There is a need to do away with input tax credit (ITC) provisions, for real simplification and for eradication of corruption at large, by keeping low rate of tax to be levied on every transaction of supply of goods and services under the GST legislation. However, if the same is not possible at this stage, at least the provision of issuing notice for penalty and for prosecution over and above disallowance of the claim of Input Tax Credit under the GST Act, 2017 may please be deleted in the interest of justice.
1) Unless the issues like the structure of tax rates and the items to be covered under the GST along with several other important issues including the problem of Input Tax Credit are threadbare discussed and finalised, it will create lot of difficulties to all dealers and even to foreign investors who may do business in India in response to appeal made by our Hon’ble Prime Minister.
2) Having experience of more than 50 years as a Sales Tax Practitioner, I take this opportunity to highlight the main problem of disallowance of the claim of Input Tax Credit in case of honest and regular established dealers for many years, by giving example as under:
A dealer has filed returns under the present MVAT Act showing set-off or input tax credit of ₹ 1,00,000/-. However, in assessment set-off is reduced to
₹ 10,000, by disallowing set-off (under the GST Act ‘Input Tax Credit’) of ₹ 90,000 on the ground of non-genuine and/or fake purchases. However, though the purchases are genuine and made from long standing established registered dealer from whom the purchases are made regularly by payment of account payee cheque but the said vendor/dealer has failed to pay taxes collected by him to the Government in time owing to heavy loss suffered by him in business and consequent financial difficulties. In such a case, the set-off claim (under the GST Act ‘Input Tax Credit’) will be disallowed in case of various dealers who made purchases from the said vendor. Further, the Enforcement Branch of Sales Tax Department usually accept an affidavit from the defaulting dealer that “I had done genuine business in past but owing to heavy business loss and financial difficulties in the relevant years (say 2013-14 and 2015-16), for the sake of my livelihood, I had started issuing fake bills of supply of goods and has earned only about small amount of commission on the bill amount to accommodate the purchasing dealers”. Based on such an affidavit the Sales Tax Department make disallowance of set-off claim (under the GST Act ‘Input Tax Credit’) by re-opening the case of various dealers and over and above issue notice of penalty and prosecution also, to the purchasers making the claim of set-off, of taxes paid by him to the Vendor/s by A/c Payee Cheque, in his returns. In such a case, the Sales Tax authority concerned has discretionary powers to impose penalty from NIL to 100% of tax dues and also power to drop the prosecution. Therefore, it will prove to be a root cause of corruption.
3) At present, awareness campaign for common consumers has also been initiated. As a part of the discussion and campaign, the views of the industry, trade and agriculture as well as consumers, traders and merchants including Tax Practitioners, C.As. and Advocates etc., are also being sought by the Finance Ministry in a structured and time bound manner. Hence, all concerned should give their valuable suggestions, if any, for kind consideration by the Union Finance Minister.
4) Therefore, it is a right time to consider by the Central and Local Governments, as a matter of policy, to delete the provision of issuing notice for penalty and prosecution over and above disallowance of the claim of 'Input Tax Credit’ under the Goods and Services Tax Act, 2017.