GST Council may consider protection for genuine buyers losing input tax credit due to supplier default: Report

The GST Council may protect genuine buyers from losing input tax credit if suppliers default on tax payments. The proposal, discussed in the upcoming meeting, will ensure buyers aren’t penalised for a supplier’s tax default. Details here.

The Goods and Services Tax (GST) Council may consider a proposal to protect genuine buyers from losing input tax credit (ITC) when suppliers default on tax payments, ANI reported on Monday, citing sources.

The proposal is aimed at ensuring that buyers who have undertaken genuine transactions and paid suppliers, including the applicable tax, are not penalised for a supplier’s failure to deposit the tax with the government.

The Council is likely to discuss the proposal at its 57th meeting scheduled for October 7, and would be subject to further approval. It may also examine expanding the scope of expenses eligible for input tax credit, potentially widening the range of business costs on which firms can claim GST credit.

How are genuine buyers expected to be protected?

Under the proposed framework, genuine buyers may not be denied input tax credit solely because a supplier has failed to deposit the tax with the government.

Instead, tax recovery would be pursued against the defaulting supplier, shifting the liability away from the buyer.

The proposal is intended to cover cases where a business has fulfilled all its obligations, such as receiving goods or services, making the payment and holding a valid invoice, but still loses the input tax credit because of a tax default made by the supplier further up the transaction chain.

When would the protection not apply?

However, the proposed protection would not extend to businesses who are knowingly involved in fraudulent transactions. If a buyer is found to have participated in or benefited from such fraud, tax authorities would continue to have the power to take action against them, the report stated.

The proposed framework also relies improved invoice matching and linkages between input and output ledgers and summary returns. These systems could help tax authorities identify fraudulent claims closer to their point of origin.

Why the initiative is taken now?

The supplier-linked denial of input tax credit has been a major source of disputes and litigation for businesses, putting the issue under regulatory scrutiny and prompting calls for further measures to address such disputes.