Divya Ojha

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?

  • Every registered taxable person
  • A person who has applied for registration within the prescribed time i.e. 30days-entitled to take credit of stock held on immediately preceding the date of registration
  • A person who has applied for registration under 19(3) i.e. voluntary registration- entitled to take credit of stock held on immediately preceding the date of registration
  • Where a person is no longer under composition scheme- entitled to take credit of stock held on immediately preceding the date of registration

Under what Conditions/Circumstances input tax credit will not be available?

  • Motor vehicle except Transportation of passenger/goods and used for imparting driving skills
  • Goods/Supplies that are exempted except zero rated
  • Personal Use
  • Goods used in works contract resulting in immovable property except P&M
  • Goods used which result into immovable property except P&M
  • Tax payable u/s 8
  • One who claims depreciation on capital goods

Conditions where a registered person would be denied credit

  • Not having documentary proof(like invoice if in installment the same shall be allowed)
  • Received goods/services (deemed delivered when received by supplier or on his direction by agent)
  • Tax paid
  • Return filled

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

  • They need to be registered from the beginning of entering into the market as distributor
  • They need to issue tax invoices as proof to make credit avail to the purchaser in the chain
  • They cannot make available more then what is available with them
  • Credit to be made available only to the concerned person. In case of multiple suppliersthe distribution of credit to be on pro-rata basis.

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.

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Category : Goods and Services Tax (7641)
Type : Articles (17826)
Tags : goods and services tax (6113) GST (5714)

8 responses to “GST- Input Tax Credit Cycle”

  1. Pradeep Kumar says:

    Where the consignor and consignee both are registered in GST then what is the treatment of GST portion with respect to transit damage insurance claim …whether GST portion is claimable in insurance? … Please clarify

  2. sushant kumar says:

    Good one. Provided much clarity.

  3. B. JALAL says:

    CGST means Central SGST means State
    What stand for IGST

  4. B. JALAL says:

    CGST Means Central SGST means State
    what stand for IGST

  5. sanchay says:


  6. S.Babu says:

    “Goods used which result into immovable property except P&M ”

    Dear Madam
    What is that P&M stands for. Please clarify.

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