INPUT TAX CREDIT (ITC) IN GST (PART-III)

[Alkesh Jani]

In this session we shall Section 18 of CGST Act, 2017, which deals with ITC for a person required to obtain registration under this Act. Any person having all India aggregate turnover above ₹ 20 lakh (10 lakh if business is in Assam, Arunachal Pradesh, Himachal Pradesh, Uttarakhand, Manipur, Mizoram, Sikkim, Meghalaya, Nagaland or Tripura) are required to register under this Act. Any person, having turnover below the threshold limit can voluntarily opt to register. It is to be noted that ONLY registered person can avail ITC under GST Act.

2.   Now we shall deal with sub-section (1)(a) of Section 18, which reads as under:-

“(1) Subject to such conditions and restrictions as may be prescribed-

(a) a person who has applied for registration under this Act within thirty days from the date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act;”

      The clause (a) stipulates that any person engaged in supply of good and/or services and his turnover exceeds the threshold limit, shall apply for registration and the date on which he has been granted the registration then such person is liable for availing ITC for the input held in stock and input contained in semi-finished goods or finished goods held in stock on the day immediately preceding the date of grant of registration. This can be illustrated as below:-

If the person ‘A’ is engaged in supply of goods “P” and has purchased the quantity of 100 Units. He sold 75 units before registration was granted and 25 units were in stock on the day of grant of registration, then person can avail ITC of 25 units held in stock, subject to condition that the said 100 units were purchased from a registered person on which GST has been paid.

2.1  The clause (b) allows the person to avail ITC for goods as above, who has obtained registration voluntarily. Further, clause (c) allows the person to avail ITC if he has opted out from the composition scheme availed under Section 10 and also for the capital goods, by reducing 5 point for quarter or part thereof and considering useful life of capital goods as 5 years i.e. 60 months.

2.2  The clause (d) states that if registered person was engaged in supply of exempted goods and /or services and if the said exempted goods and/or services becomes taxable, than, the said person is eligible ITC of goods held in stock, inputs contained in semi-finished or finished goods, on the preceding date when such goods becomes taxable. In all the above, scenario the ITC of capital goods shall be calculated as per Rules 40 of CGST, Rules, 2017. Please refer Notification No.2/2017 –CT (Rate) dated 28/06/2017, for exempted goods and Notification No.12/2017-CT (Rate) dated 28/06/2017 for exempted services.      

3.   The sub-section (2) of Section 18 of CGST Act, 2017, restricts a register person to avail ITC within one year of date of Invoice, means a register person cannot avail ITC after the expiry of one year from the date of Invoice. Here it is to be noted that to avail ITC before the month of September is with regards to Section 17 and not for a new registration.

4.   The sub-section (4) of Section 18 of CGST Act, 2017, is with regards to ITC on account of sale, merger, demerger, amalgamation, lease or transfer of business. Here it is important to note that unutilized ITC is available only if there is specific provision of transfer of liability. The manner and procedure to be followed is stated in Rule 41 of CGST Rules, 2017.

5.   In case, when a registered person who is a regular tax payer and is availing ITC and who wish to opt for composition scheme under Section 10 or in case the goods and/or services become wholly exempt from tax, is required to debit (reverse) the ITC in respect to goods held in stock and inputs contained in semi-finished goods or finished goods. For capital goods the reversal is also same and shall be calculated as above. After such reversal if any credit is still balance in electronic credit ledger, it shall lapse. The manner of reversal of ITC shall as per Rule 44 of CGST Rules, 2017.

6.   A registered person who has availed ITC of capital goods or of plant and machinery, shall reduced the value by 5 point per quarter or part thereof and determine the transaction value, whichever is higher shall be considered as taxable value. The illustration is given at Rule 44 (b) of CGST Rules, 2017. When refractory bricks, mould and dies and fixtures are supplied (sold) as scrap, GST is payable on transaction value.

7.   The section 19 to 21 of CGST Act, 2017 deals with Job-work and Input service distributor, requires separate heading and hence shall be dealt with same in future.

8.   Concluding, the heading ITC in GST, some important points are to be kept while availing ITC, which are as follows:-

(a) First of all it shall be determined the eligibility of ITC in terms of Section 16 or 17 or 18, after following the restriction and conditions, if yes, than it is to ensure that the Invoice issued by the supplier is with all details as stipulated under Chapter VII, Section 31 or Debit Note as per Section 34 of CGST Act, 2017. Also ensure that Returns are filed by the supplier, here it should be noted that although you are in possession of Invoice but the supplier has not filed the return, than you are ineligible of ITC.

(b) The GSTR-2, which is auto populated when supplier files their respective returns, it should be ensured that all Invoices are in your possession and if the ITC is to be reversed, the same shall be posted at table (B) and (D) of GSTR-3B. If register person fails to do such, it may be considered as ITC availed and Section 73 and 74 may be invoked, as it states that ITC wrongly AVAILED or utilized, means if ITC is wrongly availed may leads to litigation.

9.   And one more thing, I call upon the Experts / readers, “to be the part that was missed by me and the perfection that world may see”. I hope that we can all engage in this concept.