North Block is in fresh discussions to ease taxpayers' hardships, especially taking cognizance of the fresh tussle between Goods and Services Tax (GST) authorities and taxpayers, on the release of blocked input tax credit claims, senior government sources told CNBC-TV18.
The authorities had blocked these credits primarily due to issues like buyer-seller mismatch and non-filing of GST returns, a move which was initiated to curb tax leakages, encourage taxpayers to file timely returns, and to ensure that no undue credit is claimed. However, this initiative has now landed in trouble.
“Taxpayers have now filed writ petitions in various High Courts including Allahabad HC, Gujarat HC and Delhi HC, etc, seeking early release of blocked input tax credit, wherever it is due. In some cases, the credit has been blocked for a buyer who is not at fault, but it is rather his supplier who has not billed the supplies properly or has not filed returns to avoid taxes. In such cases, the genuine buyer faces working capital shortages as well as dual GST outgo, one paid to the supplier and the other by being unable to discharge his GST dues using input tax credit. Many such cases are getting reported,” sources told CNBC-TV18.
According to GSTN data, input tax credit of approximately Rs 14,000 crore involving 66,000 taxpayers has been blocked as on October 12.
Sources further said that the finance ministry has taken cognizance of these writ petitions, post which the Central Board of Indirect Taxes and Customs (CBIC) is holding departmental discussions to assess whether the issue can be resolved by just issuing a fresh clarity on the ITC claim rules or it needs a fresh discussion.
“Given that the amount is huge, a clarity on rules might not be enough, and it is expected that the upcoming GST Council could consider the proposal to ease industry hardships on ITC credit blockage,” sources added.
“The statute provides that credit will be restricted for the buyer when the supplier has not discharged the tax liability. This is inspite of the fact that there is no fault of the buyer and the buyer has paid both the consideration and the tax to the supplier. The double burden hits the buyer as the buyer has paid the tax to the vendor and has also been denied the credit. Similarly, there are rules which provide for blocking of credit in such a situation. There have been instances when blocking of these credits have happened without recording the reasons in writing and without appropriate opportunity to represent,” said Abhishek A Rastogi, Partner at Khaitan & Co, who is arguing multiple writ petitions around credit issues.
“Credit is a vested right and any denial of credit upon payment to the vendor will have to test the waters of constitutionality as per provisions of Article 300A of the Indian Constitution," added Rastogi.
“The rules provide that the credit must be unblocked after 12 months. However, in a few cases, the credit has been unblocked, and thereafter blocked again. This mechanism provides for endless blocking of credit which doesn’t look like the objective of GST,” Rastogi said.
It will be interesting to see what direction this argument between taxpayers and GST authorities takes.