Input Tax Credit - perils of the purchaser !, VAT + CST

[Srikanthan S]

New Rule 10(2-A) of the TNVAT Rules says that with effect from 29.1.2016,

Every registered dealer who claims input tax credit to the extent of taxes paid on purchases of taxable goods specified in the First Schedule to the Act from the other registered dealers inside the State, shall establish, whenever it is deemed necessary by the assessing authority, that the tax due on such purchase of goods has actually been remitted into the Government account.

Moreover, the Rules says that the ITC Dealer should establish payment of tax by the Vendor to the Govt treasury whenever it is deemed necessary by the assessing authority. We are all well aware of the assessment process and the speed. Let us take for eg. that after 4-5 years, the assessing authority wants a Dealer to establish this and if the Vendor had gone out of business by this time, the ITC would be denied in the hands of the Purchaser; not only that, nothing stops the assessing authority to levy interest and penalty on such ITC disallowed.

This is in line with Maharashtra Act/Rule and puts the entire onus on the assessee claiming ITC to prove remittance of tax by the Vendor into the Government treasury. It is extremely onerous on Dealers who have 100s and 1000s of Vendors to ensure this.

The States should do on-line reconciliation of sales v purchase between any two TINs and through up unreconciled items. Also, the assessing authority should initiate action against delayed payment of taxes and/or Dealers not paying taxes immediately and block upload of sales/purchases via the TIN. In effect, the default TINs sales/purchases should be blocked by the software at the time of monthly returns filing itself. This would be a system check and would avoid losses to the ITC Dealer at a later point in time.

The AP Govt seems to have done such an on-line check and ensures reconciliation of sales/purchase data prior to submission of the Return. When the sales data from a TIN does not match with the purchase data of the other TIN, system throws up differences. However, it allows submission of the Return with the discrepancy. It would be ideal if an electronically generated mail goes to the Vendor and Purchaser on such unmatched items.

With the advent of computerization of almost all the State Commercial Tax Departments, this kind of system checks should be possible.

Posts / Replies

[Ganeshan Kalyani]

What I feel is that the primary responsibility to get revenue is of the revenue itself. But to ease themselves the responsibility has been shifted on the purchaser. Whether the purchaser should concentrate on his business or to go and check whether his supplier has paid the tax on his sales turnover or not. It is a fact that the department has got access to both the dealer I.e. purchaser and supplier. They have access to the whole details of purchases and sales being uploaded by the respective registered dealers. It is easier for the department people to cross check and verify whether the tax has been paid by a particular dealer or not just by sitting in their offices. How it is being expected from a purchaser to keep an eye on their respective suppliers when they pay tax. Initially few states have imposed the duty of getting confirmation of input tax from their supplier. Now it is applicable is most of the states. upon submission of the confirmation certificate the input credit availed on the purchase are allowed otherwise disallowed. Therefore the purchaser carries out this exercise to get the credit otherwise the tax becomes payable on the mismatch amount of credit between his purchase records and the sales record shown by the supplier. Recently in Andhra Pradesh VAT the credit is made allowed to purchaser only after the supplier has paid the tax. It is hardship on purchaser part. Initially the department used to visit the supplier office to get the confirmation of the tax paid. This proved them costly in terms of manpower work time is utilised in travelling and fruitless. And this may be one of the reason why they have shifted the responsibility on the purchaser to get confirmation from the supplier to check whether they had discharged their tax liability or not. Ideally the authority who has access to the dealer and their tax outflow should follow up to get the tax deposited in to their treasury. Thanks.

[Ganeshan Kalyani]

Sir, the same concept of purchaser ensuring the supplier has paid tax on his sales is carried forward in Model GST draft as well. The credit would be denied to purchaser if the supplier fails to pay the tax. Thus the purchaser is compelled to check /request the counter part to comply for his obligation. It seems that instead of taking responsibility on its shoulder the Govt has shifted its effort / hardwork to the dealers whereby the intervention of the Govt becomes minimal. I have read some articles where experts have expressed that some mechanism is expected to tackle this task other both the purchaser and seller would be left with this task alone rather than concentrating on business, Those having a Team would have to work more and may have to assign task force to deal with the tax return fulfledge. Thanks.