Input Tax Credit under GST : A brief note

[Ganeshan Kalyani]

Meaning of ITC

A tax charged by a registered person on outward supply of taxable goods or services or both on the tax invoice raised by him is called as "input tax". The tax charged by him on the tax invoice could be either Central Tax (CGST) and State Tax (SGST) / Union Territory Tax (UT) or Integrated tax (IGST). The taking of credit of the said taxes by the customer /buyer is called as "Input Tax Credit".

Eligibility:

Input Tax Credit (ITC) of the taxes paid on the inward supplies of inputs, capital goods and services which are used in the course or furtherance of the business can be taken by a registered taxpayer effecting taxable outward supplies.

A person not registered under GST cannot take the benefit of ITC. Even if a registered person is registered under GST but has opted for composition scheme then that person is not allowed to take the benefit of ITC.

Documents/Conditions:

1. A taxpayer must have tax invoice, debit note on hand at the time of taking credit.
2. The goods must have been received and service must have been availed.
3. The taxpayer must have paid to the supplier of goods or services the value of invoice along with the tax within a period of 180 days from the date of invoice.
4. The supplier must have paid the tax so collected through tax invoice into the Govt. account.
5. The supplier must also have uploaded the tax invoice details in the GST return.
6. In case of import of goods the bill of entry is a document based on which credit can be taken. An IGST paid challan on the import should also be attached to the bill of entry.
7. In case of import of service the IGST paid challan is a document for taking the ITC.
8. A credit note is a document based on which the supplier can reduce his liability. The supplier must give a copy of credit note to the customer so that the customer does the reversal of already taken ITC.
9. A debit note (or supplementary invoice) is a document based on which the customer can take ITC.
10. A tax invoice based on which credit has been taken must be addressed to the location where goods / services are supplied.
11. The supplier must be intimated to raise the invoice on the respective locations where he makes he dispatches the goods or supplies the service.

Eligible ITC:

ITC on following inputs are allowed to take credit:

1. raw material,
2. packing material,
3. engineering spares,
4. consumables,
5. printing and stationery etc.

ITC on following capitals goods are allowed to take credit:

1. plant and machinery,
2. support structure to plant and machinery,
3. motor vehicle used for transportation of goods e.g. truck, forklift etc.,
4. repairs to motor vehicle used for transportation of goods.
5. computers / laptop,
6. printers,
7. air conditioner,
8. furniture and fittings etc.

ITC on following services are allowed to take credit:

1. factory rent,
2. godown rent,
3. housekeeping charges,
4. manpower supply,
5. loading unloading,
6. professional fees for audit, tax assessments,
7. clearing and forwarding,
8. internet service,
9. mobile used for office purpose,
10. bank charges,
11. postage and courier,
12. repair and maintenance,
13. freight inward and outward,
14. advocate fees,
15. advertisement,
16. research and development expense,
17. conference expense etc.
18. works contract services when supplied for construction of an plant and machinery.

ITC and Zero-rated / Exports:

ITC of inputs, capital goods, services used for effecting zero-rated supplies is allowed to take credit. Even if the goods exported are exempted the ITC in proportion to the exports made is allowed to take credit.

Ineligible ITC:

Following goods and services are ineligible ITC:

1. Proportion of goods and services used for exempted supply,
2. Proportion of goods and services used for other than business purpose,
3. motor vehicle having seating capacity of up to 13 persons (including driver). However, if they are used for further supply, as such, or used for transportation of passengers or used for imparting training on driving vehicles, the ITC is allowed.
4. Vessels and aircraft. However, if they are used for making further supply, as such, or are used for transportation of passengers or for imparting training on navigating such vessels or imparting training on flying such aircraft or for transportation of goods, the ITC is allowed.
5. General insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft as referred here in point no.3 & 4. However, if these services are used for the purposes mentioned in the said points, the ITC is allowed. These services are also eligible for credit if the taxable person receiving the service is engaged in the manufacture of such motor vehicles, vessels, aircraft. These services are also eligible for credit if the taxable person receiving such service is in the service of supply of general insurance in respect of such motor vehicles, vessels or aircraft insured by him.
6. Food and beverages
7. Outdoor catering
8. Beauty treatment
9. Health services
10. Cosmetic and plastic surgery
11. Leasing, renting or hiring of motor vehicles, vessels or aircraft as referred here in above point no. 3 & 4 except when used for the purposes specified therein
12. Life insurance and health insurance:

However, if these goods and services are used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply ITC is allowed

13. Membership of a club, health and fitness centre
14. Travel benefits extended to employees on vacation such as leave or home travel concession. However, if the same is obligatory for an employer to provide the same to its employees under any law for the time being in force, ITC is allowed.
15. Works contract services when supplied for construction of an immovable property. However, if this service is used for plant and machinery the ITC is allowed. Also, if this service is an input service for further supply of works contract service ITC is allowed.
16. Goods or services or both on which tax has been paid under composition scheme. In any case, the composite supplier cannot / do not charge GST on his invoice. So, buyer should not apply back working method to bring out the GST component from the invoice value to take credit. This is not permitted.
17. Goods or services or both received by a non-resident taxable person except on goods imported by him
18. Goods or services or both used for personal consumption
19. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
20. Any tax paid u/s 74 i.e. tax paid on account of tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilfull-misstatement or suppression of facts is not eligible for ITC.
21. Any tax paid u/s 129 i.e. tax paid on account of detention, seizure and release of goods and conveyances in transit is not eligible for ITC.
22. Any tax paid u/s 130 i.e. tax paid on account of confiscation of goods or conveyances and levy of penalty is not eligible for ITC.

Claim of ITC as self-assessed:

Every registered person is entitled to take credit of eligible inputs, capital goods and services on self-assessed basis. Thus, it is the responsibility of the registered person to assess the eligibility of ITC on his inputs, capital goods and service keeping into mind the nature and function of his business. The credit so assessed can be taken through the returns. The ITC so furnished in the return gets reflected in the Electronic Credit Ledger in the Govt. Portal www.gst.gov.in.

Matching of ITC:

Section 42 of the CGST Act, 2017 states that the inward invoices based on which the registered person claimed the credit need to be matched with the invoices uploaded by their supplier. So, the registered person claiming ITC must match his inward invoices appearing in his GSTR-2A report.   

Furnishing of ITC, both eligible and ineligible:

The eligible ITC are to be furnished in table 4A & 4B of GSTR-3B. The ineligible ITC are to be furnished in table 4D.

Return:

Presently, GST credit is taken through the filing of return in Form GSTR-3B. Presently, the invoice-wise details of inward supplies is not required to be furnished. However, the details of such inward invoices need to be kept in record safely as they will play a very essential role in future at the time of assessments.

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Discussions to this article

[Kailash Bang]

Sec.17(5) (ab) block input credit related to SERVICES taken in relation to motor Vehicle Insurance, repair & maintenance.Hence we can take the Input credit on goods purchased for Motor Vehicle repairing such as Tyres,spares etc..

[Ganeshan Kalyani]

Thanks Sri Kailash Ji for your input.

[OmPrakash jain]

ITC for construction of Immovable property.─In the case of Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST 2019 (5) TMI 1278 - ORISSA HIGH COURT, it has been held by the High court that when an Immovable Property is constructed for Letting out of Property on Rent after grant of completion certificate, then ITC is admissible. The narrow construction of interpretation put forward by the Department to read S17((5)(d) is frustrating the very objective of the GST Act. In case the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, then ITC is also required to be allowed. In my view this ratio decidendi is applicable inspite of contrary advance ruling.

Another condition for availment of ITC in S.16(2)(d) is furnishing of return under section 39. ITC can not be lapsed by Belated filing of return since ITC is a property right as per recent case law of Siddharth Enterprises v. The Nodal Officer & Ors. 2019 (9) TMI 319 - GUJARAT HIGH COURT & Adfert Technologies Pvt. Ltd. v. Union of India 2019 (11) TMI 282 - PUNJAB AND HARYANA HIGH COURT. The Supreme court has also endorsed the decision of Adfert Technologies Pvt. Ltd. = 2020 (3) TMI 188 - SC ORDER by dismissing the SLP filed by the Govt. Inspite of this the Govt. is wasting the money of wide spread litigations and harassing the public at large.

Comments of readers are invited over S.16(2)(c) for payment of GST in the Govt Account as one of the conditions for availment of ITC

[OmPrakash jain]

Sir,

In my comments dated 29.4.2020, kindly read reference of the magazine as "J.K.Jain’s GST & VR" instead of "J.K.Jain’s Vat Reporter".

Comments of readers are invited over S.16(2)(c) for payment of GST in the Govt Account as one of the conditions for availment of ITC, since cases in two High courts on the same issue are pending :  2020 (1) TMI 833 - JHARKHAND HIGH COURT.