Digitisation and ease of doing business have been the theme of the Union Budget 2022-23. The focus of the Budget has been introduction of tax reforms to address the hardships faced by taxpayers. Since the inception of GST, various indirect tax measures have been introduced including issues revolving around availment of input tax credit (ITC). The Union Budget 2022-23 has indeed tapped on the issue and introduced a fairly welcome move from a taxpayer perspective by allowing re-availment of ITC upon payment of tax by the supplier. But is the provision truly a boon or a bane?
Pre-Budget scenario
Often, capital-intensive industries and unorganized sectors face hardships in filing timely returns and making tax payments either due to shortage of funds or due to their business working cycle which is generally prolonged including on account of the current COVID-19 situation. In this event, customers of such sectors face challenges in availing input tax credit of tax paid on their inward supplies. GST law casts a burden upon the recipient to ensure that tax is paid by the supplier. In absence of this, the claim of ITC is being litigated.
Budget update
The Union Budget, as a welcome move, has introduced a reform, wherein, if the suppliers have not deposited their tax liability, then, recipients are required to reverse the input tax credit availed along with applicable interest. Now, the recipient can re-avail such input tax credit, once the supplier makes the payment to the government treasury subject to prescribed conditions. Prima facie, this provision seems to be beneficial to the taxpayers, however, there are certain practical shortcomings in its implementation.
Practical difficulties
The proposed section speaks about conditions and restrictions to be prescribed. However, the challenge is on account of practical difficulties faced by the taxpayers to identify if their suppliers have made the payment of GST to the government treasury. The GST portal has limited data to facilitate and highlight the gap between the output tax liability and the actual tax paid, by the suppliers, on an aggregate level. However, the recipient cannot identify the transactions in respect of which tax is not paid by the supplier and assess the GST implications. The proposed change should be supported by adequate details and functionality on the GST portal.
Interest, a dual levy
The benefit of re-availment of ITC is granted subject to a pre-condition that the recipient reverses the ITC along with applicable interest. Though the default is on part of the supplier, the law penalises both, the defaulter as well as the recipient and treats both of them on an equal footing. In other words, on one hand, the supplier pays interest on delay in payment of output tax liability, on the other hand, the recipient is also required to discharge interest on the ITC claimed. This results in a dual levy and payment of interest on the same transaction.
Interest on unutilised ITC
The newly substituted section uses the words ITC ‘availed’ and not ‘availed and utilized’ for the purposes of levy of interest. The intention of the government has always been to impose interest on undue utilisation, which is corroborated by retrospective amendments of interest payment on net liability in comparison to the gross liability. The said intent is also reflected in the other budget announcements. However, sole use of the word ‘availed’ in the said amendment may not be in conjunction with the intent of the government.
Timeline For re-availment of ITC
The intent of the provision seems to promote a seamless flow of ITC to bonafide recipients. While there is a timeline for availing ITC by taxpayers, the said provision is silent on the applicability of such timelines. This raises questions in the minds of the taxpayers. That being said, it could be construed to be a taxpayer-friendly provision and may be in the interest of the trade and industry, if there is no timeline prescribed for such re-availment of ITC.
Way forward
While there is ambiguity and questions around the provision, the industry can only expect and wait for clarifications to address the integrities of the provision. Until further guidelines from the government, it is advisable that taxpayers safeguard themselves by:
- Inclusion of a clause on interest reimbursement to the customer on account of non-payment of GST by the supplier;
- Additional validation before taking ITC on invoices of past defaulters;
- Identifying suppliers whose output tax liability exceeds the output tax paid based on data reflected on the GST portal
The deciding factor on the provision being a hit or a miss would purely depend on the clarifications.
Biren Vyas is Partner, Grant Thornton Bharat and Kruti Shukla is a Chartered Accountant.Views are personal.
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