|There are various provision in the GST law where the logic lacks totally.
Despite RCM, there is one provision in the GST law which intends to regulate the business terms and conditions. The terns of payment as well sale depends upon the contractual obligation ofhte buyer and seller. However, GST law also contains the provision that if the payment is not done by the buyer to the seller within 180 days then the GST credit will be required to be reversed by the buyer.
The condition of payment to vendor within 180 days of the date of invoice has been troubling the trade since inception of GST. Various industries and trade associations have time and again represented to remove the said condition as there is no loss to the Government Treasury as a result of this deleting this provision. For giving the ITC, Government has already received its revenue of GST from the vendor on raising of the invoice. By this provision, commercial understanding & contractual obligation between two parties is getting stretched in to the law.
If the payment is not done to the seller or service provider then the business must reverse the ITC availed along with interest and reclaim the same after payment to vendor is made.
One may carefully note that there were no such conditions earlier in any of the Central Excise or VAT law of the erstwhile regime. Yes, Service tax had this condition for payment within specified period to the vendor.
As per second proviso to Section 16(2) the wordings used are “where a recipient fails to pay to the supplier of goods or services or both “. The important word here is “fails to pay”. The words “fail to pay” is not defined in the GST Act. Normal dictionary meaning, for a failure to occur first of all there must be an obligation to do something. If the buyer and seller agrees that the payment should be done in 360 days then whether there is a “failure to pay” or not is a question which need to be looked in to.
One school of thought believes that in the absence of any contractual obligation, the proviso should not apply and in such cases there should not be any requirement of reversal in such cases.
This reversal should not apply to payment after 180 days as per contract, retention amount as per contract etc. This interpretation has been well backed by few judicial pronouncements.
Further, the logic of non-payment of tax by the seller or service provider has already been taken care by the Government by providing that the ITC will not be available to the buyer if the seller or service provider doesn’t make the payment of GST. In short, ITC mismatch and defaults by Vendors results in the denial of the GST of the buyer.
The time has come when the unwanted or unintended condition for disallowance of ITC for non-payment to vendor is removed in totality.