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GST input tax credit: Why tasking the recipient with the responsibility of ensuring supplier complia.


Date: 18-04-2022
Subject: GST input tax credit: Why tasking the recipient with the responsibility of ensuring supplier complia
Budget showcases the next phase of the tax administration guided by digitisation and integration of central and state-level systems through IT bridges and removal of overlapping compliances.

However, as far as GST is concerned, the Finance Minister has not given any indication on the proposed changes in compliance processes and the preparedness of technology infrastructure. As one studies the fine print of the Finance Bill, the idea of ‘trust-based governance’ seemed to have not been adequately expressed or given effect to, especially if one were to read the dispensation of the ‘two-way communication’ in the return filing.

The ‘credit matching’ concept in GST has been an ambitious aspiration since day one. The two-way communication process between the supplier and recipient was a noble thought, which if successfully implemented would have taken us a long way ahead on the GST journey. When credit matching was introduced in 2017, it appeared as a picture-perfect plan, but challenges faced in the implementation continue to persist both for taxpayers and tax administrators alike.
As a result, sections 42 and 43 of the CGST Act and associated rules to set in motion the ‘credit matching’ came to be dropped mid-way through the GST journey. To effectuate this process, Section 43A was proposed to be introduced, which sought to allow the recipient to verify, validate, modify, or delete the details. A draft note was also released on the GST portal for its implementation and compliance architecture. However, the technological inadequacies and challenges which had haunted the ind ..

While technical limitations and complications defied smooth implementation, the Government’s resolve to allow ITC based on credit matching led to insurmountable complications to the industry and the introduction of Rule 36(4) to restrict GST credits up to 5% of eligible credit if the supplier fails to comply, lead to significant cash flow constraints to the taxpayer.

With the proposed omission of sections 42, 43 and 43A, the redundant provisions have been ditched after 5 years. However, the removal of the old and the introduction of the new processes casts an obligation on the recipient to ensure supplier compliance before taking tax credits. The amendment even proposes to levy interest on the recipient for the mistake/error on the part of the supplier.

This seems to be in counter to decisions of various Courts where it was held that recovery of ITC from the recipient cannot be sought without first exhausting the remedy of recovery from the suppliers, who collected GST from the recipient but failed to remit the same to the Government. The amendment seems to reopen the controversy for fresh judicial review if the taxpayer were to challenge this as draconian, especially in the absence of any locus standi for the recipient to insist the supplier t ..

Source Name:Economics Times

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