Input Tax Credit Not Claimed In Relevant Period?

Input tax consists of:

1. Tax paid at the time of incurring expenses

2. Tax paid at the time of purchase

3. Tax paid for procurement of capital goods

A situation may arise when due to ignorance, incomplete data or any other mistake creeping it an eligible ITC was not taken in the relevant period. What happens in this case?

The ITC can be taken later i.e. after the end of accounting year subject to the following provision as mentioned in Section 16(4) of CGST Act, 2017.

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.

The due date of relevant return for the month of September 2018 is 20/10/2018. Annual return has not been filed by any company yet so as per the above provision, the last date to claim ITC for 2017-18 is 20/10/2018. However is it really the last date to claim any ITC which was missed during the year 2017-18?

It is a well known fact that if during a financial year eligible ITC has not been claimed (i.e. it has not been reflected in GSTR-3B as “All other ITC”) then it can be taken in the subsequent months during that financial year. This ensures that the cumulative effect at the end of the year remains unchanged. Therefore, ITC of an earlier month is being taken in the later one.

Similarly, for any amount of ITC which was missed during a financial year, there is an option of claiming it in the subsequent year within the due date mentioned above (i.e. 20/10/2018) in the same column of GSTR-3B which is “All other ITC”.

The point to be noted here is that the break-up of ITC is not given in the above amount. It is therefore not possible to bifurcate the amount of current month ITC and ITC pertaining to the previous year.

On a combined reading of the above paragraphs it can be gathered that an amount of ITC pertaining to the previous year which was not recorded within 20/10/2018 can be presumed to be recorded within such time provided the current year’s ITC is deferred.

For example:

ITC of previous year (not taken)= Rs 50,000/-

ITC from April to September 2018= Rs 4,50,000/-

It will be presumed that the amount of ITC taken from April to September to the tune of Rs 4,50,000/- includes 4,00,000/- of the current year and 50,000/- of previous year.

This can be easily substantiated provided the amount of ITC of current year exceeds the unclaimed ITC of previous year. Moreover, this will become impractical only when a separate column is added in GSTR-3B which asks for the amount of ITC unclaimed.

Unclaimed ITC has to be looked at from three angles:

1. Point of view of GST returns

2. Point of view of books of accounts

3. Point of view of Income Tax

Case 1: Expenses

(a): Unrecorded Expenses

This is the case where an expense for example office maintenance, carriage outwards, printing & stationery etc were not recorded in the books of accounts. Expense must be recorded in the accounting period in which it is incurred. However the following adjustments would be required at the instance of missing them.

1. GST Perspective: This ITC can be taken in the GST return the due date of which has been discussed.

2. Perspective of statutory books of accounts: The missed expenses being a prior period item shall be recorded as such in the books of accounts.

3. Income Tax angle: Prior period items are disallowed as per Income Tax Act and therefore no deduction would be available in that respect.

In a way the abovementioned provision of claiming ITC later ensures that there is no loss of input due to negligence. In fact it is a benefit in disguise to the extent of tax rate of the service. Income Tax would in either case disallow the expense so it becomes irrelevant.

It is to be noted here that GSTR-9 (Annual Return) contains a table (i.e. 8C) requires the information of:

ITC on inward supplies (other than imports and inward supplies liable to reverse charge but includes services received from SEZs) received during 2017-18 but availed during April to September, 2018.

This table will increase traceability of all the information of prior period expenses recorded in the subsequent year.

(b): Expenses recorded at COST+TAX without segregation of ITC

1. GST Perspective: This ITC can be taken in the GST return the due date of which has been discussed.

2. Perspective of statutory books of accounts: The books of accounts are to be corrected by passing an adjustment entry.

3. Income Tax angle: No effect.

Case 2: Purchases

(a): Unrecorded Purchases

This is the case where purchase of goods was not recorded in the books of accounts. The following adjustments would be required at the instance of missing them.

1. GST Perspective: This ITC can be taken in the GST return the due date of which has been discussed.

2. Perspective of statutory books of accounts: This is not a prior period item because profit will be unaffected. A purchase entry will be passed on the adjustment date.

3. Income Tax angle: It will be disallowed as per Income Tax Act and therefore no deduction would be available in that respect.

(b): Purchases recorded at COST+TAX without segregation of ITC

1. GST Perspective: This ITC can be taken in the GST return the due date of which has been discussed.

2. Perspective of statutory books of accounts: The books of accounts are to be corrected by passing an adjustment entry.

3. Income Tax angle: No effect.

Case 3: Capital Goods

(a): Unrecorded Capital Goods

This is the case where purchase of capital goods was not recorded in the books of accounts. The following adjustments would be required.

1. GST Perspective: This ITC can be taken in the GST return the due date of which has been discussed.

2. Perspective of statutory books of accounts: An entry for purchase of capital goods will be passed with proper consideration of depreciation of the previous year.

3. Income Tax angle: Depreciation pertaining to the relevant year will be disallowed as per Income Tax Act and therefore no deduction would be available in that respect.

(b): Capital Goods recorded at COST+TAX i.e. Tax amount is capitalised

Example: Machinery purchased= Rs 1,00,000/-

IGST amount= Rs 5,000/-

Recorded in books at Rs 1,05,000/-

Depreciation claimed on Rs 1,05,000/-

In this case since depreciation has been claimed on the portion of ITC therefore, the benefit of ITC will not be available. This is because one cannot take the benefit of the same thing under two different statutes.

Relevant provision can be read in Section 16(3) of CGST Act, 2017 reproduced hereunder:

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.

Case 4: Expense/ Purchase/ Capital Goods correctly recorded in books of accounts but ITC not taken

This is the case where the books of accounts reflect correct figures. However the GST return does not include respective ITC. This ITC can be taken in the GST return the due date of which has been discussed.

Case 5: Books not yet audited

If the books of accounts are not yet audited considering the fact that due date of completion of audit has been extended then the following will be the impact:

1. GST Perspective: This ITC can be taken in the GST return the due date of which has been discussed.

2. Perspective of statutory books of accounts: Books can be adjusted because finalization has not been done yet.

3. Income Tax angle: It will be treated as if no omission ever took place because the books are rectified before audit.

Relevant Section of ITC is reproduced below:

Section 16 of CGST Act, 2017 states that:

(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 taxpaying 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:

Disclaimer: The above opinion is based on the interpretation and views of the author and should not be construed as a legal advice. For further queries you may contact the author at camanishrajdhandharia@gmail.com.