Input Reversal

[Ethirajan Parthasarathy]

1. A developer engages various contractors for putting up the Building.

A percentage of contractor’s Bill is kept as “retention money” which will be paid after long duration. Similarly some portion of Bill is not paid and kept as “hold” money for defective work which will be paid after defect is set right

Both the above could be outstanding for more than 180 days.

Does it mean the developer has to reverse the Input Credit already availed on above two components.

[Yash Jain]

Sir,

Please pay the GST portion of retention to contractor and take an acknowledgement receipt from him

Reason.: The purpose of GST act, is seamless "movement of credit" and not consideration. The act does not allow benefit of arbitrage were in we take ITC and on other end we do not pay.

Hence, pay only gst portion (reverse work on outstanding retention) and take individual RAB bill wise ack. Mention or define the term consideration in work order by station that gst amount will be paid on retention money which will be considered as discharge of consideration to extent of bill.

Hence no need to reverse ITC on said. Moreover if yourself is a sizeable entity , go for advance ruling.(from gst authority) It will cost you only ₹ 10000/-, but will provide you with definite order and will eliminate litigation on account of non reversal, if any.

Rgds

AI Summary

Input Tax Credit reversal: pay GST on retention and obtain acknowledgement to treat GST as discharge of consideration. Advises that where retention or hold sums remain outstanding, the developer should pay the GST portion to the contractor and secure a bill-wise acknowledgement; such payment is treated as discharge of consideration to that extent and thereby avoids reversal of Input Tax Credit. It also recommends contractually defining GST treatment of retention and seeking an advance ruling for certainty.