Companies that were asked to pay additional indirect taxes on certain imports have come under the taxman’s lens again for availing of input tax credit on the additional amount paid earlier as penalties.
The Department of Goods and Services Tax (DGST) has started issuing notices to the importers for availing of the tax credit against the additional GST paid.
According to the people aware of the matter, current regulations allow importers to ascertain valuation of their imports and pay GST and other duties on that. In most cases, importers provide valuation detail through the bill of entry — a legal document that is filed on arrival of the imported goods.
The tax department in the past two months initiated an inquiry into the bill of entry and discovered discrepancies in the valuation of many imports. Importers were then asked to pay additional taxes for goods imported in 2018/19 as penalty.
The question now is whether the importers can avail of input tax credit on the additional taxes paid for the past years.
Under the GST framework, input tax credit is essentially taxes paid on raw materials (or input services). This can be used to reduce future GST liability.
So, for instance, a company had imported goods worth Rs 100 and paid Rs 18 as taxes on that. Tax department’s scrutiny found that the goods should have been valued at Rs 150 and additional taxes of up to Rs 9 should be paid.
The company could avail of input tax credit for the Rs 18 paid in taxes in the first tranche. But many companies have even added Rs 9 towards the input tax credit, and the tax department has issued notices in such cases.
People in the know said hundreds of such notices have been issued to importers in the last few weeks.
According to a show cause notice from the DGST to an importer that ET has seen, the department has said the company was not entitled to take input tax credit in respect of the additional tax paid on import or supply of goods.
Tax experts say that as per the GST framework, there is a timeframe to avail of input tax credit that is causing the issues.
If the companies are unable to claim it within the next few months, they would not get the credit. This could impact their working capital and some of them may look to challenge this in court, say legal experts.
“The credit restriction does not apply to credit availed on imported goods in case of reassessment of bill of entry which is a statutorily recognised taxpayer document for availing credit. The condition qua time limit is applicable only in respect of invoice or debit note. As a corollary, there cannot be any denial to either credit or refund,” said Abhishek A Rastogi, partner at law firm Khaitan & Co.
“Writ petition can be one of the most effective legal remedies in such cases of unfair denial,” said Rastogi.
