Budget 2021

Finance Bill fineprint can squeeze firms’ working capital

Shishir Sinha New Delhi | Updated on February 12, 2021

No input tax credit without matching invoice, Form C restrictions can have negative effect, say experts

The fineprint of the Finance Bill has at least six provisions that may negatively affect the working capital of a company. These include no benefit of Input Tax Credit (ITC) without matching invoice, restriction on issuance of Form C and conditions for refund and rebate.

The Finance Bill proposes a new condition for availing ITC, placing restrictions on getting the credit only to the extent of invoices/debit notes reported by suppliers in their GST returns. While there was partial restriction on availing credit since October 2019, insertion of the condition in the Act has given legislative competence requiring mandatory matching of credits.

Currently, tax-payers are allowed to avail unmatched credit (that is, not reported by vendors) up to 5 per cent of matched credits. This limit was 10 per cent till December 2020.

Issuance of ‘Form C’

Another provision in the Bill proposes restricting the facility for issuance of Form C for re-selling or manufacturing/processing of petroleum products and alcoholic liquor for human consumption. This means mining companies procuring diesel for their operations, or manufacturers buying diesel for usage in manufacture of products liable to GST, will no longer be entitled to concessional rate of CST against Form C.

According to tax experts, this is a big change as manufacturers that were buying diesel inter-State to run their factories would not be able to buy petroleum products using Form C at a concessional rate of 2 per cent, but would need to pay higher taxes

Sale proceeds

Another provision states that refunds in case of non-realisation of sales proceeds on supply of goods must be done along with interest within 30 days of expiry of the time limit prescribed under the FEMA. Experts feel that because of this amendment, exporters of goods would need to be more vigilant in collection of sale proceeds within the stipulated timeline. In case of any delay in receipt of the sales proceeds, the exporter would be liable to re-pay the refund claimed on inward supplies along with interest.

Vide the proposed amendment, a person would be required to pay an amount equal to 25 per cent as deposit to file an appeal against the order issued in respect of detention/seizure of goods.

Further, an amendment has been made requiring a person to pay a penalty up to 200 per cent of the tax payable/50 per cent of the value of goods for release of detained/seized goods.

Also, the amendment proposes to omit the option allowing the tax-payer to get seized goods released on a provisional basis under a bond and furnishing of security

Experts say keeping in view the behaviour of tax authorities towards procedural lapses in e-way bills and consequent litigation on such issues, the penal provisions can have a negative impact on the working capital of companies.

Harpreet Singh, Partner with KPMG, said: “Some of the indirect tax amendments like availment of input tax credit to buyer only when the vendor furnishes the details and the same are reflected at the portal, restriction on issuance of Form C other than for re-selling or manufacturing/processing of petroleum products and alcoholic liquor for human consumption and non-availability of rebate option for exporters allowing credit of capital goods, may result in working capital blockages, adding pressure on the balance-sheets.”

Published on February 11, 2021

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