UNDER CONSTRUCTION PROPERTY AND GST

This year, the real estate industry in India is set to undergo major transformation with the implementation of the Real Estate (Regulation and Development) Act 2016 (RERA). Another significant change is the implementation of the Goods and Services Tax (GST) from July-17. GST is the biggest tax reform post independence.

It is clarified by govt that GST will be applicable from 1 July 2017. GST rate for under construction property is 12% for the amount paid on or after 1st July 2017. Considering this many builders advised their flat purchasers to pay major portion to save in GST.

Exactly how does GST impact the real estate in India? Let`s analyse that.

Presently work contract Tax as per Gujarat VAT is 0.60% and Service Tax is 4.5%. So one will be able to save 12% minus 5.10%, which is a major saving. Therefore government issued a press release to clarify that even if the GST is collected 12% post 1st July, the developer will have to pass on the input credit which will ultimately reduce the tax burden in the flat purchasers. Otherwise, u/s 171 of the GST Act, it will be considered as profiteering and necessary actions will be initiated.

A question arises, whether flats which are for resale or sale of plot of land or flats which have received Occupation certificate or completion certificate is liable to collect or pay GST. Answer is no GST is payable as it becomes an immovable property.

Let us analyse the reasons and provisions under GST.

First of all let us see what is movable and what is immovable. Both the definition has not been defined in the act. So we have to take reference of various case laws that we have in excise regime that have defined movable. Like Supreme Court in case of Municipal Corporation of greater Mumbai held “if article can be moved to another place as such without any dismantling then it is movable”.

In Sirpur Paper Mills Ltd. [1998 (97) ELT 3 (S.C.)] apex court held that “if a machine is embedded to the earth only to ensure wobble-free functioning, that would not be considered as immovable”. And we know everything which is not movable is immovable.

Definition of goods as per GST act says that “goods mean every movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply”, so it is clear that goods does not include immovable property.

But definition of service in the same act says “Service means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged”

Looking to both the definition one can conclude that definition of service includes Immovable property.

But will tax be levied on sale of immovable property? is our question.

Now let’s see scope of supply as GST is levied of supply of goods or services or both.

Section 7 of the GST Act says supply include all form of supply of goods or service or both such as sale, barter, exchange lease, renting etc. and also include activities specified as supply of goods or supply of service as per schedule II GST act.

But section 7 does not treat activities listed in schedule III of the GST act, as supply of goods or services or both.

As per paragraph 5 of schedule III activities or transaction relation to sale of land and subject to clause b of paragraph 5 of schedule II, sale of building shall not be treated as supply.

Clause b of paragraph 5 of schedule II reads as “construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier”.

Now it is quite clear that sale of land will not attract GST and sale of building after obtaining completion certificate or after its first occupation will not attract GST. Sale of building before its first occupation or before issuance of completion certificate will be taxed under GST, and shall be treated as supply of service.

Thus, no GST is applicable on resale of the flats, on completed flats having Occupation Certificate or Building Completion Certificate which is popularly known as BU permission. All under construction flats which are sold by the builder or resale of under construction flats when the balance amount is payable to the builder, GST is payable as and when such demand is raised by the developer.

GST PREPARATION BY SMALL AND MEDIUM BUSINESSES

As we are aware that country is going to witness the biggest taxation reform by way of GST which is expected to be rollout by 01-July-2017. In the 15^th meeting of GST council held on 3^rd-June-2017, council had finalised some more rules and also indicated the rate of GST on textile products, footwear and precious metal. The details of indicated rates finalised by council for goods and services have been published on the website of CBEC.

Now it’s right time for the Micro, small and medium Enterprises to get ready for GST which is expected to be rollout form 01^st-July-2017. The final decision for the rollout dated is expected to be taken in the meeting of GST council being held today i.e. 11^th June-17. Following steps needed to be taken with immediate effect for smooth transition in to GST regime.

Ø  The dealer registered under the existing law i.e. Vat, Excise / Sevice tax have to get themselves migrated under GST keeping in mind their expected volume of annual business under GST Regime.

Ø  The threshold limit of sales / turnover under GST is Rs.20lacs (Rs.10lacs for specified states). The dealers having turnover under threshold limit needed to work out their gravity of business exigency before migrating in to GST as the compliance under GST is going to be very stringent.

Ø  Following step should be taken for the smooth transition in to GST;

a.       Take the stock of all raw material, work in progress and Finished goods lying within factory along with aging analysis.

b.      Details of stock lying with Job workers.

c.       Take the stock of packing material.

d.      Identify the invoices of supplier for such stock.

e.      The invoice should contain the name of entity and duty paid (VAT or Central Excise) on such goods.

Ø  The input tax credit as mentioned on the invoices or deemed credit on stock lying on the day prior to the appointed day can be taken within 90 days  by filling the stock statement in the prescribed format.

Ø  Finalise the software as software plays a crucial role in your successful implementation of GST.

Ø  Send the letter/Mails to your supplier/vendor asking the details of

a.       GST no or provisional registration number,

b.      HSN code or Service accounting code,

c.       PAN No.

d.      Registered address,

e.      Contact no, f. Email id etc.

Ø  Update the Master’s of all your vendors/supplier by filling the above mentioned details.

Ø  All supply made on or after 01-July-2017 will be covered under GST, so plan accordingly.

Ø  The supplier who is not going to registered under GST is termed as UNREGISTERED Vendor and GST on such value is to be paid by entity himself so plan your purchase accordingly.

Ø  Each entity has to file minimum 3 monthly return and time of such return and details of same is mentioned below:

a.       Sales details need to submitted by 10th of next month

b.      Purchase details to be confirmed between 11th to 15th of next month (This return will be filed by your supplier by putting your GST no)

c.       BY 20th of next month you have to file combine return and make the payment.

d.      Late fees if Rs.100 per day.

e.      Annual return is to be filed by 30th September after completion of financial year.

Ø  It is also advisable to recruit the supporting staff considering the expected work and volume of your entity.

Ø  There are mainly three types of GST namely CGST, SGST and IGST which is payable as below:

a.       If supply is made within state then charge CGST and SGST

b.      If supply is made interstate then charge and pay IGST.

c.       If supply is made to union territory the charge and collect UTGST and CGST.

d.      If supply is made to SEZ or EXPORT then IGST

e.      Finalise the invoice format.

Ø  If you are selling the goods through your agent then agent need to take registration and invoicing need to be done on Agent based on his location.

Ø  The credit under GST is available only if it is disclosed in GST return so send your GST no to all your supplier specially: Telephone operator Raw material supplier Mobile service provider Packing material supplier Airline ticket agent Chemical supplier Transporter Courier Service etc.

Ø  There are separate treatment of sales return and purchase return in GST so plan accordingly.

For any specific query related to your business and industry do contact your GST consultants.

IS ISLAMIC BANKING SIMILAR TO CONVENTIONAL BANKING?

The comparison between Islamic Banking and Conventional Banking was already in discussion globally for not less than three decades particularly in the countries where Islamic Banks are in operation. Acknowledging the growth of the Islamic Banks and its acceptability across the globe many entrepreneurs, Organisations and Islamic scholars in India had also worked hard for getting the approval of RBI to start Islamic Banks in India. Though India is not Muslim dominated country but considering the religious belief of more than 180 million strong populations and in order to improve the financial inclusion in the country, finally RBI has given the approval for exploring the possibility of interest free banking. After the consent of RBI and potential growth expected in Islamic Banking, many finance consultants, intellectuals and even politicians have started debate and discussion on the comparison of Islamic banking and Conventional banking and thus this issue has got some space in print and electronic media.

I share my views base on my own study about the Islamic finance for the benefit of readers and also tried to point out what Islamic Banking system is really all about and how it differs from the conventional banking systems. There are countless misconceptions, misinformation and fallacies about the dissimilarities of these two banking systems.

So what is Islamic Banking ??

The principle of Islamic finance is based on belief that ,

      "all forms of interest are riba and hence prohibited ".

Islamic law considers a loan to be given or taken, free of charge to meet any contingency. Thus in Islamic banking, the lender should not take undue advantage of the borrower.

When money is lent out on the basis of interest, more often it leads to some kind of hidden injustice. Interest based transaction is an unjust transaction which only makes the lender earn and the borrower suffer.

The first Islamic principle underlying for such kind of transaction is "Deal not unjustly, and ye shall not be dealt with unjuslty" [2:279] which explain why commercial banking in an Islamic framework is not based on the debtor-creditor relationship.

Financial transaction in Islam is base on the principle that there should not be any reward without taking a risk. This principle is applicable to both labour and capital. As no payment is allowed for labour, unless it is applied to work, there is no reward for capital unless it is exposed to business risk.

Islamic Banking operate on Islamic principles of profit and loss sharing, strictly avoiding interest, which is the root of all exploitation and responsible for large scale of inflation and unemployment. As it is said and believe that Islam is the only religion that prescribes complete code of life therefore, it not only restrains a person to indulge in Riba based transaction but also describes the ways to address their financial needs.

Islamic bank is committed to do away with disparity and establish justice in the economy, trade and create employment opportunities.

Islamic Banking mostly offers same facilities as Conventional banking system that is strictly follows the rules guidelines of Shari'a. The original meaning of the Arabic word Shari'a is ' the way to the source of life ' and is now use to refer to legal system in keeping with the code of behaviour called for by Holy Quran.

Main source of shari'a are: Noble  Quran, Hadith, Sunnah, Ijma, Qiyas and ijtihad;

● The Noble Quran is a book of compilation of the verses that were revealed from Allah on the prophet Mohammed (peace be upon him).    

● The Hadith is the statements said by the Prophet Mohammed (peace be upon him)

● Sunnah is the Prophet practices and behaviours during his life.

● Finally Ijma , Qiyas , and Ijtehad is different levels and practices of shari'a decisions & opinions from Islamic religious scholars and researchers.

Prohibition of Interest

The religion of Islam has prohibited interest on loan given and instead has encouraged giving of qard al-hasan to needy people. Islam has stated that taking interest on loan given is one of the greatest sins. Simultaneously, Islam has encouraged people to do business by investing the surplus money. The profit arises out of business is halal, it is not riba (Interest). So Muslims can invest surplus money in business to gain profit.

If Muslims give loan to needy one, they cannot take fixed rate of interest on the loan given. They can give the poor or needy people the money as qard al-hasan (interest free loan). Islamic legal system has encouraged Muslims to give sadqah (charity) and qard al-hasan to needy people with an intention to help them in meeting their basic needs of life. Allah has promised reward for qard al-hasan.

There are many verses in the Quran dealing with riba. This verse was revealed in chapter thirty in surah al-Rum which reads :

          

"That which you give in usury in order that it may increase on (other) people property has no increase with Allah, but that which you give in charity seeking Allah's countenance , has increase manifold" (surah Rum, verse 39).

In the above verse Allah is encouraging giving charity instead of giving loan and taking riba on the loan given.

As of now the author is not having any data, if any portion of the fund is kept reserve by the existing Islamic Banks for the purpose of giving Qard al-hasan to needy people.

Categorical Differences between Islamic Banking and Conventional banking systems

·        The primary difference between these two banking methods is that the Islamic Banking system is based on the Islamic Shari'a law while the conventional banking system is based on man-made ideology and principles.

·        Thus, all dealing, transaction, business approach, product feature, investment focus, responsibility are derived from the shari'a law, which lead to the significant difference in many part of the operation with as of the conventional.

·        Another distinction is that Islamic banks operate on the basis of profit and loss sharing. This means that if an entrepreneur experienced losses, the Islamic bank will share the losses as opposed to Conventional banks that will still charge interest even if the businessman suffers losses with bank loans. This creates misbalance in the society by which the rich grows rich and the poor falls down the line.  

·        Conventional banks use money as a commodity as well as a mode of exchange and store of value whilst Islamic banks only use money as a medium of exchange and a store of value, not a commodity. This denotes that conventional banks trade money at higher price and rent it out as well whilst Islamic banks don't.

·        With regards to profit-making, the Conventional banking system uses time value as a source for charging interest on capital whereas Islamic banks use profit on the exchange of merchandises & services as a source of profit charging.

·        As a results of its profit and loss sharing principles, Islamic banks focus more on debtor`s investment projects, assessments and valuation compared to conventional banks where income from loan is predetermined.

·        Islamic banks cater for the public interest first, its primary objective is to ensure halal (lawful) economic growth whereas the conventional banks focus solely on making profit and the interest of the bank comes first.

·        There is ample proof that the Islamic banking system is better capitalized, has a higher inter mediation ratio and better asset quality than of the conventional banking system. Fundamentally the difference between Islamic banking and conventional banking is that the idea of fairness to the clients is theoretically focused on the idea of Islamic banking itself. Conventional banks aim to maximise returns and minimise risk. The banks interest comes before the client's as opposed to the Islamic banking system.

Conclusions

Base on the above discussion it is expected that Islamic Finance or Islamic banking is going to be highly successful in India if penetrated in right manner. Due to idea of fairness, Islamic Financial Products not only attracts muslims who are religiously bound to follow sharia but other non muslim clients also who are not religiously bound. The products of any Islamic banking system should be designed in such a manner that all the class of the people of the society get their financial needs catered in Islamic banks well within the principle of sharia.

The author is a practicing Charterd Accountants and can be reached at saiyum@gmail.com

Obstacles on the way of Entrepreneurs

In recent scenario the credential of any countries` economy is being measured based on the wealthiest people of that country.  Quite frequently we come across the news of Warren Buffet, Bill Gates, Ratan Tata, Kumar Mangalam Birla, Mukesh Ambani, Sunil Mittal, Narayan Murthi, Azeem Premji and lot other big industrialist about their change of rank in the wealthiest category of the world or the country. The other middle class people or below that category consisting more than 80% of population are simply ignored. It is not that the people in the lower category are not having any skills. If we analyse we will come to know that some of the people are having enough potential to be listed in the category of above industrialists. You would be thinking that if the people are having potential then what the factors that are stopping their growth. We shall discuss the same further in this article.  

The God Almighty has given different quality, skills in different people. Some of the people have been bestowed with lot of wealth and some are having excellent skills and creativity. It is universal truth that to achieve success healthy cooperation among the people is required. There are certain pessimistic factors that stopped the people from coming forward and knock the door of success.  

1. Mindset of keeping the hard earned money in safe mode like deposit with Banks, Insurance Companies or government securities bearing fixed rate of returns.

Actually most of the people who are in possession of considerable amount of fund do not know the hidden facts of the system of banking and insurance companies. Nowhere in the globe can people get guaranteed securities disregard of government undertaking. We have seen lot of bankruptcy cases in recent past. Actually almost all the currency across the globe is backed by USD and analysts have proved that United States economy is heading towards bankruptcy. I wonder why people are over caring for security of the money when the most important LIFE itself is not secured.

The basic element for growth of wealth in any economy is that it should be kept on circulating in the different right hands rather than piling up in one hand. Hence hard earned money of the person or group of the person should be deployed in such a manner that mitigates the disparity of income in the society which can be achieved in contributing for starting up the business or expansion of the existing business.

2. Hesitation in executing ideas on the guise that it may be stolen by others.

Some people are of so conservative mindset that they feel very much unsecured in executing the ideas. They think that their ideas are of high importance and if he will try to execute it some other people may come to know and may be implemented by them. Actually any business idea is the monopoly of oneself but delay in implementation of the same may end up worthless. Further one has to remember universal truth that knowledge increases if shared with others.

Salvador Dali- the father of Surrealism slept on a couch with a spoon in his mouth. He would start dreaming up crazy ideas and as he would drift into his sleep, the spoon would slip out of his mouth, fall on the floor and wake him up. He would immediately get up, rush to his canvas to paint what he had just dreamt. The million $ Dalis that exist today are paintings, not mere dreams.

An idea is worth nothing. Quickly Execute it to make it valuable.

3. Hesitation in meeting with Investors!

Some cream talent in the society often found wondering here and there and wasting their valuable times and energy. They hesitate in approaching to investor on the pretext of the right time and mood of the investors.

No Investor is waiting with bated breath biting her fingernails for you to call! It’s quite the opposite scene actually. In a booming Economy (like India), investors are deluged with lots of high quality and established business investment options, so you have to fight hard to get into visitor’s area to begin with!

Capital Chases Entrepreneurs, not the other way around. Invest all your energies in building a GREAT business. Everyone will be ringing your doorbell.

4. No money to start up.

Most new business ideas today really need very little capital. If you are thinking of starting an Internet enabled business, the cloud takes away all the pain of investments. Domains cost less than 20 US$, and the rest of it is almost free. Sites like Word Press and their plugins can get you a fully loaded website up and running in a few thousand rupees spent.

Sure, if you have a more Capital Intensive business idea, then think really hard. Start Ups don’t survive on Love and Fresh Air. They need real hard cash. If you are on the Poverty Line, don’t attempt to start up. There will be better times to be more adventurous.

Be ready to sacrifice a good couple of years’ earnings into starting up and not looking like someone who lost all her baggage after a 24 hour flight. Once you have the cushion of 2 years’ savings, a lot more confidence will seep into your decision-making and improve your risk taking capabilities. Also Budget your Burn to say last for a year or whatever be your test horizon. That discipline will go a long way even after you get funded.

5. Let me Grow First. Revenues can come Later.

Unless you have a massive, massive overnight hit like a Twitter or Facebook, tread the ‘growth first, revenue last’ road with caution.

You may be suffering from a deep-seated insecurity to generate revenues and conveniently shoving that fear under the carpet by postponing revenue generation. It’s like hiding a body in the deep freezer and hoping that it will never be found.

Generating revenues is a real PAIN. And it’s best confronted in parallel to building your business. In fact, so many extra features of your service or enterprise may never be needed if you listen to the fat men with the cheques books early on. Also, as investors, partners, and potential acquirers start noticing your business, they look your Generating Revenue Experience (GRE) scores. If you didn’t apply for the exam, you wont get in.

Get that begging bowl out. Try and test (if you want to maintain Facebook like early start up Virginity) what people will pay for – but make sure that you know where the light switches are when the darkness arrives.

6. Ignorance of Technology and Business Strategy!

If you are not aware of latest market strategy and developed technology then learn!!

The demons of the mind that say that you don’t know how ‘business’ works need to be exterminated on day zero of starting up. Look all around you – the greatest geeks in the world – Steve Jobs, Bill Gates, The Google Twins, Marc Z – all have understood the science of business better than anybody else.

Today the technology and self -serve platforms have become so easy to understand and implement, they are like those do it yourself Lego Puzzles. All you need is the patience to sit down and assemble the rocket you are trying to build step by step. Read the instructions carefully and you will be set.

No entrepreneur can be in-complete. This is actually also the first step in becoming an entrepreneur – understanding a domain that you otherwise had no clue of.

Note – I am not suggesting mastering all domains, but rather just understanding them.

7. Hiring Cost of professionals and consultants! Myth 6 – Professionals whom I want are too expensive to hire.

Some entrepreneurs think that professional that they want to hire are too expensive. Actually this issue can be killed if professionals are approached positively with burning desire and they have been explained the real worth of invention of entrepreneur.

So many of the ‘been there, done that’ types are so bored and stuck en-cashing salary cheques every month. They are waiting for folks like you to go up to them and redeem them!

Professionals with big compensation packages may not quit their job in a hurry for your Love Songs, but they can certainly begin associating with you. Start meeting them and burrow into their experiences. Shed a few shares and get them on your board. You may even realize that you never needed them full time!

8. Conclusions

In a start up land, while your dreams may have taken you to heaven in a first class seat, when you actually implement the idea and hit execution, you may land up in rubble, deep under the ground.

Do not deny the ‘badness’ of the idea or the common sensical fact that ‘this was a bet that should not have been played’. Enterprises are built on hypothesis. If even a couple of assumptions or facts (which are crucial to business) don’t turn out the way as per your expectations, ditch the business, kill all engines, sit back and revise the learnings earned.

Get out, as soon as you see smoke. Don’t put on a mask and enter the fire pretending to be a fire fighter. You will not come out alive and your soul will be too charred to boot up again

All the above obstacles that we have discussed so far is due terror barrier. It is resulted when unconscious mind that is stronger than the conscious mind do not accept the new business ideas which is loaded with obvious risk, hence on the pretext of above it through in the safe zone by not proceeding towards start up. One also needs to learn the technique of killing the terror barrier to be one of the great entrepreneurs.

Wish you All The Best!

Beware Dealers Claiming Input Tax Credit

Beware Dealers Claiming Input Tax Credit

One of my clients has received the demand notice from the Commercial Tax Department of Gujarat for payment of VAT against wrong claim of Input Tax Credit. On scrutinizing the relevant documents of input tax credit it was found that Tax Invoice was issued by the supplier and other documents to prove the genuineness of the purchase transaction i.e. Purchase order, Delivery challans etc. was also found in order. The reply along with the attachment of relevant documents proving the genuineness of transactions was submitted to the department.

Surprisingly concerned CTO did not pay any heed towards the submission and bluntly stated that since the TIN no. of concerned supplier has been cancelled with retrospective effect no input credit is available to the buyer of goods.

The provision of Input Tax Credit has been provided under section 11 of Gujarat Vat Act 2003. On thorough study of the provision of section 11 it can be observed that terms and conditions of allowing Input Tax Credit have been discussed precisely under subsections 4, 5 and 7. 

·         Sub section 4 talks about the maintenance of record in the form of Tax Invoice in Original.

·         In Sub Section 5 various conditions have been listed from clause (a) to (p) describing the situation where Input Tax credit may not be available.

·         In subsection 7 the fraudulent transaction has been highlighted where Input Tax Credit is not available.

The relevant portion of the section 11 i.e subsections 4, 5 and 7 have been produced below for the ready reference of the readers.

“(4) The tax credit shall not be claimed by the purchasing dealer until the tax period in which he receives from a registered dealer from whom he has purchased taxable goods, a tax invoice (in original) Containing Particulars as may be prescribed under Sub-section (1) of Section 60 evidencing the amount of tax.

(5) Notwithstanding anything contained in this Act, tax credit shall not be allowed for purchases-

(a) made from any person other than a registered dealer under this Act;

(b) made from a dealer who is not liable to pay tax under this Act;

(c) made from a registered dealer who has been permitted under section 14 to pay lump sum amount of tax in lieu of tax.;

(d) made prior to the relevant date of liability to pay tax as provided in sub-section (3) of section 3;

(e) made in the course of inter-State trade and commerce;

(f) of the goods which are disposed of otherwise than in sale, resale or manufacture;

(g) of the goods specified in the Schedule I or the goods exempt from whole of tax by a notification under sub-section (2) of section 5;

(h) of the goods which are used in manufacture of goods specified in Schedule I or in the packing of goods so manufactured;

(i) of the goods which are in the nature of capital goods as defined in clause (5) of section 2 and which are meant for use as capital goods in the manufacture;

(j) of vehicles of any type and its equipment, accessories or spareparts (except when purchasing dealer is engaged in the business of sales of such goods)

(k) property or goods not connected with the business of the dealer;

(l) of the goods which are used as fuel in generation of electrical energy meant for captive use or otherwise;

(m) of the goods which are used as fuel in motor vehicles;

(n) of the goods which remain as unsold stock at the time of closure of business;

(o) where original invoice does not contain the details of tax charged separately by the selling dealer from whom purchasing dealer has purchased the goods;

(p) where original tax invoice is not available with purchasing dealer or there is evidence that the same has not been issued by the selling dealer from whom the goods are purported to have been purchased;

Notwithstanding anything contained in clause (a) or (b) in this sub-section and subject to conditions as may be prescribed, a registered dealer shall be allowed to claim tax credit in respect of purchase tax paid by him under subsection (1) or (2) of section 9.

(7) Where a registered dealer without entering into a transaction of sale, issues to another registered dealer tax invoice, retail invoice, bill or cash memorandum with the intention to defraud the Government revenue or with the intention that the Government may be defrauded of its revenue, the Commissioner may, after making such inquiry as he thinks fit and giving a reasonable opportunity of being heard, deny the benefit of tax credit, in respect of such transaction, to such registered dealers issuing or accepting such tax invoice, retail invoice, bill or cash memorandum either prospectively or retrospectively from such date as the Commissioner may, having regard to the circumstances of the case, fix.”

Normally dealers are advised by the consultants to ensure the following steps while claiming the Input Tax Credit.

·         To ensure that the concerned supplier is registered dealer and the TIN no. has been printed on the Invoice.

·         To ensure that proper Tax Invoice in the prescribed format has been issued by the supplier.

·         To ensure the documentary evidence like Lorry Receipt, Delivery challan duly stamped proving the receipt of delivery of material.

Even if the dealers comply with all the provisions that have been described under the Act there are chances that commercial tax department may reject the Input Tax Credit if the TIN No. of supplier who has issued Tax Invoice got cancelled.

It is pertinent to note that if any dealer fails to file the return for consecutive 3 Tax period then Commercial Tax Department cancels the registration of the dealer after issuing a show cause notice to the concerned dealer. If you are one of the genuine buyers of such dealers who are not complying with the provision of VAT Act, you may get punished for their non compliances in the form of reversal of Input Tax Credit.

Although such recovery of reversal of Input Tax Credit by the department from the dealers is absurd and challengeable with appellate authority but some of the dealers are making the payment to buy the peace of the department.

While It would be a hardship but it is recommended to verify the TIN no. of the suppliers on the website and save it as an evidence to prove that on the day of purchase the dealer was registered as per the record available on the website. At least this practice should be adopted for all the dealers from whom major purchases are made on monthly basis to safeguard the input tax credit.

On receipt of disallowance of input tax credit due to cancellation of registration of suppliers, concerned supplier should be approached for the recovery of vat that has been collected by him and not paid to the government treasurery. But recently the department is issuing the notices for the purchase transactions that had been taken place two to three years back and now the cases have been observed where suppliers had either close the business or not trace able at the address that was printed on the invoice. In such circumstances dealers will end up paying double tax once originally to the supplier and secondly on receipt of the demand notice from the department.

It is suggested that competent authority of the commercial tax department should review this situation and find some alternate way of handling such issues so that the genuine buyers do not get unnecessary punished. The action should be taken only against the right culprit who has collected VAT and not paid to the government. The input tax credit should be reversed only when the credit is taken based on non genuine purchases as stated under subsection 7 of section 11 of VAT Act 2003.