“Input tax” has been defined in section 2(57) of the model GST Law and section 2(1) (d) of the IGST Act.  Input tax in relation to a taxable person, means the {IGST and CGST} in respect of CGST Act and {IGST and SGST} in respect of SGST Act, charged on any supply goods and / or services to him which are used, or are intended to be used, in the course of furtherance of his business and includes the tax payable under sub-section (3) of section 7.

Under the IGST Act, input is defined as IGST, CGST or SGST charged on any supply of goods and / or services.

It implies that input tax consists of IGST & CGST in CGST Act and IGST &SGST in SGST Act. In the IGST Act, input tax consists of all three taxes name IGST, CGST and SGST.

In further implies that credit of all three can be sued for discharging IGST liability, whereas only credit of IGST & CGST can be taken in CGST Act and that of IGST & SGST can be taken under SGST Act.  Further the credit of CGST & SGST cannot be cross-utilised.

GST paid on reverse charge be considered as input tax. The definition of input tax includes the tax payable under sub-section (3) of Section 7 (Reverse Charge).  The credit can be availed if such goods and/or services are sued, or are intended to be sued, in the course of furtherance of his business.

Input tax includes tax (CGST / IGST / SGST) paid on input goods, input services and / or capital goods. In terms of section 2(54), 2(55) & 2(20) of the model GST law.  It may be noted that credit of tax paid on capital goods also is permitted to be availed in one instalment.

The ITC entitlement of a person who has applied for registration under the Act within thirty days from the date on which he becomes liable to registration and has been granted such registration (Section 16(2)).  He shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act.  It may be noted that the credit on pre-registration stock would not be admissible if the registration has not been obtained within a period of 30 days from the date on which he becomes liable to registration.

For example a person become liable to pay tax on 1st August, 2017 and has obtained registration on 15th August, 2017.  Such person is eligible for input tax credit on inputs held in stock as on 31.07.2017.

As per section 16(2A) of model GST law, the person who obtains voluntary registration is entitled to take the input tax credit of input tax on inputs in stock, inputs in semi-finished goods and finished goods in stock, held on the day immediately preceding the date of registration.

As per section 16(6) of model GST law, the input tax credit of goods and / or service attributable to only taxable supplies can be taken by registered taxable person.  The amount of eligible credit would be calculated in a manner to be prescribed in terms of section 16(7) of the model GST law read with GST ITC Rules (yet to be issued).  It is important to note that credit on capital goods also would now be permitted on proportionate basis.

As per section 16(5) of the model GST Law, the input tax credit of goods and / or service attributable to only supplies effected for business purpose can be taken by registered taxable person.  The amount of eligible credit would be calculated in a manner to be prescribed in terms of section 16(7) of the model GST law read with GST ITC Rules (Yet to be issued).  It is important to note that credit on capital goods also would now be permitted on proportionate basis.

As per section 16(8) of the model GST Law, the transferor shall be allowed to transfer the input tax credit that remains unutilised in its books of accounts to the transferee provided that there is a specific provision for transfer of liabilities.

As per section 16(12) of model GST law, the registered taxable person who supplied goods and / or services which become absolutely exempt, has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained  in semi-finished or finished goods held in stock on the day immediately preceding the date of such exemption.  It has also been provided that after payment o the amount on such goods, the balance if any available in electronic credit ledger would lapse.  The amount, required to be paid, is to be calculated as per GAAP in terms of section 16(13) of the model GST law.

As per section 16(12) of the model GST law, the registered taxable person, who was paying tax under section 7 opts to pay tax under Compounding Scheme under Section 8, has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such switch over.  It has also been provided that after payment of the amount on such goods, the balance, if any available in electronic credit ledger would lapse.  The amount, required to be paid, is to be calculated as per GAAP in terms of section 16(13) of the model GST law.

For example a dealer paying tax on compounding basis crosses the compounding threshold and becomes a regular taxable person.  As per section 16(3) of the model GST law, he can avail ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under section 7.

For example Mr. B, a registered taxable person was paying tax under composition rate up to 30th July, 2017.  However, w.e.f. 31st July, 2017.  Mr. B becomes liable to pay tax under regular scheme. In such a case Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 30.07.2017.

Suppose Mr. A applies for voluntary registration on 5th June, 2017 and obtained registration on 22nd June, 2017. Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 21st June, 2017.

A taxable person be not entitled to take input tax credit under sub-section (2), (2A) or sub section (3) of Section 16 in respect of any supply of goods and or services to him.  As per section 16(4) of the Model GST Law, he cannot avail input tax credit (ITC) after the expiry of one year from the date of issue of tax invoice relating to such supply.

The principal is eligible to avail the input tax credit on inputs sent to jobn worker for job work in terms of Section 16A(2) of Model GST Law.

Please note some of the important points:

  1. The time period within which the inputs set for job work has to be received back by the principal within 180 days.
  1. The principal has to reverse the input tax credit on inputs which have not been received back from the job worker within 180 days then the principal has to reverse the credit along with interest on inputs which have not been received back from the job worker within 180 days but he can reclaim the credit on receipt of inputs.
  1. Zero rated supplies are included for computation of taxable supplies for the purpose of availing credit.
  1. The time period of 2 years within which the capital goods sent for job work has to be received back by the principal.
  1. The liability of the principal if the capital goods sent to job worker have not been received within 2 years from the date of being sent then the principal has to pay an amount equal to credit taken on such capital goods along with interest,. But he can reclaim the credit on receipt of inputs.
  1. A taxable person is in the business of information technology. He buys a motor vehicle for use of his Executive Directors.  He cannot avail the ITC in respect of GST paid on purchase of such motor vehicle.  As per section 16(9)(a) of the Model GST law, ITC on motor vehicles can be availed only if the taxable person is in the business of transport of passengers or goods or is providing the services of imparting training on motor vehicles.
  1. The registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961. As per section 16(10) of the Model GST law the input tax credit shall not be allowed on the said tax component.

As per Section 16(11) of Model GST Law, the following four condition are stipulated to avail input tax credit:-

  1. The registered taxable person should be in possession of tax paying document issued by the supplier;
  1. The taxable person must have received the goods and or services
  1. The tax charged on such supply has been actually paid to the Government either in cash or through utilisation of input tax credit and
  1. The taxable person should have furnished the return under section 27.

Where the goods against on invoice are received in lots or instalments, the registered taxable person shall be entitled to the credit upon receipt of the last lot or instalment as per provision to section 16(11) of Model GST Law.

As per explanation clause to section 16(11) of the Model GST Law for the purpose of receiving the goods, it would be deemed that the taxable person has received the goods when the goods have been delivered to a third party on the direction of such taxable person.  So input tax credit (ITC) will be available to the person on whose order the goods are delivered to third person.

Input tax credit cannot be taken beyond the month of September of the following financial year to which invoice pertains or date of filing of annual return whichever is earlier as per Section 16(15) of Model GST law.

The underlying reasoning for this restriction is that no change in return is permitted after September of next financial year.  If annual return is filed before the month of September then no change can be made after filing of annual return.

According Section 16(9) of Model GST Law provides for the negative list with respect to the admissibility of input tax credit (ITC).  It has been provided that the ITC on the following items cannot be availed.

1. Motor vehicle, except when they are supplied on the usual course of business or are used for providing the following taxable services.

i) Transportation of passengers or

ii) Transportation of goods or

iii) Imparting training on motor driving skills

2. Goods and or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and or services are used primarily for personal use or consumption of any employee;

3. Goods and or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery.

4. Goods acquired by a principal, the property in which is not transferred whether as goods or in some other form to any other person, which are used in the construction of immovable property, other than plant and machinery;

5. Goods and or services on which tax has been paid under section 8 and

6. Goods and or services used for private or personal consumption, to the extent they are so consumed.

In case of mismatch between the inward and outward details, the supplier would be required to rectify the mis-match within a period of two months and if the mis-match continues, the ITC would have to be reversed y the recipient.

As per section 16(15) of Model GST Law, in case of supply of capital gods on which input tax credit has been taken, the registered taxable person shall pay on amount equal to the input tax credit taken on the said capital goods reduced by the percentage points as may be specified in this behalf or the tax on the transaction value of such capital goods, whichever is higher.

As per Section 16(16) of Model GST Law, the wrongly availed credit would be recovered from the registered taxable person in terms of section 51 of Model GST Law.

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One response to “Input Tax Credit under Model GST Law”

  1. Poonam Soni says:

    Hello Sir,
    I have a query related to Voluntary Registration under GST. A Trader has started business from 1st August 2017 & purchased goods worth Rs.5 lacs including GST. Now he has taken Voluntary Registration under GST with effect from 15th Dec 2017 & as on this date he has stock of Rs. 4 Lacs which includes GST Input. So can he avail this Input on Stock as on date of Voluntary Registration?

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