Disallowance of ITC post Assessment

This query is : Resolved

mangesh chitnis (Querist)
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12 January 2022 I have been assessed by MVAT department & order has been passed accordingly. Further I had filed an appeal for some reason. Meanwhile Dept received a letter from another MVAT department where 1 of my supplier was registered, stating to disallow my ITC received from that particular supplier as he has huge dues to MVAT department & is not traceable now.
During Assessment my J2 was matched with his J1 so I received 100% ITC credit. But as per aforesaid letter ITC will be disallowed. Can Department disallow that ITC? & what must be our steps to avoid disallowance? Please suggest
Thanks & Regards

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 In your situation, where the MVAT department has received a communication regarding your supplier's dues and potential disallowance of Input Tax Credit (ITC) claimed from that supplier, here’s how you can approach it:

### Can Department Disallow ITC?

1. **Disallowance of ITC**: The department has the authority to disallow ITC claimed if they find that the supplier has not deposited tax or has other dues pending with them. This is typically done to prevent revenue leakage and ensure compliance with tax obligations.

2. **Reasoning**: The disallowance is based on the premise that if your supplier has not paid their tax dues or is not traceable, the credit claimed by you (J2) against their sales (J1) may not be valid under tax law.

### Steps to Avoid Disallowance:

1. **Verification of Supplier Status**: Verify the status of your supplier with whom you have claimed ITC. Check if they have any outstanding dues with the MVAT department and if they are compliant with tax filings.

2. **Communication with Supplier**: Contact your supplier to clarify their tax compliance status. Request them to settle any outstanding dues with the MVAT department promptly.

3. **Documentation**: Maintain thorough documentation of all communications, invoices, and payment proofs with the supplier to demonstrate compliance with tax laws.

4. **Legal Representation**: Engage a tax consultant or legal advisor who specializes in MVAT to assist you in responding to the department’s communication effectively.

5. **Appeal Proceedings**: If you have already filed an appeal against the assessment order, ensure that you provide all necessary documents and arguments to support your claim for ITC during the appeal process. Highlight any steps taken to verify and ensure the supplier's compliance.

### Immediate Actions:

- **Respond Promptly**: Respond to the department’s communication promptly, acknowledging the issue and providing necessary details regarding your supplier and the transactions involved.

- **Cooperation**: Cooperate with the MVAT department by providing any additional information or documentation they may request to resolve the matter.

By taking proactive steps to verify supplier compliance and providing clear documentation, you can strengthen your case against the disallowance of ITC. It’s crucial to act swiftly and comprehensively to address the department’s concerns and protect your claim for ITC during the appeal process.