At the outset, it is proposed to do away with the provisional availment of input tax credit. Input tax credit is now to be availed on self-assessment basis, subject to satisfaction of conditions. Further, the provisions that specifically concerned with the matching and mis-matching of credit, while built in the scheme of the Central Goods and Services Tax Act, 2017 were never really given effect to and therefore, have now been omitted. However, this deletion, in no way has affected the applicability of the onerous condition – that input tax credit availment of a recipient is dependent on factors other than just the compliances of the recipient itself.

A substantive provision providing that no input tax credit shall be available to a recipient, if such credit has been restricted in the details communicated to the recipient, is proposed to be built in as one of the substantive conditions for availment of credit. Now this is an interesting change as the available input credit to a recipient will be, in a sense, filtered by portal and communicated. In case the amount of input credit communicated by the portal is lower than what has been estimated by the recipient, will the portal give a statement of reasons for curtailing the input credit? For effective functioning of this mechanism, a lot of work may need to be done at the back-end by GSTN, else, this will again lead to heaps of litigations. It may be recalled that the main bone of contention before the courts, in so far as the eligibility to avail input tax credit was concerned, was that the substantive provision did not provide for the condition of matching and mis-matching and the condition of credit matching is onerous.

Further changes are proposed to be introduced in the reporting of details of outward and inward supply. The two way communication process for return filing has been done away with. Provisions are proposed to be introduced to provide for manner, time, conditions and restrictions for communication of details of inward supplies and input tax credit to the recipient by means of an auto- generated statement. It seems that as and when this provision is notified, the credit availment of the recipient will further be curtailed on the basis of the auto generated statement. Further, changes have also been proposed, to do away with the two way communication between taxpayers.

On a positive note, additional time of two months has been provided for raising of credit note and availment of input tax credit, making revisions in statutory filings etc., and the same has been extended from 30 September to 30 November of next month. Further, facility introduced to enable the taxpayers to transfer GST cash balance from one GSTN to another GSTN of the same PAN irrespective of the location. This will give a much needed breather for taxpayers who have excess cash balance in one State for reasons such as TDS/TCS and have cash tax outflows in the other States.

Further, any incorrect availment and utilization of input tax credit will trigger interest liability with retrospective effect from 1 July 2017.

As always, only time will tell how the new credit provisions pan out. Will it simplify the life of companies who are spending a substantial amount of resources every month in reconciliation process for availment of input tax credit, or will it be just another brick in the wall, only time will tell.

This article was originally published in The Economic Times on 1 February 2022 Co-written by: Rajat Bose, Partner; Ankita Bhasin, Counsel. Click here for original article

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