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GST Update 14.09.2016

MECAHNISM OF DOUBLE RECOVERY IN GST REGIME

 
GST DAILY DOSE OF UPDATION:-
 
 
MECAHNISM OF DOUBLE RECOVERY IN GST REGIME:-
 
 
If we study the Model GST Law, it is found that at certain places, the provisions have been incorporated that lead to double recovery of tax on the same transaction by the government which will be definitely disliked by assessees. To illustrate, section 27(3) stipulates that a return furnished by a registered person without payment of full tax due as per such return shall not be treated as a valid return for allowing input tax credit in respect of supplies made by such person. This indicates that credit of purchases made from a supplier who has not paid tax cannot be allowed to the purchaser. This will have the effect that the purchaser will have to pay GST in cash as he will not be able to avail credit of inputs purchased from the defaulting supplier. Simultaneously, if the provisions of section 21 pertaining to cancellation of registration are pursued, it is found that the proper officer may cancel the registration of a taxable person from such date when any taxable person has not furnished returns for a continuous period of six months. Moreover, cancellation of registration shall not effect the liability of the taxable person to pay tax or other dues under the Act for any period prior to the date of cancellation.
 
 
On harmonious reading of the above provisions, it is found that in situation where registered taxable person does not pay tax and if its registration is being cancelled subsequently, the consequence will be that the purchaser will be barred from availing the input credit pertaining to the said purchase and the defaulting supplier will also be liable to pay the tax to the government exchequer. Not only this, there is no mechanism whereby the purchaser may claim the cenvat credit of the said purchase if the defaulting supplier makes payment of tax to the government after period of one year from the date of issue of invoice. This will definitely tantamount to double tax on the same transaction.
  
 
 
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