Introduction-

Input Tax Credit (ITC) is indeed the cornerstone of the Goods and Services Tax (GST) system in India, and the seamless availability of ITC was one of the primary objectives when GST was introduced in 2017.

The concept of ITC was designed to ensure that businesses could offset the taxes paid on inputs and services against their final tax liability, thereby preventing the cascading effect of taxes and promoting a more efficient and transparent tax regime. However, over time, several restrictions and complexities have been introduced in the availing and utilization of ITC.

To make it clear when ITC is available, let’s dive into the list of instances when ITC is not available. It has become important to ask when ITC is not available instead of asking When ITC is available because of so many restrictions.

This article is talking about restrictions on AVAILMENT of ITC. Here is, A COMPREHENSIVE article on Section 16,17,18,19 provisions which provides LIST OF INSTANCES when 𝗥𝗘𝗦𝗧𝗥𝗜𝗖𝗧𝗜𝗢𝗡 𝗼𝗻 𝗔𝗩𝗔𝗜𝗟𝗠𝗘𝗡𝗧 of 𝗜𝗧𝗖 or LIST OF INSTANCES IF AVAILED wrongly THEN LIABLE TO BE REVERSED. 

WHEN ITC LIABLE TO BE REVERSED IN GST

Sec. 16(1)

Taxpayer must not claim ITC if Goods/services are not  to be used in the course or furtherance of his business 

If at all claimed mistakenly/intentionally  then liable to reverse

Sec.  16(2)(a)

Taxpayer must not claim ITC if he is not in possession of a tax invoice or debit note 

If at all claimed mistakenly/intentionally  then liable to reverse

Sec.  16(2)(aa)

Taxpayer must not  claim ITC of invoices which are not  appearing in  his GSTR 2B 

If at all claimed mistakenly/intentionally  then liable to reverse

Sec.  16(2)(b)

Taxpayer must not claim ITC if he is he has not received the goods or services or both. 

If at all claimed mistakenly/intentionally  then liable to reverse

Sec.  16(2)(c)

Taxpayer must not claim ITC if his supplier has not paid TAX to Govt. 

If at all claimed mistakenly/intentionally  then liable to reverse 

Since Taxpayer is claiming Provisionally ITC as self-assessment basis in belief that Supplier will eventually pay tax in GSTR 3B New  RULE 37A  Puts a check on this

Rule 37A

Reversal of ITC in the case of non-payment of tax by the supplier and re-availment thereof.– Where ITC has been availed by Taxpayer in GSTR-3B for a tax period in respect of such invoice or debit note, the details of which have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1 or using the IFF, but the return in FORM GSTR-3B for the said  tax period  has not been furnished by such supplier till the 30th day of September following the end of financial year in which the ITC in respect of such invoice or debit note has been availed, the said amount of ITC shall be reversed by the said registered person, while furnishing a return in FORM GSTR-3B on or before the 30th day of November following the end of such financial year ( After 30th November, liable to Interest also). 

Please note that where the said supplier subsequently furnishes the return in FORM GSTR-3B for the said tax period, the said registered person may re-avail the amount of such credit in the return in FORM GSTR-3B for a tax period thereafter.

2nd proviso to Section 16

if TAXPAYER fails to pay to the supplier of goods or services or both, , the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the ITC  availed by the recipient shall be paid by him along with interest payable under section 50.

If at all pending to make payment to creditors beyond 180 days then   then liable to reverse.

Sec.  16(3)

Where TAXPAYER 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 (43 of 1961), the ITC on the said tax component shall not be allowed. 

If at all claimed mistakenly/intentionally on  then liable to reverse.

Sec.  16(4)

END DATE FOR CLAIMING ITC – TAXPAYER shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the 30th Nov. following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. 

If at all claimed mistakenly/intentionally  then liable to reverse.

Rule 48(5)

If supplier is liable for making E-invoice ( with QR+IRN)   , But he has not made E-invoice  , then  tax Invoice is not considered Proper tax  Invoice. 

If at all claimed mistakenly/intentionally for such invoice  then liable to reverse.

Sec.  17(1) read with Rule 42

Taxpayer should avail ITC only for Business purpose.

If the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, ITC in respect of Non-business purpose shall be liable to reverse.

Sec.  17(2) read with Rule 43

Taxpayer should avail ITC only for Taxable supply 

if  the goods or services or both are used by the registered person partly for effecting taxable supplies  and partly for effecting exempt supplies under the said Acts, ITC in respect of EXEMPT supply shall be liable to reverse

Sec.  17(5)

If taxpayer  has claimed ITC of below ineligible items , then liable to reverse

1.  Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons 

2. Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles 

3. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery,  life insurance and health insurance. 

4. Leasing, renting or hiring of motor vehicles.

5. Goods or services or both used for personal consumption;

6. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

7. Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

8. Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

for this clause – “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support

Sec.  19

ITC in respect of inputs supplied to job worker must be received back within one year  and capital goods sent for job work must be received back in 3 years 

if not received back then liable to reverse ( Actually considered as SUPPLY )

Sec.  18(6)

In case of sale of capital goods or plant and machinery, on which ITC has been taken, the registered person shall pay an amount equal to the ITC taken on the said capital goods or plant and machinery reduced by 5 percentage points per quarter or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.

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