Page 37 - GSTL_23rd July 2020_Vol 38_Part 4

2020 ] REVERSAL OF CREDIT AS PER SECTION 17(5) AND SUO MOTU RE-AVAILMENT J95
The above issues have been considered by the CESTAT and High Courts
[ICMC Corporation Ltd. v. CESTAT, Chennai reported in 2014 (302) E.L.T. 45
(Mad.) and Krishnav Engineering Ltd. v. CESTAT reported in 2016 (331) E.L.T. 391
(All.)] in a series of cases where it has been consistently held that where the cred-
it reversal is merely an account entry reversal and since there was no outflow of
funds from the assessee, there is no requirement to file an application under Sec-
tion 11B for claiming refund. The Courts have also consistently held that since
the reversal of credit is only an account entry reversal, credit reclaimed, upon
intimation to the Department is in line with the procedure provided under Rule 9
of the Cenvat Credit Rules, 2004.
Position under GST Law
Where goods held in inventory are either lost, destroyed or donated, ITC
is reversed in terms of Section 17(5) of the CGST Act. If the lost inventory is sub-
sequently discovered, the question that arises is whether the assessee can reclaim
input tax credit in the month in which the inventory is rediscovered.
If the goods that were lost are subsequently discovered and added back
to the inventory, then the credit eligibility of the assessee is reinstated as if they
were always eligible to avail credit under Section 16 of the CGST Act. Judicial
precedents in the previous regime also hold that such re-availment of credit is
merely the reversal of an accounting entry and therefore, no specific provision is
required for such re-availment.
Under GST Law, re-availment of reversed credit is specifically allowed
by the third proviso to Section 16 of the CGST Act. It provides that where credit
had been reversed for non-payment of consideration within 180 days under the
second proviso to Section 16, the recipient of goods/services shall be entitled to
avail credit of such input tax upon payment of the consideration along with the
tax payable.
While examining eligibility to re-avail input tax credit reversed as per
Section 17(5), analogy may be drawn to the third proviso to Section 16. For Sec-
tion 17(5) reversals also, where an assessee has been able to establish that the
event triggering reversal has been nullified, it can be argued that the assessee’s
eligibility to credit is re-established.
Therefore, even in the absence of a specific provision enabling re-
availment of credit reversed under Section 17(5), it can be concluded that even
under GST Law, where the eligibility is re-established, credit can be re-availed
suo motu.
Further, since no specific document is prescribed in law for reclaiming of
credit earlier reversed, it is advisable to retain a trail of documentation to estab-
lish the credit eligibility. In any case, in line with the judicial precedence, it is
prudent to inform the Department when credit is being reclaimed after reversal.
Does any time-limit apply for such re-availment?
Rule 37(4) of the CGST Rules, specifically provides that the time-limit
prescribed under Section 16(4) shall not apply to a claim for re-availing of any
credit in accordance with the provisions of the Act or the provisions of Chapter V
of the CGST Rules. Therefore, by a reading of the third proviso to Section 16 and
Rule 37(4), once the consideration has been paid, credit reversed earlier may be
re-availed and that no time-limit shall apply for such re-availment.
[Continued on page J98]
GST LAW TIMES  23rd July 2020  37