Article discusses Eligibility and conditions for taking Input Tax Credit (ITC), Apportionment of credit and blocked credits, Negative list of goods and/or services on which ITC shall not be admissible, Availability of credit in special circumstances and about Taking Input Tax Credit in respect of inputs sent for JOB WORK.
Section- 16
Eligibility and conditions for taking ITC
Important Points
SEC 16(2)
Payment of invoice for supply of services is to be made within 180 days : ITC availed is to be added to output tax liability of recipient along with interest thereon, when value of services and tax is not paid within 180 days from date of invoice. However, the credit can be reclaimed again when such payment made to supplier, but no credit of interest will be given and hence will be the cost.
Goods received in Lots: ITC entitled on last lot or installment.
ITC made dependent upon payment of tax by supplier: Availability of ITC to recipient has been made dependent on payment of tax by supplier. Thus, even if the receiver has paid the amount of tax to the supplier and the goods and/or services so procured are eligible for ITC, no credit would be available, till the time tax so collected by the supplier is deposited to the Government.
Goods received by third person: 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.
Sec 16(3) ITC shall not be allowed if depreciation is claimed on tax component of cost of capital goods.
Sec 16(4) Time limit for availment of credit: ITC shall not be allowed after furnishing of return for September month following the end of financial year to which such invoice or furnishing of relevant annual return (December 31 is the due date for filing annual return), whichever is earlier.
In the absence of any provisions as to eligibility to avail ITC when there is delay in applying for registration under GST, it appears that such credit on inputs would be lapsed and would be available only after the date of registration granted under the GST Law.
Note:
1. ITC on inputs, capital goods and input services.
2. SEC 17(4) Shall not apply to the tax paid on supplies made by a registered person to another registered person having the same Permanent Account Number.
SEC 17(5) Negative list of goods and/or services on which ITC shall not be admissible:
Motor vehicles and other conveyances except when used for further supply of such vehicles or conveyances, transportation of passengers and goods, imparting training on driving , flying, navigating such vehicles or conveyances.
Supply of Goods and/or services relating to
– Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where inward supply of particular category is used for making outward taxable supply of same category.
– Membership of a club, health and fitness centre.
– Rent-a-cab, life insurance and health insurance except where
a) it is obligatory for an employer under any law in force.
b) inward supply of particular category is used for making outward taxable supply of same category.
– Travel benefits extended to employees on vacation such as leave or home travel concession .
Construction Service /Works contract services when supplied for construction of immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.
Goods and/or services on which tax is paid under composition scheme.
Goods and/or services used for personal consumption.
Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
Goods and/or services received by a non-resident taxable person except on goods imported by him
Note :
“Plant and Machinery”means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) Pipelines laid outside the factory premises.
Section- 18
Availability of credit in special circumstances
SEC 18(1)
Application of registration to be made within 30 day: In order to avail ITC on inputs held in stock and inputs contained in semi- finished/ finished goods held in stock on the day immediately preceding the date from which a person becomes liable to pay GST, application for registration has to be made within 30 days.
A person who takes registration under sub-section (3) of section 25 shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semifinished or finished goods held in stock on the day immediately preceding the date of grant of registration.
where any registered person ceases to pay tax under section 10 (Composition Scheme), he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed
where an exempt supply of goods and/or services by a registered person becomes a taxable supply, such person 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 relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.
SEC 18(2) —A registered person shall not be entitled to take input tax credit under subsection (1) in respect of any supply of goods or services or both to him after the expiry of 1 year from the date of issue of tax invoice relating to such supply.
SEC 18(3)--Where there is a change in the constitution of a registered person on account of sale, merger, de merger, amalgamation, lease or transfer of the business with the specific Provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.
SEC 18(4)–Where any registered person who has availed of ITC opts to pay tax under section 10 or, where the goods and/or services supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption: Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.
SEC 18(6)–In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher: Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15.
The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on inputs/ Capital Goods sent to a job-worker for job-work.
Notwithstanding anything contained in clause (6) of subsection (2) of section 16, the principal shall be entitled to take credit of input tax on inputs even if the inputs /capital goods are directly sent to a job worker for job-work without being first brought to his place of business.
Where the inputs/capital goods sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker in accordance with clause (a) or clause (b) of sub-section (1) of section 43 within 1 year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the jobworker on the day when the said inputs were sent out:
Provided that where the inputs/capital goods are sent directly to a job worker, the period of 1 year shall be counted from the date of receipt of inputs by the job worker.
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(Author can be reached at Can be reached at Mobile/ Whatsapp no : 8587976865 or Email ID : camuktaaggarwal@gmail.com)
Seems Author has done some good research, but as of now regulations are updated, author needs to update this article also.
Sec 19(6) — Where the capital goods sent for job work are not received back by the principal within a period of 3 years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out:
Provided that where the capital goods are sent directly to a job worker, the period of 3 years shall be counted from the date of receipt of capital goods by the job worker.
Crux: In case of capital goods time period is 3 years.
Nice article!!
ITC is a crucial part for success of GST.