GST filing | Navigate the complexities when the supplier fails to pay GST and understand the eligibility criteria for claiming ITC in such situations
All tax-paying businesses are eligible for a certain amount of Input Tax Credit (ITC) on the GST paid for goods that were purchased for reselling. This is one of the basic tenets of taxation law. But what happens if the supplier of those goods hasn’t paid their GST? Can the purchaser avail for ITC under such circumstances?
According to section 16 of the GST laws, the recipient will not be eligible to claim ITC if the supplier has not paid their taxes. While this can be directly combated by Section 38 of GSTR 2, it has unfortunately been suspended by the government. To illustrate the situation with an example: Suppose an item priced at ₹100, is purchased at ₹118 with tax added. The customer has paid their ₹18 of GST, whether or not the vendor who sold the item did the same. If GSTR 2 was still in place, Section 38 would allow the customer to report the invoice if the vendor/seller has not filled GST, thereby securing their ITC claim. The customer should have the right to ITC because they have paid their share. Most importantly, the government still retains the right to recover the tax from the supplier under the current laws. Therefore, this situation does not impede any of the parties involved.
The crux of the issue is that GST cannot be implemented in bits and pieces. If Section 16 is to be implemented, then so should Section 38. It is a comprehensive and complicated set of laws. When correctly executed it can benefit everyone. On the other hand, meddling with the letter of this law, without proper information and knowledge, can lead to a serious infringement of the people’s rights.