Rajeev Dimri and Siddharth Tandon : The implementation of the Goods and Services Tax (GST) has indeed been a journey marked by its own ebbs and flows. Lawmakers have been incessantly trying to make suitable amendments to the GST law based on feedback from the industry.

One such crucial area which is yet to be addressed is ‘input tax credit’. While there have been multiple news reports on misuse of this (including wrongful transition of credit and fake credit claims), genuine taxpayers have also borne the brunt in some cases.

The provisions on input tax credit under the GST have been well-defined and are more comprehensive than the erstwhile regime. However, there are still loose ends that need to be fixed. For instance, the input tax credit is available in respect of procurements ‘used in the course or furtherance of business’ subject to fulfilment of other elementary requirements, such as possession of a valid invoice, timely payment, etc.

However, it is ironical to note that the parameters for evaluating whether goods/services have been ‘used in the course or furtherance of business’ are not explicitly defined under the law. It is anybody’s guess whether credit would be available in respect of peculiar transactions, such as procurements made for effecting ‘business transfers’. In case the business itself ceases to exist, it is a matter of debate whether the procurements made for effecting such transfer can be said to have been made in the ‘course of business’.

Similarly, eligibility to avail input tax credit is doubtful on indirect expenses, such as non-monetary donations to related party customers, expenditure on CSR activities (for instance, expenditure incurred on public infrastructure such as water purifiers, public toilets) etc. While provisions on availment of credit have their nuances, anomalies also exist in respect of the provisions relating to reversal of credit.

GST law provides for certain situations which would trigger credit reversal requirements. These situations may include credit reversal on account of goods ‘lost’ or ‘written off’. For instance, provision requiring full credit reversal may be triggered in respect of goods lost at customer premises while being used for supply of services, capital goods written off in the books of accounts at the end of useful life, or previously used goods lost in transit while being sent to another customer premise for use. A literal interpretation of the relevant provision requires reversal of full input tax credit in case goods are lost or written off. However, blanket application of this interpretation i.e. full credit reversals in all the situations, may lead to a position which may not be the actual intention of lawmakers.

At the outset, it would be essential to mention that both the expressions ‘lost’ and ‘written off’ have different connotations and thus, may require a different set of provisions. For instance, the GST law does not provide a mechanism for effecting partial credit reversal for used goods that get lost while being used for effecting output supplies such as, leased goods lost at customer premises while being put to use. Goods ‘used for effecting supplies’ in the ordinary course of business pass the litmus test for availing credit.

However, eventually in case such goods get lost, then the interpretation of the relevant provision seeking full credit reversal seems out of place. At this juncture, it may also be relevant to mention that even during the pre-GST regime, CENVAT credit rules provided for different tax treatment for different scenarios viz, goods removed ‘after use’, goods removed ‘as-such’ (ie without being put to use), goods sold as scrap since, there was the need to have different treatments in each scenario. Similarly, the expression ‘written off’ can have several denotations such as partially written off (where a part of the book value of goods is written off), fully written off, creation of a provision for writing off the goods.

The requirements of seeking full credit reversal in each of the said scenarios does not appear to be the most logical interpretation.

Hence, it would be relevant that suitable edits are made to the reversal provisions for taking into account differential tax treatments in this regard. For effecting suitable amendments to the GST law, experience from the pre-GST law may also be considered by the law makers. Given that the GST Council has time and again taken cognisance of the glitches and made efforts to take corrective measures, one expects that the issues on input tax credit would also be addressed soon to make GST a truly Good and Simple Tax.

Published On : 13-06-2019

Source : Money Control