GST Nightmare: Know the new change by GSTN that can block your ITC forever

The Goods and Services Tax Network (GSTN) on Saturday came up with an important implementation of the GST Portal. Now this change can block your Input Tax Credit (ITC) forever. Let us understand how.

The GSTN has announced that the Taxpayer will not be able to file their GST returns after three years from the due date of furnishing the return. As per the Finance Act, 2023, taxpayers will not be given any chance to file their GST returns after three years from the due date of filing the return under Section 37 (Outward Supply), Section 39 (payment of liability), Section 44 (Annual Return) and Section 52 (Tax Collected at Source).

These sections cover GSTR-1, GSTR-3B, GSTR-4, GSTR-5, GSTR-5A, GSTR-6, GSTR-7, GSTR-8, and GSTR-9.

How can this impact your Input Tax Credit?

If your supplier has not filed the return and not paid the tax, this simply means that you will not be allowed the Input Tax Credit made on purchases even if you have made complete payment for the supply.

Also the Non Filing of return leads to retrospective cancellation of return, which also leads to denial of ITC for the customers.

Now, no chance of filing old return will be there with the seller in case of default, thus this will lead to permanent denial of ITC. This will again impact Geniune Buyers.

Favorable Judicial Pronouncements

Although we have favorable judicial pronouncements where courts have held that Buyers should be allowed ITC in case of Non-Compliance by the seller.

Calcutta High Court in the matter of M/s GARGO TRADERS vs THE JOINT COMMISSIONER, COMMERCIAL TAXES (STATE TAX) & ORS. has held that Input Tax Credit (ITC) cannot be denied to the buyer only because the GST Registration of supplier was canceled with retrospective effect.

The Delhi High Court in the matter of M/S Maurya Industries Vs. The Union of India & Anr has stated that “Merely, because a taxpayer has not filed the returns for some period does not mean that the taxpayer’s registration is required to be cancelled with a retrospective date also covering the period when the returns were filed and the taxpayer was compliant. It is important to note that, according to the respondent, one of the consequences for cancelling a taxpayer’s registration with retrospective effect is that the taxpayer’s customers are denied the input tax credit availed in respect of the supplies made by the taxpayer during such a period.”

Bonafide taxpayers usually are given justice by the courts, but one should understand that not everyone can afford litigation. Absence of grievance redressal mechanism at the Department’s end can further complicate things and increase litigation.

Below is the press release of GSTN