Many GST taxpayers have petitioned the courts to challenge the denial of GST Input Tax Credits

Tax credit denial mainly on buyer-seller mismatch & non filing of GST returns

Taxpayers have now filed writ petitions in several High Courts, including Allahabad High Court, Gujarat High Court, and Delhi High Court, among others, requesting the early release of frozen input tax credit, wherever it is due. In other circumstances, the credit has been denied for a buyer who is not at fault; rather, it is his supplier who has not properly billed the supplies or has not filed returns in order to avoid taxes. In such circumstances, the real buyer confronts working capital constraints as well as a twofold GST outgo, one paid to the supplier and the other due to his inability to satisfy his GST obligations using input tax credit.

According to GSTN data, 66000 taxpayers’ input tax credits totaled Rs. 14000 crore blocked as of Oct 12.

Finance ministry has taken cognizance of these writ petitions. The Central Board of Indirect Taxes and Customs (CBIC) is holding departmental conversations to determine if the matter can be handled simply by providing a new clarification on the ITC claim regulations or if a new discussion is required.

“Given the size of the sum, clarity on rules may not be enough,” sources noted. “It is believed that the future GST Council may examine the idea to reduce industry hardships on ITC credit blocking.”

Credit will be restricted for the buyer if the supplier has not fulfilled the tax duty, according to the statute. This is despite the fact that the customer is not at fault and has paid both the consideration and the tax to the supplier. The buyer has a double burden because he or she has paid the tax to the vendor while also being denied credit. Similarly, there are laws in place that allow credit to be blocked in such a case. There have been cases where these credits have been blocked without the reasons being recorded in writing and without a sufficient opportunity to represent.

In a future meeting, the GST Council may consider relieving the problems caused by the ITC Credit obstruction.