A genuine purchase, a valid tax invoice, receipt of goods and full payment including GST may still leave a buyer facing uncertainty over input tax credit. The reason is that eligibility also depends on the supplier paying the tax to the Government. But how can the buyer independently verify that payment? If credit is reversed because of a supplier’s default, how does the buyer know when it can be reclaimed, particularly where the department subsequently recovers the tax? This article examines the gap between the buyer's compliance obligations and access to the information needed to protect and restore its credit.
Example:
A business purchases goods worth ₹1,00,000 plus ₹18,000 GST. It receives the goods, holds a valid tax invoice and pays the entire ₹1,18,000 to the supplier. The invoice also appears in its GSTR-2B.
From the buyer’s perspective, the transaction is complete. Yet an important condition affecting its input tax credit depends on something outside its direct control: payment of the tax to the Government.
This creates a practical question deserving greater attention: how does an honest buyer verify a condition when the relevant information primarily rests with the supplier and the tax administration?
The legal condition and the information gap
Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 makes actual payment of tax to the Government a condition for input tax credit, subject to Section 41. Payment may be through cash or utilisation of admissible input tax credit. Paying the invoice amount to the supplier therefore does not, by itself, establish that this condition has been satisfied.
The difficulty lies in verification. The buyer can establish receipt of goods, payment to the supplier and the existence of a genuine commercial transaction. Its ability to independently establish the supplier’s discharge of tax on that particular supply is considerably more limited.
1. Does an invoice appearing in GSTR-2B prove tax payment?
For an ordinary domestic purchase, appearance in GSTR-2B reflects the supplier’s reporting of the invoice through the relevant outward-supply statement. It should not be treated as an invoice-specific certificate that the supplier has paid the corresponding tax. GSTN’s explanation of GSTR-2B describes it as an auto-drafted statement drawing on supplier filings and other specified sources.
There are useful compliance indicators. Return-filing status and the portal’s liability-paid percentage can help assess supplier behaviour. GSTN has described the latter as a comparison between system-derived liability and liability paid. However, an aggregate compliance indicator does not necessarily establish payment against an individual buyer’s invoice.
The practical distinction is therefore between evidence that an invoice was reported, evidence that a return was filed and evidence that the relevant tax liability was discharged.
2. What should a buyer obtain and preserve?
As a practical control, businesses can retain:
- Tax invoices, purchase orders and contracts.
- Goods receipt records, delivery documents and applicable e-way bills.
- Bank evidence of payment to the supplier.
- GSTR-2B reconciliations and dated checks of supplier return-filing status.
- Written follow-up on defaults and relevant supplier confirmations.
- A record of credit reversed, the reason for reversal and subsequent developments.
These records help demonstrate the transaction and the buyer’s diligence. They should not be presented as a universal substitute for the statutory conditions.
Similarly, a supplier declaration may support the factual record, but businesses need clarity on when such a declaration is sufficient, what further evidence may be required and how officers will verify information inaccessible to the buyer.
3. When can reversed credit be reclaimed?
Section 41(2) provides for reversal, with applicable interest, where the supplier has not paid the tax. Its proviso also contemplates re-availment when the supplier subsequently pays, in the prescribed manner.
Rule 37A addresses a specific situation: the supplier has reported the invoice in its outward-supply statement but has not furnished the corresponding GSTR-3B by 30 September following the financial year in which the buyer availed the credit.
The rule requires reversal by 30 November following that financial year. It also permits re-availment after the supplier subsequently furnishes the relevant GSTR-3B. The prescribed deadline and applicable interest consequences must be considered carefully; this situation should not be confused with every other kind of supplier tax default.
The buyer consequently needs to track later compliance as well as the original default.
It would be inaccurate to suggest that the portal provides no assistance. GSTN has previously communicated system-computed Rule 37A reversal amounts to affected recipients through registered email addresses. Nevertheless, a reversal communication does not itself resolve how buyers receive reliable confirmation of every subsequent event permitting restoration of credit.
4. What if the department recovers the tax from the supplier?
Consider the same ₹18,000 credit. The buyer reverses it because of the supplier’s default. Later, the department recovers money from the supplier through bank attachment or another recovery mechanism.
Several questions then arise:
- Was the recovery appropriated towards tax, interest or penalty?
- Which tax period and liability did it discharge?
- Does that liability include the supply made to this buyer?
- Was the relevant liability fully discharged or only partly recovered?
- What evidence can the recipient obtain to support re-availment?
A recovery from the supplier should not automatically be equated with an established right to reclaim a particular invoice’s credit.
There is a substantive argument that recovery and appropriation towards the relevant tax liability should matter when assessing whether the tax-payment condition has been fulfilled. However, this is an interpretive argument requiring examination of the facts and applicable procedure.
In particular, where reversal occurred under Rule 37A, its express re-availment mechanism refers to subsequent filing of the supplier’s GSTR-3B. Recovery without that filing should not be assumed to satisfy this mechanism automatically.
Nor should unrelated outstanding dues, by themselves, answer whether the tax attributable to the buyer’s supply has been discharged. The missing link is reliable identification and communication of the relevant payment or recovery.
A clearer verification and restoration mechanism
A practical framework could provide:
- Recipient access to a clearly defined tax-discharge status for relevant supplies or periods.
- Automatic notifications when subsequent supplier compliance permits reconsideration of reversed credit.
- A prescribed confirmation of recovery and appropriation, where relevant to the recipient’s credit.
- Clear guidance on supporting documents and the treatment of partial recoveries.
- A process for buyers to request verification from the department.
These are suggested improvements, rather than a statement that such facilities presently exist in this form.
The policy objective of preventing credit without corresponding tax payment is understandable. For genuine businesses, however, compliance also requires access to dependable information.
When a buyer bears the financial consequence of a supplier’s default, it should have a workable route to verify that default and establish when its credit can lawfully be restored.
Views from GST professionals, businesses and the department would be valuable, particularly on prescribed procedures or practical mechanisms addressing verification, subsequent payment and departmental recovery.
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