This article basically explains the concept of Input Tax Credit under the GST regime. Its procedure, required documents to avail the ITC, Condition, time limit to avail the ITC, Apportionment of ITC based on ITC used Partly for Business and partly for other purposes, partly for effecting Taxable Supply and Partly for exempted supply.
Input Tax Credit means the GST paid on the procurement of goods and services or both used in course of course or furtherance of business.
Section 2(62) define the “Input Tax”
“input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—
The integrated goods and services tax charged on import of goods;
The tax payable under the provisions of sub-sections (3) and (4) of section 9;
The tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
The tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or
The tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy;
Eligibility and Conditions for Taking Input Tax Credit [Sec. CGST Section 16]
CGST Section 16 (1)
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.
CGST 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,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) He has received the goods or services or both.
[1][Explanation: For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––
(i) 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;
(ii) Where the services are provided by the supplier to any person on the direction of and on account of such registered person.]
(c) subject to the provisions of [2][Section 41 or section 43A], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through the utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under Section 39:
Provided that where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment:
Provided further that 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 a reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the 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:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.
CGST Section 16 (3)
Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
CGST Section 16 (4)
A registered person shall not be entitled to take the input tax credit in respect of any invoice or debit note for the supply of goods or services or both after the due date of furnishing of the return under Section 39 for the month of September following the end of the financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Apportionment of Credit and Blocked Credits [CGST Section 17]
CGST Section 17 (1)
Where the goods or services or both are used by the 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 purposes of his business.
CGST Section 17 (2)
Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
CGST Section 17 (3)
The value of exempt supply under sub-section (2) shall be such as may be prescribed and shall include supplies on which the recipient is liable to pay tax on a reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of the building.
[1][Explanation: For the purposes of this subsection, the expression ‘‘value of exempt supply’’ shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.]
CGST Section 17 (4)
A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to fifty percent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:
Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year:
Provided further that the restriction of fifty percent shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.
Blocked Input Tax Credit
CGST Section 17 (5)
Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—
[2][(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:—
(A) a further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
(aa) vessels and aircraft except when they are used––
(i) for making the following taxable supplies, namely:—
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available—
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged—
(I) in the manufacture of such motor vehicles, vessels or aircraft; or
(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
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 outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness center; and
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
Provided that the input tax credit in respect of 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.]
(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except on goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.
CGST Section 17 (6)
The Government may prescribe the manner in which the credit referred to in sub-section (1) and (2) may be attributed.
Explanation.––For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—
i. the land, building or any other civil structures;
ii. telecommunication towers; and
iii. pipelines laid outside the factory premises.
[1] Inserted by the Central Goods and Services Tax (Amendment) Act, 2018. Date of Amendment : 29-08-2018, Effective from : 29-08-2018, Retrospective Effect : No
[2] Substituted by the Central Goods and Services Tax (Amendment) Act, 2018. Prior to its substitution, clause (a) and clause (b) read as under :
“(a) motor vehicles and other conveyances except when they are used––
(i) for making the following taxable supplies, namely:—
(A) a further supply of such vehicles or conveyances; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) for the transportation of goods;
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) Membership of a club, health and fitness center;
(iii) rent-a-cab, life insurance and health insurance except where––
(A) The Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or
(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and
(iv)Travel benefits extended to employees on vacation such as leave or home travel concession;”
Credit in Special Circumstances
CGST Section 18 (1)
(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;
(b) a person who takes registration under sub-section (3) of section 25 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 of grant of registration;
(c) where any registered person ceases to pay tax under section 10, he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9:
Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed;
(d) where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such person 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 relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable:
Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.
CGST Section 18 (2)
A registered person shall not be entitled to take input tax credit under sub-section (1) in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply.
CGST Section 18 (3)
Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.
CGST Section 18 (4)
(4) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax 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 such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption:
Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.
CGST Section 18 (5)
The amount of credit under sub-section (1) and the amount payable under sub-section (4) shall be calculated in such manner as may be prescribed.
CGST Section 18 (6)
In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher:
Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15.
Input Tax Credit in Respect of Inputs and Capital Goods Sent for Job Work [CGST Section 19]
CGST Section 19 (1)
The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on Inputs sent to a job worker for job work.
CGST Section 19 (2)
Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on Inputs even if the Inputs are directly sent to a job worker for job work without being first brought to his place of business.
CGST Section 19 (3)
Where the Inputs sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker in accordance with clause (a) or clause (b) of sub-section (1) of section 143 within one year of being sent out, it shall be deemed that such Inputs had been supplied by the principal to the job worker on the day when the said Inputs were sent out:
Provided that where the Inputs are sent directly to a job worker, the period of one year shall be counted from the date of receipt of Inputs by the job worker.
CGST Section 19 (4)
The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on Capital Goods sent to a job worker for job work.
CGST Section 19 (5)
Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on Capital Goods even if the Capital Goods are directly sent to a job worker for job work without being first brought to his place of business.
CGST Section 19 (6)
Where the Capital Goods sent for job work are not received back by the principal within a period of three years of being sent out, it shall be deemed that such Capital Goods had been supplied by the principal to the job worker on the day when the said Capital Goods were sent out:
Provided that where the Capital Goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of Capital Goods by the job worker.
CGST Section 19 (7)
Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.
Input Tax Credit by Input Service Distributor [Sec. 20 CGST Act 2017]
CGST 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.
CGST Section 20 (2)
The Input Service Distributor may distribute the credit subject to the following conditions, namely:––
(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 of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;
(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.
Explanation.––For the purposes of this section,––
(a) The “relevant period” shall be––
(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; or
(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;
(b) the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;
(c) 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 [1][under entry 84 and 92A] of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.
Recovery of Credit Distributed in Excess [Sec 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.
Documents required for availing Input Tax Credit
Rule 36 (1) of CGST Rule 2017, specify the following documents for availing the Input Tax Credit for registered person
(a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31;
(b) an invoice issued in accordance with the provisions of clause (f) of sub-section
(3) of section 31, subject to the payment of tax;
(c) a debit note issued by a supplier in accordance with the provisions of section 34;
(d) a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports;
(e) an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54.
Reconciliation of Input Tax Credit [Books Vs. GSTR-2A]
A registered person has to do frequently Input Tax Credit reconciliation of GST Credit as per books vs GSTR-2A in order to avoid the loss of ITC and remind the supplier for non-filling of GSTR-1. Assesses are receiving notice from department regarding the mismatch in Input Tax Credit as per Return/books and GSTR-2A.
Hon’ble Orissa High Court Judgment relating to Sec. 17(5)(d)
Safari Retreats Private Limited Vs Chief Commissioner of Central Goods & Service tax
The petitioner Safari Retreats Private Limited involved in construction business of shopping mall. The petitioner has constructed biggest shopping mall in Bhubaneshwar, Khordha for the purpose of letting out of the same to the number of tenants on rental basis. Huge quantity of input, input services and capital goods like. Cement, Steel, wire, plywood’s, Air Conditioner, transformers etc. are used for construction of such shopping mall which involve Input Tax Credit of amounting Rs. 34,40,18,028/ is paid.
Findings of the Hon’ble High Court [relevant para of judgments]
Para. 3(g) However, The benefit of input tax credit has been denied to the petitioner by applying Section 17(5) (d) of the CGST Act as well as of the OGST Act and the language of the said sub-section in both the Acts is identical. The said Section 17(5) (d) of both the aforesaid Acts inter alia provides that notwithstanding anything contained in sub section (1) of Section 16 of both the aforesaid Act and sub section (1) of Section 18 of both the aforesaid Acts, input tax credit shall not be available in respect of the goods and services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. The Petitioner has been informed by the authorities under the CGST Act and OGST Act that in view of the aforesaid Section 17(5)(d) of both the aforesaid Acts the petitioner cannot avail of the benefit of credit of tax input paid by the petitioner on the purchases of input materials and services which have been used in the construction of the shopping mall for set off, against the CGST and OGST payable on rent received from the tenants of the shopping mall.
Para. 18. We have heard learned counsel for both the sides.
Para. 19. The very purpose of the Act is to make the uniform provision for levy collection of tax, intra state supply of goods and services both central or State and to prevent multi taxation.
Therefore, the contention which has been raised by the learned counsel for the petitioners keeping in mind the provisions of Section 16 (1)(2) where restriction has been put forward by the legislation for claiming eligibility for input credit has been described in Section 16(1) and the benefit of apportionment is subject to Section 17(1) and (2). While considering the provisions of Section 17(5)(d), the narrow construction of interpretation put forward by the Department is frustrating the very objective of the Act, inasmuch as the petitioner in that case has to pay huge amount without any basis. Further, the petitioner would have paid GST if it disposed of the property after the completion certificate is granted and in case the property is sold prior to completion certificate, he would not be required to pay GST. But here he is retaining the property and is not using for his own purpose but he is letting out the property on which he is, covered under the GST, but still he has to pay huge amount of GST, to which he is not liable.
Para.20. 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, inasmuch as keeping in mind the language used in (1999) 2 SCC 361 (supra), the very purpose of the credit is to give benefit to the assesse. In that view of the matter, if the assesse 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, which is required to pay under Section 17(5)(d) of the CGST Act.
Para. 21 . In that view of the matter, prayer (a) is required to be granted. However, we are not inclined to hold it to be ultra vires. Prayer (b) is not accepted.
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice. Neither the authors accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.
Author Bio
1. Comments are required to be incorporated on significance of “notwithstanding clause” under Section 16(2), CGST Act, 2017 laying down 4 conditions for availment of ITC, meaning thereby that it supersedes sub-section 4 of section 16, based on the following cases;
(2020) 33 J.K.Jain’s GST & VR 9 Synergy Fertichem Pvt. Ltd. v. State of Gujarat (Guj), A.C.T.O. v. Laxmi Misthan Bhandar (Raj) (1989) 74 STC 260, Central Bank of India v. State of Kerala (2009) 4 SCC 9 (SC),
2. Further, Comments are also required to be incorporated on recent judgment in Union of India & Ors. v. Adfert Technologies Pvt. Ltd. (2020) 33 J.K.Jain’s GST & VR 147 (SC) holding that “ITC is a vested property right under Article 300A, Constitution of India”
Previously also, ITC/CNVAT Credit was held to be a vested right, which can not be allowed to be lapsed vide case laws─(1999) 106 ELT 3 Eicher Motors Ltd. v. Union of India(SC),
(2019) 32 J.K.Jain’s GST & VR 267 Siddharth Enterprises v. The Nodal Officer & Ors. (Guj)*.
*The review petition filed by the Govt. has been dismissed by the court (2020) 33 J.K.Jain’s GST & VR 160 Nodal Officer & Ors. v. Siddharth Enterprises (Guj)
3. Besides, the case of Safari Retreats Private Limited is under challenge before Supreme court by the Govt. per case law, Chief Commissioner of CGST & Ors. v. Safari Retreats Pvt. Ltd. (2020) 33 J.K.Jain’s GST & VR 201
Author’s views are required to be to be incorporated on all these points in the wake of Adamant approach of GOVT. by wasting lot of public money on wasteful litigation just to harass the public at large and lingering in the matters..
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