TaxTMI 
TaxTMI 
Namaskar,
Mr. A has purchased goods from Mr.B but has made the payment to Mr. C on the direction of Mr.B.
Whether second proviso of section 16(2)(d) violated ?
Consideration paid to third person on the direction of seller
14 Sep 2022 
16 Replies 
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Payment to third party may undermine input tax credit entitlement depending on supplier acknowledgment and evidentiary proof.
Whether payment to a third person on the supplier's direction satisfies the recipient's payment obligation under the second proviso of Section 16(2)(d) is disputed. Some treat such payments as effective discharges if the supplier acknowledges receipt; others warn tax authorities may view payment to a third party as failure to pay and seek reversal of input tax credit. Practical defenses include contemporaneous supplier declarations, ledger evidence and proactive communication with the tax authority; procedural constraints under Rule 37 and non-availability of prescribed reversal facilities are also noted. (AI Summary)
Whether payment to a third person on the supplier's direction satisfies the recipient's payment obligation under the second proviso of Section 16(2)(d) is disputed. Some treat such payments as effective discharges if the supplier acknowledges receipt; others warn tax authorities may view payment to a third party as failure to pay and seek reversal of input tax credit. Practical defenses include contemporaneous supplier declarations, ledger evidence and proactive communication with the tax authority; procedural constraints under Rule 37 and non-availability of prescribed reversal facilities are also noted. (AI Summary)