Reversal of credit due to non-payment of consideration

Rule 2 of draft GST ITC Rules provides that a registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof the value of such supply along with the tax payable thereon within the time limit specified in the second proviso to subsection (2) of Section 16., shall furnish the details of such supply and the amount of input tax credit availed of in FORM GSTR-2 for the month immediately following the period of 180 days from the date of issue of invoice.

Issue

As Valuation Rules may require payment of GST based on notional value increase over the transaction value of a supply, requirement to pay the ‘value of supply’ creates an anomaly where the notional value may need to be paid in order to retain credit. This is obviously not the intention of the law.
Further, this rule is applicable to all supplies even in case of distinct persons and related persons. Once, credit is linked to time, additional condition of payment is not relevant to distinct persons and even related persons.

Suggestion

It is suggested that:

• The words ‘value of supply’ be deleted and be replaced with the words ‘price actually payable for supply’

• It be provided that the ‘provision will not apply to supply between distinct persons or related persons’

• Further, it be provided that ‘payment shall include settlement of amount payable in the accounts appropriately including all forms of bank payments, e-payments and adjustment with any other receivables/payables’

Source ICAI Suggestions on GST Rules Submitted to Govt of India