Effect of wrong payment of tax (CGST / SGST or IGST) – A catch 77 situation
I am trying to summarize what can happen when a supply is considered as Intra State supply by the supplier but later on held as Inter State supply by the department.
|Date of Supply||31-07-2017||CGST & SGST paid on 20-08-2017 and input availed and utilized by recipient|
|Departmental Audit after 3 years held above transaction as inter- state and IGST demanded||01-04-2020||Order passed u/s 73 and supplier accepts wrong payment|
|Supplier deposits IGST as above on||15-04-2020||No appeal is filed and section 77 says pay correct tax and claim refund of wrong tax paid|
|Supplier will issue Credit Note to recipient u/s 34 for wrong charging of CGST & SGST||15-04-2020||Issue of credit note is mandatory as to prove that incidence of tax has not been passed. This is one of the basic requirement of claiming the refund u/s 54
The supplier cannot issue credit note as it will be beyond the time limit specified in section 34.
|Supplier will issue Debit Note to recipient u/s 34 for charging of IGST||15-04-2020||Recipient cannot take input tax credit of this debit note as it has been issued beyond the time limit given in section 16(4)
As the recipient cannot claim ITC of this debit note.
|Refund claim filed u/s 54 for wrong payment of CGST & SGST on 20-08-2017||15-04-2020||In section 54, relevant date for filing of refund claim is 2 years from the date of deposit. In this case the last date to file refund claim expires on 19-08-2019, hence supplier cannot claim refund under this section
The date of passing of order u/s 73 is not considered for calculation of relevant date
|Story at the end||Supplier will end up paying both the taxes and government will be smiling at the catch 77 situation it has created|
Amit Mundhra FCA