Input Tax Credit - perils of the purchaser !

[Srikanthan S]

New Rule 10(2-A) of the TNVAT Rules says that with effect from 29.1.2016,

Every registered dealer who claims input tax credit to the extent of taxes paid on purchases of taxable goods specified in the First Schedule to the Act from the other registered dealers inside the State, shall establish, whenever it is deemed necessary by the assessing authority, that the tax due on such purchase of goods has actually been remitted into the Government account.

Moreover, the Rules says that the ITC Dealer should establish payment of tax by the Vendor to the Govt treasury whenever it is deemed necessary by the assessing authority. We are all well aware of the assessment process and the speed. Let us take for eg. that after 4-5 years, the assessing authority wants a Dealer to establish this and if the Vendor had gone out of business by this time, the ITC would be denied in the hands of the Purchaser; not only that, nothing stops the assessing authority to levy interest and penalty on such ITC disallowed.

This is in line with Maharashtra Act/Rule and puts the entire onus on the assessee claiming ITC to prove remittance of tax by the Vendor into the Government treasury. It is extremely onerous on Dealers who have 100s and 1000s of Vendors to ensure this.

The States should do on-line reconciliation of sales v purchase between any two TINs and through up unreconciled items. Also, the assessing authority should initiate action against delayed payment of taxes and/or Dealers not paying taxes immediately and block upload of sales/purchases via the TIN. In effect, the default TINs sales/purchases should be blocked by the software at the time of monthly returns filing itself. This would be a system check and would avoid losses to the ITC Dealer at a later point in time.

The AP Govt seems to have done such an on-line check and ensures reconciliation of sales/purchase data prior to submission of the Return. When the sales data from a TIN does not match with the purchase data of the other TIN, system throws up differences. However, it allows submission of the Return with the discrepancy. It would be ideal if an electronically generated mail goes to the Vendor and Purchaser on such unmatched items.

With the advent of computerization of almost all the State Commercial Tax Departments, this kind of system checks should be possible.

AI Summary

New Rule 10(2-A) TNVAT: Purchasers Must Prove Vendors Paid Taxes for ITC, Raising Compliance Challenges. The discussion addresses the challenges faced by purchasers under the new Rule 10(2-A) of the TNVAT Rules, which requires them to prove that vendors have remitted taxes to the government to claim input tax credit (ITC). This rule places the burden on purchasers, making it difficult for those with numerous vendors. Suggestions include implementing online reconciliation of sales and purchases to prevent discrepancies. Replies highlight the unfairness of shifting the responsibility from tax authorities to purchasers, who must ensure vendors pay taxes, a practice now adopted in various states and reflected in the Model GST draft. This approach diverts focus from business operations to tax compliance.