LI Network
Published on: October 16, 2023 at 16:35 IST
The Allahabad High Court has ruled in favor of Vivo Mobile India Private Limited, quashing a demand of Rs. 235.52 Crores imposed by GST authorities under Section 74(9) of the Goods and Service Tax Act 2017.
The court, consisting of Justices Saumitra Dayal Singh and Vinod Diwakar, emphasized that Input Tax Credit is a substantive right granted to the assessee under Section 16 of the GST Act and that a circular cannot override statutory provisions.
Background:
Vivo Mobile had cumulatively computed Input Tax Credit from February 2020 to August 2020 when filing their GSTR-3B returns in September 2020. However, GST authorities alleged that the company had claimed excess Input Tax Credit, amounting to Rs. 110 Crores, based on Circular No. 113 dated 11.11.2019. This circular stipulated that cumulative adjustment could only be made until the date of filing GSTR-1 declarations by suppliers. As a result, a tax demand, penalty, and interest totaling Rs. 235.52 Crores were raised under Section 74(9) of the GST Act.
During the litigation, Vivo Mobile deposited around Rs. 11 Crores, but as no stay was granted, GST authorities proceeded to recover Rs. 220.15 Crores from the company’s bank accounts.
Court Verdict:
The court acknowledged that Input Tax Credit is a substantive right, as evident from the provisions of the GST Act. It emphasized that the law does not require prior payment and deposit of tax to provisionally grant or utilize ITC. Such a provisional allowance becomes absolute upon tax payment, which should occur within 180 days. Therefore, the second proviso to Section 16(2) cannot be rendered meaningless.
The court also clarified that GSTR-2A is a facilitator, and GSTR-1 only serves as a facilitator for the recipient’s informed self-assessment decision. The court noted that no adverse remarks had been made against tax invoices of Vivo Mobile. The dispute primarily revolved around the interpretation of the first proviso to Rule 36(4) of the CGST Rules.
The court observed that the first proviso to Rule 36(4) creates a deeming fiction that treats the period from February 2020 to August 2020 as one for cumulative adjustment of ITC. This provision was introduced during the COVID-19 pandemic to aid taxpayers. It allows registered persons to file their monthly return on Form GSTR-3B with cumulative ITC adjustment for the disputed period, preserving the benefit arising under Rule 36(4).
The court stressed that a circular, although valid, cannot be enforced contrary to statutory provisions. The circular had lost its relevance for the specific period from February 2020 to August 2020 when the proviso was added to Rule 36(4). Therefore, for that period, the circular could not override the statutory law.
Consequently, the court allowed the writ petition, directing the respondents to refund the entire amount to Vivo Mobile. The company was also entitled to interest at 6% on the excess recovery from the date of excess recovery to the date of the actual refund.
Case Title: M/S Vivo Mobile India Private Ltd. vs. Union Of India And 4 Others [WRIT TAX No. – 433 of 2021]