CA Vinod Kaushik

CA Vinod Kaushik

Introduction:

We all are expecting simplification of indirect tax laws, uniform tax policies across the States and transparent tax system with ease of doing business. Every optimistic person would not rule out above all situations once the GST is being implemented. In addition to all of above positive changes the joint committee set up by Empowered committee of state finance minister has suggested a concept called “Blacklisting of Dealers” under GST regime which will put a cap on bogus and fictitious dealers. The current VAT laws of various States (Section 9(2) (g) of Delhi VAT) disallow input tax credit to the buyers if the seller does not pay taxes of which the buyer is claiming input tax credit. The input tax credit is also disallowed if the selling dealer does not file his return correctly or not adjusting his input or output tax credit legally. So many litigations are pending with judiciary over this issue where the buyers have no remedy in law. The system does not allow any informed choices to the buyer in case the seller involved in any wrong doing. To overcome all these issues in advance a concept of blacklisting has been introduced which will provide an umbrella to the buyers. In this article we shall discuss the scheme of blacklisting, trigger for blacklisting and advantages of the scheme.

Overview of scheme:

Under the proposed GST regime a system of “GST compliance rating” may be introduced where a dealer shall be given a rating and any fall in the rating below a prescribed level will have impact of blacklisting of a Dealer. While making a purchase from the dealer his compliance rating can be verified and decision of purchase will be dependent on the rating of selling dealer. GST compliance rating will work like CIBIL in the banking industry where borrower with good CIBIL scores is eligible for loan. The input tax credit on purchase from a blacklisted dealer shall not be available unless the rating of the dealer is improved to normal and on the other hand input tax credit from a non blacklisted is not assured by govt. and it mainly depends on tax invoices and payment of due taxes. For example if M/s ABC limited has “GST compliance rating” below its standard say “5” then input tax credit to the buyer is not available against the purchases made from M/s ABC limited . In case the above dealer file his return and pay due taxes with interest his rating shall be improved to normal and in that case reversed input tax credit can be reclaimed by the buyer.

Trigger points for blacklisting:

Depending on various factors following are the key points for blacklisting of a dealer under GST law:

  • Continuous default for 3 months in paying ITC that has been reversed.
  • Continuous default of 3 months or any 3 month-period over duration of 12 months in uploading sales details leading to reversal of ITC for others.
  • Continuous short reporting of sales beyond a prescribed limit of 5% (of total sales) for a period of 6 months.

Defaulters of even a single event should also be flagged and put in public domain as being a potential black listed dealer so as to alert the buyers. The profiles for all dealers would be posted in public domain so that the dealer community is kept aware of the compliance profile of all registered dealers with whom they may have to deal with during the course of their business. As of now many States including Delhi are facing heat from the “fly over night” dealers as they make huge sales in few days of operations and later on stop filing return or underreport the sales. The concept of blacklisting once incorporated in GST law will overcome the issue of “fly over night” dealers.

Advantages of blacklisting a dealer:

  • It will act as panacea for regulating input tax credit for buyer
  • A proactive buyer can take decision based on the compliance rating of his seller
  • Auto-SMS will be sent to all dealers who have pre-registered this dealer (black listed now) as their supplier.
  • Blacklisted GSTINs cannot be uploaded in purchase details and result in denial of input tax credit
  • Once blacklisting is lifted, buyers can avail unclaimed ITC subject to this dealer uploading sales details along with payment of tax and interest.

Concluding remarks:

The concept of blacklisting of dealers seems very convincing and may control the wrongdoing by unscrupulous dealers. Today the professionals find it very difficult to convince the tax authorities for denial of input credit on purchase from such bogus dealers. The proposed concept once incorporated in GST law can mitigates the tax disputes arising due to denial of input tax credit. In case you have any suggestion or advice after reading this article please send me an email or submit your comments on draft process of GST at www.mygov.in .

(Author can be reached  at cavinodkumar67@gmail.com, +91-9953236278)

Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose. It doesn’t constitute professional advice or recommendation. The Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article and for any actions taken in reliance thereon.

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6 responses to “Concept of Blacklisting of Dealers under Proposed GST Regime”

  1. Soniya says:

    Very informative

  2. T N Ramanathan says:

    Dear Sir,
    The scheme will work well if only the rating assigned to a dealer is published in the CT dept”s website and the buyer is able to check the status of the seller before he effects purchase from such seller. Alternatively the list of all the down rated sellers be flagged with red letters the moment the site of the Dept dealing with the VAT is opened . When we check TIN number,this rating should also be made available to caution the buyer.
    As an aside , i feel that the GST is a grand design which requires the support of the States . The States have legitimate fear against the Union Govt irrespective of the party in power at the Centre, because the past experience is not a happy one. The moment the States surrender their taxing rights to the Union , the Union Govt begins to behave like an arrogant mother in law out to neglect the daughter in law.Examples are abundant . Even the promised compensation to States under VAT is mired in delay and unnecessary queries. It is learnt that many States are yet to get their full compensation. When the States collect taxes , the inflow is daily or at least monthly. But the Union release the fund in installments of its liking in complete disregard of the urgent and genuine requirement of funds by the States for various schemes and meeting its obligations.Further there is no weightage given to the manufacturing states which really have to sacrifice more of its resources in terms of water , electricity , infrastructure and bother about the damage to environment and take remedial and restorative measures to sustain the production. Employment generation alone can not be an adequate compensation as no State can enact or make it mandatory that only the natives of the State should be employed which will be struck down by the judiciary as ultra vires of the Constitution. Treating the consuming and manufacturing States alike will amount to treating unequals equal. An allocation of lion’s share of inter state GST to producing States will encourage the States to consider the proposal favourbly. This will also gel well with the campaign of the Union Govt”s poicy of “make in India”

    Another issue harping the arena is the growing online trade of anything and everything under the Sun. It is estimate that by 2020 the business will reach mind boggling proportion of $100 billion. unless some foolproof method is not put in place , it is likely snow ball into a big tax litigation. This border less trade needs to tackled in the beginning itself.The Karnataka Govt seems ,as is seen from the Economic Times , has taken cudgels by bringing them/ (online sales portals ) under the scanner of VAT TDS net to prevent the likely VAT evasion under the guise of their role as market place or facilitator. The GST joint committee will have to address these emerging problems also to avoid some of the online sales MNC giants complaining against the country of unpredictable tax regime and painting the country black in the international fora.
    TNR
    Reply
    – See more at: https://taxguru.in/goods-and-service-tax/concept-blacklisting-dealers-proposed-gst-regime.html#sthash.lfFvh9N7.dpuf

  3. T N Ramanathan says:

    Dear Sir,

    The scheme will work well if only the rating assigned to a dealer is published in the CT dept”s website and the buyer is able to check the status of the seller before he effects purchase from such seller. Alternatively the list of all the down rated sellers be flagged with red letters the moment the site of the Dept dealing with the VAT is opened . When we check TIN number,this rating should also be made available to caution the buyer.

    As an aside , i feel that the GST is a grand design which requires the support of the States . Thge States have legitimate fear against the Union Govt irrespective of the party in power at the Centre, because the past experience is not a happy one. The moment the States surrender their taxing rights to the Union , the Union Govt begins to behave like an arrogant mother in law out to neglect the daughter in law.Examples are abundant . Even the promised compensation to States is mired in delay and unnecessary queries. When the States collect taxes , the inflow is daily or at least monthly. But the Union release the fund in installments of its liking in complete disregard of the urgent and genuine requirement of funds by the States for various schemes and meeting its obligations.Further there is no weightage given to the manufacturing states which really have to sacrifice more of its resources in terms of water , electricity , infrastructure and bother about the damage to environment and take remedial and restorative measures to sustain the production. Employment generation alone can not be an adequate compensation as no State can enact or make it mandatory that only the natives of the state should be employed which will be struck down by the judiciary as ultra vires of the Constitution. A lions share to producing States will encourage the States to consider the proposal. This will also gel well with the campaign of the Union Govt”s poicy of “make in India”

    Regards,
    TNR

  4. n j shetty says:

    What if Govt charges minimum tax say 2% at all stages without allowing ITC. Dept will
    get ample time to enforce the defalters. Denying ITC to buyer if the seller does not pay
    leads discouraging business class and proves inability of Dept to enforce law. This is
    clearly cheating by joining hands with defaulters.

  5. CMA ASIM SAHA says:

    Very good illustration but what about the policy for valuation, abatement in MRP related products

  6. Tarunkumar D Trivedi says:

    Only non filer of 3 consecutive returns or tax payment defaulter should be black listed and not others, otherwise it will increase litigation as well as create chaos

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