Genuine Buyers’ ITC Claims Under Scrutiny as GST Council Weighs Supplier Default Issue

Bengaluru, Oct 12 : The GST Council is expected to consider the contentious issue of denying input tax credit (ITC) to genuine buyers when suppliers fail to deposit tax with the government, following an examination by an officers’ committee within three months.

Balasubramanian Krishnamurthy, Joint Secretary (TPRU, ST & FATF), Department of Revenue, Ministry of Finance, said the issue relating to Section 16(2)(c) of the GST law had been referred to the committee, which had been asked to arrive at a conclusion within three months.

Speaking at an interactive session titled “The GST Reset: A Dialogue across Government, Industry and Tax Professionals”, Krishnamurthy said the GST Council would take an appropriate decision after the committee completed its deliberations.

The issue concerns whether a buyer who has paid the invoice amount, including GST, and fulfilled all statutory obligations can be denied ITC because the supplier has failed to remit the tax to the government.

Section 16(2)(c) of the GST law requires the tax charged on a supply to be paid to the government, either in cash or through the utilisation of admissible input tax credit, for the recipient to be eligible to claim ITC.

Industry representatives have raised concerns over the practical difficulties faced by buyers in verifying whether suppliers have subsequently deposited the tax, despite having limited control over their compliance.

Responding to a question on the challenges arising from the provision, Krishnamurthy said the discussions were confidential and declined to comment on the deliberations.

“It would not be fair for me to comment on what was discussed because it is still confidential. The minutes are being drawn up. Once the minutes are approved, they will be in the public domain,” he said.

The outcome of the review could have significant implications for businesses’ working capital, tax litigation and compliance costs, particularly in cases where buyers possess valid invoices and payment records but face disputes over suppliers’ tax payments.

The issue also highlights the challenge of balancing revenue protection with the need to safeguard the interests of compliant taxpayers who may be affected by defaults beyond their control.

Krishnamurthy said the government was complementing GST rate rationalisation with procedural simplification and a more trust-based compliance framework.

The latest reforms cover registration, return filing, refunds and dispute resolution, with the objective of reducing compliance burdens and encouraging taxpayers to remain within the formal economy.

He also said taxable supplies had grown by around 26 per cent between October and August compared with the corresponding period a year earlier, while GST revenue growth stood at around 15 per cent in the second quarter of the current financial year.

The officers’ committee’s findings and the subsequent GST Council decision are expected to shape the government’s approach to resolving the issue, which pits the need to protect revenue against the entitlement of genuine taxpayers to claim input tax credit.