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Uninterrupted and seamless chain of input tax credit (hereinafter referred to as, “ITC”) is one of the key features of Goods and Services Tax. ITC is a mechanism to avoid cascading of taxes. Cascading of taxes, in simple language, is ‘tax on tax’. Under the present system of taxation, credit of taxes being levied by Central Government is not available as set-off for payment of taxes levied by State Governments, and vice versa. One of the most important features of the GST system is that the entire supply chain would be subject to GST to be levied by Central and State Government concurrently. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage.

♦ The pre-requisites for availing credit by registered person are:

√ Any registered person can avail credit of tax paid on the inward supply of goods or services or both which is used or intended to be used in the course or furtherance of business.

√ He is in possession of tax invoice or any other specified tax paying document.

√ He has received the goods or services. “Bill to ship” scenarios also included.

√ Tax is actually paid by the supplier.

√ He has furnished the return.

√ If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.

√ He should pay the supplier the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules].

√ However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed.

√ No ITC beyond September of the following FY to which invoice pertains or date of filing of annual return, whichever is earlier

♦ Documents on the basis of which credit can be availed are:

√ Invoice issued by a supplier of goods or services or both

√ Invoice issued by recipient along with proof of payment of tax

√ A debit note issued by supplier

√ Bill of entry or similar document prescribed under Input Tax Credit Mechanism in GST 154 GST FLYERS Customs Act e) Revised invoice

√ Document issued by Input Service Distributor

♦ ITC is not available in some cases as mentioned in section 17(5) of CGST Act, 2017. Some of them are as follows:

√ motor vehicles and other conveyances except under specified circumstances.

√ goods and / or services provided in relation to

1. food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except under specified circumstances;

2. membership of a club, health and fitness center;

3. Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law; iv. travel benefits extended to employees on vacation such as leave or home travel concession; a) Works contract services when supplied for construction of immovable property, other than plant &machinery, except where it is an input service for further supply of works contract;

√ Goods or services received by a taxable person for construction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business;

Exception :

The Hon’ble High Court of Orissa, vide its order dated 17 April 2019 (Order), in in Safari Retreats Private Limited v Chief Commissioner of Central Goods & Service Tax [W.P. (C) 20463 of 2018], has allowed availment of input tax credit (ITC) on goods and services used for construction of immovable property and used in the course or furtherance of business.

         Key Highlights of Order

  • The purpose of the CGST Act is to provide a uniform law for levy and collection of tax on intra state supply of goods and services, and to prevent multi taxation.
  • Section 17(5)(d) of the CGST Act is to be read down and a narrow interpretation of Section 17(5)(d) of the CGST Act is frustrating the objective of the CGST Act.
  • If the petitioner is required to pay GST on rental income arising out of the investment on which he has paid GST, he is entitled to avail the ITC for the inputs and input services consumed by them.

Considering the above, the Hon’ble High Court of Orissa allowed ITC on goods and services used    for construction of immovable property meant for letting out for commercial purposes (in the course or furtherance of business).

√ goods and/or services on which tax has been paid under composition scheme;

√ goods and/or services used for private or personal consumption, to the extent they are so consumed;

√ Goods lost, stolen, destroyed, written off, gifted, or free samples;

√ Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.

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One Comment

  1. vswami says:

    “….As the tax charged by the Central or the State Governments would be part of the same tax regime, CREDIT OF TAX PAID AT EVERY STAGE WOULD BE AVAILABLE AS SET-OFF FOR PAYMENT OF TAX AT EVERY SUBSEQUENT STAGE.”
    Intent to dispense with ‘cascading effect ‘ for the benefit of the receiver of ‘supply’ (of goods or services) is unequivocally clear. Attempt by a section of realtors, however, to defeat the said intention by convoluted thinking and crooked ideas calls for a special mention; requires to be taken on and dealt with a firm hand by the enforcing and regulatory authorities- particularly those administering / governing the ‘ANTI PROFITEERING’ measures .

    for MORE refer the related Pr. Posts on social media- FB and LInkedin .

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April 2024