Many aviation, hospitality, and telecommunications companies face the dual burden of paying Goods and Services Tax (GST) dues in cash, even as input tax credits continue to pile up, extend the working capital cycle at these companies and create cash-flow problems.
In compliance with the GST framework, one of the purchasers is the responsibility of tax payments on certain services and raw materials used in the input or production of the product.
This cost of GST would then be set off and passed on to customers as they buy those services. The GST on the product and raw material supplies will, however, be charged first. This reverse charge obligation has to be paid in cash.
This GST burden can not be passed on to consumers due to the Covid-19 pandemic. Even so, they will pay cash tax on raw materials and input services, claim trackers in the industry.
'The moratorium on the use of input tax credit for payment of reverse charge liabilities has been a matter of financial stress for companies on an ongoing basis. With the current pandemic,
this issue has only intensified and companies have been strenuously representing the government in this regard-especially businesses with fixed committed costs involving reverse charge charges,
Credit lying on books for a specific period of time, "said Abhishek A Rastogi, a partner at Khaitan & Co. In a few cases where the RCM applies, the manufacturer is liable in normal cases to pay the tax instead of the seller.
In a few cases where the RCM applies, the manufacturer is liable on usual situations to pay the tax instead of the seller. For example, telecom companies have to pay the RCM government spectrum charges, airlines have to pay reverse spectrum charges on payments to international parties for aircraft leases, and multinationals have to pay royalty tax on brand, technological know-how, IT, management