India GST – Be Warned, There Is A Storm Ahead – A Warning On GST Recovery
The Indian GST solution is a clever design and intended from the start to combat GST fraud, but is it too clever to work and what are the consequences?
I have to admit that as complex as the Indian government have made their new GST solution, it’s a very good concept and if everything works as they hope, will be a GST solution with instant fraud prevention built in. But the amount of time it has taken to get the GST bill pushed through and the deadline to have it implemented is crazy. It’s far too complex to be rushed through in a couple of months and hope that everything will be ok – there will be more than a few companies falling foul of the new requirements and ending up being non-compliant, ultimately costing them money. One such storm in a tea cup waiting to happen is around the tax recovery.
When you submit your tax return, your suppliers submission will match your GST recovery claim;
But what happens when your supplier has not submitted the invoice that you are recovering against?
Here is what the legislation currently says;
42 (1) The details of every inward supply furnished by a registered person (hereafter in this section referred to as the “recipient”) for a tax period shall, in such manner and within such time as may be prescribed, be matched–– (a) with the corresponding details of outward supply furnished by the corresponding registered person (hereafter in this section referred to as the “supplier”) in his valid return for the same tax period or any preceding tax period; (2) The claim of input tax credit in respect of invoices or debit notes relating to inward supply that match with the details of corresponding outward supply or with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by him shall be finally accepted and such acceptance shall be communicated, in such manner as may be prescribed, to the recipient. (3) Where the input tax credit claimed by a recipient in respect of an inward supply is in excess of the tax declared by the supplier for the same supply or the outward supply is not declared by the supplier in his valid returns, the discrepancy shall be communicated to both such persons in such manner as may be prescribed. (5) The amount in respect of which any discrepancy is communicated under sub-section (3) and which is not rectified by the supplier in his valid return for the month in which discrepancy is communicated shall be added to the output tax liability of the recipient, in such manner as may be prescribed, in his return for the month succeeding the month in which the discrepancy is communicated. (7) The recipient shall be eligible to reduce, from his output tax liability, the amount added under sub-section (5), if the supplier declares the details of the invoice or debit note in his valid return within the time specified in sub-section (9) of section 39.
Thus, on the analysis of above provisions, where a company in India makes a claim for input tax credits on the basis of an invoice received from a supplier, but that supplier has not put that transaction in his tax return for the month in which the discrepancy is communicated to him, the input tax credit claimed shall be rejected and be added to output tax liability of your company in the return of the next month after the month in which discrepancy is communicated. Further, your company shall be eligible to reduce, the amount added, from its output tax liability, if the supplier declares the same in his tax return within the time specified in section 39(9)!
Managing Director, Oracle Fusion Tax/eBTax expert at Innovate Tax
Andrew Bohnet is the current chair for the Oracle Tax Management SIG. He founded Innovate Tax to offer clients complete tax solutions making the most of the rich functionality of the R12 and Fusion tax modules. Whether it is analysis, design, configuration or support, Innovate Tax provide an unparalleled service when it comes to a complete tax solution. Having worked on one of the first Oracle R12 implementations in Europe, Andrew was exposed to the tax module early on and worked closely with Oracle to fix bugs, enhance functionality and present on numerous occasions on the subject of tax and Oracle. When it comes to presenting on eBTax, you wont find a more experienced consultant outside of Oracle.