India Inc is facing a major challenge in the form of GST demand notices for claiming blocked credits. Blocked credits are input tax credits (ITCs) that cannot be claimed by businesses. ITCs are the amount of GST that businesses pay on their inputs, such as goods and services, which can be offset against the GST that they charge on their outputs.
GST notices worth several crores continue to bombard the industry leaving India Inc in a tizzy 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.
There are a number of reasons why ITCs can be blocked. For example, ITCs cannot be claimed on goods and services that are used for personal purposes, or on goods and services that are exempt from GST. ITCs can also be blocked if the supplier has not paid their GST, or if the business has not filed their GST returns correctly.
In recent months, the GST authorities have been issuing notices to businesses that have claimed blocked credits. This is because the authorities are keen to ensure that businesses are not claiming ITCs that they are not entitled to.
Impact on Businesses
The GST demand notices for claiming blocked credits are having a significant impact on businesses of all sizes. Many businesses are struggling to pay the demands, which can lead to financial losses and even closure.
The demand notices are also causing uncertainty and confusion among businesses. Many businesses are unsure about whether or not they have claimed ITCs that are blocked. This uncertainty is making it difficult for businesses to plan for the future.
There are a number of key issues that businesses are facing in relation to the GST demand notices for claiming blocked credits. One of the main issues is the lack of clarity on the rules. The rules on blocked credits are complex and there is often ambiguity about whether or not ITCs can be claimed on certain goods and services.
Another issue is the lack of guidance from the GST authorities. The GST authorities have not issued any clear guidance on how businesses should deal with the demand notices. This is making it difficult for businesses to respond to the notices in a timely and effective manner.
Finally, businesses are concerned about the penalties for claiming blocked credits. If a business claims ITC on goods or services that are not eligible, they may be liable to pay a penalty of up to 100% of the ITC claimed. This is a significant penalty and it is a major concern for businesses.
What Businesses Can Do
There are a number of things that businesses can do to manage the risk of GST demand notices for claiming blocked credits:
- Review their ITC claims regularly to ensure that they are only claiming ITCs that they are entitled to.
- Seek professional advice from a tax advisor if they are unsure about whether or not they can claim ITC on certain goods or services.
- Maintain accurate records of the business and personal use of goods and services.
- Respond to GST demand notices in a timely and effective manner.
The government needs to take a number of steps to address the issue of GST demand notices for claiming blocked credits. The government needs to:
- Provide clarity on the rules on blocked credits.
- Issue guidance on how businesses should deal with GST demand notices.
- Review the penalties for claiming blocked credits.
The GST demand notices for claiming blocked credits are a major challenge for India Inc. The government needs to take steps to address the issue and provide support to businesses.
In addition to the above, here are some additional tips for businesses to help them manage the risk of GST demand notices for claiming blocked credits:
- Keep detailed records of all ITC claims, including the invoices, purchase orders, and other supporting documentation.
- Ensure that all suppliers are registered for GST and have paid their GST dues.
- File GST returns accurately and on time.
- If you receive a GST demand notice, respond promptly and provide all of the necessary information to the GST authorities.
If you are unsure about whether or not you can claim ITC on certain goods or services, it is always best to seek professional advice from a tax advisor.