ICAI, trade bodies seek Input Tax Credit claims deadline extension

Trade and industry bodies could lose a huge amount of input tax credit (ITC), which could hit their profitability and cash flow if they fail to match their ITC claims under goods and services tax (GST) with the returns filed by vendors by tomorrow.

They are aggressively lobbying with the finance ministry, Central Board of Income Taxes and Customs (CBIC) and GST Council to extend the last date for filing ITC claims – October 20 – so that the date for filing ITC claims is properly aligned with that of vendors' filing of returns for their reconciliation.

A letter shot off by The Institute of Chartered Accountant of India (ICAI) to finance minister Arun Jaitley and copied to Hasmukh Adhia, finance secretary – Department of Revenue and other government officials last weeks, sought extension of the deadline for filing ITC claims to December 31.

Listing 12 reasons for its request, the accountants' group said the way the dates for filing returns were currently set, it was "impossible" to ensure that claims matched with the vendors' returns.

"As disclosed by official statistics, at least 30-35% of the registered taxpayers, who have filed GSTR-3B returns (for ITC claims), have not filed the GSTR 1 returns (reflecting vendors' returns). In such a situation, it is impossible for the recipient to confirm by October 20 that credit has correctly been availed for in invoices issued up to 31/3/18," states the letter written by Navin N D Gupta of ICAI last week.

The letter, a copy of which is with DNA Money, said, "Further since complete GSTR-2A becomes available only in May 2018 (with the last date for GSTR1 of March 2018 being May 2108), an additional time need to be provided to recipient to take up cases with vendors where they have either not uploaded the invoices or filed their GSTR 1 and get them to take appropriate action".

The crux of the whole issue is that if the companies' ITC claims filed by October 20 do not match with their vendors' returns, it will be rejected. And since this was on an annual basis, it gets locked and they will not get a chance to correct it and so it would be lost forever.

Rajeev Dimri, partner, Deloitte Touche Tohmatsu India LLP, said the loss of ITC due to mismatch of invoices could be a significant number. "Even if we deal with a fraction of ITC claims, it is a large amount of money".

He said this would hit the profit of a company.

Another executive with a leading accounting firm said one his client with a turnover of Rs 500 crore had a credit mismatch of Rs 12 crore. He said this would be a direct hit on the company's profitability and cash flow.

"It will impact the profit because this credit has already been assumed in the past and now when there is a mismatch they will have to do a reversal of credit taken. When they do the reversal of credit taken that means for the month of September they will have to pay more tax. That is how it will hit the profit and cash flow," he said.

M S Mani, partner, Deloitte India told DNA Money this loss would not be due to compliance lapses, but because of the technicality of filing returns.

"Since this is the first year after GST and because the first year has seen several returns and portal related changes, an extension of the timelines for matching the credits for FY 17-18 should be considered. There would be a significant loss of credits for businesses otherwise, which would be unfortunate, as these are not on account of their compliance lapses, but of their vendors," he said.

Dimri also said since this was the first year of GST with many technical and other glitches encountered by taxpayers, it would be prudent for the government to give more time for filing of the ITC claims.

"At a macro level, this is the first year and therefore a lot of people are still gearing to come to grips with things. The basic approach of credit is I will only get credit provided if you have charged me tax and I have been able to confirm that you have been able to deposit tax – your output and my input have to match. What is happening is there is a slight mismatch in the pace. I have to claim all my credit and file my returns by October 20 whereas my vendors have to file it October 31. So, if my vendor reports differently than I have then I have a problem and I don't have the ability to change it," said Dimri, explaining the issue.

According to him, corroboration in terms of stating of places by companies and vendors were also invariably on failing on the GST information technology (IT) system. "You may have shown your transaction in Haryana and I have shown it in Delhi. This could be because we have applied different interpretations of the law. So, while there is no doubt in the tax, but the state by state matching may not always work because most companies are doing it for the first time ever".

Dimri said input difference between an ITC claimant and a vendor was also leading to large scale rejections.

"Inputting variations between the two returns was also causing issues. You write a date in a certain way and I write a date in a certain way. I write a slash and you write dash – very minor details that you and I don't seem to care about, but because it is a very precise thing I have to input details exactly the way you have done. We are seeing that it is leading to a lot of mismatches," he said.

Giving an example, the Deloitte executive said, "Say if an invoice written by a supplier as Del-17-2018, but if I change the dash to a / or / to a dash, your data and my data will not match. It is not fudgy logic, the GST IT system's matching is exact to exact".

Dimri said the industry and trade bodies were only talking about credits they were entitled to. "We are not dealing with unentitled credit here. I have no sympathy if the credits are not due. Here, we are talking about genuine credits, which are entitled but for very small clerical issues or mismatches, where companies have not been able to get their processes right and there is a mismatch. That's where the unintended denials will happen for all intent and substantive purposes. These are eligible credit, which means there are no reason for them to be denied."

He said due to these wrong rejections of credits, companies would lose money and would have to bear the cost that it should not. "I was entitled to a credit, but because of clerical or technical reasons I become unentitled. This means I will have to put from my (company's) pocket. Indirect tax is something that should never go out of my (company's) pocket, but the basic fundamental of a direct tax and indirect is; direct tax is something that I am supposed to pay but I cannot recover from you or anybody else. I have to pay from pocket, but indirect tax is something that I am not supposed to pay from my pocket. I have to pass it on to the consumer. Denial of (entitled) input tax credit to me, would mean I would have to pay this money from the pocket. So something that was never my cost becomes my cost," he said.

INPUT MISMATCH

• Industry bodies lobbying with the finance ministry, CBIC and GST Council to extend the deadline to December 31
   
• At least 30-35% of taxpayers who have filed GSTR-3B returns (for ITC claims) have not filed the GSTR 1 returns (reflecting vendors' returns).