GST | Circular Does Not Override Statutory Provisions: Allahabad High Court Quashes Demand Of Rs. 235 Crores Against Vivo Mobile

The Allahabad High Court has quashed demand of Rs. 235.52 Crores raised against Vivo Mobile India Private Limited by GST Authorities vide order under Section 74(9) of the Goods and Service Tax Act 2017.The bench comprising of Justices Saumitra Dayal Singh and Vinod Diwakar while granting relief to Vivo Mobile held that Input Tax Credit is a substantive right granted to the assesee under Section 16 of the GST Act. Further, it was held that a circular though in force cannot be enforced contrary to the provisions of the statute. The Court held that legislature through the word "cumulatively" in proviso to Rule 36(4) of the Goods and Service Tax Rules, 2017 created a deeming fiction in law to relax the condition of month-to-month reconciliation of the eligible ITC availed to a much longer period such that it allowed that period of one month to be practically enlarged to eight months. The intent of the legislature was to facilitate the taxpayers as well as the revenue during the period of COIVD-19. Factual Background:Petitioner, Vivo Mobile, had computed Input Tax Credit cumulatively for the months of February 2020 to August 2020 as on the date of filing their GSTR-3B returns for the month of September 2020. However, a demand was raised by the GST Authorities alleging that petitioner had claimed excess Input Tax Credit of Rs. 110 Crores. Authority placed reliance on Circular No. 113 dated 11.11.2019 issued by the Central Board of Indirect Taxes and Customs to contend that cumulative adjustment could have only been made upto the date of filing of GSTR-1 declaration by their suppliers. Based on the Circular, tax demand along with penalty and interest totaling to Rs. 235.52 Crores was raised under Section 74(9) of the GST Act. Petitioner had deposited around Rs. 11 Crores while filing the writ petition before the High Court. However, since no stay was granted to the petitioner in the writ petition, the GST Authorities proceeded to recover Rs. 220.15 Crores from the bank accounts of Vivo Mobile during the pendency of the writ petition before the High Court. During the final hearing, counsel for petitioner argued that the monthly computation made by revenue was due to misreading of Circular dated 11.11.2019 issued by the Central Board of Indirect Taxes and Customs. Petitioner challenged the Circular, specifically Clause 3(3), as being violative of Rule 36(4) (Documentary Requirements And Conditions For Claiming Input Tax Credit) of the CGST Rules, 2017 read with its first proviso on the ground that the Rule prescribes cumulative period for computation for the period from February 2020 to August 2020. However, the Circular provided for monthly computation. It was also argued that the Circular being prior to Rule, cannot be enforced after the Rule came into force. It was argued that ITC is a statutory right, under Section 16 (Eligibility And Conditions For Taking Input Tax Credit) of the GST Act which cannot be taken away by a circular. Further, it was contended that it is an integral part of the scheme of GST that no substantive right is created by Form GSTR-2A. GSTR-1 and GSTR-2A only facilitate assesee to take an informed decision for self- assessment. Right to claim ITC is governed by Section 16. Accordingly, the Circular and the consequential recovery are bad in law, it was argued. Per Contra, counsel for respondent urged requirement to file GSTR-3B by 20th March 2020 was not waived or relaxed, to any extent. Accordingly, ITC was available to petitioner for each month including the months of February 2020 to August 2020 based on the details fed by suppliers on GSTR-1. Claiming cumulative ITC for the disputed period in September 2020 goes against the scheme of the GST Act and Circular dated 11.11.2019. Reliance was also placed on Circular No. 136 dated 03.04.2020 which sought to clarify various measures announced by the Government to provide relief to taxpayers in view of the spread of COVID- 19 to state that in absence of any challenge to that Circular, claim of the petitioner was wholly unfounded. High Court Verdict:The Court observed that intention of the legislature to make claim of Input Tax Credit as a substantive right is clear from the conjoint reading of Sections 16, 41, 49(2) and 2(46) of the GST Act.Though the return is to be filed prior to the 20th day of the following month, the Court held that “it cannot escape judicial recognition that the second proviso to Section 16(2) the Act itself creates a provisional right to the recipient to avail ITC (even after lapse of that shorter time period), up to the expiry of the larger period of 180 days. In case of non-payment within 180 days, provisions exist to reverse the ITC granted/availed. At the same time, there is no negative prescription under the Act or the Rules that ITC claim may never arise unless the tax is first paid by the recipient, and/or is deposited by the supplier with the State Government.”The Court held that prior payment and deposit of tax...

GST | Circular Does Not Override Statutory Provisions: Allahabad High Court Quashes Demand Of Rs. 235 Crores Against Vivo Mobile

Upasna Agrawal

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