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Hyderabad, Apr 23 (KNN) In a move that would have a significant impact on businesses that use tax credits available on inputs and raw materials to reduce payment in cash, the Telangana High Court has ruled that no input tax credit (ITC) is available unless GST returns are filed and a taxpayer is liable to pay penalty on the entire liability.

In other words, the court’s judgment said that until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place. As a consequence, no payment can be made from out of such a credit entry.

"...until a return is filed as self-assessed, no entitlement to credit and no actual entry in the electronic credit ledger takes place.As a consequence, no payment can be made from out of such a credit entry," Justices V Ramasubramanian and P Keshava Rao said in a case involving Megha Engineering & Infrastructures and GST Authorities.

The company had delayed filing the GST returns from July 2017 to May 2018 when its tax liability added up to Rs 1,014 crore. It had ITC of Rs 968 crore and it claimed that the shortfall was to the tune of Rs 45 crore.  While the tax authorities demanded 18% interest on the entire amount, Megha Engineering argued that interest should only be calculated on the net tax liability, after deducting ITC from the total liability. The court upheld the department's view.

The Judgment further said, "If we take a common example of banking transactions, this can be illustrated much better. An amount available in the account of a person, though available with the bank itself, is not taken to be the money available for the benefit of the bank. Money available with the bank is different from money available for the bank till the bank is allowed to appropriate it to itself.

Similarly, the tax already paid on the in-puts of supplies of goods or services, available somewhere in the air, should be tapped and brought in the form of a credit entry into the electronic credit ledger and payment has to be made from out of the same. If no payment is made, the mere availability of the same, there in the cloud, will not tantamount to actual payment,” it added. (KNN Bureau)