Constructive Payments to Vendors

[Ramesh Pokar]

Dear Experts

ABC pvt ltd. has been awarded a works contract by M/s XYZ Ltd. wherein they have an understanding that XYZ will directly make payments to vendors (Steel 7 cement) on behalf of and on request of ABC.

Vendors will issue bills to ABC only, however, payments will be made by XYZ to vendors on submission of bill-wise requests from ABC

Query:

Is this an indirect payment considered as payment to vendors (Constructive payments) and a 180-day reversal as per the second proviso of section 16 (2) will not attract? Assuming all such payments have been made before 180 days.

Is there any possibility that the GST department can dispute such indirect payment and ask to reverse ITC?

Thanks

AI Summary

Indirect Vendor Payments by XYZ for ABC Raise GST Compliance Questions under Section 16(2) 180-Day Rule ABC Pvt Ltd. has a works contract with XYZ Ltd., where XYZ directly pays vendors on ABC's behalf, raising questions about GST compliance. The primary concern is whether such indirect payments are considered valid under GST rules, specifically regarding the 180-day payment rule in Section 16(2). One expert argues that the provisions are clear, and indirect payments should not trigger a reversal of input tax credit (ITC). Others suggest that the payment method must be accurately reflected in ABC's books. There is a consensus that compliance depends on how transactions are recorded, with no absolute exemption from the 180-day rule.