Amidst India's ongoing struggle with the pandemic and economic uncertainty, Union Budget 2022 was yet fair in catering to the long-term vision of Country, albeit, certain shortcomings in the propositions under GST. One such perplexing amendment relates to the warps and woofs of GST – which is Input tax credit ("ITC"). Fungibility of tax credit is an intrinsic part of indirect taxation and rests on the pivotal principle to pass on the tax burden to the end consumer. Despite this, the provisions in respect of availment of ITC, as contemplated under Section 16 of the CGST Act, always seem to be under the scrutiny of the Government. ITC provisions have time and again witnessed myriad transformations, defeating the purpose of seamless credit which was the key plinth of the GST regime.
Section 16 of the CGST Act postulates certain key conditions for availment of credit by the recipient of goods or services. In October 2019, Rule 36(4) of the CGST Rules was notified that restricted ITC in respect of unmatched invoices to 20% of the matched invoices - which was commonly referred to as "provisional ITC". Eventually, this threshold was reduced to 10% and then to 5%. Ultimately the concept of "provisional ITC" was quashed vide Notification No. 39/2021-Central Tax dated December 21, 2021 and Clause(aa) under Section 16(2) which was discussed in the 45th GST Council meeting dated September 17, 2021 was made effective from January 1, 2022. Accordingly, Rule 36(4) of the CGST Rules was also amended to restrict the ITC availment to the extent it reflects in the auto-generated statement GSTR 2B i.e. the details uploaded by the supplier.
With this amendment, one may undoubtedly state that the availment of ITC by the recipient would completely be dependent upon the act of the supplier- overturning the 'two-way communication' which was proposed at the implementation of GST. Moreover, amendments are proposed in Sections 37, 38 and 41 to quash the provisions in respect of filing GSTR 2 (which was introduced at the inception of GST but continued to remain suspended).
In consonance of the aforesaid, a new condition has been proposed in the Union Budget 2022 by introduction of sub-section (ba) under Section 16(2) to provide that ITC would not be available if the same is restricted in the details provided in GSTR 2B- which bifurcates the details of eligible and non-eligible ITC.
As though abolishing the concept of "provisional ITC" was not enough, Budget 2022 added another twist in the tale by proposing to freshly substitute Section 41 which suggests 100% availment of ITC subject to the same being deposited with the ex-chequer. Else, reversal thereof along with payment of interest is required. The said amendment proposes to levy interest on the recipient for the mistake/error of the supplier, which is contrary to the settled principle of non-recovery of taxes from the buyer unless the remedies against the seller have first been exhausted by the Government. It would indeed be interesting to see whether this amendment endures the principles laid down by various forums repeatedly. It is worth a mention that tracking whether vendor has paid the tax and follow up for the same would continue to be a tumultuous activity for the recipient. Nonetheless, it would be advisable to ensure robust legal recourse against the suppliers by tightening the vendor contracts.
However, unlike the existing provisions, the said Section permits re-availment of ITC pursuant to rectifications made by the supplier- which moves many steps forward in achieving the intent of GST reform. Be that as it may, another issue in the proposed amendments lies in respect of the fate on the refund of interest so paid.
Further, Finance Bill 2022 vide Section 16(4) of the CGST Act proposes to revise the timelines to avail ITC of any invoice/debit note for supply of goods/services to November 30 following the end of such FY to which such invoice or debit note pertains or furnishing of annual return, whichever is earlier (which as per the existing provisions is earlier of September 30 or filing of annual return). This enhanced time limit to avail the ITC would come as a respite for many taxpayers as there would be some additional time available after the finalisation of the books of accounts post which any missed ITC can be availed.
Enhancing the time-limit to avail ITC by two months and simultaneously restricting the availment of ITC only in respect of details as auto-populated in GSTR 2B is certainly a bitter-sweet chocolate to the taxpayers. However, it is worth pondering on whether the restriction of time-limit of November 30 would be applicable to reclaim ITC as discussed in the aforesaid paragraph.
Another intriguing amendment is proposed by substituting Section 49(10) of the CGST Act pertaining to permissibility to transfer the unutilized balance of ITC in the electronic cash ledger between distinct persons (i.e. entities having same PAN but registered in different states) without opting for refund procedure. The said amendment comes as an effect to the decisions undertaken in the 45th GST Council meeting. However, similarly, one may mull over the possibility of transfer of unutilised balances of IGST and CGST in the electronic credit ledger of the distinct persons. All in all, it may be fair to conclude that the Union Budget 2022 was a pyrrhic victory for the taxpayers.
Published in TIOL - TaxIndiaOnline
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