NEW DELHI: The Telangana high court has ruled that no
input tax credit
(ITC) is available unless GST returns are filed and a taxpayer is
liable to pay penalty on the entire liability. The ruling is expected to
have a significant impact on all businesses that use tax credits
available on inputs and raw
materials to reduce payment in cash.
"...until a return is filed as self-assessed, no entitlement to credit
and no actual entry in the electronic credit ledger takes place. As a
consequence, no payment can be made from out of such a credit entry,"
Justices V Ramasubramanian and P Keshava Rao said in a case involving
Megha Engineering & Infrastructures and GST Authorities.
The company had delayed filing the GST returns from July 2017 to May
2018 when its tax liability added up to Rs 1,014 crore. It had ITC of
Rs 968 crore and it claimed that the shortfall was to the tune of Rs 45
crore. While the tax authorities demanded 18% interest on the entire
amount, Megha Engineering argued that interest should only be calculated
on the net tax liability, after deducting ITC from the total liability.
The court upheld the department's view.
"The ruling has very wide implication as almost all taxpayers, who
delayed filing returns and have paid interest only on cash payment of
tax and not on the GST amount set off by them through ITC. The issue
will open floodgate of litigation and demands of interest by GST
officials are imminent. Even CAs while auditing Annual GST Returns,
which have to be filed by June 30, may be required to point out short
payment of interest due to delayed set off," said tax lawyer RS Sharma.
Tax experts said that companies were relying on VAT rulings and
clearing cash dues to employees and suppliers before paying GST and the
ruling will change this practice. "Businesses should be very cautious in
understanding the distinction between the VAT position and the GST
position as the consequences could be very severe. This decision states
this aspect very clearly," said M S Mani, partner at Deloitte India.
Sharma said some respite may come in the future.