Budget 2021: Alarming Situation for Taxpayers Registered under GST

With the insertion of Clause(aa) in Section 16(2) of the CGST Act by the Finance Act, 2021, now it is clear that Input Tax Credit (ITC) claimed on the basis of invoices which are not uploaded by the supplier in his GSTR-1, is required to be reversed and tax/interest/penalty has to be paid under section 73(5) of the CGST Act.

However, this amendment is not as per the basic principle of law which is formed for seamless flow of credit; so section 16(2)(aa) of the CGST Act and its similar Rule 36(4) of the CGST Rules are in contravention of GST Act as well as the Indian Constitution, but we have to accept these provisions and have to pay tax/ interest/ penalty as per the amended provisions of law.

What We have to Do to Avoid Tax/ Interest/ Penalty

We all know that we can’t do anything except paying tax/ interest/ penalty or filing appeal to the appellate authority or recover tax amount from supplier, if we have availed ITC up-to F.Y. 2018-19 on the basis of invoices which are not uploaded by the supplier in his GSTR-1 (only if this section will be inserted retrospectively). But we can take actions on invoices which are related to F.Y. 2019-20 and up-to this month of F.Y. 2020-21.

To Avoid Extra Payment in F.Y. 2019-20 and 2020-21:

  • Reconcile ITC as claimed in GSTR-3B and as populated in GSTR-2A of relevant F.Y. and contact suppliers to upload invoices in their GSTR-1, so that you will be eligible to avail ITC as per Section 16(2)(aa),
  • If payment is already made to the l supplier for invoice which is not uploaded by him in his GSTR-1 and he is not ready to upload that invoice in GSTR-1 of upcoming months, deduct the amount of GST from payment to be made to him in future so that you can recover the amount of ITC from the supplier.

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