Goods & Services Tax (GST) in IndiaITC cannot be rejected merely due to discrepancy in GSTR-2A and GSTR-3B, actual loss to the Revenue to be ascertained

The Madras High Court in M/s. Oasys Cybernetics Private Limited v. State Tax Officer [W.P .No. 9624 of 2024 decided on 12.04.2024] held that ITC cannot be rejected merely because of non-reflection of credit note in the GSTR-1. Moreover, mere rejection of Chartered Accounts Certificate without stating reasons is bad and untenable in law.

FACTS

M/s. Oasys Cybernatics Private Limited (hereinafter referred to as the “Petitioner”) was engaged in the business of supplying and installing point of sale machines in ration shops operated by the Tamil Nadu Civil Supplies Corporation by integrating the same with a central server. The Petitioner received a Show Cause Notice (hereinafter referred to as “SCN”) dated 14.09.2023 for FY 2017-18 for the discrepancies in GSTR-2A and GSTR-3B.

The Petitioner submitted the replies dated 10.10.2023 and 17.10.2023. Further the Impugned Order dated 29.12.2023 was issued upon the Petitioner rejecting the ITC of the Petitioner.

The Petitioner being aggrieved by the Impugned Order has preferred the present petition.

ISSUES BEFORE THE MADRAS HIGH COURT

1. Whether the ITC of the Petitioner can be rejected due to discrepancy in GSTR-2A and GSTR-3B?

2. Whether the ITC can be rejected due non-reflection of credit notes due to inadvertent error on part of the Petitioner?

3. Whether the Chartered Accountant Certificate can be rejected without assigning reasons for the same vide the Impugned Order?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the discrepancy arose due to three reasons. Firstly, due to issuance of credit notes by the Petitioner to the recipient of service. Due to the initial year of implementation of GST, the credit notes were not reflected under 9B heading of GSTR-1. Further for the claim of Input Tax Credit (hereinafter referred to as the “ITC”), there was no loss to the revenue.

Secondly, the Petitioner submitted a Chartered Accounts Certificate dated 16.12.2023 verifying that the Petitioner had adhered to Circular No.183 and ITC to the extent of Rs.4,08,39,428/- was reversed because the petitioner made an inadvertent error. The Impugned Order had not provided any reasons for rejecting the same.

The Respondent contended that the credit notes did not reflect under GSTR-1 under the proper head and the amount does not tally with that of the Petitioner.

DISCUSSION AND FINDINGS

The Madras High Court examined the Impugned Order and held that the Impugned Order does not reflect whether the claim of ITC and the credit notes of the Petitioner tally. It should be clear whether there is any actual loss to revenue due to claim of ITC by the Petitioner.

It was further observed that the Impugned Order merely rejects the Chartered Accountant Certificate without providing the reasons for the rejection. Hence, it is an unreasoned order. The High Court set aside the Impugned Order and directed the Respondent for reconsideration of the same after according an opportunity of being heard to the Petitioner.

AMLEGALS REMARKS

The Madras High Court has rightly held that the ITC cannot be rejected without ascertaining whether actual loss has been suffered by the Revenue. There were various procedural glitches and confusion during the implementation of the GST law. Hence, ITC cannot be rejected due to discrepancy between GSTR-2A and GSTR-3B. Moreover, the order shall convey the valid reasons for rejection of a Chartered Accountant Certificate. An unreasoned order is bad and untenable in law.

– Team AMLEGALS