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Input tax credit in gst

CA Amrita Chattopadhyay (Audit & Assurance) (13029 Points)

21 March 2017

Request your guidance with regard to the following query: Reference: Chapter V Input tax credit; Section 16 (e) of GST Law (Revised)

If payment is not made to the supplier within 90 days, I understand that input credit will get reversed. Now, the question is if it applies to sale of goods also or it is restricted to services.

Hence, request your opinion on this

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CA Shree Jain (Chartered Accountant) (1572 Points)
Replied 21 March 2017

The Government circulated draft of the GST Model Law requesting for suggestions from the industry . The industry and experts have been poring over the draft. The article seeks to highlight the need to reconsider one of the provisions related to input tax credits. The proposed GST Legislation appears to deny tax credit in relation to input services for which payments are made after three months of the date of the invoice of the supplier. In fact the proposal mandates payment of interest inaddition to the denial of credit.

Also, under the current legislation,customer can re-claim the credit reversed earlier on making payment against the invoice. However, a similar provision is missing under GST and consequently may result in permanent loss ofinput credit of tax paid earlier.

It appears that this proposal was inserted to mitigate benami transactions. This anxiety is clearly misplaced for several reasons: A) The compliance prescribed un der the GST regime requires every person making a supply to upload transaction wise de tails on to the GST network and input tax credits are available to purchaser only where the tax as reported by the supplier is actu ally deposited. It is evident that therefore there is very little pos sibility of any revenue leakage or wrongful claiming of credit. B) Any supplier charging tax would need to necessarily reg ister and report the transac tions. The Government will have all the information and can identify and pursue any suspicious activity . It needs to be appreciated that the GST compliance regime is a para digm change from the present framework and the potency of the GSTN in curbing tax eva sion or abuse has not fully been appreciated.C) The proposal mandating effec tive reversal of credit and im posing interest actually is dou ble taxation on the same service. Given that the suppli er has already paid tax and the amount equivalent of credit taken is sought to be recovered from the customer, will clearly result in cascading tax. While the intention to curb abuse is laudable penalising the whole industry is daunting.

The Government necessarily needs to be sensitive to the negative impact on the Industry both in terms of cascading tax impact, double taxation and also the uncertainty that the possibility of denial of credit leads to. There can be several genuine reasons on account of which payments could get delayed. These reasons could range from innocuous issues such as delay insending invoices by a supplier or time taken for processing such invoices to issues related to commercial disagreements. Every denial of tax credit only on account of delays in payment will result in increase in cost. Such a provision may not align with a progressive GST Regime, which aims to eliminate double taxation and minimisecascading of tax as also ease in compliance and administration

1 Like

Kaushal Singh (CA final) (38 Points)
Replied 21 March 2017

Thanks for your information

CA Amrita Chattopadhyay (Audit & Assurance) (13029 Points)
Replied 21 March 2017

Thanks for the complete Chapter - V. My query still remains. The period of 90 days is applicable only for services or it is also applicable to Goods as well. As all the GST provisions will be applicable to goods as well as services

Manjeet (none) (22 Points)
Replied 21 March 2017

it's basically for services only and not for the goods

CA Shree Jain (Chartered Accountant) (1572 Points)
Replied 25 March 2017

PROVIDED FURTHER that where a recipient fails to pay to the supplier of services, the amount towards the value of supply of services along with tax payable thereon within a period of three months from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in the manner as may be prescribed.