Traders may challenge new provisions of input tax credit in the Value Added Tax (VAT) in a court of law. The state government has recently introduced a provision that if the seller does not deposit VAT with the exchequer, the buyer will not get input tax credit. The traders called this provision impractical and not supported by law.

The newly inserted sub-section 7(A) to Section 11 of VAT does not allow input tax credit to the buyer on the goods bought in case the seller fails to deposit the VAT amount with the exchequer. The new rule aims at curbing the practice of bogus billing which affects revenue.

However, it has not gone down well with traders across the state. Representatives of all regional chambers in the state convened a meeting under the aegis of the Gujarat Chamber of Commerce and Industry (GCCI) on Tuesday to discuss the problems arising out of the newly inserted sub-section 7A to Section 11 of VAT.

The GCCI had a series of meetings with finance minister Nitin Patel and commercial tax commissioner Haribhai Patel and suggested introducing the new provision in such a manner that genuine trade transactions were not affected.

“However, in the recent notification issued by the Gujarat government, it is not guaranteed that genuine transactions will not be affected by such impractical provisions. This has led to a situation whereby if any registered dealer or trader if, for any reason, forgets to deposit the tax collected by him with the government, then the purchaser will not get the input tax credit and the government will directly collect tax from the purchaser,” said GCCI president Prakash Bhagwati.

The traders also believe that the new provision is unwanted as wrong claim of input tax credit warrants 150 per cent penalty along with 18 per cent interest, said Bhagwati. He further stated that since all the powers of collecting tax were vested with the seller why should the buyer be punished for the former’s mistake.

The traders are expected to challenge the new VAT provision in court within 15 days. “The new provision is bound to create problems and hence is completely unacceptable to the trade and industry fraternity. It was decided that the entire trade and industry fraternity of Gujarat would come together to oppose this improper law in the court of law,” said Bhagwati.

Tuesday’s meeting was attended by chamber representatives from southern Gujarat (Surat), Vadodara, Jamnagar, Rajkot, Bhavnagar, Zalawad (Surendranagar), Gandhidham (Kutch) and Junagadh.