The clarification comes at a time when many companies are facing cash flow issues and are highly dependent on smooth tax refunds.In a major relief to several companies the government has asked tax officials to allow refunds of unutilised input tax credits to companies in certain cases.
Many tax officials have been rejecting refunds after claiming that companies are not eligible for such refunds unless it’s explicitly reflected in the forms (GSTR-2A). The government in a Wednesday circular said that while companies would be ineligible if there is a mismatch between the claims they have made and their vendors’; this would not be applicable in certain cases.
“Various representations have been received seeking clarification on the issue relating to refund of accumulated ITC (input tax credit) in respect of invoices whose details are not reflected in the form GSTR 2 of the applicant,” the government clarification claims.
The clarification is set to impact the companies that export goods and services and had found that some of the foreign exchange was stuck in the form of credit due to the taxman’s stand.
“The clarification would help provide significant relief to India’s foreign exchange earners who were facing serious on ground challenges on refunds claims of unutilized input tax credit. The issue of rejection by lower level officers was significantly prevalent in certain jurisdictions where officers had taken a literal interpretation of the earlier circular without giving credence to the practical applicability of the same in certain scenarios,” said Abhishek Jain, tax partner, EY said.
The issue started after the government on March 31 said that companies would not be eligible for input tax credit refunds in cases where they are unable to match invoice from vendor. Industry trackers say that after this circular several tax officials started rejecting refunds in many cases where an invoice from a vendor is not possible—for instance in cases where goods are imported and IGST has been paid on that.
“This circular rightfully clarifies that the earlier circular no 135 was not intended to apply to cases of reverse charge and ISD transactions. Businesses that have been denied input tax credit refunds on the ground that Circular 135 was also applicable to reverse charge and ISD transactions as also the ITC availed on imports, would significantly benefit from the clarity imparted by this circular,” said MS Mani, partner, Deloitte India.
The clarification comes at a time when many companies are facing cash flow issues and are highly dependent on smooth tax refunds. The recent clarification means that companies that import goods, or have reverse charge transactions or have intercompany GST charges would not face any issue with their refunds being held back due to a mismatch.
Tax experts say that this is mainly because in these three instances there is no vendor on the other side whose invoice has to be matched with the company’s claims.
Source: indiatimes.com