In recent years, the Goods and Services Tax (GST) system in India has been a topic of discussion and debate, particularly regarding the disallowance of Input Tax Claims under section 16(4) of the GST Act. This article sheds light on the problems faced by GST taxpayers as a result of a possibly incorrect interpretation of this provision. It explores the definition of terms like “Taking” and “Claiming” and delves into the challenges taxpayers encounter when filing returns and attempting to claim Input Tax Credit (ITC). Furthermore, it highlights the need for an amnesty scheme to address these issues.

In recent years, the Goods and Services Tax (GST) system in India has been a topic of discussion and debate, particularly regarding the disallowance of Input Tax Claims under section 16(4) of the GST Act. This article sheds light on the problems faced by GST taxpayers as a result of a possibly incorrect interpretation of this provision. It explores the definition of terms like "Taking" and "Claiming" and delves into the challenges taxpayers encounter when filing returns and attempting to claim Input Tax Credit (ITC). Furthermore, it highlights the need for an amnesty scheme to address these issues.

Detailed Analysis:

Understanding Section 16(4) of GST: Section 16(4) of the GST Act states that a registered person shall not be entitled to take Input Tax Credit after a certain time. However, this provision does not explicitly mention that the claim will be disallowed or not entitled.

Interpretation of Key Terms: The article emphasizes the importance of interpreting terms like "Taking" and "Claiming" in their normal sense. It argues that these terms are intentionally used in the law and should not be considered interchangeable. "Taking" suggests the actual acquisition of credit, while "Claiming" implies asserting a right to it.

GST Return Filing Process: The author explains the three-step process of GST return filing: GSTR 1 to report output liability, GSTR 2 to report purchases and take Input Tax in the Electronic Credit ledger, and GSTR 3 to adjust claims and pay taxes. The filing of GSTR 1 and GSTR 2 was supposed to enable taxpayers to claim Input Tax Credit in the system.

Challenges in Input Tax Credit Claim: The article outlines the challenges faced by taxpayers when the GSTN portal faced glitches and GSTR 2 was not operational. Taxpayers were unable to report their purchases, hindering their ability to claim ITC.

Credit in Electronic Ledger: The author argues that the government currently credits the Electronic Credit ledger of taxpayers based on the seller's return filing, making it unnecessary for buyers to "Take" the credit explicitly. This questions the rationale behind penalizing taxpayers for not "Taking" ITC when they have no control over the process.

GSTR 3B and Amnesty Scheme: The article suggests that GSTR 3B primarily relates to the claim and offset of claims, without specifying a deadline for claim filing. The author emphasizes the need for an amnesty scheme to provide relief to taxpayers who have been unfairly penalized due to the misinterpretation of the law.

FULL TEXT OF THE REPORESENTATION IS AS FOLLOWS:

To,

The Honorable Lawmakers

Dear Sir,

Sub: Problems of GST taxpayers due to a wrong interpretation of Law

Ref: Disallowance of Input Tax Claim under 16(4)

I had drawn attention to the above issue in the past too. Many taxpayers are receiving notices from the initial years when there were numerous problems in understanding the law, glitches in the Portal, and difficulties in filing returns due to these glitches. Taxpayers were made liable for hefty penalties, creating a mess. For some time, GST waived or reduced the late fees and provided opportunities to taxpayers. Now, those taxpayers who opted for such options are receiving notices of disallowance of ITC claims.

As per Provision 16(4) of GST, a registered person shall not be entitled to take Input Tax…

So the law prohibits taking Input Tax credit after a certain time, but it does not mention that the claim will be disallowed or not entitled. Many terms like electronic cash ledger, electronic credit ledger, etc., are defined, but there is no definition of "Taking" and "Claiming," so the words should be interpreted in their normal sense.

So, I am providing the definitions/meanings of the words from Google:

Meaning of the word TAKE

1. किसी वस्‍तु को हाथ में लेकर पकड़ना या थामना (और अपनी ओर खींचना)

2. Cambridge Dictionary: to move something or someone from one place to another: The weather forecast said rain, so take your umbrella (with you) when you go out.

3. The Free Dictionary: To get something into one's possession; acquire possession: The invaders took and took, until they had everything.

Meaning of Word CLAIM

1. to ask for something from the government, a company, etc., because you think it is your legal right to have it, or it belongs to you

2. Collins Dictionary: to demand or ask for as rightfully belonging or due to one; assert one's right to (a title, accomplishment, etc. that should be recognized) ·

3. Law.com: to make a demand for money, for property, or for enforcement of a right provided by law. 2) n. the making of a demand (asserting a claim) for money due

Now, as a layman, I understand that "Taking" is totally different from "Claiming." In the law, these words are used purposefully, and it is unlikely they were used by mistake. The law prohibits "Taking," but it nowhere mentions that the "Claim" will be disallowed if made after a particular time frame.

When the GST Law/GST Gazette was initially approved, there were 3 returns to be filed by the taxpayer:

1. GSTR 1 to inform the Output liability

2. GSTR 2 to inform all purchase details, i.e., to report all purchases party-wise and take Input Tax in the Electronic Credit ledger on a provisional basis

3. GSTR 3 to adjust all claims related to Purchases and sales in a consolidated manner and pay Government taxes.

As per 2(43), a taxpayer, once they file a return, will be given the credit of the Tax Credit.

So, what I understand is that first one has to inform invoice-wise, party-wise output in GSTR 1, then take Input in GSTR 2, where the details of all purchases were to be reported, and finally, only consolidated figures of Output and Input were to be adjusted, which means respective claims were to be reported, and the difference in tax was to be paid or claimed for a refund. GSTR 3 is, therefore, a return that only deals with the claim.

In taxation, "Taking" of Input might happen:

1. The goods have to be purchased, moved, and proper documentation and payment need to be made.

2. All such invoices have to be taken into the Books of Account.

3. The information has to be shared with Income Tax by filing the IT return and with GST by filing GSTR 2, where party-wise purchase details were supposed to be given to take ITC.

Once this step is done, the "Taking" of ITC step is completed.

Now, when GSTR 2 is not yet operational, the option of "Taking" Input or "Taking" Invoices in record or reporting such "Taking" is not possible. In such a condition, taxpayers cannot be served notices using 16(4).

Presently, the government is crediting the Electronic Credit ledger of a taxpayer based on the return filed by the seller, and there is no provision for a buying taxpayer to take or need to take the credit of such invoices. When there is no option to "Take" Credit, how can a buyer be held liable for not "Taking" ITC in time, as per section 16(4)?

So, there is no need to "Take" ITC in the electronic ledger; it is by default given by the Department, and now the taxpayer is allowed to claim to the extent it is available in that Ledger.

GSTR 3B is a form that has a relation to the claim and offset of the claim. The law nowhere mentions that the claim has to be filed within any stipulated date, and so I feel the notices that are issued are due to a wrong interpretation of the law and must be withdrawn immediately.

I am a common man and humbly request your attention to solve the problems of many taxpayers, keeping in mind the realities and our basic approach.

I also draw attention to some other facts where I assume that ITC claims are to be disallowed if the return is not filed by a stipulated time. For that, I draw attention to some important facts:

1. We are a country of Sanatan Sanskriti, and we have no history where we have forfeited any genuine claim. None of the policy makers would ever think to disallow someone's genuine claims without giving them a fair opportunity.

2. GSTR 3 is a return that requires Tax, and when a taxpayer is facing financial problems, they cannot file returns. If the department had allowed the filing of GSTR 2 or any returns where even during financial problems, the taxpayer was allowed to take ITC, this clause would have been fair. With the filing of GSTR 1 and GSTR 2, the department could easily check the position of that taxpayer.

3. Prior to this, in our country, no state had ever had any such rules that if the return is not filed, ITC will be disallowed, so many taxpayers were not aware of any such provision. Considering that the law is rightly interpreted, and GST being a new law, the government must consider the amnesty scheme.

4. I draw attention to the Income Tax return. There too, recently, a new provision is made that if the return is not filed within a particular time frame, all benefits, i.e., refund claims, will not be passed. The IT department gives time to file the return without a fine, then gives time with a fine, and then refuses to accept the return. Once the return is not accepted, the claim for a refund does not stand, and so the department is not liable for a refund. But in GST, the department had accepted the GSTR 3B return/Claim Statement of taxpayers with a fine, and when it had accepted the return, disallowing ITC claims is totally unfair, even morally. The department cannot accept part columns of such returns that are in their favor and refuse to accept those that are in the taxpayer's favor.

5. This year, the IT Act approved the option of non-acceptance of return after the end of a particular period. The department had sent SMS and emails to all taxpayers who did not file a return and explained the demerits of not filing it. In a similar manner, GST, which is a new law, the department should have sent SMS emails to all taxpayers that if they fail to file a return by such date, the ITC will be disallowed. But the GST department had not sent any such notices to any of the taxpayers.

6. Sections dealing with penalties and offenses do not mention that ITC Claims will be disallowed, and that also needs to be taken into consideration.

7. GST is a totally new Law, there were a lot of glitches in the system, and even till today, there are modifications done. Considering the facts that there is no provision for disallowing Input Tax Claims, yet a series of letters issued to many taxpayers have caused a lot of mental trauma and disturbance for them. I request the government to please consider the facts and allow an amnesty scheme, even if there is any provision that allows the government to take such harsh steps, as the interest of the mass citizen is connected to this.