How to Successfully Defend a ₹18 Crore GST ITC Demand: A Case Study

One of the most common and critical GST notices relates to alleged excess input tax credit (ITC) claims, which may result in additional tax demands along with applicable interest and penalties. This case study relates to a notice issued under Section 73 of the CGST Act, 2017, proposing an excess ITC claim. The analysis below provides guidance on how such notices may be examined and addressed. 

Background of the case:  

Mr. Ravi (name changed), a GST-registered taxpayer, received a notice issued under Section 73 of the CGST Act, 2017 from the GST Department. The notice alleged that he had claimed excess input tax credit (ITC) amounting to ₹18 crores in his GSTR-3B return as compared to the tax reported by his suppliers in their GSTR-1/IFF returns for FY 2021-22. 

Accordingly, Mr. Ravi was asked to pay the alleged excess ITC of ₹18 crores along with applicable interest under Section 50 of the CGST/TNGST Act. 

The figures considered in the notice were as follows:

                                                Table 1.1 

Analysis of the case by V Ramaratnam and Co:

While reviewing the proposed excess ITC claim of Rs. 18 Crores, the following observations were made by V Ramaratnam & Co:  

1.   Verifying the factual figures mentioned in the Notice:

   • It was observed that the notice overstated the ITC claimed in GSTR 3B (Rs. 44 crores) when compared with the actual ITC claimed as per the returns filed on the GST portal (Rs. 30 crores).

   • The primary reason for the above difference was that the department considered the gross ITC available in GST-3B but ignored the ITC reversals Mr. Ravi made during the year (Refer Table 1.2).

   • These ITC reversals reduced the gross ITC available as shown in GST-3B, but they were not considered in the notice. Such reversals are primarily governed by Section 17(5) of the CGST Act, 2017.
   • The actual net ITC claimed in GSTR-3B was significantly lower than the alleged ITC claimed in the notice issued. Given below is an analysis of the figures mentioned in the notice provided.
     

     S. No	Particulars	IGST	CGST	SGST	Total
     1	ITC availed as per GST Notice/ Gross ITC available in GST 3B	20 crores	12 crores	12 crores	44 crores
     2	ITC Reversed by Ravi   during the year	10 crores	2 crores	2 crores	14 crores
     3	Net ITC Available   (as per filed returns)	10 crores	10 crores	10 crores	30 crores

   Table 1.2  

2. Reconciliation between GSTR 2A and GSTR 3B:
   

   
   The ITC claimed during FY 2021-22 was duly reconciled with GSTR-2A, which reflects supplier-reported data. Based on this reconciliation, the following key observation were made with respect to the ITC claim:  

     Mr. Ravi had claimed total ITC of ₹30 crores for FY 2021-22, comprising: 

   • ₹26 crores representing eligible ITC based on supplier declarations as reflected in GSTR-2A for FY 2021-22. 
   • ₹4 crores representing unutilized ITC carried forward from the previous financial year (FY 2020-21), in accordance with the provisions of the CGST Act, 2017. 

   The carry forward of unutilized Input Tax Credit (ITC) from the previous year can be claimed by 30th of November following the end of the financial year. Such carry forward is primarily governed by Section 16 of the CGST Act, 2017.

   After considering the reconciliation of GSTR-3B and GSTR-2A as explained above, the correct ITC position was as follows:

   S. No	Particulars	IGST	CGST	SGST	Total
   1	Net ITC Available   (as per filed returns)	10 crores	10 crores	10 crores	30 crores
   2	Tax declared by suppliers as reflected in GST-2A during FY 2021-22	10 crores	8 crores	8 crores	26 Crores
   3	Carry forward of ITC from previous year   (FY 2020-21)	0	2 crores	2 crores	4 crores
   4	Excess ITC claimed for FY 2021-22       [1-2-3]	0	0	0	0

   Table 1.3

Action Taken by V Ramaratnam & Co:  

Based on the analysis discussed above, a comprehensive response was prepared to address the allegations raised in the notice issued under Section 73 of the CGST Act, 2017.  

The response was compiled and supported by the documents listed below to substantiate that no excess Input Tax Credit (ITC) had been claimed: 

1.   Monthly GSTR-3B returns for FY 2021-22 was compiled to establish the net ITC claimed in GSTR-3B after considering the periodic ITC reversals made during the year under Section 17(5) of the CGST Act, 2017, supporting Table 1.2. 
2.  Table 8A (Annual ITC Extract) for FY 2021-22 was furnished to verify and reconcile ITC claimed during the year with GSTR-2A data, supporting that all ITC was claimed based on supplier-reported entries for FY 2021-22. 
3.  Monthly GSTR-3B returns for FY 2020-21 
   It was submitted along with the reconciliation between GST-3B and GST-2A to establish the availability of unutilized input tax credit for FY 2020-21.  
4.  Table 8A (Annual ITC Extract) for FY 2020-21 was furnished to verify and reconcile ITC claimed during the year with GSTR-2A data, supporting that all ITC was claimed based on supplier-reported entries for FY 2020-21. 
5. Consolidated Summary and Reconciliation Statements workings consolidating GSTR-3B (net ITC), GSTR-2A, Table 8A, and carried forward ITC for both FY 2020-21 and FY 2021-22 were submitted. These reconciliations along with filed returns furnished above conclusively confirmed that the alleged excess ITC was purely notional, as reflected in Table 1.3, and that no excess ITC had been claimed.

Outcome: 

A detailed response along with supporting documentation was filed on the GST portal. A personal hearing was attended, during which the reconciliation and supporting records were explained to the concerned GST officer. 

The proceedings were concluded with no additional tax demand payable. The notice was closed through issuance of DRC-07A, confirming that no tax was payable by Mr. Ravi.