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

Constructive payments to vendors may satisfy GST payment condition and prevent ITC reversal if recorded as paid by the recipient.
Whether third-party payments to suppliers on behalf of a registered recipient amount to constructive payments for GST purposes, invoking the 180-day input tax credit reversal under the second proviso to section 16(2). Contributors explain that where invoices are in the recipient's name and payment is recorded in the recipient's books or characterised as amounts the supplier was liable to receive but paid by another, the payment condition is treated as satisfied under section 15(2)(b) and Rule 37(1); absent such treatment, reversal may be required and open to departmental challenge.