Meaning of Input Tax Credit (ITC);

Section 2(63) of CGST Act, ITC means the credit of input tax and Section 2(62) of CGST Act, Input Tax means, in relation to registered person, tax charged on any supply of goods or services or both made to him and specifically includes, IGST paid on imports, RCM paid under CGST act, IGST act, SGST act and UTGST and with specific exclusion of taxes paid under composition levy of CGST, IGST, SGST and UTGST taxes.

Ineligible ITC under GST;

GST input tax credit mechanism allows registered dealers to set-off their credit balances against GST output tax liabilities. At the time of introduction of GST act, it was stated as taxes paid under this act in connection with furtherance of business can be claimed as ITC, but over a period of time, the cannon has changed in the minds of the government and issued numerous notifications from time to time imposing restrictions on some types of goods and services which are not eligible for input tax credit claim. I have made an analysis of this ineligible ITC and reversal of the same in a separate article as “Ineligible Input Tax Credit(s) under GST” (or) “ITC subjected to reversal under GST” and the same be read by the readers, on need.

Input Tax Credit

Meaning of lapsed ITC;

It is imperative to understand as to the meaning of In-eligible ITC, which means the registered dealer is not eligible as per the provisions of the act and at the same time, if  by chance, the dealer has taken credit, the same is subjected to reversal, which I have analysed earlier.

When it comes to Lapsed ITC, the dealer is eligible for the ITC but failed to take credit of the same within the time limit stipulated under the act. By virtue of the failure on part of the dealer with in the time frame, eligibility of ITC stands forfeited is called lapsing of ITC.

Purpose of this article:

I am here to give a tips to handle the issues where you have believed that the ITC has lapsed, to convert the same as a genuine ITC under the act, without facing any disputes with the authorities or get ready to challenge the issues, in case of any notice(s) issued by the authorities.

In this article I am not going to touch the ITC lapsing under Section 17(4) applicable for Banking companies and NBFC and Section 18(4) applicable for a dealer who has availed of input tax credit opts to pay tax under section 10 (composition method of tax payment).

In this article I prefer to analyse and suggest you to handle the situations very safely to protect the financial interest on the ITC which are likely to get lapsed, under section 16(4), 18(2) and 19(3).

(A) Extract of 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 or both 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”.

Analysis;

Considering the words and phrases under section 2(63) and 2(62) the phrase “input tax credit” under section 16(4) includes ITC in respect of RCM also and hence it is implied that ITC in respect of payments made for RCM requires to be taken within the time frame stipulated.

Further, here the issue is in respect of a dealer who has not taken ITC credit for certain bill or bunch of bills well within the due date for filing GSTR-3B for the month of September following the end of financial year.

It is certain that the eligible ITC will automatically lapse if the ITC has not been taken in Credit in GSTR-3B and not credited to Credit ledger of the dealer, with in the time limit as stipulated above.

Secondly it is a process to be carried out every year on his own interest.

In order to give clarity on the suggestion, I shall generate hypothesis where ever required.

Assume that the dealer has single or multiple bill(s) relating to the financial year 2018-19 on which he has not taken credit during the financial year and the same been found only after filing GSTR-3B for the month of September 2019, but before filing the annual return in GSTR-9 and 9C.

In the situation narrated above, it is certain that the eligible ITC will automatically lapse in favour of the government, just because of the reason that the dealer has not taken credit in GSTR-3B and not credited the same in Credit ledger maintained in his login account.

Now it is the role of the game changer to convert the lapsed ITC in to genuine ITC in the hands of the dealer.

Suggestion(s)

For the purpose of my suggestion, as stated above, I shall escalate the hypothesis further as, the dealer has single or multiple bill(s) relating to the financial year 2018-19, partly in the month of Feb 19 for the ITC value of Rs.40,000/-   and partly in March 19 for the ITC value of Rs.55,000/- or so, on which he has not taken credit and the same been found only after filing GSTR-3B for the month of September 2019, but before filing the annual return in GSTR-9 and 9C.

Before I go to my suggestion, I presume that the dealer has taken credit of more than Rs.40,000/- in the GSTR-3B filed for the  month of July 2019 and more than Rs.55,000/- or so in the GSTR-3B filed for the month of August 2019 or so (even if the value of ITC in the respective months is lesser than the value noted above can also be handled with suitable change in the suggestion/ tips).

Here, my suggestion is, the dealer need not worry about this, can very much content to  say that the credit for the bills relating to Feb 2019 for the ITC value of Rs.40,000/- has been taken in to credit of GSTR-3B for the month of July 19 and in support of this remove the quantum of bills for which you have taken credit in GSTR-3B for an amount equal to or approximately nearing to Rs.40,000/- which you can take credit in GSTR-3B in the later date but before filing GSTR-3B for the month of September 2020. In the same manner the next bunch of bills in the month of March 2019 also to be handled in GSTR-3B for the month of August 2019. In case if you could not match the bill values exactly then you try to match the value nearing to that value and assume that the difference as clerical mistake if it is in excess, then credit taken which you can reverse it in the next month or so OR if the difference is on lower side you can treat it for credit in the subsequent month, as explained above.

In any case, by adopting this technique the dealer has protected his financial interest from lapsing of ITC by converting the same as genuine ITC under the relevant provision of CGST/SGST/UGST/IGST acts.

Hope the dealers who are reading this article should feel pleasured. Here it is pertinent to note that this suggestion or tips will work, subject to the condition that the dealer could have not filed the annual return in respect of the period in which these adjustments were considered and further the dealer could have not filed GSTR-2 also.

(B) Extract of 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.

Analysis;

Here the issue is in respect of unregistered dealer who has applied for registration under the obligation to get a compulsory registration under the act, is entitled for ITC on the taxes paid to his vendor on the stocks, semi-finished, finished or working progress of goods/ stocks on position within 30 days from the date on which he is liable for registration AND in respect of a person who got registered u/s 25(3) on the taxes paid to his vendor on the stocks, semi-finished, finished or working progress of goods/ stocks on position on the day immediately preceding the date of grant of registration.

It is certain that the eligible ITC will automatically lapse if the ITC has not been taken in Credit in GSTR-3B and not credited to Credit ledger of the dealer, within one year.

Secondly it is a process once in a life time and the ITC has to be taken in GSTR 3B only as the credits cannot be availed under TRAN-1 or 2 or so, as the time limit for these forms can not be initiated for this dealer alone and this dealer can claim ITC in GSTR-3B itself on obtaining amended invoice from the seller by incorporating his GSTN number, so that the Credits in GSTR-2A will get auto populated properly. Further, if the credits were not taken within one year from the date of invoice, the ITC will automatically lapse in favour of the government. It is pertinent to note the reason as why the act has given one year limitation is the vendor cannot amend the invoices after one year from the date of invoice.

If the dealer has not taken the credit in the first return, he can do so in second return and if not in second return, he can do so in third return or so on, till credit is taken but not later than one year from the date of purchase invoice date.

It is to be noted that the dealers who are all falling under this category are also under the process of taking credit for the current month purchase bills for GST taxes paid and taxes paid under RCM also.  So, it is mixture of all the credits together.

Suggestion(s);

For the purpose of my suggestion, I shall generate a hypothesis to explain the reader properly;

Assume that  until the month of April 20, you (the dealer) have not taken credit for one particular bill say Bill No.112 dated 30/05/19 for a sum of Rs.1,00,000 plus GST of Rs.18,000/- obtained from vendor X and this ITC is falling under section 18(2) for the dealer. By mistake the dealer has ignored it and filed the return after taking ITC in respect of other inward supply bills for a sum approximately around say Rs.65000/-.

On a later date, say in the month of July 20, the dealer had found out that the ITC in respect of Bill No.112/- for the ITC value of Rs.18,000/- has not been taken, which could have been taken in the GSTR-3B for the month of April 2020 or prior to April 2020. Considering the date of invoice and the current date, it is concluded that the ITC in respect of the captioned bill No.112 dated 30/05/2019, has lapsed.

Here, my suggestion is, the dealer need not worry about this, can very much content to say that the credit for the bill no 112 dated 30/05/2019 has been taken in the month of April 2020, and refresh the value of Rs.65000/- in such a way so as to includes this Rs.18000 and exclude an another bill nearing to around Rs.18000/- from the bunch of bills you have considered at the time of filing the return. And treat the excluded bill for ITC credit in the current month say July 2020 or so or in subsequent month GSTR-3B. In case if you could find bill for exact value of Rs.18,000/- it is fine, and in case, if you could not match the bill values exactly then you try to match the value nearing to that value and assume that the difference as clerical mistake, if it is in excess, then excess credit taken can reversed it in the next month or so OR if the difference is on lower side you can treat it for credit in the subsequent month, as explained above.

In any case, the dealer has been protected from lapsing of the ITC and there by the financial interest of the dealer been saved to the extent of the ITC value. In other words, anticipated financial loss was avoided, by following up the above suggested mode of operation, subject to the condition that the dealer could have not filed the annual return in respect of the period in which these adjustments were considered and further the dealer could have not filed GSTR-2 also. Further it is obligatory on part of the dealer to get the amended invoice from the seller dealer to fetch auto populated credit in GSTR-2A.

(C) Extract of 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.

Analysis;

Here the registered dealer has already taken the ITC credit and the captioned goods were sent to job worker for further processing or so without payment of tax, on the condition that the same will be received back with in a period of one year OR sold on payment of applicable tax from the place of the job-worker within a period of one year from the date of receipt of the said goods by the job worker or date of despatch by the dealer, as the case may be.

It is certain that the ITC taken will automatically lapse and the same requires reversal in the monthly return with interest from the date of credit taken in credit ledger, if the goods have not been returned or sold, within one year, as noted above. Further it is to be noted that, even if the goods been returned or sold on payment of taxes, after one year, it is obligatory on part of the dealer to reverse the ITC credits along with interest and in such a circumstances it is advisable to file DRC-03 application by the dealer on his own to avoid penalty related issues.

Suggestion(s);

It is suggested to advise the job worker to return the said goods on the semi-finished status or so with necessary documents along with e-way bill(s), and let the dealer re-send the same materials to the same job worker with fresh set of documents along with e-way bill too, to protect the financial interest of the dealer to the extent of the ITC taken on the captioned good(s).

General Conclusion:

I am sure the dealers who are reading this article and have some dropped ITC documents at their end; feel pleasured as they can fetch benefit by applying the suggestion/tips noted above. Here I wish to iterate that the hypothesis may not suit to your practical issues which need to be bent to accommodate the issues suitably. However this is subject to the provisions of the act and this article is not for misguiding the dealers or stimulating the dealers in an unlawful ways, still it is a matter of planning the book entries in the hands of the dealers and in no way the author is responsible for the consequences of the suggestions poste here in above.

Disclaimer: The readers are informed to note that the facts and information’s stated in this article is extracted from different provisions and summarized along with his suggestions for the purpose of presentation and this presentation itself cannot be assumed to be a legal opinion. For any specific requirement of legal opinion on the facts of the case, the reader may reach the author for professional support.

The author is a Practitioner under GST act and under earlier VAT acts of multiple states in the country. One of the authors for the book published in the name of “Simplifying Multi State VAT on Works Contracts” in 2015-16 & 2016-17, authored by 23 leading eminent CA’s & Advocates in the country AND Achromic Point Indirect Tax Award winner for Best Innovative GST Consultant of the year 2018-19. Intended readers may reach him at

P.Jagadeeswaran,  Partner,  
Laws Reward  Solutions
GST/ VAT/ IT Practitioners & Consultants, Project Finance Management Consultants
No.33, Elango St.,  Chelliamman Nagar, Athipet,  Ambattur, Chennai – 600058.
Branch  @ 21, A K T St, Near Asthabujaperumal Koil, Kancheepuram – 631501.
Mobile: 9840746721/9176038176,
email : eswaran60@yahoo.com, eswaran1960@gmail.com

Author Bio

Qualification: Post Graduate
Company: Laws Reward Solutions
Location: Chennai, Tamil Nadu, IN
Member Since: 17 Apr 2020 | Total Posts: 4
The author is a Practitioner under GST act and under earlier VAT acts of multiple states in the country. One of the authors for the book published in the name of “Simplifying Multi State VAT on Works Contracts” in 2015-16 & 2016-17, authored by 23 leading eminent CA’s & Advocates in th View Full Profile

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5 Comments

  1. Pankaj Das says:

    Accidentally, I have two GSTN nos. Sl no. 1 is under state government and Sl. no. 2 is under central government. I didn’t work with Sl.No.2 and so I don’t file any return. But earlier some suppliers supplied goods using my GSTN under Sl.No.2 on which I had some ITC credit which I couldn’t avail as I could not transfer it to my GSTN under Sl.No.1. Now, on detection, I wish to cancel my regn. under Sl.No.2, but I have to get transferred all ITC credit to Sl. No. 1. Is there any provision? Can I be able to? And whether all returns are to be filed with late fées under sl. no. 2.? Please suggest.

  2. vswami says:

    Selected:

    Q
    ………………….
    In order to give clarity on the suggestion, I shall generate hypothesis where ever required.
    ……………………
    In the situation narrated above, it is certain that the eligible ITC will automatically lapse in favour of the government, just because of the reason that the dealer has not taken credit in GSTR-3B and not credited the same in Credit ledger maintained in his login account.
    Now it is the role of the game changer to convert the lapsed ITC in to genuine ITC in the hands of the dealer.
    UQ

    The write-up ,it Is noted with personal regret, to be quite confusing.
    This is not , – by any thinking, convoluted or otherwise, – an area in which anyone is expected to give publicity, for consumption by the mostly ill-informed/ gullible concerned , – based on ‘hypothesis’ or the like.
    For thoughts and viewpoints / critique of relevance, sincerely recommend to look up the several Articles and comment posted thereon.
    Those are to the effect that, – entitlement to ITC – actually availed of or not (for any reason) on ‘INPUT’, – has the objective of avoiding / dispensation of the adverse consequence of ‘spiralling’; that is, from the viewpoint of/ to the ultimate benefit of the customer/ consumer , from whom the GST is collected and paid over to the Govt. by the supplier of output (goods or services). Also of relevance is the concept of RCM requiring mandatory compliance by the ‘supplier’in B2B2C situation?!

    For sake of goodness, the learned writer will do well to diligently search for , consciously through the related material,available ij public domain – wprt the transactions in ‘realty’ ,- review, and then come out with a suitably revised write-up, in order to save the readers from any more muddling up of the surrounding confusions, to result in being worse confounded !?

    OVER / Back to…

  3. Vinit Jain says:

    Nice piece Mr. Jagadeeswaran. I am also keen on your other article titled “Ineligible Input Tax Credit(s) under GST” (or) “ITC subjected to reversal under GST”.
    thanks, Vinit

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