Kushagra Nigam

Kushagra Nigam

Under Goods and Service Act, 2017 Input Tax Credit (ITC) is being governed by provisions of section 16 to section 20.

As per section 2(62) of the CGST Act 2017 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—

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

(d) 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

(e) 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

Hence the definition of the Input tax can be analyzed as following-

1. Input tax includes the taxes paid under the reverse charge mechanism under the ambit of GST.

2. Input tax does not include the supplies used by the person registered as a composition supplier under section 10 of the act.

Input tax credit refers to the credit of the input tax.

As per the provisions of the Section 17, there are certain conditions/ restrictions on the availability of the Input tax Credit (ITC) to be utilized by the registered person. Following are the ITC’s which have been blocked/ not allowed under the GST regime.

ImageThe same has been enumerated as following-

1. Motor vehicles & Conveyance except when used for

A. For transportation of goods e.g. Motor vehicles & conveyance used by Goods transportation agency, courier agency etc.

B. For making following taxable supplies:

> Further supply of such vehicle or conveyance

> For transportation of passenger

> For imparting training on driving, flying navigating such vehicles or conveyances

Interpretation:

a. Authorized dealers of cars are allowed to avail credit of the ITC paid on purchase of motor vehicles which are meant for further selling to customers.

b. Motor vehicles used by cab service providers shall be allowed to avail the ITC.

c. No ITC shall be available for transportation of employees in the company’s car.

d. Motor Vehicles used by Goods transport agency shall be allowed to avail the credit of Motor Vehicles.

2. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where-

A. Inward supply of these is used for making an outward supply of same category or as an element of a taxable composite or mixed supply.

Interpretation:

a. ITC on inward supplies of Foods and beverages to a supplier who is providing restaurant service is available provided he is not registered as a composition supplier.

b. In flight caterer is also eligible to avail the ITC for the input.

c. No ITC shall be available to the company who arranges lunch for its employees to mark any occasions.

3. Membership of club, health & fitness center.

Interpretation:

a. No ITC can be claimed for membership fees paid for Gyms for the employees of the company.

b. ITC shall be available in case the registered person has availed the membership of corporate houses.

4. Rent a cab, life insurance and health insurance except where

a. The government has made it obligatory for an employer to provide any of these services to its employees

b. Inward supply of these services is used for making an outward supply of same category or as element of a taxable composite supply or mixed supply.

Interpretation:

a. No ITC shall be available in case the registered person is into business except when it is mandated by the government.

b. No ITC shall be available for insurance of employees under corporate scheme.

5. Travel benefits extended to employees on vacation such as leave or home travel concession.

No ITC shall be available to the registered person for extension of travel benefits. e.g. foreign trip provided to the senior employees.

6. Works contract services for construction of immovable property except when

a. It is input service for further supply of works contract service e.g. Subcontract

b. Immovable property is plant and machinery i.e. ITC on works contract services used for construction of immovable plant and machinery is available.

Interpretation:

a. No ITC shall be available to the registered person for any construction of immovable property except it is construction of plant & machinery.

b. However ITC shall be available if there is sub contracting for construction of immovable property, then the contractor can avail the ITC.

7. Inward supply received by a taxable person for the construction of an immovable property (other than plant and machinery) on his own accounteven when such supplies are used in the course of or furtherance of business

Interpretation:

a. If a contractor is building a house for his personal purpose, then he shall not be eligible to avail the ITC on the same. On the contrary if the person is building such immovable property for the further selling then he is eligible to avail the ITC.

b. Such ITC shall not be available even if he is building such immovable for the employees.

c,. Inward supplies on which tax has been paid under Composition scheme

Since the input services availed under composition scheme has been kept outside the definition of the Input tax, no ITC shall be available to the composition supplier.

9. Inward supplies received by Non Resident taxable person except goods importedby him.

Interpretation:

a. Non-resident taxable person means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.

b. No ITC shall be available to such person in respect of the goods and services availed by him in India.

c. However, ITC shall be available on the Goods imported by such person. No ITC shall be available against the import of services to such person since only goods have been mentioned.

10. Goods or services used for personal consumption

Interpretation:

No ITC shall be available for the inputs which have been used for personal consumption. However if such goods have been used partly for personal consumption and partly for official purpose, ITC shall be available on proportionate basis as specified in the rules issued under the act.

11. Goods that are lost, stolen, destroyed, written off, or disposed of by way of free samples or gift

Interpretation:

a. Gift made to the unrelated person is not considered as a taxable supply and no ITC is available in relation to Input goods or services.

b. Free samples given by the pharma companies are also covered by the clause and hence no ITC shall be available in relation to such free samples.

12. Any tax paid under section 74, 129 & 130 of the act.

Interpretation:

a. Section 74 deals with recovery of tax in short or not paid by reason of fraud or misrepresentation of facts and figures.

b. Section 129 deals with detention and seizure of such goods which are in transit.

c. Section 130 deals with confiscation of goods in certain situations.

The article has been prepared using various websites and bare act and personal interpretation of the writer.

More Under Goods and Services Tax

7 Comments

  1. SHYAM SUNDER AGARWAL says:

    WHETHER WE CLAIM ITC ON FURNITURE FOR OFFICE AND FACTORY BUILDING, AND ELECTRIC EQUIPMENT LIKE FREEZ, FAN, INVETOR ETC.

  2. SHIVAPRASADA A S says:

    Bus carrying more than 6 passenger is not a cab under motor vehicle act . hence, no restriction to GST input. You can take credit.
    Refer : –
    Rent-a-Cab in GST – Unfolding the Mystery

    Sanjeev Singhal, CA – [2018] 91 taxmann.com 399 (Article)

    Rent-a-Cab in GST – Unfolding the Mystery
    March 27, 2018[2018] 91 taxmann.com 399 (Article)
    410 Views

    Sanjeev Singhal
    CA The Word Rent-a-Cab has not been defined in the CGST Act, 2017 . The Word has been used in CGST Act 2017 only once u/s 17(5). Paragraph mentioned is follows :
    Section -17(5) of the CGST Act,2017 says ;
    (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
    Here I am going to discuss the word Rent a cab as the word is used for denying the input credit . Means thereby , if any supplier of Goods or Services uses this service, it will not be allowed as Input Tax Credit. First of all there is no logic behind the fact that why this service is not eligible for ITC. Second what constitute Rent a Cab.
    Is the world “Rent-a-Cab” constitute any “motor vehicle” or Motor Cab or Maxi Cab or Stage carrier or Contract Carrier as defined in the Motor Vehicle Act, 1988.
    Why this question is of immense importance because, if any, supplier hire bus or other vehicle carrying more than six passenger for his employees , does it fall under Rent-a-cab and is disallowed u/s 17[5] of the CGST Act,2017. If it does not fall under rent-a-cab , it means supplier of services can take credit of ITC .
    Before we move on to GST on this issue , we need to make analysis of Rent-a-Cab under Service Tax in earlier law.
    Section 65(20) – “Cab means –
    (i) a motor cab, or
    (ii) a maxi cab, or
    (iii) any motor vehicle constructed or adapted to carry more than twelve passengers, excluding the driver, for hire or reward:
    Provided that the maxi cab referred to in sub-clause (ii) or motor vehicle referred to in sub-clause (iii) which is rented for use by an educational body imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre, shall not be included within the meaning of cab.”
    However, as per Notification No. 20/2012-ST dated 05-06-2012, the provisions of Section 65 shall not apply with effect from 01-07-2012. It means, in the Negative List regime, the definitions contained in Section 65 are no longer applicable for service provided or agreed to be provided on or after 01-07-2012. The new definitions are contained in section 65B of the Finance Act, 1994 which do not define ‘Rent-A-Cab’ or any similar service. Therefore above definition is provided in section 65[20] was made redundant in post Negative list era of Service tax.
    Any person providing service of ‘renting’ of motor vehicle designed to carry ‘passengers’, which is not covered under the negative list u/s 66D and also not exempted vide Notification No.25/2012-Service Tax, dated the 20th June, 2012 is covered in the description of rent-a-cab service. It can be clearly seen that renting of any motor vehicle (and not just a cab/taxi) is included. It means it includes renting of motor cars, motor cabs, maxi cabs, mini buses, buses and all other motor vehicles which are designed to carry passengers, irrespective of its passenger carrying capacity.
    Rent-a-Cab in GST
    Since the rent-a-cab has not been defined under GST Act, we need to analyse the same word taking the help of Motor Vehicle Act,1988.
    Dictionary meaning of Rent a cab is ” Taxi “.
    “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding thirty-five cubic centimeters;
    “Radio taxi” means a taxi including a radio cab, by whatever name called, which is in two-way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS).
    ‘Stage Carriage’ means a motor vehicle constructed or adopted to carry more than six passengers excluding the driver for hire or reward at separate fairs paid by or for individual passengers, either for the whole journey or for stages of the journey [section 2(40) of the Motor Vehicles Act, 1988].
    Motor Cab Section 2(25) of Motor Vehicles Act, 1988 defines ‘motor cab’ as any motor vehicle constructed or adapted to carry not more than 6 passengers excluding driver, for hire or reward
    Section 2(7) of the Motor Vehicles Act defines a ‘contract carriage’ as follows : ‘Contract carriage’ means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether express or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorised by him in this behalf on a fixed or an agreed rate or sum— (a) on a time basis, whether or not with reference to any route or distance; or (b) from one point to another;- – and in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey, – – and includes— (i) a maxi-cab; and (ii) a motor-cab notwithstanding that separate fares are charged for its passengers.
    Thus, the essential ingredient of a contract carriage is that it plies under a contract for a fixed set of passengers, and does not allow any other passenger to board or alight from the carriage at will.
    A ‘contract carriage’ carries passengers as a group and cannot pick up passengers en-route.
    As per section 2(22) of Motor Vehicles Act, 1988 ‘maxi cab’ means any motor vehicle constructed or adapted to carry more than 6 passengers, but not more than 12 passengers, excluding the driver, for hire or reward. These vehicles are more popularly known as vans, Innova, sumo etc.
    After going through the above definitions in Motor Vehicle Act, it can be concluded that Rent-a-cab falls under the definition of “motor cab” which can not carry more than six passenger
    Though in case of Service Tax, all motor vehicle meant to carry passenger was covered in Rent-a-cab service .
    Conclusion
    Therefore in my opinion , if any supplier of goods or services hires bus or any other motor vehicle carrying more than six passenger for their employees or otherwise , shall not fall under the definition of rent-a-cab u/s 17[5] and ITC will be allowed on this service which falls under the SAC – 9964.

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