The concept of Input Tax credit has always been an issue to look into for the industry. The industry has huge expectations and there are a lot of eyes on how the concept of Input Tax Credit related to goods and/or services and matching mismatching concept of input tax credit will be dealt with in the GST regime. Let us discuss whether GST has something to cherish about or not.

The eligibility and conditions for taking input tax credit are discussed under Sec 16 of the revised Model GST Law. The section broadly talks about the conditions, circumstances and ways through which the assesse can claim input tax credit under the GST regime. There are certain conditions which the assessee needs to fulfill in order to avail the input tax credit. One of the important condition provided in Sec 16(2)(c) states that:-

• The tax charged in respect of such supply has been actually paid to the account of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply;

Now let us analyze clause (c) stated above which means that though tax is duly paid by the purchasing dealer to the selling dealer for any purchases made by him but if the selling dealer has not deposited the same to the account of appropriate government then input tax credit of the purchasing dealer will be rejected. Similar provisions for matching the sale and purchase also exist in the present VAT regime in various states such as West Bengal, Kerala, Karnataka, Delhi, Rajasthan etc. Now let us have a brief overview of how the present law works and also how this matching mismatching concept will work practically under the GST regime.

Under the present regime under VAT there is matching mismatching concept in order to check the availment of input tax credit. The details so filed by the selling and purchasing dealer are cross checked across dealers whose TIN is mentioned in their respective returns and a mismatch report is generated. The buyer can view the report on the website of department immediately after filing of Annexure by corresponding sellers. In case there is any mismatch in the reports i.e. let say selling dealer has shown lesser amount of sales but the Buying Dealer shows the correct amount of purchases. Thus, Buying Dealer has claimed more input and he will be penalized for no default on his part. However, in reverse case i.e. Selling Dealer having shown more amount of sales and the purchase amount being correctly entered by the Buying Dealer, the mismatch report will be generated without any penalty being levied on buyer. However, under Service Tax Laws there is no such provision or mechanism in law to check whether tax paid by the receiver of services is duly deposited by the provider of services or not. In order to have control and avoid leakage in flow of credit the Government has introduced the concept of matching and mismatching in GST laws which is very much similar to VAT laws. Thus, the principle of matching and mismatching will be applicable now on goods as well as on services.

Case 1:- When ITC claimed by the purchasing dealer is more than the tax declared by the selling dealer for the same supply – In such case discrepancy shall be communicated to both purchasing and selling dealer. Now two situations may arise:-

1. If selling dealer does not rectifies his return as per the return filed by the purchasing dealer than the excess ITC claimed by the purchasing dealer shall be reversed i.e. it will be added to the output tax liability of the purchasing dealer in the month succeeding the month in which the discrepancy is communicated along with due interest from the date of availing of credit till the corresponding additions made in his return.
2. If selling dealer later on declares the details of the Invoice and/or debit note in his valid return then purchasing dealer shall be eligible to take the credit again and accordingly his output tax liability shall be reduced which was added earlier in his return. Any interest paid earlier shall also be refunded to the purchasing dealer. However, no provision is mentioned in law for any interest to be refunded for the period when such output tax liability was wrongly charged from the purchasing dealer till the date of refund.

Case 2:- Where reduction of output tax liability exceeds the corresponding reduction in claim for Input Tax credit i.e. in case the credit note issued by the selling dealer is not correspondingly recorded by the purchasing dealer in his return then such discrepancy shall be communicated to both such persons in the manner as may be prescribed. Now two situations may arise:-

1. If it is not rectified by the purchasing dealer in his valid return for the month in which the discrepancy is communicated shall be added to the output tax liability of the selling dealer along with that he shall be liable to pay interest from the date of such reduction in output tax liability till the date such corresponding additions are made.
2. If such credit note is accepted and duly recorded in return by the purchasing dealer, then the selling dealer shall be eligible to reduce the output tax liability which was added earlier plus any interest which was paid by the selling dealer shall be refunded accordingly. However, no provision is mentioned in law for any interest to be refunded for the period when such output tax liability was wrongly charged from the selling dealer till the date of refund.

However, it should be noted that no such rectification of invoices/reclaim of input tax credit shall be allowed after due date for filing of return for the month of September of the following year or date of filing of Annual Return, whichever is earlier. For example, the invoice pertains to Financial year 2016-17, then in that case it should be rectified before filing the return of September 2017 i.e 20^th October 2017 or date of filing of annual return for F.Y. 2016-17 whichever is earlier, It is important to note that in case such period passes away then no such rectification is allowed and input tax credit related to them will be lost.

This mechanism of matching mismatching seems to be highly automated and thus all the returns of selling dealer as well as purchasing dealer will be linked with each other, so that any change on one side will be correspondingly reflected on the other side. Therefore, both the seller as well as purchaser is required to be very careful in filing the returns and in uploading sale / purchase details. Even a slight mismatch in the details will lead to unnecessary demands and may also lead to litigation for recovery of tax. In the whole process, it may be observed that Government is at no loss. Whatever deposit is made by the seller would be available to the purchaser and in case of mismatch Government will immediately recover the output tax from the purchaser. It is also required to have a close check by the purchaser on the sales details filed / uploaded by the seller and on noticing  any discrepancy  an immediate follow up will be required for correcting the same with the seller otherwise it will result in demand on the purchaser.