GST #issue7- Recipient has to ensure that Supplier pays tax to claim ITC

By | January 8, 2017
(Last Updated On: January 8, 2017)

GST Issue :- Recipient has to keep track that Supplier pays tax to claim ITC (Input Tax Credit )

On an analysis of Section 37 read with Section 16 of the Revised Model GST Law, relating to matching, reversal and reclaim of input tax credit the following facts emerge:

a. Every inward supply of a Recipient for a given tax period shall be matched:

 With the corresponding outward supply of the Supplier;

 With the additional duty of customs; and

 For duplication of input tax credit claims.

b. The claim of input tax credit in respect of invoice and / or debit note relating to inward supplies when duly matched with outward supplies shall be communicated to the Recipient.

c. When the claim of input tax credit claimed by the Recipient is either in excess of the tax declared by the Supplier or the corresponding outward supply is not declared by the Supplier the discrepancy should be communicated to both the parties. If the discrepancy so communicated is not rectified by the Supplier in his valid return for that month, the corresponding tax amount shall be added to the output tax liability of the Recipient in the month succeeding the month in which the discrepancy is so communicated. If the Supplier declares the said details in his valid return the Recipient should be permitted to reduce his output tax liability.

d. Duplication of input tax credit claims by a Recipient shall be communicated and added back to the output tax of the Recipient for that month.

e. Section 16(2) stipulates that a Supplier who does not remit full taxes due as per his return and file return, will disentitle the Recipient from claiming input tax credits in respect of supplies effected by the Supplier.

f. The following scenarios among others must be considered, where delays in payment of taxes by the Supplier can occur for no fault of the Recipient:

i) The Supplier does not remit any taxes;

ii) The Supplier remits part of the taxes;

iii) The Supplier does not remit taxes in respect of a particular supply on account of strained relationship with the Recipient;

iv) The Supplier is a BIFR entity with no cash flows to pay taxes;

v) The Supplier – Sick Company does not have monies to remit taxes;

vi) The Government – Municipal Corporations delay remittance of TDS / TCS on contracts for want of funds.

vii) Supplier may have Issues relating to cash flow constraints;

viii) Supplier may be awaiting infusion of funds by banks or funding agencies e.g in case of a sick / BIFR entity;

ix.) Awaiting bail out packages by an entity under liquidation;

x) Supplier may delay  payments on account of payment of taxes under other statutes. For instance, huge payment of advance tax in a particular quarter or say payment of customs duty on imports etc – in which case the entity will remit the taxes with interest for the period of delay.

In each of the above scenarios it becomes extremely difficult for the Recipient to keep track of Supplier and ensure that he pays his taxes correctly.

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