Janya : Today I want to know about GST Input tax and GST Input tax credit. I want to discuss specifically today about input tax only in this session

Tanishi : Yes, today, we will specifically cover practical scenarios on input tax issues. Let me first explain the theoretical concept of input tax and input tax credit.

Availment of Input Tax and subsequently, Input Tax credit is the foundation/ pillars on which Gst Laws are standing. ITC credit means where the supplier and recipient have fulfilled certain conditions for which the recipient wants to avail ITC so as to offset his output liability and the supplier wants to pass itc for smooth flow of ITC credit.

The above stance is very good theoretically, going by the strict interpretation of the laws but the practical world is pole apart from the above.

Lets first understand what is Input Tax, what is Input tax credit as per CGST Act

Section 2(62) Of CGST Act Defines :

 “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;

Section 2(63) Of CGST Act Defines :

“input tax credit” means the credit of input tax;

CHAPTER V

INPUT TAX CREDIT

Section 16 Of CGST Act

(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.

Tanishi : The above is the textual reproduction of the definitions of Input tax and Input Tax credit.

Janya: I have seven transactional questions in my mind. I am stating them one by one to you- Tanishi

QUESTION 1

Janya : Can the tax officer dictate me as when to take input tax credit and can he guide me the genuinity and reasonableness of the input tax credit

Tanishi :

Now, we will discuss some practical scenarios where the input tax credit is governed by the commercial expediencies, by the application of mind depending upon the facts and circumstances of the case.

1. The Commercial expediency cannot be dictatedby the Revenue as held by The Hon’ble Apex Court in the matter of S A Builders (288ITR1)

Once it is established that there was a nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits.

2. The Revenue cannot dictate which expenditure an assessee should incur and which should be prohibited. In the Case of Shah Rukh Khan vs ACIT, it was held that the AO cannot tell or determine under which circumstances the expenditure to be incurred –

Held No

It was held that it is not the legal necessity to spend the expenditure which is determinative of its allowability; rather, it is the existence or otherwise of commercial expediency which guides the allowability of expenditure.

In the above, it is clear that the commercial expediency is the preferred reasonableness which is the determinative character.

QUESTION 2

Janya : Whether the cheque payment to the supplier is necessary to claim input tax credit

Tanishi :

1. Senco Gold LtdAA 2019 – Whether ITC is admissible when the applicant settles thru book adjustment the debt created on inward supplies

Payment to supplier through book adjustment or setting of bad debts is held to be valid subject to the conditions and restrictions.

QUESTION 3

Janya : If the purchasing dealer has received goods and made the payment and satisfied all such conditions, is it the responsibility of the recipient to ensure that the tax Is paid by the supplier

Tanishi :

1. In the case of M/s Onyx Designs Vs ACIT – ITC can be taken by the purchasing dealer when he has fully discharged the burden of proof to claim input tax as per the tax invoices.

The benefit of input tax cannot be deprived to the purchaser dealer, if the purchaser dealer satisfactorily demonstrates that while purchasing goods, he has paid the amount of tax to the selling dealer. If the selling dealer has not deposited the amount in full or a part thereof, it would be for the revenue to proceed against the selling dealer.

QUESTION 4

Janya : If the raw material turns into waste or gets evaporated during the process of manufacturing, is it necessary to reverse the input tax credit availed on the purchases

Tanishi :

1. In the Case of Ruchi Soya Industries Vs MP State, it was held that the entire ITC is available in respect of raw materials in manufacture of the principal product and not to waste which incidentally emerge during process of manufacturing principal product.

The principal of proportionate apportionment is not applicable. The clandestine removal should not be here. Loss of input by evaporation or process wastage input need not be reversed. ITC shall not be denied under Section 17(5)(h) in the wake of above.

QUESTION 5

Janya : Is input tax credit available On the Purchase of products and availing of house keeping services for keeping the factory in running mode

Tanishi :

1. In the case of NTF India P Ltd2013, it was held that keeping the factories and the related premises hygenic and clean is a statutory requirement under Section 11 of the Factories Act. The said housekeeping services has the direct nexus with the manufacture of the final product, because without Factories Act Compliance, manufacturing activities are not possible.

Now, in the wake of Covid 19, there is a compulsion of wearing masks, Personal protections kits, gloves, using sanitisers at reasonable intervals, getting sanitisation within the premises as per the demand of the MHA order; there would be lot of doubts as if whether gst paid on such expenditure need to be taken or is allowable. Commissioner Vs Stanzen Toyotetsu India CESTAT 2015, Delphi Automotive System  P Ltd Vs Commissioner 2014(36) would be helpful and provide a clear dictat for availing the respective ITC.

QUESTION 6

Janya : As per Section 16(1) Input tax credit above, is the input tax credit allowed for all the inputs incurred for which are used or intended to be used in the course or furtherance of the business- whether the inputs are incurred within the factory or outside the factory premises

Tanishi :

As per Commissioner Of Central Excise Vs JSW Steel Ltd, Madras HC on 13th February 2020, it was held that the captive power plant is to be treated as one integrated unit, hence the itc on the capital goods purchased and utilised for such captive power plant is allowable.

Karnataka AAA in the case of Keshav Cements Infra P Ltd 2019 held that input and input services (used for setting up a solar plant which is away from the main manufacturing unit) is available. The electricity generated thru the solar plant was used captively for the manufacture of the final product.

QUESTION 7

Janya : If a building is built for generating future rental income or rent will start after completion of the structure, will input tax credit be available on the inputs expended.

Tanishi :

As per Orissa High Court in the case of Safari Retreats P Ltd 2019, if the building generates rental income and output gst is payable on such rental incomes, then the itc can be availed on gst paid on the purchase of materials. The building takes the shape of plant which will generate cash flow and generate gst output, so the input tax is available for the generation of that plant.

4 Some GST Aspects & Transactions Explained with Q&A- Part IV
3 Some GST Aspects & Transactions Explained thru Q & A – Series III
2 Some GST Aspects & Transactions Explained thru Q&A – Series II
1 Some GST Aspects &Transactions Explained Through Q&A- Series I

Disclaimer: While every care has been taken to ensure the accuracy/ authenticity of the above, the readers are advised to recheck/ reconfirm the same from the original sources/ relevant departments. The company shall in no way be responsible for any loss or damage suffered to any person on account of the same. The views expressed are personal opinion, compilation and is no way, to be used for any legal opinion, matters

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