One of the main objectives of the Goods and Services Tax (GST) is to simplify the taxation process in India. However, despite the best efforts of the government, there are still some issues that businesses face related to GST. One such issue is the problem of blocked and disputed credits. Under GST, businesses are allowed to claim input tax credit (ITC) on the taxes paid for goods and services procured for furtherance of their business. However, there are certain situations where the ITC is either blocked or disputed. In this article, we will discuss the traditional treatment of blocked and disputed credits under GST.
Blocked credits are those credits that cannot be claimed by businesses even if the taxes paid are eligible for ITC. Some of the scenarios where ITC is blocked are as follows:
ITC is blocked for motor vehicles and other conveyances except when they are used for the following purposes:
- Further supply of such motor vehicles or conveyances
- Transportation of passengers
- Imparting training on driving, flying, navigating such vehicles or conveyances
- Transportation of goods
ITC is blocked for food and beverages, outdoor catering, beauty treatment, health services, cosmetic surgery, and membership of a club, health and fitness center.
ITC is blocked for works contract services when they are used for construction of an immovable property, other than plant and machinery.
A person who has opted for the composition scheme cannot claim ITC.In the above scenarios, the ITC is blocked and cannot be claimed by businesses. However, ITC can still be claimed for motor vehicles and food and beverages if they are used for providing taxable services.
Disputed credits are those credits that are claimed by businesses but are later found to be ineligible for ITC. The reasons for such disputes can be as follows:
1. Non-payment of the supplier: If the supplier has not paid the tax collected to the government, then the ITC claimed by the buyer will be disputed.
2. Non-filing of returns: If the supplier has not filed the returns, then the ITC claimed by the buyer will be disputed.
3. Mismatch of invoices: If there is a mismatch between the invoices uploaded by the supplier and those claimed by the buyer, then the ITC claimed by the buyer will be disputed.
4. Excess ITC claimed: If the buyer has claimed excess ITC, then the excess amount will be disputed.
5. Fraudulent Transactions: If the transaction is found to be fraudulent, then the ITC claimed by the buyer will be disputed.
The traditional treatment of blocked and disputed credits involves the following
steps:1. Identify the blocked and disputed credits: The first step is to identify the blocked and disputed credits.
2. Reverse the credits: The blocked credits cannot be claimed by businesses, and the disputed credits will be reversed by the government.
3. Pay the tax: If the disputed credits are reversed, then the tax liability will increase, and the business will have to pay the additional tax.
4. Pass on the liability: If the blocked credits are reversed, then the liability cannot be passed on to the customers. However, if the disputed credits are reversed, then the liability can be passed on to the customers.
5. Rectify the mistakes: If the credits are disputed due to mismatch of invoices or excess ITC claimed, then the mistakes can be rectified by the buyer.
Blocked and disputed credits can cause a lot of inconvenience to businesses. It is important for businesses to understand the scenarios where ITC is blocked and the reasons for disputes. The traditional treatment of blocked and disputed credits involves identifying the credits, reversing them, paying the tax, passing on the liability (if applicable), and rectifying the mistakes. By following these steps, businesses can ensure that they are compliant with GST regulations and avoid any penalties.
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