Under the proposal, a buyer’s ITC would be protected if the supplier has reported the invoice, resulting in its reflection in the buyer’s GSTR-2B, and the buyer is able to establish that the payment, including the GST component, was made through banking channels or other prescribed payment documents.
Tax authorities would, in such cases, pursue recovery from the defaulting supplier instead of denying credit to the purchaser, the people said.
The proposal was first cleared by the fitment committee, followed by the law committee later this week. It is now expected to be taken up by the GST Council when it meets in the next few weeks, the people said.
“This was a pending demand of the industry, and the proposal is already cleared by both the committees, and it is likely to be on the agenda of the next council meeting,” a senior official told ET.
The official said the council will take a final call on whether a bona fide purchaser should be penalised for the tax default of a supplier.
Once cleared, this would address one of the most contentious issues under the regime. The move represents a significant shift from the current position under GST.Currently, businesses can be asked to reverse ITC even after paying the full invoice value, including GST, if the supplier fails to remit the tax to the government.
Industry has consistently argued that buyers have little control over a supplier’s post-sale tax compliance and shouldn’t be made to bear the consequences of another taxpayer’s default.
However, the official added the provision was incorporated because of a large number of cases regarding fake invoices and tax evasion.
GSTR-2B, the system-generated statement of eligible input tax credit, has increasingly become the principal document for ITC reconciliation and compliance.
Businesses have maintained that while they can verify supplier registrations and reconcile invoices through GSTR-2B, they don’t have any practical means of monitoring whether suppliers subsequently deposit the tax collected from customers. “If there is proper proof of payment through banking channels, it would provide objective evidence that the purchaser acted in good faith and fulfilled its obligations under the transaction which should help many genuine cases,” the official said.