MUMBAI: A system of ‘GST Compliance Rating’ for dealers has been suggested in the recent reports released by the Joint Committee on Business Processes in relation to the proposed Goods & Service Tax (GST) regime. Any fall in rating below a prescribed level would result in blacklisting a dealer and purchases from such dealer will no longer qualify for input tax credit (ITC) in the hands of the buyer. Details of defaulting dealers will be made available on a public domain to inform potential buyers. In simple terms, ITC is the amount of tax paid by the buyer on purchases made by him for which the buyer is entitled to claim a credit against the sales subsequently carried out by him.
Of the three reports submitted by the Joint Committee, the report dealing with ‘GST registration’ points out that such a rating is a measure to facilitate informed choices by the buyers and not a punishment measure. Those who have made purchases from such a blacklisted dealer will be able to avail the input tax credit only after the improvement of the dealer’s rating to a normal level. Once blacklisting is lifted, buyers can avail unclaimed ITC subject to this dealer uploading sales details along with tax and interest.
Three specific defaults have been identified that would result in blacklisting of a dealer. These are: Continuous short reporting of sales beyond a prescribed limit of 5% (of total sales) for a period of six months; continuous default for three months in paying ITC that has been reversed; and continuous default of three months or any three month period over a duration of 12 months in uploading sales details.
Malini Mallikarjun, indirect tax partner, BMR & Associates, says: “In respect of defaults that are basic, this mechanism of blacklisting could have detrimental implications for dealers who may have inadvertently defaulted in compliances. Further, it appears to be punitive to buyers, who will suffer for no fault of theirs.”
Bipin Sapra, indirect tax partner, EY, adds: “This recommendation of blacklisting defaulting dealers and denial of ITC to the buyers is a huge issue as there are several practical challenges also involved. Each time a buyer wishes to place an order, he has to verify that the dealer is not blacklisted. Further, it may also happen that the dealer is blacklisted post placing of the order. The consequences for non-compliance should rest with the dealer alone.”