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The GST Council is likely to consider a proposal to protect genuine buyers from losing input tax credit due to tax defaults by suppliers at its meeting on October 7, while also examining a wider ambit of credit eligibility for several business expenses, sources told ANI.
The proposal is aimed at ensuring that buyers who have undertaken genuine transactions and paid suppliers, including the applicable tax, are not penalised for a suppliers failure to deposit the tax with the government. Under the proposed framework, recovery would instead be directed towards the defaulting supplier. The changes are expected to be considered at the 57th meeting of the Goods and Services Tax (GST) Council, and would be subject to the Councils approval. Sources said the proposal seeks to address situations where a business has a valid invoice, has received the goods or services and has made full payment, but is subsequently denied input tax credit because a supplier further up the transaction chain has failed to deposit the tax. The proposed protection, however, would not apply where the buyer is knowingly involved in fraudulent transactions. Authorities would continue to have the power to take action against buyers who participate in or benefit from such fraud, according to the note. The proposed changes are also based on improved invoice matching and linkages between input and output ledgers and summary returns, which allow tax authorities to identify fraudulent credit closer to its point of origin. The supplier-linked denial of input tax credit has been a major source of disputes and litigation. Compliance-related risks have also prompted businesses to avoid smaller and newer vendors, even when they may offer competitive pricing or better quality. Separately, the GST Council is also likely to examine a proposal to widen input tax credit eligibility for a number of business-related expenses. The proposed expansion includes health and life insurance purchased by businesses for employees, outdoor catering, telecommunication towers, pipelines laid outside factory premises and free samples. Credit could also be allowed for goods destroyed after expiry of their shelf life where such destruction is required under law. For vehicles, the proposed changes would cover vehicles with seating capacity of up to 13 persons, including the driver. Input tax credit could also be extended to insurance, servicing, repairs and maintenance of such vehicles, as well as their leasing, renting and hiring. The proposal would therefore potentially cover both the purchase of eligible vehicles and their subsequent running and maintenance expenses, sources said. In the case of employee insurance, the proposed changes would enable businesses to claim credit on tax paid for workforce insurance coverage, potentially lowering the overall cost of providing such benefits. The proposed expansion would continue to exclude certain categories from input tax credit. These include works contracts and construction of immovable property, food and beverages, club and gym memberships, personal consumption and corporate social responsibility expenditure. The proposals will be taken up for consideration at the GST Council meeting scheduled for October 7th. (ANI)
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