PowerPoint Presentation^ Input Tax
Credit Under
GST Law
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Meaning: Input tax credit means at the time of paying tax on
output, you can
reduce the tax you have already paid on inputs and pay the balance
amount.
E.g.: T is a manufacturer:
(a) Tax payable on output (final product) is Rs 450
(b) Tax paid on input (PURCHASES) is Rs 300
(c) T can claim INPUT CREDIT of Rs 300 and T only needs to deposit
Rs 150 in taxes.
According to Section 16(1) of CGST Act 2017, every registered
person shall be entitled to take ITC on any supply of goods or
services which are used or intended to be used in the course or
furtherance of business.
According to Section 16(2) of CGST Act 2017, following are the
conditions on the basis of which ITC can be availed by the
Registered Person:
• The dealer should be in possession of tax invoice;
• The said goods/services must have been received;
• Returns must have been filed;
• The tax charged has been paid to the government by the
supplier;
• When goods are received in installments ITC can be claimed only
when the last lot is received.
Meaning & Eligibility of ITC
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Section 2 (52) : ‘Input’ means any goods, other than capital goods,
used or intended to be used by a supplier in the course or
furtherance of business.
Section 2 (53) : ‘Input Service’ means any service used or intended
to be used by a supplier in the course or furtherance of
business.
Section 2 (19) : ‘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.
Definitions - Scope
Feasibility study of new plant (not developed)?
Shall credit of utensils used in canteen maintained by the company
be allowed, where recovery in respect of food provided in said
canteen is made from employees?
CSR expenditure / Gardening services?
Credit of goods or services used in residential colonies?
This concept is similar to the concept of claiming of business
expenditure under Section 37 of Income Tax Act, 1961(“IT Act”).
There, the courts in various judgements have discussed the basic
principle of “commercial expediency”. The courts laid down the law
that if an expenditure is commercially required to be incurred with
a view to benefit the trade and to facilitate the carrying on the
business, such expenditure will be allowed as deduction under
Section 37 of the Income Tax Act, 1961.
Coca Cola India Ltd. V. CCE, Pune reported at 2009 (15) STR 657
(Bom)
Mazagaon Dock Ltd. v. Commissioner of Income tax and Excess Profits
Tax reported at AIR 1958 SC 861
Eligibility of credit : Used in Course or furtherance of
business
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As per rule 36(1), ITC shall be availed by the Registered Person,
including ISD, on the basis of any of the following documents,
namely,:
Invoice issued by supplier as per Section 31
Bill of Entry or any similar document
Debit Note issued by supplier as in accordance of Section 34
ISD invoice or ISD credit note in accordance of Rule 54(1)
Invoice issued by in accordance of Section 31(1) (f), subject to
payment of tax
Rule 36 of CGST Rules, 2017
Documentary requirements and conditions
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As per Rule 36(2), ITC shall be allowed by reg. person only if all
the applicable particulars as specified in the provision of chapter
VI are contained in the said document.
As per Rule 36(3), No ITC shall be availed by reg. person in
respect of any tax that has been paid pursuance of any other order
where any demand has been confirmed on account of any fraud,
willful misstatement or suppression of facts.
As per Rule 36(4), ITC to be availed by a registered person in
respect of invoices or debit notes, the details of which have not
been uploaded by the suppliers under sub- section (1) of section
37, shall not exceed 10 per cent of the eligible credit available
in respect of invoices or debit notes the details of which have
been uploaded by the suppliers under sub-section (1) of section
37.
Documentary requirements and conditions (Contd.)
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1. Details of the amount of tax charged,
2. Description of goods or services,
3. Total value of supply of goods or services
or both,
5. Place of supply in case of inter-State
supply
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E-Invoicing has been made applicable from 1st October 2020 to all
businesses whose aggregate turnover has exceeded
500 Crores 100 Crores
N No. 88/2020 CT
limit in any of the preceding financial years from 2017-18 to
2019-20.
N No. 05/2021 CT
As per Rule 48(5) of CGST Rules,2017,”Every E-Invoice issued by a
person to whom sub-rule (4) applies in
any manner other than the manner prescribed in the said sub-rule
shall not be treated as an valid invoice
E-Invoice is a valid invoice
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supplier engaged in supplying passenger transportation
services:
Required to mention details specified in Rule 46 except
for:
lieu of invoice containing particulars mentioned above
• Banking Company, Insurer and Financial Institution has option
to
issue monthly consolidated invoice
Relaxation to certain industries
Whether ITC of airlines allowed on invoice issued by agent?
Whether ITC allowed on photocopied/computer
generated invoice?
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Invoice sent on 30th April,2021
ITC is claimed in which Month?
1
2
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A B C Order to B for delivery of Goods to C B delivered Goods to C
on behalf of A
B issued invoice to A
Section 16 (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,–– 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;
3
4
Mr. A pays insurance premium to insurance company for one year Car
insurance Policy
When Mr. A claim ITC ? 1. When Premium Paid 2. After one year
Recipient should have received goods/services
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Section 16(2)(c) – ITC shall not be available
unless, subject to provision of Section 41 or Section 43A, the tax
charged in respect of
supply has been actually paid to the
Government
supplier is subject to Section 41 or Section
43A
Section 43A – Procedure of availing
ITC
Can it be said that still Section 41 is in
abeyance, the recipient shall be eligible to take
credit on provisional basis irrespective of tax payment by
supplier?
Payment of Tax by Supplier
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Rule 36(4) – Whether GSTR 2A and GSTR 2B
^
GSTR-2A GSTR-2B
A 01-01-2021 Jan-2021 11-02-2021 Jan-2021 Jan-2021
B 01-01-2021 March-2021 11-04-2021 March-2021 March-2021
C 01-01-2021 Jan-2021 15-02-2021 Jan-2021 February-2021
Late filing of return by supplier will auto-populate ITC in the
delayed month. This is due to static nature of GSTR-2B wherein data
freezes on 12th of the following month
Difference b/w GSTR-2B vs. GSTR-2A
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or GSTR-2B?
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Rule 36(4)- Input tax credit to be availed by a registered person
in respect of invoices or debit notes, the details of which have
not been furnished by the suppliers under sub-section (1) of
section 37 in FORM GSTR-1 or using the invoice furnishing facility,
shall not exceed 5 percent of the eligible credit available in
respect of invoices or debit notes the details of which have been
uploaded by the suppliers under sub-section (1) of section 37 in
FORM GSTR-1 or using the invoice furnishing facility
Details furnished in GSTR-1 is populated to GSTR 2A and GSTR
2B
Rule 36(4) of CGST rules – Whether GSTR 2A or 2B?
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Circular No. 123/42/2019– GST dated 11/11/2019 Subject: Restriction
in availment of input tax credit in terms of rule 36(4) of CGST
Rules, 2017
Sl. No.
Issue Clarification
3
FORM GSTR-2A being a dynamic document, what would be the amount of
input tax credit that is admissible to the taxpayers for a
particular tax period in respect of invoices / debit notes whose
details have not been uploaded by the suppliers?
The amount of input tax credit in respect of the invoices/debit
notes whose details have not been uploaded by the suppliers shall
not exceed 20% (now 5%) of the eligible input tax credit available
to the recipient in respect of invoices or debit notes the details
of which have been uploaded by the suppliers under sub- section (1)
of section 37 as on the due date of filing of the returns in FORM
GSTR-1 of the suppliers for the said tax period. The taxpayer may
have to ascertain the same from his auto populated FORM GSTR 2A as
available on the due date of filing of FORM GSTR-1 under
sub-section (1) of section 37.
Circular whether contrary to Rule 36(4)?
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Departmental notices for difference between GSTR-2A and GSTR-3B –
Whether reversal of ITC required ?
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Post Budget 2021 amendment effective
Relevant Period
GSTR 3B has not been filed
1. B2B supplies not reported in GSTR 1 by mistake.
2. B2B supplies reported as B2C by mistake
3. B2B supplies reported with wrong GSTIN by mistake
4. Invoice in name of transferor
Categories of Vendors
437 (S.C.)
The mere fact that it is statutory does not matter one way or the
other. There are conditions and conditions. Some may be
substantive, mandatory and based on considerations of policy and
some others may merely belong to the area of procedure. It will be
erroneous to attach equal importance to the non-observance of all
conditions irrespective of the purposes they were intended to
serve.
Hospira Health Care India
(Madras)
It held that a procedure should not run contrary to the substantive
right in the policy. If the procedural norms are in conflict with
the policy, then the policy will prevail and the procedural norms
to the extent they are in conflict with the policy, are liable to
be held bad in law
This view may be taken in scenarios where the supplier has paid tax
in GSTR-3B but omitted to report tax invoice in GSTR-1
Procedural lapse cannot deny substantive benefit
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Payment of tax by
Payment to vendor within
October of next FY
any other valid
section 41 / 43A, • the tax charged in respect of such
supply • has been actually paid to the
Government, • either in cash or through utilization
of input tax credit admissible in respect of the said supply
Legal Background
Section 41
Every registered person to provisionally take the credit of
eligible input tax, as self-assessed, in his return which shall be
credited in his electronic credit ledger.
Section 42(3) – Matching, reversal and reclaim of ITC
The provisions related to matching, reversal and reclaim of Input
Tax credit. Section 42(3) of the CGST Act states that where the
input tax credit claimed by a recipient in respect of an inward
supply is in excess of the tax declared by the supplier for the
same supply or the outward supply is not declared by the supplier
in his valid returns, the discrepancy shall be communicated to both
such persons in such manner as may be prescribed.
Section 42(5)
The amount in respect of which any discrepancy is communicated
under sub-section (3) and which is not rectified by the supplier in
his valid return for the month in which discrepancy is communicated
shall be added to the output tax liability of the recipient, in
such manner as may be prescribed, in his return for the month
succeeding the month in which the discrepancy is
communicated.
Is Reconciliation legally required?
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Rule 69 – Matching of ITC
Prescribes details relating to the claim of input tax credit on
inward supplies including imports, provisionally allowed under
section 41, shall be matched under section 42 after the due date
for furnishing the return in FORM GSTR-3.
Rule 71
It states that any discrepancy in the claim of input tax credit in
respect of any tax period, specified in sub-section (3) of section
42 and the details of output tax liable to be added under
sub-section (5) of the said section on account of continuation of
such discrepancy, shall be made available to the recipient making
such claim electronically in FORM GST MIS-1 and to the supplier
electronically in FORM GST MIS-2 through the common portal on or
before the last date of the month in which the matching has been
carried out.
Condition laid down under Section 16(2)(c) is subject to the
provisions of Section 41 read with Rules 69 and 71
ITC reversal mechanism as laid down in Section 41 read with Rules
is kept in abeyance
On perusal of the aforesaid provisions, it can be said that there
is a specific mechanism for reversing the credit in case of
the
discrepancy in the ITC availed by the recipient against the output
liability of the supplier. However, the mechanism has been kept
in
abeyance due to some technical glitches in the GSTN System.
Is Reconciliation legally required?
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• Section 16(2)(c) is arbitrary as it doesn’t differentiate between
tax evaders and bonafide taxpayers
• Bonafide recipient should not be penalized for non-payment of tax
by supplier
• Lex non cogit ad impossibilia: The law cannot compel the doing of
impossibilities
• No mechanism to verify whether supplier has actually paid tax to
the Government
• Denial of ITC to buyer due to default of supplier would
tantamount to shifting the incidence of tax
from supplier to the buyer which is unconstitutional
• Buyer would pay double tax on same transaction i.e., one at the
time of purchase and another at the
time of ITC reversal
• If buyer is denied ITC, it would be wholly unjustified and this
causes the deprivation of the
enjoyment of the property which is violative of Article 300A of the
Constitution of India
Possible Contentions
Onyx Design (Karnataka High
Haryana HC)
In the event that selling dealer fails to deposit the tax collected
by him from
the purchasing dealer, the remedy for the department would be to
proceed
against the selling dealer for recovery of such tax. Further, in
cases where
the department is satisfied that there is collusion of purchasing
and selling
dealer then proceeding under Section 40A of the DVAT Act can be
initiated
It held that that no liability could be fastened on a buyer on
account of non-
payment of tax by the seller in the treasury unless a case of fraud
is made
out by the Revenue, or unless collusion/connivance between the
seller and
buyer is established.
Judgments under VAT
It was held that “the benefit of input tax cannot be deprived to
the
purchaser dealer, if the purchaser dealer satisfactorily
demonstrates that
while purchasing goods, he has paid the amount of tax to the
selling dealer.
If the selling dealer has not deposited the amount in full or a
part thereof, it
would be for the revenue to proceed against the selling
dealer.”
Jurisprudence under erstwhile indirect tax regime
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It is clarified that the furnishing of outward details in
FORM GSTR-1 by the corresponding supplier(s) and the
facility to view the same in FORM GSTR-2A by the
recipient is in the nature of taxpayer facilitation
and does not impact the ability of the taxpayer to
avail ITC on self-assessment basis in consonance with
the provisions of section 16 of the Act. The
apprehension that ITC can be availed only on the
basis of reconciliation between FORM GSTR-2A
and FORM GSTR-3B conducted before the due date for
filing of return in FORM GSTR-3B for the month of
September, 2018 is unfounded as the same exercise
can be done thereafter also.
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Authorities cannot initiate recovery proceedings against a
purchaser of goods due to the omission to remit tax to the
Government on part of the seller
Facts:
The petitioners are traders in Raw Rubber Sheets. They had
purchased goods from their seller and made payments thereto,
including the tax component. Based on the returns filed by the
seller, the petitioners availed input tax credit of the GST
paid.
Later, during inspection by the authorities, it came to light that
the seller did not pay tax to the government, however show
cause notice was issued to the petitioner. Consequently, without
involving the sellers, the impugned orders came to be passed
levying the entire liability on the petitioners to reverse the
credit already taken due to non-payment of tax by their
seller.
Therefore, the petitioner have challenged the said impugned through
this writ petition.
Held:
The Hon’ble High Court while allowing the Writ Petition, held the
following:
• When it has come out that the seller has collected tax from the
petitioners, the omission on part of the seller to remit the
tax in question must have been viewed seriously and strict action
ought to have been initiated against them
• The impugned orders suffer from fundamental flaws of
non-examination of seller in the enquiry and non-initiation
of
recovery action against seller in the first place
Therefore, the impugned orders are quashed and the matter is
remitted back to the file of the authorities
M/s D.Y. Beathel Enterprises vs State Tax Officer
2021-VIL-308-MAD
31
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,
1. he is in possession of a tax invoice or debit note
2. (aa) the details of the invoice or debit note referred to
in
clause (a) has been furnished by the supplier in the
statement of outward supplies and such details have been
communicated to the recipient of such invoice or debit note
in the manner specified under section 37,
3. he has received the goods or services or both
4. the tax charged in respect of such supply has been actually paid
to
the Government,
Amendment in Section 16(2)
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Section 16 of the CGST Act provides for conditions and
restrictions subject to which the input tax credit shall be
credited to the electronic credit ledger. It would be logical
to
complete this linkage of outward supplies declared by the
supplier with the tax liability, by also limiting the credit
availed in Form GSTR 3B to that reflected in GSTR 2A of
the recipient, subject to additional amount available
under the rule 36(4).
Reason for the Proposed Amendment: Extract from Agenda of 39th
Council Meeting
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particulars
Revise PO Terms
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Section 16(2) – 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 of goods or services along
with the tax payable thereon, within a period of one hundred and
eighty days from the date of issue of invoice by
the supplier, the amount equal to 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.
The recipient shall be entitled to avail Input tax credit on
payment made by him of the amount towards the value
of supply of goods or services or both along with tax payable
thereon.
What does failure to pay means?
What if contract term provide that payment is to be made within 200
days from date of issuance of invoice?
Non-payment of consideration within 180 Days.
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Reversal of input tax credit in case of non- payment of
consideration
Failure of Payment within 180 days from the date of issue of
invoice shall furnish the details of such supply, the amount of
value not paid and amount of ITC availed but not paid to the
supplier in FORM GSTR-2 for the month.
Provided that the value of supplies made without consideration as
specified in Schedule I shall deemed to have been paid for the
purpose of second proviso to sub section (2) of section 16.
As per rule 37
Rule 37(2): The amount of ITC which is not paid to the supplier
shall be added to the output tax liability of the registered person
for the month in which details are furnished.
Rule 37(3): The registered person shall be liable to pay interest
at a rate as specified u/s 50 for the period starting from the date
of availing such credit till the date when such amount is added in
output tax liability is paid.
Rule 37(4): The time limit as specified u/s 16(4) shall not apply
to a claim for re-availing of any credit, in accordance with the
provision, that has been reversed earlier.
Reversal of Input Tax Credit
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Kavungal Kooppakkattu Zeenath Vs. Mundakkattu Sulfiker Ali
“Failure means not doing something that one is expected to
do”
Ram Kishore Vs. Bimla Devi and Ors. The word fails cannot connote
the
meaning of voluntary refusal. These words do not give a discretion
or
right to the person
Thattessara Subbaraya Vs. Chinne Gowda &Ors.
“Failure means the there is an omission on the part of the person
to do something which it is possible for him to do
In Malaysian Airlines Vs. Union of India – Failure to pay means
non-payment, which means failure to pay when due. In the said case,
there is a penalty imposed if amount of foreign travel tax
collected is not paid to the government, within fifteen days from
the date of collection. It was held that failure to pay within this
prescribed time frame would mean non-payment or failure to pay. If
any persons fails to pay within the statutory period, then such
person is well within the sweep of the words “failure to pay’’ Once
the statutory period is over and breach in payment of tax is
committed, then it is immaterial when the defaulter in future is
making the payment. Applying the said judgement, second proviso of
section 16(2) of the CGST Act should only trigger when payment is
due.
Meaning of Non – Payment or failure to pay
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Decision of AAR:
• AAR held that Rule 37 would not apply since Rule 37 clearly
states supplies “made without consideration” as specified in
Schedule 1 but in the applicant case, there is a consideration to
be paid by applicant to HO as per the MOU.
• Further, AAR also observed that as per MOU applicant was not
paying full consideration of the transaction to HO but was netting
it off against the receivables by HO from the applicant.
• Accordingly, the applicant will not be eligible for full ITC for
inward supplies from HO as they would be required to reverse such
ITC in accordance to Section 16(2) and Rule 37
Decision of AAAR (overruled AAR):
We find no reason to restrict the ITC of the tax paid by the SML
HO, in the hands of the appellant as it has been substantially
brought out that the ‘consideration’ stands paid to the SML HO
either by the customer of the Appellant or by setting off against
the payables of the appellant to SML HO, in respect of lease/ hire
of Cranes, etc which is as per the established accounting
principles.
Thus, the appellant is eligible to avail full ITC of tax paid by
SML HO on the lease/ hire of cranes to them for furtherance of
business, subject to other conditions of eligibility as per Section
16.
M/s Sanghvi Movers Ltd. by Tamil Nadu AAR
Rule 37 applicable in case of supplies between distinct
person?
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As per Section 16(3), No ITC will be allowed if depreciation has
been claimed on tax component of a capital goods
As per Section 16(4), a registered person shall not be entitled to
take ITC:
After the due date of furnishing of return under section 39
(GSTR-3B) for the month of September following the end of F.Y. to
which such invoice pertains or,
Furnishing of relevant annual return, whichever is earlier.
Time limit for availing ITC
Eligibility of ITC
Sep,2020 Sep,2020
respect of Invoice/Debit note can be
availed before earlier of the following
dates irrespective of date of issuance
of corresponding tax invoice:
return under Section 39 for the
month of September following the
end of financial year in which
debit note has been issued
furnishing of relevant annual
Availability of credit of Debit Note
Delinking of Debit Note with Invoice
Supplier Customer
Section 16(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 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.
Section 31(3)(f) - A registered person liable section 9(3) and 9(4)
shall issue an invoice in respect of
goods or services received from unregistered supplier on the date
of receipt of goods or services.
Self invoice not covered under Section 16(4), hence time limit not
applicable
Availability of credit of tax paid under RCM after filing of
September Return
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01
02
03
04
05
06
07
State GST Act of a State allows ITC of only State GST paid in said
state.
On the basis of the above, it was held that ITC of CGST paid in one
state shall
not be allowed to the recipient registered in other State.
Section 8(2) provides intra-state supply to be the one where
location of
supplier and place of supply are in the same State.
As per Section 9(1) CGST is levied on intra-state supply of goods
or services or
both.
Central Tax is CGST levied under Section 9 of CGST Act, 2017.
Input Tax inter alia is Central Tax charged on inward supply to a
registered
person.
State and Central GST goes hand in hand. If any event attracts
CGST, it would
also attract SGST. From this it naturally flows that of ITC of SGST
is not
admissible, ITC of CGST should also not be admissible.
Major Points
IMF Cognitive Technology Pvt Ltd – Rajasthan AAAR
Availability of CGST paid in one State to recipient registered in
other State
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Input Tax Credit
In Table 8A of GSTR 9, ITC, related to those invoices, where POS
lies in state other than that of recipient, have been excluded
.
These figures are shown in GSTR2A
Input Tax Credit (ITC)
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Section 17(5)(a):
1. Motor vehicle for transportation of person having approved
seating capacity of not more than 13 person Except when used for:
Further supply of vehicle Transportation of passenger Training
classes
Vessels and Aircraft, except when used for, Further supply
Transportation of passenger Imparting training on navigation or
flying of such vessel or aircraft. Transportation of goods
Section 17(5)(b):
2. Foods & beverages, outdoor catering, beauty treatment,
health insurance, cosmetic & plastic surgery, renting or hiring
of motor vehicle as above. Except it is used for: Making outward
supply of same category of service or an element of mixed or
composite supply
Blocked Credit or Ineligible ITC
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3. Membership of club, health and fitness Centre (No
exception)
4. Rent a cab, life insurance, health insurance except Where is
obligatory by Govt. It is used for making outward supply of the
same category of service or an
element of mixed or composite supply.
5. Travel benefit to employees Provided that ITC in respect such
goods or services or both shall be available, where it is
obligatory for an employer to provide the same to its employees
under any law for the time being in force.
6. Works contracts services when supplied for construction of
immovable property (Not plant & machinery) except, Where it is
an input services for further supply of works contracts
7. Goods & services received for construction of immovable
property (Not plant & machinery) on his own account including
when such goods/services are used in business. {Construction
includes reconstruction, renovation, addition, alteration or repair
to the extent of capitalization}
8. Person who made the payment of tax under composition scheme
under GST law.
Blocked Credit or Ineligible ITC ( Contd.)
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9. ITC cannot be availed on goods/services received by non resident
taxable person except, Only goods imported by him
10. Purchase of goods for personal use.
11. Goods lost, stolen destroyed, written off or given off as gift
or free sample
12. Any tax paid due to fraud cases which has resulted into – { Tax
paid u/s 74,129 & 130} Non or short tax payment Excessive
refund
New Provision
•Purpose specified therein
•If above services received by manufactured of such vehicles,
vessel, aircrafts
•If above services received by general insurance service provider
in respect of such motor vehicles
General insurance, servicing, repair & maintenance in so
far
related to such vehicle, Vessels, aircraft are not allowed except
if
it is used for,
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• Section 17(5)(b) : Input tax credit of food and beverages,
outdoor catering, beauty treatment, health services, cosmetic and
plastic surgery, leasing, renting or hiring of motor vehicles,
vessels or aircraft, life insurance and health insurance, shall not
be available:
• Provided that the input tax credit in respect of such goods or
services or both shall be available where an inward supply of such
goods or services or both is 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;
The company is engaged in providing corporate training. For
providing the said services, company books a venue and during
the
course of the training, food is also provided to the
participants.
Training provided by the company to its own
employees
Food provided during training sessions
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Blocked Credit
• Section 17(5)(c) – Works Contract Services when supplied for
construction of immovable property except where it is an input
service for further supply of works contract service
• Section 17(5)(d) – Goods or services or both received by taxable
person for construction of immovable property on his own
account
ITC Availability?
Civil Work
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Issue: Availment of input tax credit on construction services of
shopping mall which is bared under section 17(5)(d) of CGST Act
2017.
Decision:
In that view, of the matter, in our considered opinion the
provision of Section 17(5)(d) is to be
read down and the narrow restriction as imposed, reading of the
provision by the Department,
is not required to be accepted,
If the assessee is required to pay GST on the rental income arising
out of the investment on
which he has paid GST, it is required to have the input credit on
the GST
SLP filed against the said order and pending in Supreme Court
Safari Retreats Pvt. Ltd. vs. Chief Commissioner of CGST
2019-VIL-223-ORI
HC’s order on availability of ITC on construction services which
subsequently let out
Tattvam Advisors Copyright @ 49
A general understanding of the items such as Lift, Escalator,
Travellator, Water treatment Plant, Sewage Treatment Plant,
HSD
yard, Mechanical Car Park, DG Set and, Transformers, mentioned
in
the appellant's application, is that they are fixed to the earth
either
by a foundation or with structural support and they qualify to
be
considered as "Plant and machinery". However since they are
used
for construction of shopping mall which is to be rented out,
the
credit shall not be available. we hold that Chiller, Air Handling
Unit,
Indoor/Outdoor Surveillance System (CCTV), electrical wiring
and
fixtures, Public Health Engineering (PHE), Fire-fighting and
water
management pump system do not qualify as plant or machinery
but are items which are procured for the purpose of construction
of
the immovable property.
Tattvam Advisors Copyright @ 50
Is ITC available on furniture ?
ITC on air conditioner ?
newly constructed building ?
M/s Bahl Paper Mills AAR. Sanitory Fitting – Not allowed Air
conditioner – Allowed
M/s Nipro India - AAR. Overhead crane, sewerage system and other
electrical work – allowed
NMDC Lightening system – Not allowed
Case Study – Availability of Input tax Credit ?
Tattvam Advisors Copyright @ 51
1. Section 17(5)(g) states that credit of goods or services used
for personal consumption shall not be available?
2. What does personal consumption means?
3. Rent Free Accommodation to MD – POSCO Indian Pune
Processing
4. Supplies for maintenance and upkeep of guest house General
Manager Ordinance Factory AAR-GST
Personal Consumption
Personal Consumption
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•Input tax credit in respect of goods lost, stolen, destroyed,
written off, or disposed of by way of gifts or free samples shall
not be availableSection 17(5)(h)
•Free samples are small and packaged portion of merchandise
distributed free, especially as an introduction to potential
customers. Free Samples
•Gift ordinarily means something which is given voluntarily to
other person without consideration and the donor should not derive
any advantage from such gift.
•Diwali Gifts given to employees?
Gifts
•Input tax credit reversal in respect of the goods provided to
dealers, free of cost, as volume discount on achievement of
target
•Goods given are the one in which supplier deals?
•Goods other than those in which suppliers deals?
Volume Discount
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Credit of Promotional
Shubh Labh Trade Loyalty Program: In this scheme, the
distributors/whole sellers earn reward points basis the quantity
of
goods purchased and goods sold by them. These points can then
be
redeemed in the form of items, to be selected basis the
availability of
the product and reward points earned.
Brand Reminder: As an advertisement tool, the company
distributes
products like pen, notepad, key chains etc. with their name
engraved
on it, for the purpose of their brand promotion
Credit of Promotional Items
Karnataka AAR
is not available as it is similar to gift.
The taxpayer is not eligible to avail ITC on the
inward supplies of goods and services given as
incentives in the form of gifts of goods and
services to its dealers. Moreover, the AAR
observed that free travel services provided to
its dealers without consideration would not
qualify as ‘supply’
No ITC is required to be reversed
where post sales discount is given by
issuance of commercial credit note.
M/s Polycab Wires Pvt Ltd Kerala AAR
ITC not available on goods
distributed free of cost as
part of CSR Expenses
Tattvam Advisors Copyright @ 55
“Bonus” articles offered free by the manufacturer are not really
given away free, but their price is distributed over the price of
the other goods which are charged for and supply of free items is a
sales gimmick.
Mapra Laboratories Pvt. Ltd. vs State of Bihar
Bombay Latex & Dispersions Pvt Ltd. vs. CCE
M/s Mahavir Enterprises (India) Ltd. vs. State of A.P., [2002] 34
APSTJ 72
Buy One Get One
as scrap
or condition
As per Section 17(5)(h) of the CGST Act If goods are lost, stolen,
destroyed, written off or disposed of by way of gift or free
samples, input tax credit claimed on such goods is required to be
reversed.
ITC ?
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Owing to COVID-19 outbreak, there have been number of indicators
for impairing assets triggering testing of the assets for
impairment. Thereby, most of the companies shall be required to
impair their assets as per the relevant Accounting Standards.
Schedule I – Permanent transfer or disposal of business assets
where input tax credit has been availed on such assets will be
treated as supply.
Impact of GST in case of impairment as per the CGST Act,2017
Impairment of assets
Disposal of assets ? Dispose off means to get rid of
something
ITC REVERSAL ON ACCOUNT OF IMPAIRMENT OF ASSETS OWING TO
COVID-19..??
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Impairment of assets
of something
ITC REVERSAL ON ACCOUNT OF IMPAIRMENT OF ASSETS OWING TO
COVID-19..?? (Contd.)
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Where goods or services or both are used by registered person
partly for the purpose of any business and partly for other
purposes, the amount of credit shall be restricted to so much of
the input tax as is attributable to the purpose of his
business.
Where the goods or services or both are used by the reg. person
partly for effecting taxable supplies including zero-rated supplies
and partly for exempt supplies, the amount of credit shall be
restricted to so much of input as is attributable to the taxable
supplies including zero-rated supplies.
Where the goods / services are used by registered person for
taxable supplies as well as exempt supplies , ITC shall be allowed
on inputs / capital goods but subsequently ITC on exempt goods or
goods are being used for non business purpose / personal purpose,
ITC shall be reversed on the basis of turnover.
Section 17(3)
Section 17(1)
Section 17(2)
Tattvam Advisors Copyright @ 61
Apportionment of ITC of Input Rule 42
In cases wherein the ITC is allowed but subsequently proportionate
amount relating to exempt supplies shall be reversed on the basis
of turnover.
Apportionment of ITC of Capital Goods
Rule 43
In cases wherein ITC on capital goods availed in the beginning but
proportionate amount of ITC shall be reversed every month on the
basis of turnover. NOTE: Life of every
capital goods shall be taken to be 60 months
Rule 42 and 43 of CGST Rules, 2017
Manner of Reversal of ITC
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1
Section 17 of the CGST Act restricts the Input tax credit on goods
or services or both to so much of the input tax as is attributable
to the taxable supplies including zero rated- supplies made for the
purpose of business.
The manner of reversal of Input tax credit is stated in the CGST
Rules, 2017: • Rule 42 – Reversal of credit received on Inputs and
Input services • Rule 43 – Reversal of credit received on Capital
Goods
Important to note:
• The reversal of ITC to be done in every tax period.
• Total Input Tax Credit & Reversal of ITC to be declared in
GSTR 3B for the said Tax period.
• At the year end, the reversal of ITC for the financial year to be
calculated; and any short/excess reversal
to be paid/claimed in GSTR 3B.
• Reversal is to be calculated separately for CGST, SGST, IGST and
CESS.
ITC Reversal- Rule 42/43
Illustration:
S.No ITC on Input & Input Services (Rule-42) CGST SGST IGST
Total
T Total Amount of Input Tax Credit 1,00,000 1,00,000 2,00,000
4,00,000
T1 Out of A, ITC -exclusively for Non Business purpose 3,000 3,000
5,000 11,000
T2 Out of A, ITC -exclusively for exempted Supply 7,000 7,000
20,000 34,000
T3 Out of A, ITC ineligible under sec 17(5) 5,000 5,000 25,000
35,000
C1 Amount to be credited to electronic credit ledger {T-(T1+T2+T3)}
85,000 85,000 1,50,000 3,20,000
T4 ITC -exclusively for Taxable supplies, including Zero Rated
70,000 70,000 1,25,000 2,65,000
C2 Common Input Tax Credit (C1-T4) 15,000 15,000 25,000
55,000
D1 Out of G input tax credit attributable to exempted supply
{C2×(E÷F)} 1,132 1,132 1,887 4,151
D2 Common Input tax credit used for non business purpose {C2×5%}
750 750 1,250 2,750
Eligible Common Credit 13,118 13,118 21,863 48,099
Total Input tax credit required to be reversed T1+T2+T3+D1+D2
16,882 16,882 53,137 86,901
Total eligible Input tax credit 83,118 83,118 1,46,863
3,13,099
Assumptions Amount
Taxable Supplies Supplies during the period F1 22,00,000
Zero-rated Supplies during the period F2 2,50,000
Total Taxable Turnover F= (F1+F2) 24,50,000
Total Turnover (E+F) 26,50,000
Whether Exempt supply includes:
• Securities
Reversal on Capital Goods is to be done over 5 years
ITC Reversal- Rule 42/43
Transaction • The company is engaged in generation of electricity.
Electricity
generated by the company is used for both captive consumption and
supplying to other person
Erstwhile Law
• Reversal required to done on the basis of units consumed
GST • Reversal on the basis of units or turnover?
Case Study
• Turnover of company (Supply of steel) : 100 crores
• Value of exempt supply/turnover in respect of supply of
electricity : 1 crores
• Ratio of units consumed – Captive Consumption : Supply =
50:50
• Common Credit – 10 lacs
ITC Reversal on Electricity Consumption
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1 Total Cost of construction of the project
100
10
3
5 Area unsold on date of OC 33%
Reversals
7 ITC (GST) to be reversed on receipt of OC
3*33% = 1
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Invoice issued by non-existent person or person not conducting
business
ITC taken without receipt of goods or services
Tax charged in respect of supply against which ITC taken has not
been paid to the Government
Person availing tax found to be non-existent
Person not in possession of tax invoice
Credit shall be blocked where officer has reason to believe
that
credit fraudulently availed.
Industries vs UOI
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Tattvam Advisors Copyright @ 68
Need of ISD :
• The provisions of section 16 of CGST Act provides that, no
registered person shall be entitled to a credit in respect of any
supply of goods or services or both to him unless, he is in
possession of a tax invoice or debit note issued by a supplier
registered under this Act, or such other taxpaying documents as may
be prescribed.
• Therefore, in such case, although the services are received by
various branches it would not be possible for such establishments
to claim the credit, as the invoice will be issued in the name of
head office of such person . The head office also cannot avail the
credit as they are not actual recipient of such inward services.
So, the concept of ISD was introduced.
ITC DISTRIBUTION
HEAD OFFICE
DELHI BRANCH
KOLKATA BRANCH
CHENNAI BRANCH
ISD
(i) An office of the supplier of goods or services or both.
(ii) The said office receives tax invoices
towards the receipt of input services.
(iii) The said office distributes the credit of
GST paid on the said services to the supplier
having the same PAN as that of the office.
(iv) The said office issues tax invoice or
other prescribed document for the
purpose of distribution of credit.
Section 2 (61) of CGST Act, 2017
Definition
Section 24
• Application for Registration by Input Service Distributor [Rule
8(1) of CGST rules,2017]
Every person being an Input Service Distributor shall make a
separate application for registration as such Input Service
Distributor. There is no threshold limit for registration for an
ISD. An ISD is required to obtain a separate registration even
though it may be otherwise registered, though the application shall
be made in Form GST REG 01 only. Different offices like marketing
division, security division etc. may apply for separate ISD
registration. Since the services relate to other locations the
corresponding credit should be transferred to such locations
(having separate registrations) as the output services are being
provided there.
Registration of ISD under GST
Tattvam Advisors Copyright @ 71
Section 20(1)
The Input Service Distributor shall distribute the credit of
central tax as central tax or integrated tax and integrated tax as
integrated tax or central tax, by way of issue of a document
containing the amount of input tax credit being distributed in such
manner as may be prescribed. i.e.
CGST as CGST or IGST &
IGST as IGST or CGST
Manner of Distribution of Credit by ISD
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(a)The credit can be distributed to the recipients of credit
against a document containing such details as may be
prescribed;
(b) The amount of the credit distributed shall not exceed the
amount of credit available for distribution;
(c) the credit of tax paid on input services attributable to a
recipient of credit, shall be distributed only to that
recipient;
(d) the credit on input service is attributable to more than one
recipient, credit is to be distributed among the recipients on pro
rata basis of the turnover of such recipients in
their state during the relevant period to the aggregate of the
turnover of all such recipients as applicable
(e) the credit on input service is attributable to all recipients,
credit is to be distributed among the recipients on pro rata basis
of the turnover of such recipients in their state
during the relevant period to the aggregate of the turnover of all
such recipients as applicable
The Input Service Distributor may
distribute the credit subject to the
following conditions, namely:–
Conditions for Distribution of Credit(Contd.)
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Explanation : Section 20(2) (i) if the recipients of credit have
turnover in their States or Union territories in the financial year
preceding the year during which credit is to be distributed, the
said financial year;
“Relevant Period” OOR
(ii) if some or all recipients of the credit do not have any
turnover in
their States or Union territories in the financial year preceding
the year during which the credit is to be distributed, the last
quarter for which details of such turnover of all the recipients
are available, previous to the month during which credit is to be
distributed;
Conditions for Distribution of Credit (Contd.)
Tattvam Advisors Copyright @ 74
Explanation : Section 20(2)
The term ‘‘turnover’’, in relation to any registered person engaged
in the supply of taxable goods as well as goods not taxable under
this Act, means the value of turnover, reduced by the amount of any
duty or tax levied under entry 84 of List I of the Seventh Schedule
to the Constitution and entries 51 and 54 of List II of the said
Schedule.
Conditions for Distribution of Credit (Contd.)
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Section 21
Where the Input Service Distributor distributes the credit in
contravention of the provisions contained in section 20 resulting
in excess distribution of credit to one or more recipients of
credit, the excess credit so distributed shall be recovered from
such recipients along with interest, and the provisions of section
73 or section 74, as the case may be, shall, mutatis mutandis,
apply for determination of amount to be recovered.
Manner of recovery in case of excess Distribution
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Section 39 Every taxable person registered as an Input Service
Distributor shall, for every calendar month or part thereof,
furnish, in such form and manner as may be prescribed, a return,
electronically, within thirteen days after the end of such
month.
Return Type Frequency Due Date Details to be Furnished
Form GSTR 6 Monthly 13th of succeeding month
Furnish the details of input credit distributed
Form GSTR 6A Monthly On 11th of succeeding month
Details of inward supplies made available to the ISD Recipient on
the basis of form GSTR 1 furnished by supplier.
Return Forms under GST
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Distribution by filing
FORM GSTR- 6
Issuance of only ISD
C1 = (t1÷T) × C
where, R1 : Recipient of ITC, C1 : Total ITC to be distributed to
R1 C : Amount of credit to be distributed, t1 : turnover of R1
during the relevant period, T : aggregate turnover, during the
relevant period, of all recipients to whom ITC is
attributable
Rule 39 of CGST Rules
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CGST, SGST OR UTGST CREDIT
Whether recipient located in the same State or Union territory
in
which the Input Service Distributor is located
YES : Distribute CGST, SGST OR
UTGST
EVERY RECEPIENT
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Supply of goods or services or both between related persons or
between distinct persons as specified in section 25, when made in
the course or furtherance of business
Case 2: Supply between Establishments of one person located in two
or more states.
Case 1: Supply between 2 different GSTN located in one or more
states or union territories.
XYZ, Delhi GSTN - 1 XYZ, Gujarat GSTN - 2
XYZ H.O. Delhi XYZ, Project office in U.P.
Concept of distinct Persons:
Since one registration is to be considered as distinct person from
other registration, company shall treat the registration supplying
services as normal vendor of the recipient. In case company is not
paying its vendor anything because of force majeure clause, the
same
shall apply to different registration of company as well and no
requirement of cross charge shall arise.
Concept of Cross Charge
Tattvam Advisors Copyright @ 80
First proviso: Provided that where the goods are intended for
further supply as such by the recipient, the value shall, at the
option of the supplier, be an amount equivalent to ninety percent
of the price charged for the supply of goods of like kind and
quality by the recipient to his customer not being a related
person
Second proviso: Provided further that where the recipient is
eligible to full ITC, the value declared in the invoice shall be
deemed to be the Open market value of the goods or services.
Be the Open Market Value of the supply.
If the open market value is not available, be the value of supply
of goods or services of like kind and quality
If value is not determinable under clause (a) or clause (b), be the
value as determined by the application of rule 30 or rule 31, in
that order.
Rule 28 – Supplies between distinct/related persons
Tattvam Advisors Copyright @ 81
Rule 31 Reasonable
Means
“A supplier of service can disregard Rule 30 and can apply Rule
31”
Where value cannot be determined as per previous rules
Tattvam Advisors Copyright @ 82
As per Section 7(1)(c) & section 25 of CGST Act, any supply
among distinct persons is considered as GST supply if made in
course of business. This concept is often denoted by the concept of
“Cross Charge”.
Example :
• ABC India has a plant at Maharashtra, and representative offices
at Delhi, Chennai and Kolkata which are only engaged in marketing
activities. All supplies are being done directly from Plant at
Maharashtra to customers across India.
• In this case, Input tax credit of CGST & SGST in respect of
services obtained at local offices at Delhi, Chennai and Kolkata
shall be accumulated in their respective GSTINs leading to blockage
of ITC. Thus, by adopting cross charge mechanism, such offices can
raise invoices on their plant at Maharashtra in respect of
providing business support services and consequently, accumulated
ITC at these offices will be rightfully and efficiently
utilised.
MAHARASHTRA PLANT
HEADOFFICES
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Depreciation of Assets at
experience in leading firms (LKS and Big 4s)
Team of more than 40 people
Presence in 3 metro cities: Delhi/NCR,
Mumbai and Bangalore
across various sectors