GST Update on Reversal of credit if payment not made to supplier

It was expected by assessees that under the GST regime, there will be seamless flow of credit without any restrictions but the draft laws reflect an altogether different picture. The restriction as regards credit on rent-a-cab, outdoor catering, health insurance etc. is being continued with the exceptions. Similarly, at present, there is provision for reversal of credit by service receiver if the payment of invoice value along with service tax is not paid within a period of 3 months from the date of issue of invoice. It is pertinent to mention that similar provision is being incorporated in the GST regime also, that too, for supply of goods or services both.

It is provided in second proviso to section 16(2) that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed. Furthermore, the provision of re-credit as presently in force is also incorporated in the GST regime.

According to our view, the provision was inserted in the Service Tax Laws because there was option to pay service tax on receipt basis by service providers being individuals, partnership firms, LLPS having turnover less than Rs. 50 Lakhs in preceding financial year. Consequently, the government felt the need of developing mechanism to control the passing of cenvat credit if the payment is not made within a period of 3 months from the date of issue of invoice. However, under GST era, the cenvat credit will be passed on only on payment of tax by the supplier and the tax is payable on accrual basis. As such, the intention of incorporating such a provision in the GST regime is not understandable as the intention of the government cannot be to secure the interests of the supplier. Hence, the introduction of such a provision in GST regime is illogical and not understandable. When the goods have been received or service has been provided, tax has been paid to the Government and all other requirements of law has been fulfilled then the requirement of such a provision is not understandable. It will create unnecessary litigation when the payment is withheld as security and paid after some time. The payment of GST has been made then the credit should be allowed. On the reverse side, we on behalf of small assesses plead that the payment of GST should be allowed on receipt basis as is being allowed in service tax era.

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GST Update on Reversal of credit if payment not made to supplier

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