Input tax credit restriction may face legal hurdles


NEW DELHI: A second restriction of input tax credit (ITC) to 5% from 10% of the invoices furnished by supplier from January 1, 2021 by the government is likely to run into legal challenge, experts said. The earlier provision, which had narrowed the restriction from 20% to 10% last year and was brought into effect from January 2020, was already challenged in the courts.

“The 10% restriction is already before the courts for judicial review and this further restriction will certainly be the moot point of challenge,” said Abhishek Rastogi, partner at Khaitan &Co.“Due to the error of the supplier there is no reason for the recipient to suffer when such a recipient has fully paid the consideration and the tax.”

The particular provision has been challenged in Gujarat High Court.


The Central Board of Indirect Taxes and Customs (CBIC) made some significant changes to the central goods and service tax Act such that from January 1, 2021 the present eligibility limit of availing 10% ITC by a registered person in respect of invoices where the details have not been furnished by his suppliers would be reduced to 5%.

“This amendment would surely result in greater scrutiny of vendors and companies would be compelled to deal only with GST compliant vendors” said Harpreet Singh, partner, indirect tax at KPMG. He added that reduction in unmatched credit limit would result in working credit blockage.

But authorities countered that the implementation of quarterly return filing and monthly payment of taxes scheme with the invoice furnishing facility it will be possible for small and medium suppliers to upload invoices monthly while filing return quarterly. “This would ensure that large taxpayers continue to procure from small taxpayers,” the board said in a statement on Wednesday.

The government brought in the change to deter dummy businesses that were claiming ITC illegally, it added.

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