ITC in GST is like the oxygen to human body. Everything revolves around how the credit would get distributed and who would be the person actual bearing the liability to in which treasure box this collection will ultimately fall into Central/State government. To availing the credit only by those who are registered under the GST system being the mandatory condition. Here I would be throwing light on role of ITC in the GST reform-
What is Input Tax Credit?
The tax which the purchaser credits to his ledger on the inputs as goods/service used by him for final product further sold. This chain of taking input tax credit continues till the product reaches the ultimate consumer. The GST which is to come into force would help to remove the cascading effect which is now faced by the industry and borne by the consumer eliminating the multiple tax with the single tax rate.
Who are all Eligible for Input Tax Credit?
Under what Conditions/Circumstances input tax credit will not be available?
Conditions where a registered person would be denied credit
When a taxable person switches over to composition scheme u/s 8 or the goods/service becomes exempt u/s 10
The person shall pay any amount due from the credit/cash ledger and after all the payments balance in the credit ledger shall lapse.
When the capital goods on which input credit is availed is transferred. What are the consequences?
Pay higher of the following:-
Input credit taken less percentage prescribed
Tax on transaction value
Credit in case of goods sent on job work
Input goods-to be received back by 180days
Capital goods-to be received back by 2 years
If goods are not received then tax shall become payable with interest with the provision as and when the goods are received back tax amount including interest shall be refunded.
The credit shall be allowed even if goods are directly sent to job worker.
Credit by Input Service Distributor
Manner of distribution of credit
|Input tax paid||Output tax set-off|
For recovery of credit distributed in excess the tax along with interest shall be collected and the provisions of section 51 shall apply
Advantage to government
The matching mechanism that would be brought into force with the introduction of GST would be great relief to the tax officers in tracking correct utilization of credit with taxable person required to upload the tax invoices in order make the credit available to next person in chain.
With interest and penalty on late filing the tax payers would be more cautious to adhere to the provisions.
Now, even the tax payers would make sure that the supplier they are choosing are uploading the data and filing returns in order to avail credit.
Advantage to tax payer
With provisional basis of allowance of credit after filing being made available with a view to bring ease in business is advantage to tax payer even though few were of different opinion in the case.
The multiple provisions and abatement in earlier law being replaced by now single rate of tax would bring ease in compliance and availment of credit mechanism.
Issues which need to be looked upon
The lapse of credit if not availed within one year in the current provisions of CCR,2004 but no mention of the same in the current GST law leaves an open end on the situation. Would this irrelevant provision continue under the new GST system?
The judicial precedents under existing CCR would continue in the new GST system to draw relation with availment of credit with business. Few of them mentioned below:-
M/s Coca Cola India Pvt Ltd v. CCE
CCE v. Hindustan Zinc Ltd
CCE v. J.K Cement Works
Lason India Pvt Ltd v. CCE
Thus, the new credit mechanism would bring ease in the administration of tax officers and cut the load of last minute panic by the tax payers with real time updation of data to avail credit.