Input Tax Credit under GST (ITC).
In this article we discuss about following Sections along with the rules.
1) Section 16 (Read with rule 36 & rule 37)
2) Section 17 (Read with rule 38 & rule 42 & rule 43)
3) Section 18 (Read with rule 40 & rule 41 & rule 44)
4) Section 19 (Read with rule 45)
5) Rule 41A
Kindly note that in this article the word ITC means ITC in relation to goods or service or both. (if the ITC on capital goods is not available then it has been separately mentioned)
Before understanding the Provisions & rules related to ITC under GST, We need to know the following Definitions,
DEFINITION:-
Goods:- As per the Section 2(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Capital Goods:- As per the 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.
Input:- As per the Section 2(59) “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
Input Service:- As per the Section 2(60) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business.
Input Tax:- As per the Section 2(62) “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him, but does not include the tax paid under the composition levy.
Input Tax Credit:- As per the Section 2(63) “input tax credit” means the credit of input tax.
Exempt Supply:- As per Section 2(47) “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.
Non-taxable supply:- As per Section 2(78) “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act.
As per Section 9 of CGST Act, 2017 following goods are non taxable,
- Petrol
- High speed diesel
- Natural gas
- Petroleum crude
- Aviation turbine fuel
- Alcoholic liquor for human consumption
Works contract:- As per the Section 2(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
Motor vehicle:- As per Section 2(28) Motor vehicle Act, 1988, “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding [twenty-five cubic centimetres].
Plant and machinery:- “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.
From the above definition of goods & capital goods & Input we concluded that Input means only goods (not capital goods) where as goods include capital goods also. Hence if law mention the word ITC on goods that means ITC shall be available for goods as well as capital goods, However if law mention the word ITC on input that means ITC shall be available for goods only but not capital goods unless and until specify the word capital goods separately.
CONDITIONS AND RESTRICTIONS FOR TAKING ITC (Section 16 of CGST Act, 2017 and Rule 36 & rule 37):-
A persons are eligible to claim credit of input tax in relation to goods or service or both subject to following conditions,
1) A person is registered under GST Act, 2017.
2) Such supply of goods or service or both must be use or intended to be use by registered person for furtherance of his business.
3) A registered person must be in possession of a tax invoice or debit note issued by a registered supplier or such other tax paying documents as mentioned in rule 36 of CGST Act, 2017.
As per rule 36 following documents are required for claiming of ITC,
(a) Tax invoice issued by supplier.
(b) Tax invoice issued by recipient of supplier under RCM.
(c) Debit note issued by supplier.
(d) Bill of entry in case of Import.
(e) ISD invoice & ISD Credit Note issued by the ISD.
4) He has received the goods or services or both.
5) A registered person can claim input tax credit for eligible supply only & tax on such eligible supply should be paid by registered supplier.
6) Registered supplier has furnished the return under section 39.
7) Where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment.
8) An amount of such supply & tax payable thereon must be paid by Registered person to registered supply within 180 days from the date of issue of invoice by the supplier (other than the supplies on which tax is payable on reverse charge basis). If registered person fails to pay such amount within prescribed time then an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon. However he can re-claim the credit on a day when he make the payment of such supply.
As per Rule 37, Such ITC shall be added to his output tax liability in the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice. Further Interest @18% will also be paid by registered person for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability.
Rule 37 further provides that,
(i) The value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid.
(ii) As per Section 15(2)(b) Value of taxable supply shall include amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both, then such amount shall be deemed to have been paid.
9) 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.
10) 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.
11) Availability of ITC will be subject to Such tax invoice & Debit note furnished by supplier in GSTR-2. (As per Rule 36)
12) No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts. (As per Rule 36)
13) Input tax credit 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, shall not exceed 10 per cent(10%) of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers. (As per rule 36)
However such restriction shall not apply to IGST on import & credit note issued by supplier.
APPORTIONMENT OF ITC & BLOCK OF ITC (Section 17 of CGST Act, 2017 and rule 38 & rule 42 & rule 43):-
(A) Apportion:-
1) If ITC, in relation to goods or service or both, used by registered person partly for business purpose and partly for other purpose or partly for effecting taxable supply (including zero-rated supplies) and partly for effecting exempt supplies then he can claim ITC which are attributable to the purposes of his business or taxable supplies (including zero-rated supplies.)
2) Banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either claim ITC which are attributable to the taxable supplies (including zero-rated supplies) or avail of, every month, an amount equal to fifty per cent. of the eligible ITC in that month and the rest shall lapse. (However option of 50% shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.)
Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year.
As per rule 38, banking company or a financial institution including a non-banking financial company who avail the option to claim 50% of credit need to comply following procedure,
(a) The said company or institution shall not avail the credit of,
(i) The tax paid on inputs and input services that are used for non-business purposes; and
(ii) The block of credit as specified in Section 17 of CGST Act, 2017.
(b) Fifty per cent. (50%) of the remaining amount of input tax shall be the input tax credit admissible to the company or the institution.
(c) The said company or institution shall avail the credit of tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.
Manner of determination of input tax credit in respect of inputs or input services and reversal thereof. (Rule 42 of CGST Act, 2017.):-
Rule 42 will be explained by following example.
Total Credit (T):- 1,00,000/-
ITC for Non business purpose (T1):- 10,000/-
ITC for Exempt Supply (T2):- 7,500/-
Ineligible ITC {Section 17(5)} (T3):- 5,000/-
ITC for Business purpose (T4):- 70,000/-
Common ITC (C2):- {T-(T1+T2+T3+T4)} will be Rs. 7,500/-
Exempted Supply (ES):- 20,00,000/-
Total T/o in State (TT):- 1,00,00,000/-
ITC Partly used for non business purpose out of common credit (5% of C2, if non known). (D2):-375/-
ITC Partly used for Exempt supply out of common credit (D1):- {C2*ES/TT} will be Rs. 1,500/-
Common Credit Available (C3):- {C2-(D1+D2)} will be Rs. 5,625/-
Total credit available for off set liability:- {T4+C3} will be Rs. 75,625/-
Final Settlement of ITC for rule 42:-
a) "C3" shall be again calculated for the entire year in any month not later than the month of September following the end of the financial year to which such credit relates.
b) Where the aggregate of the amounts calculated finally in respect of "C3" for entire year exceeds the aggregate of the amounts determined in respect of "C3" during the year then such excess shall be claimed as credit by the registered person in his return for a month not later than the month of September following the end of the financial year to which such credit relates.
c) Where the aggregate of the amounts calculated finally in respect of "C3" for entire year dows does not exceeds the aggregate of the amounts determined in respect of "C3" during the year such short fall shall be reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03 in the month not later than the month of September following the end of the financial year to which such credit relates and the said person shall be liable to pay interest on the said short fall amount at the rate 18% for the period starting from the first day of April of the succeeding financial year till the date of payment.
Manner of determination of input tax credit in respect of capital goods and reversal thereof. (Rule 43 of CGST Act, 2017.)
Rule 43 will be explained as under.
Total ITC on Capital goods (T):- XXXX
(-) ITC on CG used for exclusively non-business or Exempted supply:- (XXXX)
(-) ITC on CG used for Taxable supplies:- (XXXX)
Net Common credit of ITC on CG (TC):- XXXX
(Available equally every month for 60 months i.e. useful life shall be 5 years from date of invoice.)
(-) Credit attributable to exempt supply (TE):- (XXXX)
(Reverse every month for 60 months)
Formula for TE:- TC*{Exempted supply (ES) / Total Turn over (TT)}
*Change of use of CG from exempt / non business to common use or vice versa, reduce ITC of CG by 5% / quarter.
For the Purpose of rule 42 & rule 43 Exempt Supply shall include,
(a) Supplies on which the recipient is liable to pay tax on reverse charge basis.
(b) Transactions in securities. (The value of security shall be taken as one per cent. of the sale value of such security.)
(c) Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
For the Purpose of rule 42 & rule 43 Exempt Supply shall exclude,
(a) Activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.
(b) The value of services by way of accepting deposits, extending loans or advances in so far as the consideration is represented by way of interest or discount, except in case of a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances.
(c) The value of supply of services by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India.
Aggregate value of Exempt supplies & Total T/o shall exclude Excise, VAT Etc. Alcohol, Petrolium products Etc.
IF TT & ES is not available during tax period then registered person shall take TT & ES for earlier tax period.
(B) Block of Credit:-
A registered person can not avail the ITC on following activities even if he satisfied all the conditions mentioned above.
1) 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.
2) 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 the purpose of Point (1) & (2) “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.
3) Goods or services or both on which tax has been paid under section 10.
4) Goods or services or both received by a non-resident taxable person except on goods imported by him.
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) Any tax paid in accordance with the provisions of sections 74, 129 and 130. (74= ITC availed by fraud, 129=Detention, seizure of goods & conveyance, 130=Confiscation of goods & Conveyance)
8) Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons including the driver {Including Services of general insurance, servicing, repair and maintenance} and {leasing, renting or hiring of motor vehicles}, except when they are used for making the following taxable supplies,
(a) Further supply of such motor vehicles.
(b) Transportation of passengers.
(c) Imparting training on driving such motor vehicles.
(d) Leasing, renting or hiring of motor vehicles.
9) Vessels and aircraft {Including Services of general insurance, servicing, repair and maintenance} and {leasing, renting or hiring of vessels or aircraft}, except when they are used,
(a) For transportation of goods.
(b) Transportation of passengers.
(c) Further supply of such vessels or aircraft.
(d) Imparting training on navigating such vessels.
(e) Imparting training on flying such aircraft.
(f) Leasing, renting or hiring of vessels or aircraft.
However ITC in respect of such services shall be available if such ITC received by taxable person engaged in the manufacture of such motor vehicles, vessels or aircraft or in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him.
10) Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance.
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.
11) Membership of a club, health and fitness center.
Provided that the input tax credit in respect of 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.
12) Travel benefits extended to employees on vacation such as leave or home travel concession.
Provided that the input tax credit in respect of 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.
AVAILABILITY OF CREDIT IN SPECIAL CIRCUMSTANCES (Section 18 of CGST Act, 2017 and rule 40 & rule 41 & rule 44 ):-
1) Person who is mandatory required to registered under GST Act, 2017,
(a) ITC:- Inputs held in stock and inputs contained in semi-finished or finished goods held in stock. (Not for Capital goods)
(b) Time:- On the day immediately preceding the date from which he becomes liable to pay tax under the act.
2) Person who voluntarily registered under GST Act, 2017,
(a) ITC:- Inputs held in stock and inputs contained in semi-finished or finished goods held in stock. (Not for Capital goods)
(b) Time:- On the day immediately preceding the date of grant of registration.
3) where any registered person ceases to pay tax under section 10 (i.e Composition Scheme),
(a) ITC:- Inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods.
(b) Time:- 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 5% for every quarter or part thereof from the date of the issue of the invoice for such goods (As per Rule 40).
4) Where an exempt supply of goods or services or both by a registered person becomes a taxable supply,
(a) ITC:- 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.
(b) On the day immediately preceding the date from which such supply becomes taxable.
Provided that the credit on capital goods shall be reduced by 5% for every quarter or part thereof from the date of the issue of the invoice for such goods (As per Rule 40).
However ITC specified in Point No. 1 to 4 shall not be available after the expiry of one year from the date of issue of tax invoice relating to such supply.
Rule 40 of CGST Act, 2017 specified the manner of claiming credit for all above mentioned point i.e. Point 1 to Point 4,
(I) The registered person shall within a period of thirty days from the date of becoming eligible to avail the input tax credit, file Form GST ITC-01 specifying inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods,
- Held on the day immediately preceding the date from which he becomes liable to pay GST.
- Held on the day immediately preceding the date of the grant of registration.
- Held on the day immediately preceding the date from which he becomes liable to pay tax under normal provision instead of Composition.
- Held on the day immediately preceding the date from which exempt supplies becomes taxable.
(II) Form ITC-01 to be certified by practicing CA/Cost Accountant if claim of CGST, SGST, IGST, exceeds Rs. 2 Lakhs.
(III) ITC claimed shall be certified with GSTR-1 of supplier in case of Pint No. 3 & 4.
5) Where there is a change in the constitution of a registered person on account of sale, merger, demerger, 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 unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business.
As per Rule 41 of CGST Act, following procedure shall be comply in case of transfer of business (As per Circular No. 96/15/2019 Dt. 28.03.2019 clarify that transfer of business includes transfer by reason of death of proprietor) and hence following procedure shall also be applicable in this case also.
(I) Registered transferor shall file Form GST ITC-02 with request to transfer unutilized ITC lying in electronic credit ledger to transferee.
(II) In case of de-merger, ITC to be apportioned in ratio of value of assets of new units specified in demerger scheme.
(III) Transferor to sumbit certificate from practicing CA/Cost Accountant that sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.
(IV) Transferee shall accept ITC-02 on common portal. Upon such acceptance the un-utilized credit shall be credited to his electronic credit ledger.
(V) Inputs & Capital goods transferred to be accounted for by the transferee in his books of accounts.
Rule 41A provides Transfer of credit on obtaining separate registration for multiple places of business within a State or Union territory.
(I) A registered person who has obtained separate registration for multiple places of business and who intends to transfer, either wholly or partly, the unutilised input tax credit lying in his electronic credit ledger to any or all of the newly registered place of business, shall furnish within a period of thirty days from obtaining such separate registrations, the details in FORM GST ITC-02A electronically on the common portal.
(II) Input tax credit shall be transferred to the newly registered entities in the ratio of the value of assets held by them at the time of registration.
(III) The newly registered person (transferee) shall, on the common portal, accept the details so furnished by the registered person (transferor) and, upon such acceptance, the unutilised input tax credit shall be credited to his electronic credit ledger.
6) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both 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.
7) 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,
1) The input tax credit taken on the said capital goods or plant and machinery reduced by 5% for every quarter or part thereof from the date of the issue of the invoice for such goods (As per Rule 40) or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.
2) The input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years. (Rule 44)
Illustration:
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= C
Input tax credit attributable to remaining useful life= C multiplied by 5/60
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.
Manner of reversal of credit under special circumstances (Rule 44):-
Rule 44 deal with reversal of the amount of input tax credit relating to inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock by,
1) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly exempt {Section 18(4)}
2) Every registered person whose registration is cancelled {Section 29(5)}
Reversal of Input:-
(a) If Invoice available:- Inputs held in stock and inputs contained in semi-finished and finished goods held in stock, the input tax credit shall be calculated proportionately on the basis of the corresponding invoices on which credit had been availed by the registered taxable person on such inputs.
(b) If Invoice not available:- The registered person shall estimate the amount based on the prevailing market price of the goods on the effective date of the occurrence of any of the events specified in sub-section (4) of section 18 or, as the case may be, sub-section (5) of section 29.
Reversal of Capital Goods:-
(a) Capital goods held in stock, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.
Illustration:
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= C
Input tax credit attributable to remaining useful life= C multiplied by 5/60
The amount determined shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03, where such amount relates to any event specified in sub-section (4) of section 18 and in FORM GSTR-10, where such amount relates to the cancellation of registration.
The details furnished by registered person shall be duly certified by a practicing chartered accountant or cost accountant.
TAKING OF ITC IN RESPECT OF INPUT & CAPITAL GOODS SENT FOR JOB WORK (Section 19 of CGST Act, 2017 and rule 45):-
1) Principal can avail the ITC in respect of Input & Capital goods which was sent to job worker for job work even if such input & capital goods transfer directly to the job worker for job work without being first brought to his place of business.
2) Where the inputs 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 143 within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out.
3) Where the capital goods sent for job work are not received back by the principal within a period of three 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.
4) One year or three year provision shall not be applied to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.
Conditions and restrictions in respect of inputs and capital goods sent to the job worker (Rule 45):-
1) The inputs, semi-finished goods or capital goods shall be sent to the job worker under the cover of a challan issued by the principal, including where such goods are sent directly to a job-worker.
2) where the goods are sent from one job worker to another job worker, the challan may be issued either by the principal or the job worker sending the goods to another job worker.
3) The challan issued by the principal may be endorsed by the job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
4) The challan endorsed by the job worker may be further endorsed by another job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
5) The details of challans in respect of goods dispatched to a job worker or received from a job worker during a quarter shall be included in FORM GST ITC-04 furnished for that period on or before the twenty-fifth day of the month succeeding the said quarter. (GST ITC-04 Shall not include details of goods sent from one job worker to another).
1) Section 16 (Read with rule 36 & rule 37)
2) Section 17 (Read with rule 38 & rule 42 & rule 43)
3) Section 18 (Read with rule 40 & rule 41 & rule 44)
4) Section 19 (Read with rule 45)
5) Rule 41A
Kindly note that in this article the word ITC means ITC in relation to goods or service or both. (if the ITC on capital goods is not available then it has been separately mentioned)
Before understanding the Provisions & rules related to ITC under GST, We need to know the following Definitions,
DEFINITION:-
Goods:- As per the Section 2(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Capital Goods:- As per the 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.
Input:- As per the Section 2(59) “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
Input Service:- As per the Section 2(60) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business.
Input Tax:- As per the Section 2(62) “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him, but does not include the tax paid under the composition levy.
Input Tax Credit:- As per the Section 2(63) “input tax credit” means the credit of input tax.
Exempt Supply:- As per Section 2(47) “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.
Non-taxable supply:- As per Section 2(78) “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act.
As per Section 9 of CGST Act, 2017 following goods are non taxable,
- Petrol
- High speed diesel
- Natural gas
- Petroleum crude
- Aviation turbine fuel
- Alcoholic liquor for human consumption
Works contract:- As per the Section 2(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
Motor vehicle:- As per Section 2(28) Motor vehicle Act, 1988, “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding [twenty-five cubic centimetres].
Plant and machinery:- “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.
From the above definition of goods & capital goods & Input we concluded that Input means only goods (not capital goods) where as goods include capital goods also. Hence if law mention the word ITC on goods that means ITC shall be available for goods as well as capital goods, However if law mention the word ITC on input that means ITC shall be available for goods only but not capital goods unless and until specify the word capital goods separately.
CONDITIONS AND RESTRICTIONS FOR TAKING ITC (Section 16 of CGST Act, 2017 and Rule 36 & rule 37):-
A persons are eligible to claim credit of input tax in relation to goods or service or both subject to following conditions,
1) A person is registered under GST Act, 2017.
2) Such supply of goods or service or both must be use or intended to be use by registered person for furtherance of his business.
3) A registered person must be in possession of a tax invoice or debit note issued by a registered supplier or such other tax paying documents as mentioned in rule 36 of CGST Act, 2017.
As per rule 36 following documents are required for claiming of ITC,
(a) Tax invoice issued by supplier.
(b) Tax invoice issued by recipient of supplier under RCM.
(c) Debit note issued by supplier.
(d) Bill of entry in case of Import.
(e) ISD invoice & ISD Credit Note issued by the ISD.
4) He has received the goods or services or both.
5) A registered person can claim input tax credit for eligible supply only & tax on such eligible supply should be paid by registered supplier.
6) Registered supplier has furnished the return under section 39.
7) Where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment.
8) An amount of such supply & tax payable thereon must be paid by Registered person to registered supply within 180 days from the date of issue of invoice by the supplier (other than the supplies on which tax is payable on reverse charge basis). If registered person fails to pay such amount within prescribed time then an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon. However he can re-claim the credit on a day when he make the payment of such supply.
As per Rule 37, Such ITC shall be added to his output tax liability in the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice. Further Interest @18% will also be paid by registered person for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability.
Rule 37 further provides that,
(i) The value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid.
(ii) As per Section 15(2)(b) Value of taxable supply shall include amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both, then such amount shall be deemed to have been paid.
9) 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.
10) 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.
11) Availability of ITC will be subject to Such tax invoice & Debit note furnished by supplier in GSTR-2. (As per Rule 36)
12) No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts. (As per Rule 36)
13) Input tax credit 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, shall not exceed 10 per cent(10%) of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers. (As per rule 36)
However such restriction shall not apply to IGST on import & credit note issued by supplier.
APPORTIONMENT OF ITC & BLOCK OF ITC (Section 17 of CGST Act, 2017 and rule 38 & rule 42 & rule 43):-
(A) Apportion:-
1) If ITC, in relation to goods or service or both, used by registered person partly for business purpose and partly for other purpose or partly for effecting taxable supply (including zero-rated supplies) and partly for effecting exempt supplies then he can claim ITC which are attributable to the purposes of his business or taxable supplies (including zero-rated supplies.)
2) Banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either claim ITC which are attributable to the taxable supplies (including zero-rated supplies) or avail of, every month, an amount equal to fifty per cent. of the eligible ITC in that month and the rest shall lapse. (However option of 50% shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.)
Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year.
As per rule 38, banking company or a financial institution including a non-banking financial company who avail the option to claim 50% of credit need to comply following procedure,
(a) The said company or institution shall not avail the credit of,
(i) The tax paid on inputs and input services that are used for non-business purposes; and
(ii) The block of credit as specified in Section 17 of CGST Act, 2017.
(b) Fifty per cent. (50%) of the remaining amount of input tax shall be the input tax credit admissible to the company or the institution.
(c) The said company or institution shall avail the credit of tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.
Manner of determination of input tax credit in respect of inputs or input services and reversal thereof. (Rule 42 of CGST Act, 2017.):-
Rule 42 will be explained by following example.
Total Credit (T):- 1,00,000/-
ITC for Non business purpose (T1):- 10,000/-
ITC for Exempt Supply (T2):- 7,500/-
Ineligible ITC {Section 17(5)} (T3):- 5,000/-
ITC for Business purpose (T4):- 70,000/-
Common ITC (C2):- {T-(T1+T2+T3+T4)} will be Rs. 7,500/-
Exempted Supply (ES):- 20,00,000/-
Total T/o in State (TT):- 1,00,00,000/-
ITC Partly used for non business purpose out of common credit (5% of C2, if non known). (D2):-375/-
ITC Partly used for Exempt supply out of common credit (D1):- {C2*ES/TT} will be Rs. 1,500/-
Common Credit Available (C3):- {C2-(D1+D2)} will be Rs. 5,625/-
Total credit available for off set liability:- {T4+C3} will be Rs. 75,625/-
Final Settlement of ITC for rule 42:-
a) "C3" shall be again calculated for the entire year in any month not later than the month of September following the end of the financial year to which such credit relates.
b) Where the aggregate of the amounts calculated finally in respect of "C3" for entire year exceeds the aggregate of the amounts determined in respect of "C3" during the year then such excess shall be claimed as credit by the registered person in his return for a month not later than the month of September following the end of the financial year to which such credit relates.
c) Where the aggregate of the amounts calculated finally in respect of "C3" for entire year dows does not exceeds the aggregate of the amounts determined in respect of "C3" during the year such short fall shall be reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03 in the month not later than the month of September following the end of the financial year to which such credit relates and the said person shall be liable to pay interest on the said short fall amount at the rate 18% for the period starting from the first day of April of the succeeding financial year till the date of payment.
Manner of determination of input tax credit in respect of capital goods and reversal thereof. (Rule 43 of CGST Act, 2017.)
Rule 43 will be explained as under.
Total ITC on Capital goods (T):- XXXX
(-) ITC on CG used for exclusively non-business or Exempted supply:- (XXXX)
(-) ITC on CG used for Taxable supplies:- (XXXX)
Net Common credit of ITC on CG (TC):- XXXX
(Available equally every month for 60 months i.e. useful life shall be 5 years from date of invoice.)
(-) Credit attributable to exempt supply (TE):- (XXXX)
(Reverse every month for 60 months)
Formula for TE:- TC*{Exempted supply (ES) / Total Turn over (TT)}
*Change of use of CG from exempt / non business to common use or vice versa, reduce ITC of CG by 5% / quarter.
For the Purpose of rule 42 & rule 43 Exempt Supply shall include,
(a) Supplies on which the recipient is liable to pay tax on reverse charge basis.
(b) Transactions in securities. (The value of security shall be taken as one per cent. of the sale value of such security.)
(c) Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
For the Purpose of rule 42 & rule 43 Exempt Supply shall exclude,
(a) Activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.
(b) The value of services by way of accepting deposits, extending loans or advances in so far as the consideration is represented by way of interest or discount, except in case of a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances.
(c) The value of supply of services by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India.
Aggregate value of Exempt supplies & Total T/o shall exclude Excise, VAT Etc. Alcohol, Petrolium products Etc.
IF TT & ES is not available during tax period then registered person shall take TT & ES for earlier tax period.
(B) Block of Credit:-
A registered person can not avail the ITC on following activities even if he satisfied all the conditions mentioned above.
1) 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.
2) 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 the purpose of Point (1) & (2) “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.
3) Goods or services or both on which tax has been paid under section 10.
4) Goods or services or both received by a non-resident taxable person except on goods imported by him.
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) Any tax paid in accordance with the provisions of sections 74, 129 and 130. (74= ITC availed by fraud, 129=Detention, seizure of goods & conveyance, 130=Confiscation of goods & Conveyance)
8) Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons including the driver {Including Services of general insurance, servicing, repair and maintenance} and {leasing, renting or hiring of motor vehicles}, except when they are used for making the following taxable supplies,
(a) Further supply of such motor vehicles.
(b) Transportation of passengers.
(c) Imparting training on driving such motor vehicles.
(d) Leasing, renting or hiring of motor vehicles.
9) Vessels and aircraft {Including Services of general insurance, servicing, repair and maintenance} and {leasing, renting or hiring of vessels or aircraft}, except when they are used,
(a) For transportation of goods.
(b) Transportation of passengers.
(c) Further supply of such vessels or aircraft.
(d) Imparting training on navigating such vessels.
(e) Imparting training on flying such aircraft.
(f) Leasing, renting or hiring of vessels or aircraft.
However ITC in respect of such services shall be available if such ITC received by taxable person engaged in the manufacture of such motor vehicles, vessels or aircraft or in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him.
10) Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance.
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.
11) Membership of a club, health and fitness center.
Provided that the input tax credit in respect of 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.
12) Travel benefits extended to employees on vacation such as leave or home travel concession.
Provided that the input tax credit in respect of 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.
AVAILABILITY OF CREDIT IN SPECIAL CIRCUMSTANCES (Section 18 of CGST Act, 2017 and rule 40 & rule 41 & rule 44 ):-
1) Person who is mandatory required to registered under GST Act, 2017,
(a) ITC:- Inputs held in stock and inputs contained in semi-finished or finished goods held in stock. (Not for Capital goods)
(b) Time:- On the day immediately preceding the date from which he becomes liable to pay tax under the act.
2) Person who voluntarily registered under GST Act, 2017,
(a) ITC:- Inputs held in stock and inputs contained in semi-finished or finished goods held in stock. (Not for Capital goods)
(b) Time:- On the day immediately preceding the date of grant of registration.
3) where any registered person ceases to pay tax under section 10 (i.e Composition Scheme),
(a) ITC:- Inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods.
(b) Time:- 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 5% for every quarter or part thereof from the date of the issue of the invoice for such goods (As per Rule 40).
4) Where an exempt supply of goods or services or both by a registered person becomes a taxable supply,
(a) ITC:- 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.
(b) On the day immediately preceding the date from which such supply becomes taxable.
Provided that the credit on capital goods shall be reduced by 5% for every quarter or part thereof from the date of the issue of the invoice for such goods (As per Rule 40).
However ITC specified in Point No. 1 to 4 shall not be available after the expiry of one year from the date of issue of tax invoice relating to such supply.
Rule 40 of CGST Act, 2017 specified the manner of claiming credit for all above mentioned point i.e. Point 1 to Point 4,
(I) The registered person shall within a period of thirty days from the date of becoming eligible to avail the input tax credit, file Form GST ITC-01 specifying inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods,
- Held on the day immediately preceding the date from which he becomes liable to pay GST.
- Held on the day immediately preceding the date of the grant of registration.
- Held on the day immediately preceding the date from which he becomes liable to pay tax under normal provision instead of Composition.
- Held on the day immediately preceding the date from which exempt supplies becomes taxable.
(II) Form ITC-01 to be certified by practicing CA/Cost Accountant if claim of CGST, SGST, IGST, exceeds Rs. 2 Lakhs.
(III) ITC claimed shall be certified with GSTR-1 of supplier in case of Pint No. 3 & 4.
5) Where there is a change in the constitution of a registered person on account of sale, merger, demerger, 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 unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business.
As per Rule 41 of CGST Act, following procedure shall be comply in case of transfer of business (As per Circular No. 96/15/2019 Dt. 28.03.2019 clarify that transfer of business includes transfer by reason of death of proprietor) and hence following procedure shall also be applicable in this case also.
(I) Registered transferor shall file Form GST ITC-02 with request to transfer unutilized ITC lying in electronic credit ledger to transferee.
(II) In case of de-merger, ITC to be apportioned in ratio of value of assets of new units specified in demerger scheme.
(III) Transferor to sumbit certificate from practicing CA/Cost Accountant that sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.
(IV) Transferee shall accept ITC-02 on common portal. Upon such acceptance the un-utilized credit shall be credited to his electronic credit ledger.
(V) Inputs & Capital goods transferred to be accounted for by the transferee in his books of accounts.
Rule 41A provides Transfer of credit on obtaining separate registration for multiple places of business within a State or Union territory.
(I) A registered person who has obtained separate registration for multiple places of business and who intends to transfer, either wholly or partly, the unutilised input tax credit lying in his electronic credit ledger to any or all of the newly registered place of business, shall furnish within a period of thirty days from obtaining such separate registrations, the details in FORM GST ITC-02A electronically on the common portal.
(II) Input tax credit shall be transferred to the newly registered entities in the ratio of the value of assets held by them at the time of registration.
(III) The newly registered person (transferee) shall, on the common portal, accept the details so furnished by the registered person (transferor) and, upon such acceptance, the unutilised input tax credit shall be credited to his electronic credit ledger.
6) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both 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.
7) 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,
1) The input tax credit taken on the said capital goods or plant and machinery reduced by 5% for every quarter or part thereof from the date of the issue of the invoice for such goods (As per Rule 40) or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.
2) The input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years. (Rule 44)
Illustration:
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= C
Input tax credit attributable to remaining useful life= C multiplied by 5/60
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.
Manner of reversal of credit under special circumstances (Rule 44):-
Rule 44 deal with reversal of the amount of input tax credit relating to inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock by,
1) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly exempt {Section 18(4)}
2) Every registered person whose registration is cancelled {Section 29(5)}
Reversal of Input:-
(a) If Invoice available:- Inputs held in stock and inputs contained in semi-finished and finished goods held in stock, the input tax credit shall be calculated proportionately on the basis of the corresponding invoices on which credit had been availed by the registered taxable person on such inputs.
(b) If Invoice not available:- The registered person shall estimate the amount based on the prevailing market price of the goods on the effective date of the occurrence of any of the events specified in sub-section (4) of section 18 or, as the case may be, sub-section (5) of section 29.
Reversal of Capital Goods:-
(a) Capital goods held in stock, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.
Illustration:
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= C
Input tax credit attributable to remaining useful life= C multiplied by 5/60
The amount determined shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03, where such amount relates to any event specified in sub-section (4) of section 18 and in FORM GSTR-10, where such amount relates to the cancellation of registration.
The details furnished by registered person shall be duly certified by a practicing chartered accountant or cost accountant.
TAKING OF ITC IN RESPECT OF INPUT & CAPITAL GOODS SENT FOR JOB WORK (Section 19 of CGST Act, 2017 and rule 45):-
1) Principal can avail the ITC in respect of Input & Capital goods which was sent to job worker for job work even if such input & capital goods transfer directly to the job worker for job work without being first brought to his place of business.
2) Where the inputs 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 143 within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out.
3) Where the capital goods sent for job work are not received back by the principal within a period of three 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.
4) One year or three year provision shall not be applied to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.
Conditions and restrictions in respect of inputs and capital goods sent to the job worker (Rule 45):-
1) The inputs, semi-finished goods or capital goods shall be sent to the job worker under the cover of a challan issued by the principal, including where such goods are sent directly to a job-worker.
2) where the goods are sent from one job worker to another job worker, the challan may be issued either by the principal or the job worker sending the goods to another job worker.
3) The challan issued by the principal may be endorsed by the job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
4) The challan endorsed by the job worker may be further endorsed by another job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
5) The details of challans in respect of goods dispatched to a job worker or received from a job worker during a quarter shall be included in FORM GST ITC-04 furnished for that period on or before the twenty-fifth day of the month succeeding the said quarter. (GST ITC-04 Shall not include details of goods sent from one job worker to another).
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