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
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.
