Eligibility and conditions for taking Input Tax Credit (ITC) under GST_Part-1

[Ganeshan Kalyani]

Section 16 of Central Goods and Service Tax ("the Act") provides for the eligibility and conditions for taking Input Tax Credit (ITC). The said section states that, subject to the conditions, every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both made to him and which are used or intended to be used in the course or furtherance of the business. The said amount shall be credited to the electronic credit ledger of the registered person.

The input tax credit eligibility is subject to the following conditions:

1. The supplier should have paid the tax to the Govt. in the manner provided under section 49 of the Act.
2. The registered person should have with him a tax invoice or debit note issued by a registered supplier in order to claim input tax credit. The registered person should also have received the goods under tax invoice.
3. In a situation where the goods are delivered to any other person (ship to) on the direction of the buyer (bill to) then it would be assumed that the buyer (bill to) has received the goods. And , he will be able to take the credit.
4. Same is the case of service i.e. where the service are provided by the supplier to any person on the direction of and on account of such registered person then the registered person is deemed to have received the service and he is eligible to take credit.
5. The supplier should have filed online return under section 39 of the Act.
6. The payment of the invoice / bill should be paid to the supplier within 180 days.
7. Where the goods against an invoice are received in lots or installment, a registered person shall be entitled to take credit upon receipt of the last lot or installment only.
8. If the registered person has claimed the depreciation on the tax component of the cost of capital goods and plant and machinery then the input tax credit of the said tax component is not allowed.
9. The input tax credit shall be allowed up to the date of filing of the return for the month of September following the end of the year .
10. Being the financial year 2017-18 was a first year of implementation of GST, the time lime to claim GST credit of invoice pertaining to F.Y. 2017-18 is extended up to the date  of filing of March 2019 month's return i.e. 20th April, 2019.

Section 17 of the Act  restriction to the claim of input tax credit on the following situations:

1. If the goods or services or both used by the registered person partly for the business purpose and partly for other purposes, then the input tax credit used proportionate to other purpose will not be allowed.
2. if the goods or services or both used by the registered person partly for taxable supply including zero rated supplies and partly for affecting exempt supplies, the amount of input tax credit as is proportionate to exempt supplies will not be allowed.
3.  in case of banking company or a financial institution engaged partly in supplying taxable goods including zero rate supplies and partly engaged in exempt supplies is having two options of taking input tax credit - one is it can claim input tax credit proportionate to the taxable supplies. Second option is it can take 50% of input, capital goods and input services and forgo balance fifty per cent.
4. The list of items given u/s Section 17 of the Act are not eligible for input tax credit.

The list of items as given u/s 17 of the Act is discussed in Part-2

Discussions to this article

[Mandar Sathe]

Dear Sir

It seems that the 1st condition mentioned in the Article " The supplier should have paid the tax to the Govt. in the manner provided under section 49 of the Act. " is a bit of a stretch of Interpretation. Section 16 does not state such a condition.

Section 16 (1) in which Section 49 is mentioned simply states as follows " 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.

The conditions and restrictions in relation to ITC are specified in Section 49 and are in relation to utilistion of ITC and are mentioned in Sub Section (5). There are no conditions or restriction specified in Section 49 which states that the ITC can not be claimed by the Registered person unless the tax has been paid by the supplier on the supply of Goods or Services.

Thus it is not binding on the registered person to ensure that the tax has been paid by the Supplier to the department before availing the ITC of the supply of goods or services.