Input Tax Credit, Goods and Services Tax - GST

[santosh phulse]

"According to the existing provisions under the draft law, the buyer can claim input tax credit only if the seller or provider of the goods or services has paid the tax charged for such goods or services.This has put the onus of ensuring compliance with the customer or buyer of the goods and services."
-This particular clause in the draft GST law seems unfair to the business community and should be removed.

Posts / Replies

[KASTURI SETHI]

Dear Sir,

This has been proposed to be enacted in GST in order to make the facility of cenvat credit fool proof. In the present Cenvat Credit Rules, earlier also onus was cast on the person who avails Cenvat Credit.

[CS SANJAY MALHOTRA]

Dear Sh. Santosh ji,

Tax credit provisions are defined considering the Tax leakages and Revenue protection. If supplier collects tax from us and not deposit the same in Government treasury, then we too become part of this failure, i.e. why the provisions has been drafted.

Tax provisions has to be seen from economic prospective rather than Individual prospective. Tax credit provisions in GST are similar on the pattern of Income Tax TDS deduction, which if not paid by Deductor into Govt. treasury and further not shown in Income Tax TDS return would not enable assessee to avail Tax credit.

[Ganeshan Kalyani]

Sir, I agree with the views of Sri Kasturi Sir and Sri Sanjay Sir.

The tax provisons need to be seen in the interest of the Nation and not as an individual interest. The Government has well thought about the tax credit mechanism and come out with such provision in upcoming GST. Even now in present VAT regime, the input tax credit claim of the purchaser is first matched with the suppliers ledger before allowing the credit to the purchaser. The supplier uploads his taxable sales with TIN in his return and shows the tax that it he has paid, based on which the authority with the help of system does cross checking as to whether the TIN of purchaser is appearing in the details and allow the credit if appears. If there is any difference in the tax amount shown by the supplier with the credit amount claimed by the purchaser then the purchaser in order to claim set off has to get written confirmation from the supplier and produce the same before the authority to become eligible to claim the set off.

In GST, as well, the same system as that of VAT is proposed. An assessee shall get tax credit of those tax which he has paid on his purchases only when the supplier has paid the tax. This would be monitered through VAT Credit Ledger in GSTN.

An assessee might think that his primary motive is to carry out business and not to check whether his counter party has paid the tax collected or not. But if we think from the eyes of authority then we can understand that for tax authority to check whether assesses are paying tax or not would be tedious job. Also the authority shall have to issue notices and may have to start proceeding as well which would be troublesome to assessee. So in my view it is better that such provision is proposed where the said task is delegated to assessee. Since both the parties are having good business relations they can sought the issues amount themselves.

The idea is great which would minimise the intervention of the tax authority and encourage ease of doing business.

Thanks.

[YAGAY AND SUN]

Such provisions has been enshrined in GST Model Draft Law to counter the judgements of various High Courts that Input Tax credit shall be available to buyer of the goods, even if seller has not deposited the VAT. In the matter of Geru Lal the Hon'ble Punjab and Haryana High Court has pronounced such judgement in favour of the Dealer and against the Revenue.

To stop the menace and mis-utilization of such verdicts, the Delhi VAT Department had come with a unique feature in its VAT Laws to reconcile the 2A and 2B statements and in recent time, the DVAT Department has come with coding systems of items which shall be mentioned in the purchasers' and sellers' return and invoices to reconcile the correctness of transactions.

Even in earlier times the Central Excise Department to check the availed Modvat Credit and Modvat credit availed above ₹ 10000/- the details/xerox copies used to send the seller's jurisdictional Range Office for its authenticity.

This is not a new feature which has been incorporated in the GST Model Law. As rightly indicated by Mr. Ganeshan, by doing so, the interest of our Country in tax matter has been taken care of.

[santosh phulse]

Respected Sir,

If a supplier has failed to furnish the return on time or pay tax on time, the government should penalise the supplier instead of the buyer. “This clause is especially harsh on small and medium enterprises (SME). Since, big businesses deal with multiple vendors, they might be reluctant to buy from small vendors fearing non-compliance. The volume may shift to much bigger organised players,”

Smaller companies will not have the sophisticated technology to track or verify compliance while bigger companies who source components from multiple vendors would find it difficult to track and verify compliance by each and every vendor. This will lead to wastage of time and money,” the government should put forward for claiming input tax credit is whether the buyer has paid the tax on his purchases or not.

The industry has already raised this issue with the ministry of finance and is expected to lobby hard for the removal of this clause before the final bill is approved.

[CA Surender Gupta]

I also do agree with concern that sometimes the buyer may be at loss due to non uploading or incorrect uploading the details by the supplier in for form of GSTR-1.

But I like mention here that similar fear was there when TDS was made online, it is rare or few exceptions may be there, but substantially, there is no complaint that the deductor of TDS has not uploaded the TDS details of the deductee.

I do believe that, the fear of deficit of trust between the supplier and buyer must be eliminated and the environment of mutual trust and responsibility must be allowed to grow. As you know, because of few persons / business entities engaged in wrongdoing, all genuine persons / business entities are finding it difficult to do the business honestly.

[KASTURI SETHI]

Dear Experts,

I have come across a Trade Notice issued by Central Excise Commissionerate, Chandigarh-I on the issue. It explains why responsibility is cast upon service receiver.. Copy is appended below:

A copy of Trade Notice No.10/12 dated 13-7-2012 issued by Chandigarh Commissionerate-I on the issue.

I do not know what is the present position of this trade notice.

 

[Ganeshan Kalyani]

Sir, thanks Sri Kasturi Sir, for sharing the information.

Sri Santosh Ji, I would like to state that in GST the proposed threshold limit for registration and conplaince is ₹ 10Lacs. If I believe this is very minimal which even small vendors would be able to achieve. So there would be no small dealer or big dealer is GST. The number of assessee base will increase. All have to comply. Yes dealer need to have dedicated staff in the office to look after GST compliance. Those suppliers who have not paid tax should be requested to comply and set right. Such activity will be a continuous activity.

Sri CA Surender Ji, I fully agree with your view. Sir with due respect, I would like to state that in TDS the deductor of tax is required to issue Form 16A to the deductee to enable him to claim tax credit. The TDS deducted is also gets reflects in 26AS which the deductee is also able to see. If there is any difference in the tax so deducted, then the deductee requests the deductor to file revised tds return by rectify the error. In GST whether such requirement of issue of Form would be there or like the system of 26AS would be there is a question mark as of now. Sir, also TDS is quarterly conplaince whereas GST would be monthly conplaince. This also will demands time of the dealer.

Sir, change is certain. It gives problem in the beginning but the fruits would be sweet. Likewise the provisions as included in the draft law would yield good result in long run. Thanks.

[Ganeshan Kalyani]

Sir, I believe each dealers in the chain of GST should be made aware of such problems when tax is not paid by one of the party in the chain of tax credit. Thanks.

[santosh phulse]

Sir, this is little bit complicated. How can a buyer, who has 100s of suppliers, ensure that the each of the suppliers has paid the tax collected by them into the Govt treasury??? And whether they have accounted for each transaction (including the supply to the given buyer) and calculated his tax liability properly,etc. A lot of times, supplier could be much larger in size and the buyer is not in a position to demand the details/proof of his tax payment in time to be able to file his own GST return in time. There could be instance where the buyer has made an advance payment of goods to his supplier (obviously including GST) and the supplier has not deposited the tax to Govt due his genuine liquidity issues or intentionally. What happens in such cases, where the buyer has genuinely paid his tax and yet cannot get input credit?

The buyer cannot be expected to ensure a third party compliance. That is the job of Tax Administration.,

[KASTURI SETHI]

Sh.Santosh Phulse Ji,

This is era of high technology. Every thing is possible. The system will disclose each and every aspect/deal/transaction. GSTN will prove revolutionary and it is only a matter of time. Govt. of India is making all-out efforts in this aspect. Though there may arise teething troubles, yet GST will be successful through GSTN. Time will come when people will work from home through the System/internet. So much will be the importance of technology.

[CS SANJAY MALHOTRA]

Dear Mr. Santosh ji,

Am in agreement with Sh. Kasturi ji. We have taken up this issue with the Board also to work out alternative so that the purpose of Govt may not be defeated. In connection with same, we were told that Govt wants us to be one of the stakeholder in ensuring compliance by taking up with our suppliers to pay tax timely, when we are reimbursing the same to them.

In sales tax, majority of states have matching concept and if balances does not reconcile, they call for Account Ledger to validate that all payments have been made by recipient of goods and accordingly allow credit.

Understand your concern which is common in Industry as resistance to change is always there. Proposal has been put across Board to review whether the liabilities of supplier can be made good by recipient from the outstanding payment due to the supplier as exists in Section 87 of Finance Act 1994.

Lets wait till GST Council meet and review the concerns.

[MUKUND THAKKAR]

Dear Santoshji,

if you feel condition of credit is unfair.. please donot relase the tax amount unless and until not confirm of depostion. after the deposition you may pay the tax amount. and also putting the condition in your purchase order. This is the best solution I think. In case of advance payment you may follow the same procedure.

[KASTURI SETHI]

Sh.Mukund Thakkar Ji,

De facto, it is practical as well as feasible advice.

[Ganeshan Kalyani]

Sir, I agree with Sri Kasturi Sir and acknowledge the efforts of Sri Sanjay Sir and Sri Mukund Ji as well who has shared the practical solution to handle the problem that is ought to come.

Sir, I remember when I used to go to Bank some years ago, all the staff were comfortable with the manual books of accounts. That was easy for them to maintain. Now with the computerisation those books got reduced and most of the books are now computerised. In the beginning the Bank staffs were facing so many issues. The queue in the Cashier window used to turn longer. All the customers were making hues and cry. Then with the passage of time they got trained and they are now able to propose their work very fast and within a short time the account holders banking work gets over. Such is the power of computerisation.

Really the corporate world is going to see a sea change. Thanks Sri Kasturi Sir for highlighting the positive part of the proposed change. Thanks.