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input credit, Goods and Services Tax - GST

Issue Id: - 118298
Dated: 23-12-2022
By:- ashwin jivanlal
input credit

  • Contents

Section 16 of CGST Act Povides Claims of Input Tax Credit,

sub section c of section 2 of section 16 put restriction on receiver of good/services on the basis of of credit reflected in 2B, receiver can claim credit only if supplier has filed form R1 and it is reflected in 2B.

sub section (d) of section 2 of section 16 provides that if receiver has not made the payments to supplier whithin 180 days from date of bill the receiver needs to reverse the input credit and liable to pay along with interest,

MY QUERY;

if supplier has paid tax and filed his form F1 showing the tax paid by him but receiver did not pay to supplier in 180 days , as per sub section c of 2 of 16 receiver can claim input credit but as per sub section(d) of 2 of section 16 receiver has not made payments to supplier in 180 days he has to reverce the credit and to pay with interest..

goverment has received gst payments in time the sufferer is supplier why gst is to be paid twice on same transaction double with interest? one supplier has paid in time and on reversal receiver will pay with interest. pl. answer.

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Posts / Replies

Showing Replies 1 to 15 of 25 Records

1 Dated: 23-12-2022
By:- KASTURI SETHI

The clause of 180 days is a sword on the receiver/buyer to pay the whole amount of the invoice to the supplier before the expiry of 180 days. It is in the interest of the supplier. The supplier's payment should not be held. It is also not the intention of Govt. to charge tax twice.


2 Dated: 24-12-2022
By:- Amit Agrawal

I agree with Shri Kastruri Sethi Ji!

Concept of ease of doing business works only holistically - from point of supplier as well as buyer & overall trade practices etc. - and not from point of view of only one / singular element of entire trade / business.

Anyway, second proviso of Section 16 (2) (d) comes into play only when there is failure to pay even after passing of 179 days from date of invoice & not otherwise. If there is no 'failure' to pay, recipient continues enjoying ITC from day one (i.e. when he become eligible to avail such ITC) even though supplier had paid such taxes long back w.r.f date of invoice.

And, these are policy decisions taken by Govt. of the day and same is one of conditions put to vail ITC. In my view, challenge to such provisions on unconstitutionality grounds, will not succeed.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.


3 Dated: 24-12-2022
By:- Amit Agrawal

* please read - in above post as" ...............when there is failure to pay even after passing of 180 days from date of invoice ......'


4 Dated: 26-12-2022
By:- Shilpi Jain

However, one good thing is that once payment is made to the supplier credit can be taken without any time limit. So here govt. does not get unjustly enriched. Though, yes, interest is an additional cost for taxpayer and benefit for Govt.


5 Dated: 27-12-2022
By:- Alkesh Jani

Dear All,

I find myself irresistible to express my view in this healthy discussion.

In agreement to views expressed by our experts, legally, when there is no consideration, it is not a supply, and also it cannot be termed for business or furtherance of business. Therefore consideration element is must for the purpose of supply. However, considering various market trends of the sectors, such a s garment industry , credit terms are approximately, 3 to 5 months, automotive parts, the credit period may be of 6 to 7 months etc. therefore law maker in their craftsmanship has given grace period of 180 days.

Regards, Input tax credit, it is to be earned, so if consideration is not given to supplier, it cannot be said it is earned. Although, it is not a supply, credit is allowed to be taken by the recipient and period of 180 days limit is set, if not paid to the supplier, reversal is must and interest is to be paid because, credit is availed without consideration.

Experts are requested to correct me if I am wrong.

Thanks


6 Dated: 27-12-2022
By:- KASTURI SETHI

Sh.Alkesh Jani Ji,

You have echoed my views in toto. Late-cut !!


7 Dated: 27-12-2022
By:- Amit Agrawal

'Failure to pay' comes into picture only when recipient was liable to pay to the supplier within 180 days from date of invoice. If payment-terms of the contract is for lengthier period - say 8 months - from date of invoice, there is no 'Failure to pay' to the supplier at the end of 180 days from date of invoice and second proviso u/s 16 (2) (d) will not come into picture immediately at the end of 180 days from date of invoice.

In such a case, second proviso u/s 16 (2) (d) will come into picture only after non-payment of consideration even after the lengthier period agreed (i.e. 8 months, in the example taken) as commercially agreed between supplier and recipient.

Similarly, as per general trade practice followed for 'Equipment / Machinery / Large system - supply and installation contracts' etc., some amount - say 10% of entire consideration - is payable by the recipient only after long period - say 1 to 3 years from date of installation & successful trial run - as per commercial terms agreed between supplier and recipient. Even in such case/s, there is no failure to pay for such balance consideration (10% in given example) at the end of 180 days from date of invoice and second proviso u/s 16 (2) (d) will not come into picture immediately at the end of 180 days from date of invoice for such balance consideration so remanding unpaid.

Hereto, Second proviso u/s 16 (2) (d) (for such balance consideration) will come into picture only after non-payment of such balance consideration even after the lengthier period agreed (i.e. 1 to 3 years from date of installation & successful trial run, as per example taken) between supplier and recipient.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.


8 Dated: 27-12-2022
By:- Alkesh Jani

Shri Kasturiji Sir, & Shri Amitji,

Thanks a lot Kasturiji Sir,

Shri Amitji, your views are surely acceptable and also debatable, but views expressed were for the query raised without any circumstances stated.

With Regards


9 Dated: 27-12-2022
By:- Amit Agrawal

Dear Shri Ashwin Jivanlal Ji,

My views in post at serial number 2 above, were for the query raised without any circumstances attached.

W.r.t. my views in post at serial number 7 above, same were in continuation of discussion & in context of views subsequently shared by my learned colleagues. For example: Non-payment of consideration cannot be equated to non-existence of consideration, in my humble view.

Despite some interpretation & application issues about second proviso u/s 16 (2) (d) which may be there (as generally being the case for majority provisions of law), I think that we all (i.e. people who has responded to your query, till date) agree that said condition (i.e. by way of second proviso u/s 16 (2) (d)) - by itself - is valid & tenable under law.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I fully respect contrary views.


10 Dated: 27-12-2022
By:- KASTURI SETHI

Regarding the period of 180 days, I am of the view that no agreement can be executed between the supplier and the buyer in violation of Section 16 of CGST Act.


11 Dated: 28-12-2022
By:- Amit Agrawal

In my most respectful submission, Section 16 does not bar any supplier & recipient to enter into a contract of supply between them where mutually agreed terms of payment are beyond 180 days from date of invoice.

I also feel that there is marked difference between '.... where a recipient fails to pay to the supplier ..... ' (the wordings used in second provisio u/s 16 (2) (d)) and '....... where a recipient does not pay to the supplier ......' (the wordings which are not used in second provisio u/s 16 (2) (d)). And both type of these wordings cannot be read as equal / same, in my view.

And, in my humble view, subsequent non-payment of consideration cannot negate the fact the fact that supply indeed took place (with due consideration) earlier.

My various posts earlier here are with this understanding of mine of relevant legal position/s.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I fully respect contrary views.


12 Dated: 29-12-2022
By:- Alkesh Jani

Shri Amitji,

Your views are really appreciable as they are backed by force of law, let me first clarify my reply at Reply No.08 above, where surely acceptable means, it should be acceptable by law, and debatable means, when any doubts are raised it can be cleared by way of debate.

To gain knowledge, few questions arises for the views expressed at reply No.7 and are as under:-

1. can a contract be unlawful, or any clause is made, so as it may defeat the provisions of any law for time being in force?

2. can a contract be made where one party is unable to comply with any provisions of law time being in force?

3. As per GST Provision, if consideration is not paid within the limit set can be termed as “failure to pay”?

4. interpretation of a proviso can be done independently?

Thanks in advance

With Regards


13 Dated: 29-12-2022
By:- Amit Agrawal

Dear Shri Alkesh Jani Ji,

First, please be clarify that I missed the fact that Post No. 8 was from you. I somehow thought the same is from original querist (as I had expounded my thought-process in post at serial No. 7). And hence, my reply at serial No. 9 was actually addressed to him. My apologies to you and Shri Ashwin Jivanlal Ji, the original querist for this misunderstanding!

Now, please let me try to answer questions raised by you, to the best of my understanding of law in the context of subject discussion & my earlier posts. (I find that some of your questions are open-ended and cannot be answered - at-least by me - without context behind those questions raised).

1. can a contract be unlawful, or any clause is made, so as it may defeat the provisions of any law for time being in force?

My views: Section 16 - or for that matter, any provisions of GST law - does not bar any supplier & recipient to enter into a contract of supply between them where mutually agreed terms of payment are beyond 180 days from date of invoice. Having such mutually agreed terms of payment does not defeat subject proviso under discussion here.

2. can a contract be made where one party is unable to comply with any provisions of law time being in force?

My views: I have not understood the question in the context of discussion about second proviso u/s 16 (2) (d).

3. As per GST Provision, if consideration is not paid within the limit set can be termed as “failure to pay”?

My views: There is no time limit set for payment of consideration under GST law and hence, there can not be “failure to pay” as per GST Provision/s.

4. interpretation of a proviso can be done independently?

My views: I have not understood the question in the context of discussion about second proviso u/s 16 (2) (d) read with main provisions of Section 16 (2) or Section 16 (1) for that matter.

I also wish to draw attention of wordings used for proviso under Rule 4 (7) of Cenvat Credit Rules, 2004 which reads as follows:

"Provided further that in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9 is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service, except an amount equal to the CENVAT credit of the tax that is paid by the manufacturer or the service provider as recipient of service, and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules:"

This further support, to my mind, that there is marked difference between '.... where a recipient fails to pay to the supplier ..... ' (the wordings used in second proviso u/s 16 (2) (d)) and '....... where a recipient does not pay to the supplier ......' (the wordings which are not used in second proviso u/s 16 (2) (d)). And both type of these wordings cannot be read as equal / same.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I fully respect contrary views.


14 Dated: 30-12-2022
By:- Alkesh Jani

Shri Amitji,

I am impressed with your reply and please accept my thanks for that. Just few more query and I will conclude the discussion from my end.

1. If the contract period is more than 180 days, will it have overriding effect to the subject proviso?

2. Will this contract effects, the time of supply?

3. What procedure is to be followed for availing the ITC, and when to reverse or not to reverse, with illustration, if possible.

4. Please explain the word “within” 180 days, in the said proviso

After your reply this will be worth desktop saving discussion.

Thanks once again.


15 Dated: 30-12-2022
By:- KASTURI SETHI

Dear Sh.Alkesh Jani Ji,

I am influenced/moved with your insightful questions.


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