Block credit - Goods or Services or both on which tax has been paid under Composition Scheme [section 17(5)(e)] - GST Ready Reckoner - GST

Block credit - Goods or Services or both on which tax has been paid under Composition Scheme Section 17(5) Clauses (e) Goods or Services or both on which tax has been paid under Composition Scheme A composition levy tax payer cannot avail input tax credit on goods or services used as inputs, recipient cannot claim input tax credit on receipts of goods or services from the composition taxpayer. Examples Example 1:- M/s Gupta Stores is registered as composition taxpayer under GST . it purchase a capital goods for business. In this case, M/s Gupta store cannot availed ITC on tax pay on capital goods, GST portion become part of capital goods, can claim a deprecation on GST part. Example 2:- M/s Palki fabric trader is registered under composition scheme, it purchase a raw material from a other than composition dealer and pay GST. sale the raw material to customer In this case, ITC on purchase of raw material become a part of cost for M/s Palki fabric trader and cannot charge the output tax in the invoice raised to the customer, the customer could not claim ITC. Example 3:- A person paying tax under composition scheme crosses the threshold limit and becomes a regular taxable person. Can he avail ITC and if so from what date? He can avail ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods (reduced by prescribed percentage points) on the day immediately preceding the date from which he ceases to be eligible for composition scheme. The manner of calculation of eligible credit is provided in CGST Rules. This is subject to further condition that the invoices pertaining to such inward supplies should not be more than a year old. [ Refer FAQ Qus. 27 ] Example 4:- Mr. A, a registered person was paying tax under composition scheme upto 30th July, 2017. However, w.e.f 31st July, 2017, Mr. A becomes liable to pay tax under regular scheme. Is he eligible for ITC? Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock and capital goods (reduced by such percentage points as has been prescribed by the ITC Rules) as on 30th July, 2017. The Input Tax Credit on capital goods shall be claimed after reducing the tax paid on such capital goods by five percentage points per quarter of a year or part thereof from the date of invoice or such other documents on which the capital goods were received by him. This is subject to further condition that the invoices pertaining to such inward supplies should not be more than a year old. [ refer FAQ Qus. 28 ] Example 5:- What would happen to the input tax credit availed by a registered person who opts for composition scheme or where the goods or services or both supplied by him become wholly exempt? The registered person has to pay an amount equal to the input tax credit in respect of stocks held and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of exercise of option or date of exemption. The ITC on inputs shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered person on such input. In respect of capital goods held in stock the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as 5 years. Assume capital goods have been in use for 4 years, 6 months and 15 days. The useful remaining life in months will be 5 months ignoring the part of the month. If ITC on such capital goods is taken as C, ITC attributable to the remaining useful life will be C multiplied by 5/60. This would be the amount payable on capital goods. The ITC amount shall be determined separately for integrated tax, central tax and state tax. The payment can be made by debiting electronic credit ledger, if there is sufficient balance in the said ledger, or by debiting electronic cash ledger. If any balance remains in the electronic credit ledger, it would lapse. [ refer FAQ Qus. 30 ]