One of the cornerstones of the GST regime has been to allow free flow of tax credit throughout the entire supply chain. However, this sadly has not been achieved till date. The innumerable returns that have to be filled, the matching of some auto-populated returns with that of the supplier and recipient, the dependency of the recipient on the supplier correctly filling its return as well as paying the output tax liability have left the recipients in a state of anxiety. Over the past two years, the number of investigations at the recipients end, where the recipient is forced to reverse “ineligible” credit has led to an erosion of trust between the business and the tax department and unnecessary litigation.  

In an attempt to resolve these issues, a series of amendments to the GST laws have been introduced. The aim of these amendments is to ensure compliance at the suppliers end so that the recipient has more certainty of the credit availed by it. We discuss the effect of some of these amendments in this article. 

Mismatch between GSTR-1 and GSTR-3B – There can be instances when the declaration in the return of outward supply (GSTR-1) and monthly returns for payment of tax (GSTR-3B) do not match. The recent amendment now gives power to the authorities to demand the difference in tax between these two returns as self-assessed tax. This is to thus, ensure that there is sanctity in the values declared by the supplier, thereby preventing harassment at the end of the recipient. Further, to allay any apprehension amidst business that this could lead to excessive power in the hands of the authorities, the Board has issued instructions that an opportunity must be provided to the taxpayers to explain the mismatch before initiating any recoveries. 

Another amendment has been brought into the section that entitles a recipient to credit. A condition has been inserted restricting the credit available to the recipient only to the extent such invoices or debit notes have been indicated by the supplier in its GSTR-1 and communicated to the recipient. This will ensure that while the quantum of credit now available to the recipient may reduce, the eligibility to such credit would not be called into question time and again by the authorities. 

Further, to tackle the issue of non-payment of tax by the suppliers, there is a proposal to block filing of GSTR-1 in case a registered person fails to file GSTR-3B of the preceding month. This is to ensure that suppliers are not only passing on input tax credit to the recipients but are also paying the taxes. This amendment will also come as in aid to such recipients who used to avail credit in the absence of any information about payment of tax by their suppliers and later on were made liable to pay tax along with interest. 

In case recipients wish to avail the entire credit, there is now a proposed amendment which will allow the recipient to avail self-assessed credit with a caveat that in case suppliers do not pay tax on supplies in respect of which credit is availed, the self-assessed credit shall be recoverable along with interest from such recipients.

These amendments primarily aim at ensuring transparency and free flow of information between suppliers and recipient in order to curb erroneous availment of credit due to bona-fide errors. While the intent behind these amendments appears noble, the excessive powers given to the department is a matter of concern and the possibility of unnecessary litigations cannot be entirely ruled out. Thus, it is imperative on the part of the industry to exercise abundant caution while filing returns and while availing credit.