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Misuse of Rule 86A by the GST department?

The indirect tax department has started blocking input tax credit of the whole supply chain under the GST framework if even one of the vendors or suppliers has missed out filing requirement impacting several corporate and promoting some to consider legal resources for tax. Department is claiming that there could be circular trading or other frauds in many of these cases as tax credit for not tallying but legal experts say blanket rejection of tax credit will lead to litigation increase cash flow issues of the companies many companies claim that few small suppliers and vendors are unable to file details or comply with the tax credit rules due to COVID-19 and  Taxman are blocking tax credit for the whole supply chain.

Companies are now looking to track the Taxman to the court    rule 86 it should be invoked only in rare cases on a very strong reason to believe that the transaction of purchase are not genuine and to protect revenue in case of fly by Night operators the rule gives power to the tax department to block input tax credit if it suspects that the credit is availed fraudulently. In the last few weeks some of the lead largest companies in automobile real estate infrastructure Have started receiving showcase notices in this regard input tax credit is basically goods and service tax paid on raw materials or procurement that can be set off against future tax liabilities of a certain kind of a certain kind.

As per the GST framework a company cannot claim the credit till the time the supplier has paid GST and uploaded the necessary documents to that effect during the pandemic the government had given some leeway in the timeframe by which the companies are required to file the GST returns. S-ET

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