Businesses have approached the government to clarify the impact of GST on discounts, reduced prices and extended payment cycles which they had provided to the customers. The COVID-19 pandemic had driven customers to renegotiate prices.
The goods and services tax is paid when an invoice or bill is issued. As such, businesses are now finding it difficult to claim credit or amend taxes already paid when they have not received payment from the clients or have received reduced amounts. Abhishek A Rastogi, partner at law firm Khaitan & Co, told ET that IGST element on the credit note issued is not treated as an input tax credit and as a corollary there is a restriction in the system to adjust IGST and CGST or SGST.
He highlighted that the GST is divided into three components – IGST, CGST and SGST. “A part of the tax is levied on goods imported. CGST and SGST are two components of the tax framework where revenue generated is collected by the central and state governments respectively. Under the GST framework, the input tax credit is essentially a tax paid on raw materials or input services. This can be used to reduce future GST liability.”
Rastogi pointed out that as there is no specific provision in the statute to provide such a restriction, the constitutional validity of this restriction may be tested as the situation is a clear example of tax cascading, which is not the objective of GST. “Companies are unable to claim GST already paid under the present GST framework even if they have not received the money or have had to return it or offer reductions to customers.”
Furthermore, experts believe that if the government does not provide clarity, the businesses would have to turn to the courts.