Indian companies face GST demand notices for claiming blocked credits

GST demand notices

GST demand notices worth several crores continue to bombard the industry leaving India companies in a jiffy as corporates have claimed credits while filing returns, which according to GST authorities have been blocked and thus cannot be claimed.

According to sources, “the GST authorities are issuing notices in large numbers to companies so as to ensure that the notices are issued in a time bound manner.”

However, the fear of the industry is that the first adjudicating authority will confirm the demand and hence there will be an additional burden of litigation cost and pre-deposit amount for filing an appeal.

The top court has been considering the industry’s case over blocked credit, which has been a significant concern. The hearing on section 17 of the CGST Act, which is vital, was just ended.

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Supreme Court, has however, reserved orders with the direction to the petitioners – industry — to file the written submission so that the matter could be comprehensively addressed.

Regarding the statutory provision of blocking credits under the GST regime, a number of industry players with commercial complexes, malls, warehouses, factories, pharmaceutical companies, and several other diverse sectors filed the plea in this case. They brought the matter before several High Courts before it was eventually taken up at the Supreme Court.

The credits are disallowed for works contract services, other services and goods which are used for construction of an immovable property.

According to Revenue, building an immovable property creates an asset that is exempt from GST, hence the credit application needs to be rejected. According to people aware of the situation who requested anonymity, the sector believes the credit cannot be refused because the ultimate goal is to provide taxable services, such as leasing, which are taxable, rather than to produce immovable property

Experts argued for a dozen of tax payers that blocking of credit will defeat the fundamental objectives of GST framework and will lead to tax cascading. Rastogi had argued that “the objective of GST is seamless flow of credits and any blocking will ultimately defeat the basic objective. The procurement of goods and services, even if these are used in construction of a property, are ultimately used for rendering of taxable services/supplies.”

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The non-obstinate clause that is being used to prevent the credit cannot violate the legal framework. Therefore, it is necessary to interpret the requirements so that the credit is only restricted for personal use or consumption and not barred when the transactions are for business-to-business transactions.

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