Allegation of Wrong Availment Of Input Tax Credit (ITC) is Not Sustainable If Conditions of Section 16 of CGST Act Satisfied and Tax Has Been Paid at The Time of Supply
The wrong and fraudulent availment of input tax credit and their utilization became a matter of discussion now a days, as recently department arrested several persons with these allegations. The main allegation which department is making that the input tax credit has been taken without actual receipt of the goods or goods has been procured from unregistered suppliers whereas invoices were arranged without actual receipt of goods from registered suppliers. Indeed, the persons who are violating the provisions of law are liable to penal as much as other action prescribed under the provisions of Goods and Service Tax Act, 2017 but certainly on the other hand the persons who are working as per law needs to be encouraged and protected. Needless to mention here that the input tax credit is beneficial piece of legislation and it is settled law that any beneficial provision should be interpreted liberally.
This article is small attempt to understand the conditions and provisions for availament and utilization of input tax credit and if the same are satisfied the input tax credit cannot be denied.
At the outset, it is pertinent to examine the provision prescribed under Section 155 of the Central Goods and Service Tax Act, 2017 which cast burden upon the person who claims Input Tax Credit. The section 155 of the Act, 2017 reads as under:
“Section 155 – Burden of proof- Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person”.
A bare perusal of the aforesaid section, it is clear that burden to prove eligibility of credit has been casted upon the person who is taking the input tax credit. That means he has to prove eligibility of input tax credit and the same can be done by complying the provisions of Section 16 of the Central Goods and Service Act, 2017.
Section 16 of the CGST Act, 2017 prescribed provision for eligibility and condition for taking input tax credit. To better understanding now it is required to examine the provision of section 16 of the CGST Act, 2017. Section 16 of the Act, 2017 reads as under:
“Section 16. Eligibility and conditions for taking Input Tax Credit; –
(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.
(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.
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;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39……”
From the perusal of aforesaid section and its provisions, it is clear that following essential ingredients are required to be satisfied for taking Input Tax Credit:
i) Supply of goods or services used or intended to be used in the course or furtherance of his business.
ii) Possession of a tax invoices or debit note issued by registered supplier is required.
iii) Received goods or Service or both by the supplier.
iv) The tax charged in respect to such supply has been actually paid.
v) Return mandated under Section 39 is filed.
In view of aforesaid discussion, it is clear that if supplier satisfied the aforesaid parameters prescribed under Section 16 of the CGST Act, 2017, the input tax credit cannot be denied under any circumstances. The flimsy allegations of department in regard to availment and utilization of input tax credit is not sustainable if the above said all conditions are satisfied. The department cannot impose their own made rules for eligibility of input tax credit and once all above-mentioned conditions are satisfied that means supplier has discharged the burden casted upon him mandated under Section 155 of the CGST Act, 2017.
Now after examination of eligibility and condition it is essential to examine the relevant documents which are necessary for taking input tax credit. Rule 36 (1) of the Central Goods and Service Tax Rules, 2017 prescribed provision for documentary requirement for claiming input tax credit. Rule 36 of the CGST Rules, 2017 reads as under:
36. Documentary requirements and conditions for claiming input tax credit. –
(1) The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely, –
(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.
The aforesaid rule makes it clear that on the basis of invoice, debit note, input service distributor invoice or input service debit note and bill of entry or any other similar documents prescribed under the Customs Act, 1962 input tax credit can be taken by the registered person. It is pertinent to mention here that for taking input tax credit e-way bills and toll receipts are not essential documents. Infact e-way bill is required only for the movement of goods and it has nothing to do with availment and utilization of input tax credit.
After examination of aforesaid mandatory provisions, it is necessary to mention here that payment of tax at the time of supply of goods after value addition on higher value can be called reversal of input tax credit. It can be also called revenue neutral for the reason that there is no loss of revenue as whatever input tax credit has been taken the same has been reversed or paid at the time of supply of goods. In earlier provision of Indirect Tax Law this legal provision was settled by Hon’ble Courts through plethora of the judgments. In this regard some relevant judgments as under:
a) Commissioner of C. Ex., Pune Vs Coca-Cola India Pvt. Ltd. 2007 (213) E.L.T. 490 (S.C.),
b) “Commissioner of C. Ex., Pune-I Vs Keetex 2008 (227) E.L.T. 536 (Tri. – Mumbai).
c) Hindustan Coca Cola Beverages Pvt. Ltd vs. Commr. of C. ex., Thane- [2009 (242) E.L.T. 45 (Tri. – Mumbai)].
d) [Nabros Pharma Pvt. ltd. vs Commissioner of C. EX., Ahmedabad 2009 (247) E.L.T. 439 (Tri. – Ahmd.)].
By the aforesaid discussion, it is clear that the supplier needs to satisfy eligibility and conditions prescribed under Section 16 of the Central Goods and Service Tax Act, 2017 for taking input tax credit. Rule 36 (1) of the Central Goods and Service Tax Rules, 2017 prescribed documents on that basis input tax credit can be taken and without these documents credit is not admissible. It is further discussed that if the registered supplier satisfied the condition of Section 16 of CGST Act, 2017 read with Rule 36 of the CGST Rules, 2017 the input tax credit cannot be denied under any circumstances.
It has also been examined that payment of tax at the time of supply of goods can be called reversal of tax and revenue natural as there is no loss of revenue in this transaction.