QUESTION

Input credit taken in Oct 2019 & Jan 2020 3B returns and same was reversed as not showing in 2A through DRC03 Filled in March 2020, as survey was carried out by SGST Dept for which they have issued show cause and demand & Penalty have been imposed by them. Credit which was reversed in March 2020, was again taken in Dec 2020`s 3B return, does this amount to violation of 16(4) i.e. credit not allowed post September 2020 return, as there is circular which says credit reverse can be availed in subsequent months, also credit was reversed post GST survey against show cause notice issued by dept and now dept says you can`t take credit, but our stand is once we have taken the original credit in time, provision of section 16(4) not applicable as we are taking credit for ITC reverse through DRC03 and same is available in July 2020, 2A. Following Suggestion Received for Query 1. Again Reverse the Credit and Fight the Original Order which has imposed the Penalty & Interest as currently pending with Commissioner Appeal SGST 2. Don`t Reverse the credit and Officer will create the Demand and File the appeal against that order also. 3. Any other Option & suggestion

ANSWER

Facts of the case: ITC taken in Oct 2019 & Jan 2020 3B return`s and same was reversed as not showing in 2A through DRC03 Filled in March 2020, as the survey was carried out by SGST Dept for which they have issued show cause and demand & Penalty have been imposed by them. However ITC was again reclaimed in Dec 2020's 3B. Whether 1. Again Reverse the Credit and Fight the Original Order which has imposed the Penalty & Interest as currently pending with Commissioner Appeal SGST 2. Don`t Reverse the credit and Officer will create the Demand and File the appeal against that order also. 3. Any other Option & suggestion.

Law applicable: SECTION 16 OF CGST ACT

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

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(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Interpretation: Reclaim of credit is available in case if the recipient fails to pay the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier.

But in the instant case there is no default in payment of tax, credit was reversed because the same was not reflecting in GSTR-2A. Therefore question of reclaim of credit does not arise and provisions of section 16(4) i.e. time limit for claiming of ITC till September return will be applicable.

Point wise reply to your query is as follows:

Case 1

Firstly check whether SCN was issued demanding interest and penalty as well as the appropriation of the amount already deposited. If this is the case, then in reply to SCN, whether you have demanded to reclaim the credit or not.

If you have demanded reclaim of credit in reply to SCN, then you can't reclaim the credit automatically in between when the proceedings are pending. Therefore reverse the credit reclaimed in Dec 2020.

Case 2

If the SCN is not for the appropriation of tax already deposited and (Point no 2 of the question).

In the second case if you don't reverse the credit, then a fresh SCN will be issued by the department against reclaim of credit, and the case will proceed as per the provision given in section 73 & 74 . Here you are not correct, at the same time since the GST law is new therefore some relaxation may be given to you at a later stage. It is only a probability.

Conclusion:

For case 1 Take recredit after the SCN is dropped

For case 2 Instead of reclaim of credit, you should file a refund of the amount deposited through DRC-03. .

Therefore reverse the credit reclaimed in Dec 2020 and file an application for refund of the amount deposited through DRC-03.

Note In the normal course your matter should fall in case 1 category. (Reply dt. 06/03/2021)