Have you received a notice from GST officer asking for reversal of ITC availed correctly

There are various instances wherein GST department issues show cause notices asking purchaser to revise the ITC availed on the ground that seller failed to pay the taxes on outward supplies. This is inspite of the fact that the purchaser made all GST compliances including full payment of purchase consideration including tax to the sellery within 180 days and availing ITC based on GSTR 2A/2B (i.e. based on return filed by the seller). Under such circumstances, the purchaser can refer the recent decision of Madras High Court as well as press release issued by CBIC dated 4th May, 2018 as per the details mentioned hereinbelow.

– The High Court of Madras while disposing 17 writ petitions wherein facts of the case are similar passed an order dated 24th February, 2021 in favour of petitioners. In this particular case, the buyer had paid the due amount of Tax to the Seller, but the Seller did not deposited GST amount. The buyer availed Input Tax Credit on the said amount, based on returns filed by the seller. The Department then made efforts to recover the tax amount directly from the buyer through reversal of ITC. The Madaras High Court ruled that the GST Department’s approach was wrong and that the actions should be initiated against the seller to recover the tax amount. The copy of the judgement has been attached herewith for your ready reference. http://judgement of Madras High Court

– There is one more defence available with the purchaser. In a Press Release dated 4th of May, 2018, CBIC clearly talked about No automatic reversal of credit on the part of purchaser. The fourth point of the Press Release stated that there shall not be any automatic reversal of input tax credit from buyer on non-payment of Tax by the Seller. The recovery shall be made from the Seller. However, the authorities do have the power to demand the Tax from the buyer but only in exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc. Copy of the Press Release has been attached herewith for your ready reference. http://CBIC_Press_Release_4th May 2018

Whenver the notice is received from the GST department to the purchaser asking for reversal of ITC on the ground that seller failed to pay the tax, a proper response should be submitted in polite manner along with a reference of Press Release and judgement of Madras High Court. For more guidance on the subject, do contact us.

Disclaimer: The purpose of this blog is for education purpose and should not be construed as professional advice. Views expressed herein are the personal views of the author. Government or judicial authorities may or may not subscribe to the views expressed herein. Author of the blog is not liable for any implications arising out of actions taken based on the views expressed herein.