Eligibility and Conditions for taking input tax credit u/s 16 of CGST Act, 2017 r/w Rule 36 & 37 of CGST Rules, 2017

Eligibility and Conditions for taking input tax credit u/s 16 of CGST Act, 2017 r/w Rule 36 & 37 of CGST Rules, 2017

Introduction

In this article we are going to discuss the eligibility criteria for availing the input tax credit (ITC) and the conditions which are required to be fulfilled for the said purpose.

Provisions contained

Before beginning with the discussion let us recall the provisions contained u/s 16 of CGST Act, 2017. For this purpose the bare section has been reproduced as under:

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:

Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:

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 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.

(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.

(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

1. Only Registered person will be eligible to take credit of ITC paid on inward supplies of goods or service or both, which are used in the course or furtherance of business. If a person is not a registered person or is a registered person but has not used the supply of goods or services or both in the course or furtherance of business, he will not be entitled to claim ITC.

2. The Credit of Input Tax will be available to a registered person. As per the definition contained under clause (62) of section 2 of CGST Act, 2017, Input Tax specifically excludes the tax paid under composition scheme. Therefore, if a person has paid the composition tax on its inward supply, he will not be entitled to claim ITC of that amount.

3. As per sub section (2) of section 16, four conditions need to be fulfilled which are:

a) Possession of tax invoice, debit note or such other tax paying document which includes invoice issued by Input Service Distributer (ISD) and bill of entry as prescribed under Customs Act, 1962

b) Goods or services have been received. If goods or services have been received in lots then it will be assumed that the goods or services have been received at the time when the last lot is received. If the supply is made on bill to ship to model then it will be assumed that the goods or services have been received by the registered person at the time when goods or services have been received by the person on behalf of registered person.

c) Tax on supply is actually paid to the Govt. Here the question arises that by whom tax should be paid? As per the view of the author, if the tax is payable under forward charge, it should be paid by the supplier but if the supply is covered under reverse charge, recipient should itself pay the tax before availing the ITC.

d) The recipient shall furnish the return under section 39.

4. The recipient shall make the payment for the supply of taxable goods or services or both within a period of 180 days. Payment for both value for goods or services and tax thereon shall be paid within a period of 180 days from the date of issue of invoice by the supplier. If the payment is not made within the stipulated time, ITC which was availed by the recipient at the time of receipt of inward supply shall be reversed along with interest at applicable rates. ITC can be availed when the payment for the value of supply and tax thereon, is made in at a future date.

5. As per sub section (3) of section 16, if a registered person has claimed depreciation on the tax component on capital goods or plant & machinery under IT Act, 1961 then he will not be eligible to avail ITC on the said amount.

6. The maximum time period within which an ITC pertaining to an invoice can be claimed is upto the due date of furnishing of return u/s 39 for the month of September, following the end of the financial year to which such invoice relates OR the Actual date filing of annual return, whichever is earlier. The due date for the month of September is 20^th Therefore the last date upto which ITC for an invoice can be availed is 20^th October or actual date of filing of annual return, whichever is earlier.

Rules to be read with

Section 16 has to be read with Rule 36 & 37 for the better understanding of the provisions and the intensions of the law makers. Rule 36 & 37 has been produced hereunder for your ready reference:

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 (time limit for issue of tax invoice);

(b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31( invoice issued by supplier itself for the supplies received from unregistered person on which supplier is liable to pay tax under reverse charge to comply with sub-section (3) & (4) of section 9 of CGST Act, 2017), 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.

(2) Input tax credit shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the said document, and the relevant information, as contained in the said document, is furnished in FORM GSTR-2 by such person.

(3) No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.

37. Reversal of input tax credit in the case of non-payment of consideration.-

(1)A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof, the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to subsection(2) of section 16 (i.e. 180 days), shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice:

 Provided that the value of supplies made without consideration as specified in Schedule I (activities to be treated as supply even if made without consideration) of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16 (i.e. 180 days).

(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.

(3) The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period starting from the date of availing credit on such supplies till 25 the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.

(4) The time limit specified in sub-section (4) of section 16 (i. e. the last date upto which ITC for an invoice can be availed which is 20^th October or actual date of filing of annual return, whichever is earlier) shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.

Feel free to share your queries with Author ‘Sagar Malhotra‘ at [email protected]