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The new GST return system brings with it a few significant changes in the method of reporting of supplies, with its own set of pros and cons. One such issue is the declaration of the input tax credit, which will be based hereafter, on the relevant suppliers’ reporting of invoices on the common GST portal. Here are some of the issues with regard to vendor compliance under the new return system.
Latest Updates
14th March 2020*
The new GST return system will be implemented from October 2020.
The present return filing system (GSTR-1, 2A & 3B) will continue until September 2020.
*Subject to CBIC notification
The CGST Amendment Act, 2018 inserted Section 43A with the aim of simplifying the return filing process under GST. Here are the highlights of Section 43A and the resulting changes in the return filing system-
On analysis of the new return system, it is observed that the claim of ITC by a recipient of the supply is largely dependent on whether the supplier declares the same and files his return on time. A delay caused by the supplier in this regard could result in an unnecessary and additional output tax liability through no fault of the recipient.
The instinctive reaction of a businessman in such a situation would be to hold his vendor’s payment until he files his return and the credit gets reflected on the common portal. However, this may not be ideal, as some suppliers could be facing a genuine working capital crunch, and he may need his recipient to pay for the supplies in order to be able to make the relevant tax payments to the government.
Holding payments could also lead to lawsuits as payments are to be made on the basis of goods/services received, and not on the basis of tax compliances done. When it comes to suppliers that are small and medium-sized businesses, holding vendor payments will be an expensive option since the Micro, Small and Medium Enterprises Development Act (MSMED), 2006 requires the debtors of such MSMEs to make payments within 45 days, after which such payments made will attract a very high cost of interest.
That leaves only the large suppliers against whom such action can be taken. Unless the amount involved is fairly significant, holding such payments may not put enough pressure on large suppliers to file their returns. Hence, considering the points above, holding vendor payments is not a feasible option in case a supplier does not file his returns.
While there is no apparent solution for claiming ITC at the moment, in the event a vendor has not filed his returns, let’s look at some of the other measures that could possibly be taken at various levels: