CA Vinod Kaushik
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.
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 .
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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.
RECENT REPORTS OF JOINT COMMITTEE ON PROPOSED GST