Businesses are in an unfortunate situation. Things are not as easy as they appear apparently. While the centre is busy putting in efforts to accelerate tax compliance by implementing technology-driven infrastructure, the businesses are losing tax credits owing to supplier defaults.
Notably and Interestingly, while one entity (Suppliers) is committing a mistake, the repercussions of that mistake are being borne by other entities (Businesses) by losing tax credits.
In the light of the fact that GST is charged on value addition at each stage of the supply chain, non -compliance by any supplier at any stage in the supply chain affects the flow of input tax credit across the entire supply chain. Businesses are not provided goods and services 
Get to know GST provisions and rules on the free supply of goods. Also, we have included rules regarding ITC reversal on free supplies of goods and services on credit when suppliers commit a fault by not remitting the GST amount to the exchequer. To sum up, authorities find it difficult to issue credit for taxes that they have not received. Consequently, large businesses have to pinpoint the suppliers in complying with the tax obligations for the purpose of claiming tax credits.
As per think tank of Industry, for large companies, losses in the form of losing tax credits could be nearly 7 per cent of the working capital for large companies having the volume of over ₹500 crores. And this is worse for small and mid companies.
As per Industry observers, due to blockage in the supply chain, most of the businesses are refusing to provide materials and services. In consequence, the combined effect of the aforesaid activities is leading to the formalization of the economy and is compelling the vendors to fall in line.
According to an analysis by an online tax service provider for its customers with sales of over ₹500 crores, around 7% of an enterprise’s working capital is blocked in input tax credit. Also, 6-10% of the total input tax credit available is delayed by an average of two months. “This problem could be severe for micro, small and medium enterprises,” said an industry expert.
“With the regulation changing often, enterprises are worried about the loss of input tax credit or ITC and heightened oversight by the department due to mismatch between return forms,” Gupta added.
