Non-payment of Invoice within 180 day

[POLYPLEX CORPORATIONLTD]

Non-payment of GST within 180 day:Non-payment of GST within 180 day:

We have an MOM with Vendor on supply of machinery and its maintenance with payment terms and condition. Vendor give invoice & deposit GST to Government. After that we take ITC. As per GST Rule, We have to pay to Vendor within 180 days. But our Payment terms we have to pay i.e. partial in six month, one year and balance in two year.

Question :-

1. Whether we have to reverse the GST, if we not pay to vendor in six month?

2. How we will get credit after Two years?

3. Please guide the exact language or wording to written in the contract to avoid these problems in future?

[Rajagopalan Ranganathan]

Gentlemen,

Query 1:- If you fail to pay to supplier the amount claimed in his invoice within 180 days from the date of invoice the ITC taken by you will be added to your output liability and the same is to be paid with interest.

Query 2: - You cannot take credit after two years since ITC is to be taken within one year from the date of invoice or before the due date of filing GSTR-3B for the month of September following the financial year in which the goods or services or both had been received by you. For example if the goods or services or both had been received in the finanical year 2019-20, then you can take credit on or before 20.10.2020 the due date for filing GSTR-3B for the month of September 2020.

[DR.MARIAPPAN GOVINDARAJAN]

After two years you could not avail input tax credit. Regarding the exact language or wording to be written in the contract is to be done according to the business done by you and require more information. If you contact me I shall help you in this regard.

[KASTURI SETHI]

I support the views of both experts. Regarding third query, it is not possible to reply here. You need consultation personally from expert. Rightly advised by Sh. Govindarajan, Sir.

[Spudarjunan S]

I agree with the expert views as above.

However, you may look upon the following thought process to differentiate:

When the parties of the contract has agreed for a payment date with a credit period more than 6 months there is no failure to pay by the recipient to supplier per se. You can refer the several ratio decidendi (Persuasive references) by courts, AAAR and also the council meeting minutes on discussion on such proviso to Section 16(2).

Practical way to overcome the same is to avail the credit in full as per invoice, reverse the ITC and re-avail the same after two year once the payment is made. Dispute may arise for interest which you have to defend.

AI Summary

Input Tax Credit reversal where supplier payment is not made within the statutory period leads to output tax liability and interest. If the invoiced amount is not paid within 180 days from the date of invoice, the Input Tax Credit availed must be added back to output liability and paid with interest. ITC must be claimed within one year from invoice date or before the due date of filing the purchaser's GSTR 3B for the month of September following the financial year; it cannot be claimed after the extended period. Contractual payment terms should align with these GST timing rules; a practical approach is to reverse and later re avail ITC on payment, though interest disputes may arise.