The Federation of Indian Micro and Small & Medium Enterprises has proposed reforms including a statutory safe harbour, faster refunds, and simplified compliance measures to protect genuine firms under India’s GST system, aiming to reduce litigation and enhance working capital liquidity.
The Federation of Indian Micro and Small & Medium Enterprises has asked the Central Board of Indirect Taxes and Customs to create a statutory “safe harbour” for bona fide buyers under India’s goods and services tax system, arguing that genuine firms should not lose input tax credit because a supplier later defaults or a registration is cancelled retrospectively. FISME says the present framework can leave compliant businesses exposed even when they have taken reasonable steps to verify their transactions.
In its memorandum to CBIC, the industry body said input tax credit should be protected where a buyer holds a valid tax invoice, has received the goods or services, paid through banking channels and is not involved in fraud or collusion. CBIC’s own guidance sets out similar documentary conditions for claiming credit, including proof of receipt and payment, while also providing for reversal in cases involving fraud or wilful misstatement. FISME wants recovery efforts aimed at the defaulting supplier instead of the recipient when the buyer has acted in good faith.
The group also pressed for a quicker refund system, seeking payment within 30 to 45 days and automatic interest if the tax department misses that window. It said delayed refunds continue to trap working capital, particularly for exporters and companies facing inverted duty structures, where tax on inputs is higher than tax on finished goods. FISME also called for annual refunds of unutilised accumulated credit when balances cannot be used.
To make multi-state compliance simpler, FISME urged early rollout of the proposed One PAN-One Administration model, which would allow centralised GST compliance and pooling of input tax credit across registrations linked to the same Permanent Account Number. It also wants the Home State Principal Place of Business model, already approved by the GST Council, alongside common documentation rules and uniform timelines for registrations across states. The industry body said businesses need earlier warning of major technology or compliance changes, with a lead time of at least 3 to 6 months, sandbox testing and a penalty-free transition period.
FISME further sought wider use of faceless adjudication, electronic locks on issue-specific proceedings, consolidated notice dashboards and mandatory reconciliation before show-cause notices are issued. It argued that once a dispute has been examined and decided, it should generally not be reopened again. The organisation also proposed a one-time settlement for bona fide procedural mistakes made during the early GST years and the Covid period, and said fraud provisions should be used only where there is clear evidence. More broadly, it said its proposals are designed to reduce litigation, unlock working capital and improve voluntary compliance rather than dilute tax obligations.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
