Model GST draft puts onus on buyer


MUMBAI: Shifting the onus on the buyer to check whether the seller has paid goods and service tax (GST) is being considered as one of the most onerous provisions in the draft Model GST Law. The draft also contains restrictions on items for which input tax credit can be availed. While the draft has been largely lauded, some additional difficulties could arise owing to provisions relating to ‘time of supply’ as GST is a destination-based tax. Tax experts and CFOs are busy preparing their representations and hope these glitches will be ironed out in the final Act.

The draft provides that a buyer shall not be entitled to claim an input tax credit (ITC) unless the tax charged in respect of such supply has been paid by the seller. In simple terms, ITC is the amount of tax paid by the buyer on purchases made by him for which the buyer is entitled to claim a credit against the sales subsequently carried out by him. “It will be impossible for a buyer to ascertain whether the payment has actually been made by the seller,” says Bipin Sapra, indirect tax partner at EY (India).

The draft law prescribes for a GST compliance rating score, which would be given to all taxpayers (including sellers). The parameters of such rating are yet to be defined. The rating would be available in public domain, so to this extent a buyer could avoid dealing those having a poor rating. “However, the rating has little or no value, as it doesn’t absolve the buyer from ascertaining that the payment has been made by the supplier,” says Sunil Gabhawalla, a chartered accountant.

The business process committee, in its report issued last October, had envisaged a mechanism of blacklisting errant sellers. Those who had made purchases from such a blacklisted seller would have been able to avail ITC only after an improvement in the rating.
“Denial of ITC as regards a large number of goods that have been purchased, or services that have been procured comes as a surprise. It will dent the seamlessness that was proposed in the GST regime. For a corporate entity, notable among the goods and services that have been excluded for ITC purposes are goods or services made available to employees such as medical insurance, club membership, travel benefits such as leave travel concession, food and beverages,” says Gabhawalla.

Various acts of omission, such as non-filing of GST returns for a consecutive period of six months, could result in cancellation of the GST registration. “The fallout of this provision is onerous, as a cancellation of registration under Central GST Act shall be deemed to be a cancellation of registration under State GST (GST is dual regime). Once registration is cancelled, input tax credit would be denied to the customers of such taxpayer,” says Gabhawalla.

The liability to pay GST arises at the time of supply. Currently, excise duty is payable only when goods are removed, or VAT when goods are delivered. However, under the GST draft, the time of supply of goods is the earlier of a number of events. “Thus, under the GST regime, even the receipt of an advance against sale of goods would trigger a liability for payment of tax. What is worrying is the provision for deeming certain extraneous events like booking of goods by buyer or expiry of 6 months from the removal of goods as deemed taxable events,” points out Gabhawalla.
“Similarly, the time of supply needs to be simplified and needs to be linked to clear recordable events like date of invoice or date of receipt of payment. It would be difficult for the service provider to ascertain the date on which the recipient will make an entry in its books,” says Sapra.

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