of releasing payment to supplier. The taxpayer also maintains stock register, purchase register, payment reports, vendor (supplier) ledger etc. and on a periodic basis vendor ledger confirmation is sought by the accounts department and vendor also confirms the ledger balance. All these justify the genuineness of the purchases/inward supply and thereby justify its ITC. The taxpayer can at ease prove his ITC claim on the basis of the said internal process. 

So, in my view, the possible way for a taxpayer is to claim ITC as per his books of account as I stated in above para, but at the same time the taxpayer should do reconciliation of ITC with GSTR 2A on a monthly basis so as to comply with law. The Govt. is hereby requested to please withdraw Rule 36(4) and 2B and continue with only 2A and that to for reconciliation purpose only.