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Thursday, June 6, 2024

Additional restrictions for claiming input tax credit

Additional restrictions for claiming input tax credit

Under the GST, input tax credit would be available to the buyer only if the counter party supplier has paid tax to the appropriate government and has filed its valid returns. It means that if a supplier does not deposit his GST liability, all of his counterparty recipients would not receive the credits of ITC, even if they have paid the entire consideration to the supplier. These provisions require chasing by the recipients of the suppliers to deposit tax liability on or before the due date.

Therefore, efforts should be started right now to identify such dealers who are generally tax defaulters. Taxpayers might have to change their business model by keeping security deposit or indemnity bound from such suppliers till the date these suppliers file their valid return.

Tuesday, June 4, 2024

Importation of services by a non - taxpayer

Definition of the term " supply" under sec 3 of the Mode GST Law includes importation of services, whether or not for a consideration and whether or not in the course or furtherance of business. This implies that import of services even for personal consumption would qualify as "supply" and therefore, such importer of service would be tax, subject to the threshold limit.

If any person wants to import any service, such as, consulting engineer, architect, coaching, etc. then, if possible, he should avail the service before the appointed day to avoid GST, which would be almost 18% - 20% of the value of service.

GST

Taxpayers planning to sell their fixed assets

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At present, whether sale of fixed is subject to VAT or not, is a matter of litigation. Some High Courts are of the view that unless the sale is incidental to the main business of the dealer, it would not be subject to VAT. The Delhi High Court in the case of Anand Decor held that, if the dealer has not claimed input tax credit at the time of purchase due to restriction under the Act or otherwise, then, to avoid double taxation, sale of such goods would not be subject to VAT. However, there are no such provisions for exemption under the GST.

Therefore, where any dealer is in the process of selling capital assets due to various reasons, such as, assets become obsolete, discontinuance of business, or otherwise, he must speed up and dispose of his assets before the appointed day.

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Tax credit on the closing stock as on the appointed day

> The dealer would have claimed input tax credit at the time of purchase of input, therefore, no fresh tax credit on such closing stock closing stock would be allowed to the taxpayer.

> However, where the taxpayer was not registered under the earlier law as he was not liable to get registration or where he was paying tax under the composition scheme under the earlier law, he may claim tax credit of the stock held on the appointed day, provided -

(a) Amount of credit pertains to the period up to the appointed day and could not be claimed for the reason that he was not liable for registration, or he was paying tax under the composition scheme.

(b) Taxes should pertain to-

> inputs held in stock; and

> input contained in semi-finished or finished goods held in stock,

on the day preceding the date of such appointed day.

(c) Credit must otherwise be admissible under the earlier law as well as the GST law.

(d) He has invoice/other evidence in his possession for purchase not earlier than 12 months from the appointed day.

Existing exemptions

Industries availing area-based exemption or product-based exemption must start dialogue with the respective government (s) immediately and ensure their benefits are incorporated into the new enactment.

Existing long-term contracts

> All Acts envisage levy of taxes as per the provisions prevailing at the time of event.

> The contracts, which have been entered before the appointed day and to be partly/wholly executed after that day, might relate to-

(i) Works contract activities,

(ii) Leasing activities etc.

> In case of "exclusive of tax" contracts, the contractor must ascertain that he should be in a position (contractually) to transfer the additional burden of tax, in any, upon the contracted. If there is no such clause in the contract, suitable amendment must be carried out before the appointed day.

> All the existing contract, which have been executed "inclusive of all taxes" must be renegotiated to safeguard their interest.

> Where the contractors (with turnover of more than INR 50 lakhs) are paying tax under the compositing scheme, they must evaluate the impact since there might not be such scheme under the GST.

> It should also be ensured that invoice for the work done are raised before the appointed day. For this purpose, it is necessary, that provisions in respect of " time of supply" are properly understood.

Tax credit balance not available in the returns

> It might happen in the following cases:

1. Tax credit in respect of capital goods:

2. Taxpayer is paying tax under the composition scheme in the earlier law: whereas, under the normal scheme under the GST.

> The taxpayer could claim the unutilized/Unav ailed tax credit provided it should be admissible under the earlier law as well as new law

> If credit relates to the category(ii) above, the taxpayer should have invoice/other evidence in his possession for purchase relating to inputs held in stock and inputs contained in semi-finished or finished goods held in stock, not earlier than 12 months from the appointed day.

Tax credit balance available in the return

Where the taxable has carried forward amount of eligible tax credit in a return furnished under the earlier law in respect of period ending immediately preceding the appointed day, he could claim such credit in the GST provided the credit should be admissible under the earlier law as well as the GST law.

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