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PowerPoint Presentation^ Input Tax
Credit Under
GST Law
Tattvam Advisors Copyright @ 2
Meaning: Input tax credit means at the time of paying tax on output, you can
reduce the tax you have already paid on inputs and pay the balance amount.
E.g.: T is a manufacturer:
(a) Tax payable on output (final product) is Rs 450
(b) Tax paid on input (PURCHASES) is Rs 300
(c) T can claim INPUT CREDIT of Rs 300 and T only needs to deposit Rs 150 in taxes.
According to Section 16(1) of CGST Act 2017, every registered person shall be entitled to take ITC on any supply of goods or services which are used or intended to be used in the course or furtherance of business.
According to Section 16(2) of CGST Act 2017, following are the conditions on the basis of which ITC can be availed by the Registered Person:
• The dealer should be in possession of tax invoice;
• The said goods/services must have been received;
• Returns must have been filed;
• The tax charged has been paid to the government by the supplier;
• When goods are received in installments ITC can be claimed only when the last lot is received.
Meaning & Eligibility of ITC
Section 2 (52) : ‘Input’ means any goods, other than capital goods, used or intended to be used by a supplier in the course or furtherance of business.
Section 2 (53) : ‘Input Service’ means any service used or intended to be used by a supplier in the course or furtherance of business.
Section 2 (19) : ‘Capital goods’ means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
Definitions - Scope
Feasibility study of new plant (not developed)?
Shall credit of utensils used in canteen maintained by the company be allowed, where recovery in respect of food provided in said canteen is made from employees?
CSR expenditure / Gardening services?
Credit of goods or services used in residential colonies?
This concept is similar to the concept of claiming of business expenditure under Section 37 of Income Tax Act, 1961(“IT Act”). There, the courts in various judgements have discussed the basic principle of “commercial expediency”. The courts laid down the law that if an expenditure is commercially required to be incurred with a view to benefit the trade and to facilitate the carrying on the business, such expenditure will be allowed as deduction under Section 37 of the Income Tax Act, 1961.
Coca Cola India Ltd. V. CCE, Pune reported at 2009 (15) STR 657 (Bom)
Mazagaon Dock Ltd. v. Commissioner of Income tax and Excess Profits Tax reported at AIR 1958 SC 861
Eligibility of credit : Used in Course or furtherance of business
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As per rule 36(1), ITC shall be availed by the Registered Person, including ISD, on the basis of any of the following documents, namely,:
Invoice issued by supplier as per Section 31
Bill of Entry or any similar document
Debit Note issued by supplier as in accordance of Section 34
ISD invoice or ISD credit note in accordance of Rule 54(1)
Invoice issued by in accordance of Section 31(1) (f), subject to payment of tax
Rule 36 of CGST Rules, 2017
Documentary requirements and conditions
As per Rule 36(2), ITC shall be allowed by reg. person only if all the applicable particulars as specified in the provision of chapter VI are contained in the said document.
As per Rule 36(3), No ITC shall be availed by reg. person in respect of any tax that has been paid pursuance of any other order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.
As per Rule 36(4), ITC to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub- section (1) of section 37, shall not exceed 10 per cent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.
Documentary requirements and conditions (Contd.)
1. Details of the amount of tax charged,
2. Description of goods or services,
3. Total value of supply of goods or services
or both,
5. Place of supply in case of inter-State
supply
E-Invoicing has been made applicable from 1st October 2020 to all businesses whose aggregate turnover has exceeded
500 Crores 100 Crores
N No. 88/2020 CT
limit in any of the preceding financial years from 2017-18 to 2019-20.
N No. 05/2021 CT
As per Rule 48(5) of CGST Rules,2017,”Every E-Invoice issued by a person to whom sub-rule (4) applies in
any manner other than the manner prescribed in the said sub-rule shall not be treated as an valid invoice
E-Invoice is a valid invoice
supplier engaged in supplying passenger transportation services:
Required to mention details specified in Rule 46 except
for:
lieu of invoice containing particulars mentioned above
• Banking Company, Insurer and Financial Institution has option to
issue monthly consolidated invoice
Relaxation to certain industries
Whether ITC of airlines allowed on invoice issued by agent?
Whether ITC allowed on photocopied/computer
generated invoice?
Invoice sent on 30th April,2021
ITC is claimed in which Month?
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A B C Order to B for delivery of Goods to C B delivered Goods to C on behalf of A
B issued invoice to A
Section 16 (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,–– 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;
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Mr. A pays insurance premium to insurance company for one year Car insurance Policy
When Mr. A claim ITC ? 1. When Premium Paid 2. After one year
Recipient should have received goods/services
Section 16(2)(c) – ITC shall not be available
unless, subject to provision of Section 41 or Section 43A, the tax charged in respect of
supply has been actually paid to the
Government
supplier is subject to Section 41 or Section
43A
Section 43A – Procedure of availing
ITC
Can it be said that still Section 41 is in
abeyance, the recipient shall be eligible to take
credit on provisional basis irrespective of tax payment by supplier?
Payment of Tax by Supplier
Rule 36(4) – Whether GSTR 2A and GSTR 2B
^
GSTR-2A GSTR-2B
A 01-01-2021 Jan-2021 11-02-2021 Jan-2021 Jan-2021
B 01-01-2021 March-2021 11-04-2021 March-2021 March-2021
C 01-01-2021 Jan-2021 15-02-2021 Jan-2021 February-2021
Late filing of return by supplier will auto-populate ITC in the delayed month. This is due to static nature of GSTR-2B wherein data freezes on 12th of the following month
Difference b/w GSTR-2B vs. GSTR-2A
or GSTR-2B?
Rule 36(4)- Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under sub-section (1) of section 37 in FORM GSTR-1 or using the invoice furnishing facility, shall not exceed 5 percent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37 in FORM GSTR-1 or using the invoice furnishing facility
Details furnished in GSTR-1 is populated to GSTR 2A and GSTR 2B
Rule 36(4) of CGST rules – Whether GSTR 2A or 2B?
Circular No. 123/42/2019– GST dated 11/11/2019 Subject: Restriction in availment of input tax credit in terms of rule 36(4) of CGST Rules, 2017
Sl. No.
Issue Clarification
3
FORM GSTR-2A being a dynamic document, what would be the amount of input tax credit that is admissible to the taxpayers for a particular tax period in respect of invoices / debit notes whose details have not been uploaded by the suppliers?
The amount of input tax credit in respect of the invoices/debit notes whose details have not been uploaded by the suppliers shall not exceed 20% (now 5%) of the eligible input tax credit available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub- section (1) of section 37 as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period. The taxpayer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1 under sub-section (1) of section 37.
Circular whether contrary to Rule 36(4)?
Departmental notices for difference between GSTR-2A and GSTR-3B – Whether reversal of ITC required ?
Post Budget 2021 amendment effective
Relevant Period
GSTR 3B has not been filed
1. B2B supplies not reported in GSTR 1 by mistake.
2. B2B supplies reported as B2C by mistake
3. B2B supplies reported with wrong GSTIN by mistake
4. Invoice in name of transferor
Categories of Vendors
437 (S.C.)
The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.
Hospira Health Care India
(Madras)
It held that a procedure should not run contrary to the substantive right in the policy. If the procedural norms are in conflict with the policy, then the policy will prevail and the procedural norms to the extent they are in conflict with the policy, are liable to be held bad in law
This view may be taken in scenarios where the supplier has paid tax in GSTR-3B but omitted to report tax invoice in GSTR-1
Procedural lapse cannot deny substantive benefit
Payment of tax by
Payment to vendor within
October of next FY
any other valid
section 41 / 43A, • the tax charged in respect of such
supply • has been actually paid to the
Government, • either in cash or through utilization
of input tax credit admissible in respect of the said supply
Legal Background
Section 41
Every registered person to provisionally take the credit of eligible input tax, as self-assessed, in his return which shall be credited in his electronic credit ledger.
Section 42(3) – Matching, reversal and reclaim of ITC
The provisions related to matching, reversal and reclaim of Input Tax credit. Section 42(3) of the CGST Act states that where the input tax credit claimed by a recipient in respect of an inward supply is in excess of the tax declared by the supplier for the same supply or the outward supply is not declared by the supplier in his valid returns, the discrepancy shall be communicated to both such persons in such manner as may be prescribed.
Section 42(5)
The amount in respect of which any discrepancy is communicated under sub-section (3) and which is not rectified by the supplier in his valid return for the month in which discrepancy is communicated shall be added to the output tax liability of the recipient, in such manner as may be prescribed, in his return for the month succeeding the month in which the discrepancy is communicated.
Is Reconciliation legally required?
Rule 69 – Matching of ITC
Prescribes details relating to the claim of input tax credit on inward supplies including imports, provisionally allowed under section 41, shall be matched under section 42 after the due date for furnishing the return in FORM GSTR-3.
Rule 71
It states that any discrepancy in the claim of input tax credit in respect of any tax period, specified in sub-section (3) of section 42 and the details of output tax liable to be added under sub-section (5) of the said section on account of continuation of such discrepancy, shall be made available to the recipient making such claim electronically in FORM GST MIS-1 and to the supplier electronically in FORM GST MIS-2 through the common portal on or before the last date of the month in which the matching has been carried out.
Condition laid down under Section 16(2)(c) is subject to the provisions of Section 41 read with Rules 69 and 71
ITC reversal mechanism as laid down in Section 41 read with Rules is kept in abeyance
On perusal of the aforesaid provisions, it can be said that there is a specific mechanism for reversing the credit in case of the
discrepancy in the ITC availed by the recipient against the output liability of the supplier. However, the mechanism has been kept in
abeyance due to some technical glitches in the GSTN System.
Is Reconciliation legally required?
• Section 16(2)(c) is arbitrary as it doesn’t differentiate between tax evaders and bonafide taxpayers
• Bonafide recipient should not be penalized for non-payment of tax by supplier
• Lex non cogit ad impossibilia: The law cannot compel the doing of impossibilities
• No mechanism to verify whether supplier has actually paid tax to the Government
• Denial of ITC to buyer due to default of supplier would tantamount to shifting the incidence of tax
from supplier to the buyer which is unconstitutional
• Buyer would pay double tax on same transaction i.e., one at the time of purchase and another at the
time of ITC reversal
• If buyer is denied ITC, it would be wholly unjustified and this causes the deprivation of the
enjoyment of the property which is violative of Article 300A of the Constitution of India
Possible Contentions
Onyx Design (Karnataka High
Haryana HC)
In the event that selling dealer fails to deposit the tax collected by him from
the purchasing dealer, the remedy for the department would be to proceed
against the selling dealer for recovery of such tax. Further, in cases where
the department is satisfied that there is collusion of purchasing and selling
dealer then proceeding under Section 40A of the DVAT Act can be initiated
It held that that no liability could be fastened on a buyer on account of non-
payment of tax by the seller in the treasury unless a case of fraud is made
out by the Revenue, or unless collusion/connivance between the seller and
buyer is established.
Judgments under VAT
It was held that “the benefit of input tax cannot be deprived to the
purchaser dealer, if the purchaser dealer satisfactorily demonstrates that
while purchasing goods, he has paid the amount of tax to the selling dealer.
If the selling dealer has not deposited the amount in full or a part thereof, it
would be for the revenue to proceed against the selling dealer.”
Jurisprudence under erstwhile indirect tax regime
It is clarified that the furnishing of outward details in
FORM GSTR-1 by the corresponding supplier(s) and the
facility to view the same in FORM GSTR-2A by the
recipient is in the nature of taxpayer facilitation
and does not impact the ability of the taxpayer to
avail ITC on self-assessment basis in consonance with
the provisions of section 16 of the Act. The
apprehension that ITC can be availed only on the
basis of reconciliation between FORM GSTR-2A
and FORM GSTR-3B conducted before the due date for
filing of return in FORM GSTR-3B for the month of
September, 2018 is unfounded as the same exercise
can be done thereafter also.
Authorities cannot initiate recovery proceedings against a purchaser of goods due to the omission to remit tax to the Government on part of the seller
Facts:
The petitioners are traders in Raw Rubber Sheets. They had purchased goods from their seller and made payments thereto,
including the tax component. Based on the returns filed by the seller, the petitioners availed input tax credit of the GST paid.
Later, during inspection by the authorities, it came to light that the seller did not pay tax to the government, however show
cause notice was issued to the petitioner. Consequently, without involving the sellers, the impugned orders came to be passed
levying the entire liability on the petitioners to reverse the credit already taken due to non-payment of tax by their seller.
Therefore, the petitioner have challenged the said impugned through this writ petition.
Held:
The Hon’ble High Court while allowing the Writ Petition, held the following:
• When it has come out that the seller has collected tax from the petitioners, the omission on part of the seller to remit the
tax in question must have been viewed seriously and strict action ought to have been initiated against them
• The impugned orders suffer from fundamental flaws of non-examination of seller in the enquiry and non-initiation of
recovery action against seller in the first place
Therefore, the impugned orders are quashed and the matter is remitted back to the file of the authorities
M/s D.Y. Beathel Enterprises vs State Tax Officer 2021-VIL-308-MAD
31
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,
1. he is in possession of a tax invoice or debit note
2. (aa) the details of the invoice or debit note referred to in
clause (a) has been furnished by the supplier in the
statement of outward supplies and such details have been
communicated to the recipient of such invoice or debit note
in the manner specified under section 37,
3. he has received the goods or services or both
4. the tax charged in respect of such supply has been actually paid to
the Government,
Amendment in Section 16(2)
Section 16 of the CGST Act provides for conditions and
restrictions subject to which the input tax credit shall be
credited to the electronic credit ledger. It would be logical to
complete this linkage of outward supplies declared by the
supplier with the tax liability, by also limiting the credit
availed in Form GSTR 3B to that reflected in GSTR 2A of
the recipient, subject to additional amount available
under the rule 36(4).
Reason for the Proposed Amendment: Extract from Agenda of 39th Council Meeting
particulars
Revise PO Terms
Section 16(2) – Where a recipient fails to pay to the supplier of goods or services or both, other than the supplies
on which tax is payable on reverse charge basis, the amount towards the value of supply of goods or services along
with the tax payable thereon, within a period of one hundred and eighty days from the date of issue of invoice by
the supplier, the amount equal to Input tax credit availed by the recipient shall be added to his output tax liability,
along with interest thereon, in such manner as may be prescribed.
The recipient shall be entitled to avail Input tax credit on payment made by him of the amount towards the value
of supply of goods or services or both along with tax payable thereon.
What does failure to pay means?
What if contract term provide that payment is to be made within 200 days from date of issuance of invoice?
Non-payment of consideration within 180 Days.
Reversal of input tax credit in case of non- payment of consideration
Failure of Payment within 180 days from the date of issue of invoice shall furnish the details of such supply, the amount of value not paid and amount of ITC availed but not paid to the supplier in FORM GSTR-2 for the month.
Provided that the value of supplies made without consideration as specified in Schedule I shall deemed to have been paid for the purpose of second proviso to sub section (2) of section 16.
As per rule 37
Rule 37(2): The amount of ITC which is not paid to the supplier shall be added to the output tax liability of the registered person for the month in which details are furnished.
Rule 37(3): The registered person shall be liable to pay interest at a rate as specified u/s 50 for the period starting from the date of availing such credit till the date when such amount is added in output tax liability is paid.
Rule 37(4): The time limit as specified u/s 16(4) shall not apply to a claim for re-availing of any credit, in accordance with the provision, that has been reversed earlier.
Reversal of Input Tax Credit
Kavungal Kooppakkattu Zeenath Vs. Mundakkattu Sulfiker Ali
“Failure means not doing something that one is expected to do”
Ram Kishore Vs. Bimla Devi and Ors. The word fails cannot connote the
meaning of voluntary refusal. These words do not give a discretion or
right to the person
Thattessara Subbaraya Vs. Chinne Gowda &Ors.
“Failure means the there is an omission on the part of the person to do something which it is possible for him to do
In Malaysian Airlines Vs. Union of India – Failure to pay means non-payment, which means failure to pay when due. In the said case, there is a penalty imposed if amount of foreign travel tax collected is not paid to the government, within fifteen days from the date of collection. It was held that failure to pay within this prescribed time frame would mean non-payment or failure to pay. If any persons fails to pay within the statutory period, then such person is well within the sweep of the words “failure to pay’’ Once the statutory period is over and breach in payment of tax is committed, then it is immaterial when the defaulter in future is making the payment. Applying the said judgement, second proviso of section 16(2) of the CGST Act should only trigger when payment is due.
Meaning of Non – Payment or failure to pay
Decision of AAR:
• AAR held that Rule 37 would not apply since Rule 37 clearly states supplies “made without consideration” as specified in Schedule 1 but in the applicant case, there is a consideration to be paid by applicant to HO as per the MOU.
• Further, AAR also observed that as per MOU applicant was not paying full consideration of the transaction to HO but was netting it off against the receivables by HO from the applicant.
• Accordingly, the applicant will not be eligible for full ITC for inward supplies from HO as they would be required to reverse such ITC in accordance to Section 16(2) and Rule 37
Decision of AAAR (overruled AAR):
We find no reason to restrict the ITC of the tax paid by the SML HO, in the hands of the appellant as it has been substantially brought out that the ‘consideration’ stands paid to the SML HO either by the customer of the Appellant or by setting off against the payables of the appellant to SML HO, in respect of lease/ hire of Cranes, etc which is as per the established accounting principles.
Thus, the appellant is eligible to avail full ITC of tax paid by SML HO on the lease/ hire of cranes to them for furtherance of business, subject to other conditions of eligibility as per Section 16.
M/s Sanghvi Movers Ltd. by Tamil Nadu AAR
Rule 37 applicable in case of supplies between distinct person?
As per Section 16(3), No ITC will be allowed if depreciation has been claimed on tax component of a capital goods
As per Section 16(4), a registered person shall not be entitled to take ITC:
After the due date of furnishing of return under section 39 (GSTR-3B) for the month of September following the end of F.Y. to which such invoice pertains or,
Furnishing of relevant annual return, whichever is earlier.
Time limit for availing ITC
Eligibility of ITC
Sep,2020 Sep,2020
respect of Invoice/Debit note can be
availed before earlier of the following
dates irrespective of date of issuance
of corresponding tax invoice:
return under Section 39 for the
month of September following the
end of financial year in which
debit note has been issued
furnishing of relevant annual
Availability of credit of Debit Note
Delinking of Debit Note with Invoice
Supplier Customer
Section 16(4) - 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 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.
Section 31(3)(f) - A registered person liable section 9(3) and 9(4) shall issue an invoice in respect of
goods or services received from unregistered supplier on the date of receipt of goods or services.
Self invoice not covered under Section 16(4), hence time limit not applicable
Availability of credit of tax paid under RCM after filing of September Return
01
02
03
04
05
06
07
State GST Act of a State allows ITC of only State GST paid in said state.
On the basis of the above, it was held that ITC of CGST paid in one state shall
not be allowed to the recipient registered in other State.
Section 8(2) provides intra-state supply to be the one where location of
supplier and place of supply are in the same State.
As per Section 9(1) CGST is levied on intra-state supply of goods or services or
both.
Central Tax is CGST levied under Section 9 of CGST Act, 2017.
Input Tax inter alia is Central Tax charged on inward supply to a registered
person.
State and Central GST goes hand in hand. If any event attracts CGST, it would
also attract SGST. From this it naturally flows that of ITC of SGST is not
admissible, ITC of CGST should also not be admissible.
Major Points
IMF Cognitive Technology Pvt Ltd – Rajasthan AAAR
Availability of CGST paid in one State to recipient registered in other State
Input Tax Credit
In Table 8A of GSTR 9, ITC, related to those invoices, where POS lies in state other than that of recipient, have been excluded .
These figures are shown in GSTR2A
Input Tax Credit (ITC)
Section 17(5)(a):
1. Motor vehicle for transportation of person having approved seating capacity of not more than 13 person Except when used for: Further supply of vehicle Transportation of passenger Training classes
Vessels and Aircraft, except when used for, Further supply Transportation of passenger Imparting training on navigation or flying of such vessel or aircraft. Transportation of goods
Section 17(5)(b):
2. Foods & beverages, outdoor catering, beauty treatment, health insurance, cosmetic & plastic surgery, renting or hiring of motor vehicle as above. Except it is used for: Making outward supply of same category of service or an element of mixed or composite supply
Blocked Credit or Ineligible ITC
3. Membership of club, health and fitness Centre (No exception)
4. Rent a cab, life insurance, health insurance except Where is obligatory by Govt. It is used for making outward supply of the same category of service or an
element of mixed or composite supply.
5. Travel benefit to employees Provided that ITC in respect such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.
6. Works contracts services when supplied for construction of immovable property (Not plant & machinery) except, Where it is an input services for further supply of works contracts
7. Goods & services received for construction of immovable property (Not plant & machinery) on his own account including when such goods/services are used in business. {Construction includes reconstruction, renovation, addition, alteration or repair to the extent of capitalization}
8. Person who made the payment of tax under composition scheme under GST law.
Blocked Credit or Ineligible ITC ( Contd.)
9. ITC cannot be availed on goods/services received by non resident taxable person except, Only goods imported by him
10. Purchase of goods for personal use.
11. Goods lost, stolen destroyed, written off or given off as gift or free sample
12. Any tax paid due to fraud cases which has resulted into – { Tax paid u/s 74,129 & 130} Non or short tax payment Excessive refund
New Provision
•Purpose specified therein
•If above services received by manufactured of such vehicles, vessel, aircrafts
•If above services received by general insurance service provider in respect of such motor vehicles
General insurance, servicing, repair & maintenance in so far
related to such vehicle, Vessels, aircraft are not allowed except if
it is used for,
• Section 17(5)(b) : Input tax credit of food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft, life insurance and health insurance, shall not be available:
• Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
The company is engaged in providing corporate training. For providing the said services, company books a venue and during the
course of the training, food is also provided to the participants.
Training provided by the company to its own
employees
Food provided during training sessions
Blocked Credit
• Section 17(5)(c) – Works Contract Services when supplied for construction of immovable property except where it is an input service for further supply of works contract service
• Section 17(5)(d) – Goods or services or both received by taxable person for construction of immovable property on his own account
ITC Availability?
Civil Work
Issue: Availment of input tax credit on construction services of shopping mall which is bared under section 17(5)(d) of CGST Act 2017.
Decision:
In that view, of the matter, in our considered opinion the provision of Section 17(5)(d) is to be
read down and the narrow restriction as imposed, reading of the provision by the Department,
is not required to be accepted,
If the assessee is required to pay GST on the rental income arising out of the investment on
which he has paid GST, it is required to have the input credit on the GST
SLP filed against the said order and pending in Supreme Court
Safari Retreats Pvt. Ltd. vs. Chief Commissioner of CGST 2019-VIL-223-ORI
HC’s order on availability of ITC on construction services which subsequently let out
A general understanding of the items such as Lift, Escalator,
Travellator, Water treatment Plant, Sewage Treatment Plant, HSD
yard, Mechanical Car Park, DG Set and, Transformers, mentioned in
the appellant's application, is that they are fixed to the earth either
by a foundation or with structural support and they qualify to be
considered as "Plant and machinery". However since they are used
for construction of shopping mall which is to be rented out, the
credit shall not be available. we hold that Chiller, Air Handling Unit,
Indoor/Outdoor Surveillance System (CCTV), electrical wiring and
fixtures, Public Health Engineering (PHE), Fire-fighting and water
management pump system do not qualify as plant or machinery
but are items which are procured for the purpose of construction of
the immovable property.
Is ITC available on furniture ?
ITC on air conditioner ?
newly constructed building ?
M/s Bahl Paper Mills AAR. Sanitory Fitting – Not allowed Air conditioner – Allowed
M/s Nipro India - AAR. Overhead crane, sewerage system and other electrical work – allowed
NMDC Lightening system – Not allowed
Case Study – Availability of Input tax Credit ?
1. Section 17(5)(g) states that credit of goods or services used for personal consumption shall not be available?
2. What does personal consumption means?
3. Rent Free Accommodation to MD – POSCO Indian Pune Processing
4. Supplies for maintenance and upkeep of guest house General Manager Ordinance Factory AAR-GST
Personal Consumption
Personal Consumption
•Input tax credit in respect of goods lost, stolen, destroyed, written off, or disposed of by way of gifts or free samples shall not be availableSection 17(5)(h)
•Free samples are small and packaged portion of merchandise distributed free, especially as an introduction to potential customers. Free Samples
•Gift ordinarily means something which is given voluntarily to other person without consideration and the donor should not derive any advantage from such gift.
•Diwali Gifts given to employees?
Gifts
•Input tax credit reversal in respect of the goods provided to dealers, free of cost, as volume discount on achievement of target
•Goods given are the one in which supplier deals?
•Goods other than those in which suppliers deals?
Volume Discount
Credit of Promotional
Shubh Labh Trade Loyalty Program: In this scheme, the
distributors/whole sellers earn reward points basis the quantity of
goods purchased and goods sold by them. These points can then be
redeemed in the form of items, to be selected basis the availability of
the product and reward points earned.
Brand Reminder: As an advertisement tool, the company distributes
products like pen, notepad, key chains etc. with their name engraved
on it, for the purpose of their brand promotion
Credit of Promotional Items
Karnataka AAR
is not available as it is similar to gift.
The taxpayer is not eligible to avail ITC on the
inward supplies of goods and services given as
incentives in the form of gifts of goods and
services to its dealers. Moreover, the AAR
observed that free travel services provided to
its dealers without consideration would not
qualify as ‘supply’
No ITC is required to be reversed
where post sales discount is given by
issuance of commercial credit note.
M/s Polycab Wires Pvt Ltd Kerala AAR
ITC not available on goods
distributed free of cost as
part of CSR Expenses
“Bonus” articles offered free by the manufacturer are not really given away free, but their price is distributed over the price of the other goods which are charged for and supply of free items is a sales gimmick.
Mapra Laboratories Pvt. Ltd. vs State of Bihar
Bombay Latex & Dispersions Pvt Ltd. vs. CCE
M/s Mahavir Enterprises (India) Ltd. vs. State of A.P., [2002] 34 APSTJ 72
Buy One Get One
as scrap
or condition
As per Section 17(5)(h) of the CGST Act If goods are lost, stolen, destroyed, written off or disposed of by way of gift or free samples, input tax credit claimed on such goods is required to be reversed.
ITC ?
Owing to COVID-19 outbreak, there have been number of indicators for impairing assets triggering testing of the assets for impairment. Thereby, most of the companies shall be required to impair their assets as per the relevant Accounting Standards.
Schedule I – Permanent transfer or disposal of business assets where input tax credit has been availed on such assets will be treated as supply.
Impact of GST in case of impairment as per the CGST Act,2017
Impairment of assets
Disposal of assets ? Dispose off means to get rid of something
ITC REVERSAL ON ACCOUNT OF IMPAIRMENT OF ASSETS OWING TO COVID-19..??
Impairment of assets
of something
ITC REVERSAL ON ACCOUNT OF IMPAIRMENT OF ASSETS OWING TO COVID-19..?? (Contd.)
Where goods or services or both are used by registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purpose of his business.
Where the goods or services or both are used by the reg. person partly for effecting taxable supplies including zero-rated supplies and partly for exempt supplies, the amount of credit shall be restricted to so much of input as is attributable to the taxable supplies including zero-rated supplies.
Where the goods / services are used by registered person for taxable supplies as well as exempt supplies , ITC shall be allowed on inputs / capital goods but subsequently ITC on exempt goods or goods are being used for non business purpose / personal purpose, ITC shall be reversed on the basis of turnover.
Section 17(3)
Section 17(1)
Section 17(2)
Apportionment of ITC of Input Rule 42
In cases wherein the ITC is allowed but subsequently proportionate amount relating to exempt supplies shall be reversed on the basis of turnover.
Apportionment of ITC of Capital Goods
Rule 43
In cases wherein ITC on capital goods availed in the beginning but proportionate amount of ITC shall be reversed every month on the basis of turnover. NOTE: Life of every
capital goods shall be taken to be 60 months
Rule 42 and 43 of CGST Rules, 2017
Manner of Reversal of ITC
1
Section 17 of the CGST Act restricts the Input tax credit on goods or services or both to so much of the input tax as is attributable to the taxable supplies including zero rated- supplies made for the purpose of business.
The manner of reversal of Input tax credit is stated in the CGST Rules, 2017: • Rule 42 – Reversal of credit received on Inputs and Input services • Rule 43 – Reversal of credit received on Capital Goods
Important to note:
• The reversal of ITC to be done in every tax period.
• Total Input Tax Credit & Reversal of ITC to be declared in GSTR 3B for the said Tax period.
• At the year end, the reversal of ITC for the financial year to be calculated; and any short/excess reversal
to be paid/claimed in GSTR 3B.
• Reversal is to be calculated separately for CGST, SGST, IGST and CESS.
ITC Reversal- Rule 42/43
Illustration:
S.No ITC on Input & Input Services (Rule-42) CGST SGST IGST Total
T Total Amount of Input Tax Credit 1,00,000 1,00,000 2,00,000 4,00,000
T1 Out of A, ITC -exclusively for Non Business purpose 3,000 3,000 5,000 11,000
T2 Out of A, ITC -exclusively for exempted Supply 7,000 7,000 20,000 34,000
T3 Out of A, ITC ineligible under sec 17(5) 5,000 5,000 25,000 35,000
C1 Amount to be credited to electronic credit ledger {T-(T1+T2+T3)} 85,000 85,000 1,50,000 3,20,000
T4 ITC -exclusively for Taxable supplies, including Zero Rated 70,000 70,000 1,25,000 2,65,000
C2 Common Input Tax Credit (C1-T4) 15,000 15,000 25,000 55,000
D1 Out of G input tax credit attributable to exempted supply {C2×(E÷F)} 1,132 1,132 1,887 4,151
D2 Common Input tax credit used for non business purpose {C2×5%} 750 750 1,250 2,750
Eligible Common Credit 13,118 13,118 21,863 48,099
Total Input tax credit required to be reversed T1+T2+T3+D1+D2 16,882 16,882 53,137 86,901
Total eligible Input tax credit 83,118 83,118 1,46,863 3,13,099
Assumptions Amount
Taxable Supplies Supplies during the period F1 22,00,000
Zero-rated Supplies during the period F2 2,50,000
Total Taxable Turnover F= (F1+F2) 24,50,000
Total Turnover (E+F) 26,50,000
Whether Exempt supply includes:
• Securities
Reversal on Capital Goods is to be done over 5 years
ITC Reversal- Rule 42/43
Transaction • The company is engaged in generation of electricity. Electricity
generated by the company is used for both captive consumption and supplying to other person
Erstwhile Law
• Reversal required to done on the basis of units consumed
GST • Reversal on the basis of units or turnover?
Case Study
• Turnover of company (Supply of steel) : 100 crores
• Value of exempt supply/turnover in respect of supply of electricity : 1 crores
• Ratio of units consumed – Captive Consumption : Supply = 50:50
• Common Credit – 10 lacs
ITC Reversal on Electricity Consumption
1 Total Cost of construction of the project
100
10
3
5 Area unsold on date of OC 33%
Reversals
7 ITC (GST) to be reversed on receipt of OC
3*33% = 1
Invoice issued by non-existent person or person not conducting business
ITC taken without receipt of goods or services
Tax charged in respect of supply against which ITC taken has not been paid to the Government
Person availing tax found to be non-existent
Person not in possession of tax invoice
Credit shall be blocked where officer has reason to believe that
credit fraudulently availed.
Industries vs UOI
Need of ISD :
• The provisions of section 16 of CGST Act provides that, no registered person shall be entitled to a credit in respect of any supply of goods or services or both to him unless, 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.
• Therefore, in such case, although the services are received by various branches it would not be possible for such establishments to claim the credit, as the invoice will be issued in the name of head office of such person . The head office also cannot avail the credit as they are not actual recipient of such inward services. So, the concept of ISD was introduced.
ITC DISTRIBUTION
HEAD OFFICE
DELHI BRANCH
KOLKATA BRANCH
CHENNAI BRANCH
ISD
(i) An office of the supplier of goods or services or both.
(ii) The said office receives tax invoices
towards the receipt of input services.
(iii) The said office distributes the credit of
GST paid on the said services to the supplier
having the same PAN as that of the office.
(iv) The said office issues tax invoice or
other prescribed document for the
purpose of distribution of credit.
Section 2 (61) of CGST Act, 2017
Definition
Section 24
• Application for Registration by Input Service Distributor [Rule 8(1) of CGST rules,2017]
Every person being an Input Service Distributor shall make a separate application for registration as such Input Service Distributor. There is no threshold limit for registration for an ISD. An ISD is required to obtain a separate registration even though it may be otherwise registered, though the application shall be made in Form GST REG 01 only. Different offices like marketing division, security division etc. may apply for separate ISD registration. Since the services relate to other locations the corresponding credit should be transferred to such locations (having separate registrations) as the output services are being provided there.
Registration of ISD under GST
Section 20(1)
The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed. i.e.
CGST as CGST or IGST &
IGST as IGST or CGST
Manner of Distribution of Credit by ISD
(a)The credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;
(b) The amount of the credit distributed shall not exceed the amount of credit available for distribution;
(c) the credit of tax paid on input services attributable to a recipient of credit, shall be distributed only to that recipient;
(d) the credit on input service is attributable to more than one recipient, credit is to be distributed among the recipients on pro rata basis of the turnover of such recipients in
their state during the relevant period to the aggregate of the turnover of all such recipients as applicable
(e) the credit on input service is attributable to all recipients, credit is to be distributed among the recipients on pro rata basis of the turnover of such recipients in their state
during the relevant period to the aggregate of the turnover of all such recipients as applicable
The Input Service Distributor may
distribute the credit subject to the
following conditions, namely:–
Conditions for Distribution of Credit(Contd.)
Explanation : Section 20(2) (i) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year;
“Relevant Period” OOR
(ii) if some or all recipients of the credit do not have any turnover in
their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed;
Conditions for Distribution of Credit (Contd.)
Explanation : Section 20(2)
The term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.
Conditions for Distribution of Credit (Contd.)
Section 21
Where the Input Service Distributor distributes the credit in contravention of the provisions contained in section 20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipients along with interest, and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of amount to be recovered.
Manner of recovery in case of excess Distribution
Section 39 Every taxable person registered as an Input Service Distributor shall, for every calendar month or part thereof, furnish, in such form and manner as may be prescribed, a return, electronically, within thirteen days after the end of such month.
Return Type Frequency Due Date Details to be Furnished
Form GSTR 6 Monthly 13th of succeeding month
Furnish the details of input credit distributed
Form GSTR 6A Monthly On 11th of succeeding month
Details of inward supplies made available to the ISD Recipient on the basis of form GSTR 1 furnished by supplier.
Return Forms under GST
Distribution by filing
FORM GSTR- 6
Issuance of only ISD
C1 = (t1÷T) × C
where, R1 : Recipient of ITC, C1 : Total ITC to be distributed to R1 C : Amount of credit to be distributed, t1 : turnover of R1 during the relevant period, T : aggregate turnover, during the relevant period, of all recipients to whom ITC is attributable
Rule 39 of CGST Rules
CGST, SGST OR UTGST CREDIT
Whether recipient located in the same State or Union territory in
which the Input Service Distributor is located
YES : Distribute CGST, SGST OR
UTGST
EVERY RECEPIENT
Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business
Case 2: Supply between Establishments of one person located in two or more states.
Case 1: Supply between 2 different GSTN located in one or more states or union territories.
XYZ, Delhi GSTN - 1 XYZ, Gujarat GSTN - 2
XYZ H.O. Delhi XYZ, Project office in U.P.
Concept of distinct Persons:
Since one registration is to be considered as distinct person from other registration, company shall treat the registration supplying services as normal vendor of the recipient. In case company is not paying its vendor anything because of force majeure clause, the same
shall apply to different registration of company as well and no requirement of cross charge shall arise.
Concept of Cross Charge
First proviso: Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person
Second proviso: Provided further that where the recipient is eligible to full ITC, the value declared in the invoice shall be deemed to be the Open market value of the goods or services.
Be the Open Market Value of the supply.
If the open market value is not available, be the value of supply of goods or services of like kind and quality
If value is not determinable under clause (a) or clause (b), be the value as determined by the application of rule 30 or rule 31, in that order.
Rule 28 – Supplies between distinct/related persons
Rule 31 Reasonable
Means
“A supplier of service can disregard Rule 30 and can apply Rule 31”
Where value cannot be determined as per previous rules
As per Section 7(1)(c) & section 25 of CGST Act, any supply among distinct persons is considered as GST supply if made in course of business. This concept is often denoted by the concept of “Cross Charge”.
Example :
• ABC India has a plant at Maharashtra, and representative offices at Delhi, Chennai and Kolkata which are only engaged in marketing activities. All supplies are being done directly from Plant at Maharashtra to customers across India.
• In this case, Input tax credit of CGST & SGST in respect of services obtained at local offices at Delhi, Chennai and Kolkata shall be accumulated in their respective GSTINs leading to blockage of ITC. Thus, by adopting cross charge mechanism, such offices can raise invoices on their plant at Maharashtra in respect of providing business support services and consequently, accumulated ITC at these offices will be rightfully and efficiently utilised.
MAHARASHTRA PLANT
HEADOFFICES
Depreciation of Assets at
experience in leading firms (LKS and Big 4s)
Team of more than 40 people
Presence in 3 metro cities: Delhi/NCR,
Mumbai and Bangalore
across various sectors

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