GST India Forum – Goods and Services Tax (GST) in India › Forums › Bare Law › Sec 16 – Eligibility and conditions for taking input tax credit
- CA Ashish BadalaModeratorApril 14, 2017 at 11:48 AMPost count: 184Topics: 181
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(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,–
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.Priya MadrechaModeratorMay 23, 2017 at 12:08 PMPost count: 280Topics: 4
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Chapter V of CGST Act deals with input tax credit. This chapter is divided into following sections:
(i) Section 16: Eligibility and conditions for taking input tax credit.
(ii) Section 17: Apportionment of credit and blocked credits
(iii) Section 18: Availability of credit in special circumstances
(iv) Section 19: Taking input tax credit in respect of inputs and capital goods sent for job work
(v) Section 20: Manner of distribution of credit by Input Service Distributor (vi) Section 21: Manner of recovery of credit distributed in excess.
Input Tax Credit is the backbone of the GST regime. GST is nothing but a value-added tax on goods & services combined. It is these provisions of Input Tax Credit that make GST a valueadded tax i.e., collection of tax at all points in the supply chain after allowing credit for the inputs/input services and capital goods. The invoice method of value added taxation will be followed in the GST too, viz., the tax paid at the time of receipt of goods or services or both will be eligible for set-off against the tax payable on supply of goods or services or both, based on the invoices with a special emphasis on actual payment of tax by the supplier. The procedures and restrictions laid down in these provisions are important to make sure that there is seamless flow of credit in the whole scheme of taxation without any misuse.
(i) Relevant definitions:
(a) Taxable person: Means a person who is registered or liable to be registered under section 22 or section 24.
(b) Input tax credit: means the credit of “input tax” in terms of section 2(63).
(c) Input tax: “Input tax” in terms of section 2(62) in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes
— integrated goods and service tax charged on import of goods
— tax payable on reverse charge basis under IGST Act/SGST Act/CGST Act/UTGST Act.
— but excludes tax paid under composition levy.
Section 9(3) and 9(4) of CGST Act levies tax on goods or services or both on reverse charge. Therefore, ‘input tax credit’ is the tax paid by a registered person under the Act whether on forward charge or reverse charge for the use of such goods or services or both in the course or furtherance of his business.
(d) Electronic credit ledger: The input tax credit as self-assessed in return of registered person shall be credited to electronic credit ledger in accordance with section 41, to be maintained in the manner as may be prescribed. [Section 2(46) read with Section 49(2)].
(e) “Capital goods” means. –
goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business [Section 2(19)].
(f) Input: “Input” in terms of section 2(59) means
— any goods,
— other than capital goods,
— used or intended to be used by a supplier
— in the course or furtherance of business
(g) Input service: “Input service” in terms of section 2(60) means
— any service
— used or intended to be used by a supplier — in the course or furtherance of business.
(ii) Section 16
(a) Registered person to take credit: Every registered person subject to Section 49, shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. The input tax credit is credited to the electronic credit ledger. Rule 1 of the ITC Rules provides that input tax credit can be taken on the basis of any of the following documents:
(i) Invoice issued under section 31
(ii) Debit note issued under section 34
(iii) Bill of entry
(iv) Invoice prepared in respect of reverse charge basis u/s 9(3) and 9(4)
(v) Document issued by ISD u/r 7(1) for distribution of credit referred u/r 4(1)(g)
It is important to observe the words ‘used by him’ and ‘in his business’ appearing in section 16(1). These words refer to the registered taxable person in question and not the legal entity as a whole. So, input tax credit paid in a State must not be in relation to the business of a taxable person in another State albeit belonging to the same taxable person. For example, A Company has Branch-A which is a registered taxable person in Andhra Pradesh conducts conference in a hotel in Lonavla (Maharashtra) where CGSTSGST is charged by the hotel. This Company also has Branch-M which is a registered taxable person in Mumbai, Now the provisions of section 16(1) operate as follows:
• CGST-SGST charged by the hotel in Lonavla (Maharashtra) is ‘used in the business of Branch-A’ in Andhra Pradesh and not in the business of Branch-M in Mumbai.
• Hotel would not be aware about the above fact and would not resist to issue the bill in the name of Branch-M because both are branches of the same Company
• Since, CGST-SGST has been charged by the hotel, input tax credit would not be available to Branch-A as tax paid in Maharashtra is not a creditable tax in Andhra Pradesh
• Branch-M may be compelled to forego the tax paid to the hotel. However, there may be a tendency to save this loss by informing the hotel about the GSTIN of Branch-M. In fact, the Company need to obtain ISD registration in Maharashtra and distribute this credit entirely to Andhra Pradesh.
• But, Branch-M in Mumbai cannot justify this input tax credit as it is not ‘used by him’ in ‘his business’ but it is ‘used by another’ in ‘that others business’
• Care should to taken to verify ‘whose’ business each input tax credit relates to;
• If nexus is established between the services of the hotel and the ‘business’ of Branch-M, input tax credit may be availed by Branch-M. Nexus emerges if interbranch supply of services occurs between Branch-M and Branch-A
(b) Conditions for availment of credit by registered person: Subject to section 41, input tax credit is available only if –
(i) The said goods or services or both are used or intended to be used in the course or in the furtherance of his business;
(ii) He is in possession of tax invoice/ debit note / tax-paying document issued by a supplier registered under this Act (listed above);
(iii) He has received the said goods or services or both subject to job-work facilities and restrictions relating to input tax credit in Section 19;
(iv) The supplier has uploaded the relevant invoice on the GSTN;
(v) The supplier has paid the said amount of tax (as charged in the invoice) to appropriate Government in cash or by way of utilization of input tax credit, as admissible;
(vi) He – claimant of input tax credit – has furnished return under section 39 in FORM-GSTR 2;
(a) Goods received in instalments: If goods are received in instalments against a single invoice, credit can be taken upon receipt of last instalment of goods.
(b) Failure to pay to supplier of goods or service or both, the value of supply and tax thereon: If recipient of goods or service or both has not paid the supplier within 180 days from date of invoice, the amount equal to input tax credit availed along with the interest will be added to output liability of the recipient. Such non-payment of the value of invoice must be admitted in the return filed in FORM-GSTR 2 (Rule 2) for the month immediately following the period of 180 days from the date of issue of invoice. The said input tax credit can be re-availed on payment of value of supply and tax payable thereon.
(c) Please note that this condition does not apply for supplies which are payable under reverse charge basis. This exception has been expressly created in second proviso to section 16(2) of the Act.
(d) Capital goods on which depreciation is claimed: Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component.
(e) Time limit to avail the input tax credit: A registered person is not entitled to take input tax credit on invoice/ debit notes after due date of furnishing of the return under section 39 for the month of September of the subsequent financial year or furnishing of the relevant annual return, whichever is earlier.
Therefore, input tax credit shall be available to a registered person only if invoice/challan is in his possession for the goods or services or both are received and the payment of such tax has been made by the supplier and a return u/s 39 has been filed. Receipt of goods shall include delivery to any other person as directed by the registered person.
Note: Goods are deemed to be received by a registered person when the supplier delivers the goods to the recipient/ any other person, on the direction Provided by the registered person to the supplier. Credit would be available in case goods are directly sent to the job worker subject to provisions under section 19
In summary among others the following facts are crucial for availment of Input tax credit:
(a) The goods and or services must be used “by him” in the course or furtherance “of his” business.
(b) Possession of Output Invoice/Supplementary Invoice/ Debit or Credit note/ ISD invoice/ Bill of Entry and other related documents is a must.
(c) The said document must contain all the prescribed particulars specified in the Invoice Rules. It may be noted that Invoice or such other document can contain additional details other than those prescribed but NO LESS.
(d) Supplier of goods and/ or services must upload the details of such documents in the common portal i.e. GSTN.
(e) Vesting condition for claiming input tax credit is the return u/s 39 and not the supply per se.
(f) Input tax credit in case of supplies in instalment would be receipt of last instalment of goods.
(g) The law casts an obligation on the receiptent of goods and/or services who avails the credit to effect payment to the supplier within a period of 180 days from the date of invoice. If such payment is not effected by the recipient to the supplier Rule 2 obligates removal of input tax credit so availed leading to consequential levy of tax, interest and penalty.
(h) Claim of depreciation on tax component disqualifies a recipient of Capital goods from availment of input tax credit.
(i) ITC cannot be availed after the due date of filing the return for September month of the next Financial year or on furnishing the Annual Return whichever is earlier.
(j) No registered person is permitted to avail any input tax credit pursuant to an order of demand on account of fraud, willful misstatement, or suppression of fact.
ITC in case of Capital Goods
16.3 Comparative review:
Aspect Credit under present system Input tax credit under GST
Definition of “capital goods” Defined in Cenvat Credit Rules Comparatively wider definition.
Definition of “input” Defined in Cenvat credit Rules which has inclusion and exclusion limb. Exhaustive definition and does not contain inclusion or exclusion limb.
Definition of “input
services” Defined in Cenvat credit Rules which has inclusion and Exhaustive definition and does not contain inclusion or
exclusion limb. exclusion limb.
Electronic credit ledger No such concept Electronic credit ledger required to be maintained for crediting and utilising input tax credit
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