The taxman has blocked Hindustan Unilever Ltd.’s input tax credit on some services it provided before the Goods and Services Tax was rolled out last year in July, according to two government officials aware of the matter.
The GST Network, the technology platform of the nationwide sales tax, blocked Rs 137-crore tax credit of India’s largest consumer goods maker, the officials said requesting anonymity. It was disallowed on an order by the jurisdictional tax officer, they said.
The company had claimed credit as an input service distributor, the officials said.
This is how it works. Say, for example, that a head office of a company buys an accounting software which is used by its four other offices in the country. The input service distributor—here the head office—will distribute the credit to all its four offices. This credit will be used by them to pay their tax liability.
The company is in talks with the Central Board of Indirect Taxes and Customs to resolve the issue, the officials said. HUL declined to comment on BloombergQuint’s emailed queries.
The company was denied the credit based on the interpretation of the GST law that input service distribution credit for goods prior to July 1, 2017 cannot be availed by the company, according to one of the officials cited earlier.
In response to BloombergQuint’s emailed queries, GSTN said it only provides the information technology backbone and has no authority to interpret any law or take any action. “All actions are taken by taxpayer or the tax officer,” it said. An email to the finance ministry seeking a clarification remained unanswered.
MS Mani, partner at Deloitte India, indicated that tax credit cannot be denied, provided all relevant documents are submitted by a taxpayer. While there are no specific provisions covering transition credit of input service distributors, “this credit would be eligible provided the relevant documents are available for scrutiny by the tax authorities”, he told BloombergQuint. “In cases where large amounts are involved, the process of scrutiny would normally be more detailed and involve more documents.”