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Allow buyers to claim ITC even if supplier defaults in depositing GST: PHD Chamber

In its representation to the GST Council Secretariat, the industry chamber will also seek clarity on whether the excess credit would be refunded to dealers for COVID essential items bought prior to June 14.

June 29, 2021 / 05:34 PM IST


Ahead of GST Day on July 1, industry body PHD Chamber of Commerce has raised the issue of blocking input tax credit and said the buyer should be allowed to claim credit for taxes paid on inputs, even in cases when the supplier has defaulted in the tax payment. In its representation to the GST Council Secretariat, the industry chamber will also seek clarity on whether the excess credit would be refunded to dealers for COVID essential items bought prior to June 14.

GST rate was cut to 5 per cent on COVID related items from 12 or 18 per cent with effect from June 14. Talking to PTI, PHD Chamber of Commerce Indirect Tax Committee Chairman Bimal Jain said a buyer pays the tax to the supplier, but if the supplier fails to deposit the tax, then the buyer cannot claim credit for taxes paid on inputs.

GST Council cuts rates on key Covid items till September 30

"So if buyer's input tax credit (ITC) is blocked, it is double taxation. Then the supplier who has defaulted you are not taking any action against him, rather you are going to a genuine buyer who has paid the taxes, and you are blocking his credit. This is incorrect. This is the most burning issue, which we are going to raise before the Joint Secretary GST Council."

The Central Board of Indirect Taxes and Customs (CBIC) had on June 14 notified reduced GST rate on 18 COVID related supplies, like Remdesivir and Tocilizumab drugs as well as on medical oxygen and oxygen concentrators.

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The other items on which GST was cut were hand sanitiser, pulse oximeters, BiPAP machine, testing kits, ambulances and temperature check equipment. These concessional rates would be applicable till September 30, 2021. Following that, the National Anti-Profiteering Authority (NAA) said the suppliers are required to commensurately reduce the prices so that the benefit of reduction in tax rates and the input tax credit is passed on to the consumers. It has also urged field tax officers to collect evidence against suppliers who have not cut prices.

Jain, who is also MD at A2Z TaxCorp LLP, said if stocks are lying with distributors, those goods would have been bought paying GST at 12 per cent or 18 per cent. From June 14 the rate was reduced to 5 per cent and if you have been asked to pass on the benefit to consumers, then whatever excess credit is lying with the distributor should be refunded.

"Government is not giving clarity on whether the excess credit would be refunded. A clarification would be required on the issue as whenever there is a reduction in tax rate there would always be this accumulation of input tax credit in the hands of dealers," Jain added.

Section 171 of CGST Act, 2017, provides that any reduction in the rate of tax on any supply of goods or services or the benefit of the input tax credit shall be passed on to the recipient by way of a commensurate reduction in prices. Jain further said that post-COVID-19, a lot of employers have to provide their employees with masks, sanitisers, hand gloves, drugs and medicines, and they feel they should be allowed to claim the tax credit on these essential items.

"The question is this being provided for personal consumption? No. It is being provided to protect the health of employees who are the backbone of businesses. But credit for this is being disputed. What was envisaged in GST? That it will be a seamless flow of credit in the supply chain and there would be no cascading of taxes. But these credits are being disputed," Jain added. Jain further said that from April 1, 2019, the rate of Goods and Services Tax (GST) has been cut to 1 per cent and 5 per cent for affordable and non-affordable housing, respectively. However, builders cannot claim credit for taxes paid on inputs, like cement and steel.

He said there is a certain segment of builders who wants to come into the supply chain and claim ITC after paying 12 per cent GST, and are ready to pass on the benefit of ITC to home buyers.