INDIAN GST INPUT TAX CREDIT

INDIAN GST INPUT TAX CREDIT
Rakesh Garg, LLB, FCA (Author & Consultant)

Contents Chapter: V – Input Tax Credit 16
Eligibility and conditions for taking input tax credit 17 Manner of recovery of credit distributed in excess 18 Availability of credit in special circumstances 19 Taking input tax credit in respect of inputs and capital goods sent for job work. 20 Manner of distribution of credit by Input Service Distributor 21 2

Input Tax Credit What is Input Tax Credit
Input Tax credit is the mechanism , Which allows seamless credit between the supply chain To the eligible receiver of supplies On eligible procurement of goods and/or services Used for the purpose of making taxable supplies In the course or furtherance of business Under Sec 16/17, eligibility of ITC is determined in respect of particular legislation/Act (not inter-changeable)

Input Tax Credit - Meaning
Section 2(62) and 2(63) of CGST/SGST [Not defined in IGST] ITC means ITC includes ITC excludes CGST, SGST, IGST, UTGST; IGST on import of goods Tax payable under reverse charge basis under the CGST Act, SGST Act and IGST Act Tax paid under composition levy under sec 10

Input Tax Credit Section 16(1)
Every registered person shall, (not taxable person) subject to such conditions and restrictions as may be prescribed, and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Definitions Meaning of Goods – 2(52) Goods means Goods includes
Goods excludes Every kind of movable property (i) Actionable claim (ii) Growing crops (iii) Grass and things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply. (i) Securities (ii) Money Meaning of Service- The term ‘services’ has been defined under sec 2(102); and means anything other than goods, but does not include Money and Securities

Definitions Meaning of “capital goods” – [Section 2(19)]
Goods, the value of which is capitalized in the books of accounts of the person claiming the credit; and which are used or intended to be used in the course or furtherance of business Meaning of “Inputs” – [Section 2(59)] Any goods other than capital goods, used or intended to be used by a supplier for in the course or furtherance of business Meaning of “Input services” – [Section 2(60)] Any service; used or intended to be used by a supplier in the course or furtherance of business.

ITC – Primary Conditions u/s 16(2)
Input Tax Credit - Restrictions No default in furnishing of Return by the Claimant Payment of output tax by the Supplier Possession of tax invoice or debit note or other duty paying document Goods/ services must have been received by Recipient of 3rd person on direction Payment of consideration (with tax) within 180 days by Recipient No ITC on the amount of depreciation on tax component in case of capital goods

16(2) –Conditions : ITC shall be available if - a) He is in possession of a – O Tax invoice issued by a registered supplier in accordance with sec 31, O Debit note issued by a registered supplier in accordance with sec 31, or O any other prescribed taxpaying document Bill of Entry ; Invoice/Debit Note issued by ISD ITC shall be availed only if all applicable particulars as prescribed in Chapter ---- (Invoice Rules) are contained in the said document, and Relevant information, as contained in the said document, is furnished in Form GSTR-2 by such person

16(2) - Conditions : ITC shall be available if – b) he has received the goods and/or services It shall be deemed that the regd. person has received goods if delivered by the supplier to a recipient or any other person on the direction of such regd. person, whether acting as an agent or otherwise, before or during movement of goods. Goods received in lots: Where the goods against an invoice are received in lots or installments, the registered person shall be entitled to the credit upon receipt of the last lot or installment. Note- Liability to pay output GST is upon receipt of payment whereas of ITC is upon receipt of goods/ service

16(2) - Conditions : ITC shall be available if (contd...)- Payment of output tax by the supplier Subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Govt, either in cash or through utilisation of ITC admissible in respect of the said supply. Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self- assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledge. [Sec 41/CGST Act]

16(2) - Conditions : ITC shall be available if (contd...)- (d) He has furnished the GST Return under sec 39. (e) Failure to pay consideration (with tax) to supplier within 180 days where a recipient fails to pay to supplier of goods/ services, amount towards the value of supply of services along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier,  an amount equal to the ITC availed by the recipient shall be added to his output tax liability, along with interest thereon,  for the month immediately following the period of 180 from the date of issue of invoice. ITC (not the interest) can be reclaimed at the time of payment of consideration.

16(2) - Conditions : ITC shall be available if (contd...)- (e) Failure to pay consideration to supplier within 180 days Rule 2(1) of ITC Rules - Such person shall furnish the details of such supply and the amount of ITC availed of in Form GSTR-2 for the month immediately following the period of 180 from the date of issue of invoice. The amount of ITC along with interest shall be added to the output tax liability of the registered person for the month in which the details are furnished. The registered person shall be liable to pay interest 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.

ITC - Conditions/Restrictions
16(3) - Restrictions: ITC shall be available if (contd...)- (f) No ITC on the amount of ‘depreciation on the tax component’ Where the registered person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, the ITC shall not be allowed on the said tax component.

ITC - Conditions/Restrictions
Sec. 16(4) – Overall time limit of claiming ITC A registered person shall not be entitled to take input tax credit in respect of any invoice for supply of goods and/or services, after the filing of the return for the month of September following the end of financial year to which such invoice pertains, or filing of the relevant annual return, whichever is earlier

ITC – Manner of Claiming
16(1) – Manner of claiming ITC (i) ITC would be claimed in one instalment in relation to all other goods (including capital goods) and services (except common capital goods). However, it shall be utilised subject to other provisions of the Law

Input Tax Credit Persons eligible to take ITC: Registered person
Person making zero rated supplies Persons NOT eligible to take ITC: Non-registered person, Person having aggregate turnover below threshold limit and not registered, Supplier under composition levy, Supplier exclusively engaged in making exempt or non-taxable supplies, Agriculturist

ITC – Utilization – S. 49 IGST Credit CGST Credit SGST Credit YES:
To the followings, in the stated order: - Payment of IGST, - Payment of CGST, Payment of SGST. Payment of UTGST. - Payment of IGST. NO: - Payment of SGST - Payment of UTGST - Payment of SGST, - Payment of CGST

ITC – Utilization – S. 49 No cross-set off of CGST and SGST is available. Input tax credit of IGST, CGST and SGST could be set-off in the following manner: S. No. ITC relates to Can be set-off against 1 SGST SGST & IGST 2 CGST CGST & IGST 3 IGST IGST, CGST & SGST

ITC - Restrictions Reg. Use – Sec 17
(a) Where goods/services are used partly for the purpose of business and partly for other purposes Amount of credit shall be restricted to so much of input tax as is attributable to the purposes of his business. [Sec 17(1)] As per sec 17(6), the government may prescribe the manner in which the credit may be attributed. – Draft ITC Rules have been released For example, where the capital goods, such as, computers, are used partly for business and partly for personal purposes, input tax credit would be available proportionately.

ITC - Restrictions Reg. Use
Use of goods and/or services Business Purpose Partly for Business Other Purpose ITC attributable to business purpose is allowable Propor- tionately as per Rules ITC attributable to other purpose is NOT allowable

(b) Where goods/services are used for effecting partly for taxable supplies and partly for non-taxable supplies, including exempt supplies but excluding zero-rated supplies The amount of credit shall be restricted to so much of ITC as is attributable to the taxable supplies including zero-rated supplies. - Sec 17(2)/GST Law Thus, where goods/services are used partly for (non- taxable supplies and/or exempt supplies) and partly for (taxable supplies and/or zero rated supplies), ITC shall be allowed proportionately. The Govt. may prescribe the manner in which the credit may be attributed.- Draft ITC Rules,

Input Tax Credit In GST, taxability of sale/service will also determine the eligibility of input tax credit, which may be as under S. No. Nature of Supply Availability of Input Tax 1 Taxable supply Yes 2 Exempt supply No 3 Non-taxable supply 4 Zero rated supply Taxable supply means [sec 2(108)] : A supply of goods and/or services, which is chargeable to tax under this Act.

Input Tax Credit Taxable supply means [sec 2(108)] :
Means a supply of goods or services or both which is leviable to tax under this Act. Non-taxable supply means [sec 2(78)] : A supply of goods or services, on which GST is not leviable. Zero rated supply means [sec 2(23)/IGST] As per sec 16/IGST, zero rated supply means export of goods and/or services; and supply of goods and/or services to a SEZ developer or an SEZ unit.

Input Tax Credit Exempt supply means [sec 2(47) + Sec 17(3)]:
Supply of any goods and / or services which are not taxable under this Act; and Includes: Such supply which attract nil rate ; or exempted u/s 11. Non-taxable supply Supplies on which recipient is liable to pay tax on reverse charge basis, Transactions in securities (Value of security to be taken as 1% value of such security), Sale of land (at value for stamp duty purposes), and Sale of building (at value for stamp duty purposes), subject to clause (b) of paragraph 5 of Schedule II.

It may be noted that “taxable supply’’ means supply of goods/services which is chargeable to tax under this Act. The term “under this Act” means “under the concerned GST Act”. For example, ABC in Delhi takes term loan from PNB for its plant located in UP; and processing fee is charged by the bank in Delhi for such loan. Since the loan will be utilized in UP for making taxable supplies, bank charges relates to non- taxable supplies in Delhi. Therefore, ABC cannot claim input tax credit of such amount in Delhi and it has to transfer to UP through ISD (input service distributor) mechanism for utilization at UP

By-product (which is exempt) resulting after manufacture – Whether ITC to be reversed on inputs? Distinction should be made between final product and by product Where as a part of single process, by-products (or waste), which is exempt, exempt, ITC shall not be reversed. However, if the resulting product is final product (and not waste), ITC will be reversed. CCE vs. GAIL 2008 (232) ELT 7 (SC); UOI vs. Hindustan Zinc Ltd (303) ELT 321 (SC); Commissioner vs. Sterling Gelatin (320) ELT A343 (SC)]

ITC Rule 7 – Common Input/Input Services
Determine ITC Available C1 : C1 = T – (T1+T2+T3) T Total ITC involved on inputs and input services in a tax period. T1 Inputs and input services intended to be used exclusively for non business purposes. T2 Inputs and input services intended to be used exclusively for effecting exempt supplies. T3 Inputs on which ITC is not available u/s 17(5) (Non-creditable supplies). Determine common ITC C2 : C2 = C1 – T4 T4 ITC used exclusively for taxable (including zero rated) supplies Determine ITC in respect of exempt supplies D1 : D1= (E ÷ F) × C2 E Aggregate value of exempt supplies (i.e., all supplies other than taxable and zero rated supplies) during the tax period. F Total turnover of the registered person during the tax period. C3 = C2 – (D1+D2) D2 C2 (x) 5% - ITC in respect of business supplies

Determination of use at invoice level and tax period wise ITC available in full if used exclusively for business purposes and taxable supplies including zero rated supply ITC NOT available at all if used exclusively for non-business purposes and exempt supplies ITC not available at all if supplies are specified in sec 17(5) as non-creditable Determine common ITC  C2 = T – B – C – D Common ITC to be claimed in full in first eligible tax period ITC on common inputs and input services shall not be available proportionately (i.e. to be reversed) = Exempt supply / Total Supply (excluding non-taxable supplies in both the factors) (based upon previous month turnover)

Amount of ITC attributable to non-business purposes by the formula for a tax period = 5% of the Common ITC Add amount equal to ‘G’ and ‘H’ in the output tax liability for every tax period Determine ‘I’ for ‘CGST’, ‘SGST’/’UTGST’ and ‘IGST’ separately for every tax period Perform all the afore-stated steps for the whole financial year and calculate the final amount Find variance between amount claimed and eligible amount If excess claimed To be treated as output tax liability  payable with interest latest in next Sept return If short claimed claim; latest in next Sept return

ITC Rule 8 – Common Capital Goods
Determination of use at each and every capital goods (CG) ITC available in full if used exclusively for business purposes and taxable supplies including zero rated supply ITC NOT available at all if used exclusively for non-business purposes and exempt supplies Determine common ITC on CG C2 = T – B – C Common ITC to be claimed in full in first eligible tax period Useful life of CG to be taken as 60 months Determine Tm, i.e, amount of ITC attributable to a tax period on common CG (to be calculated goods wise) by dividing the useful life of 60 months: Tm= Tc ÷ 60

ITC Rule 8 – Common Capital Goods
Determine Tr, i.e, aggregate amount of ‘Tm’, at the beginning of a tax period, on all common capital goods whose residual life remains during the tax period ITC on common CG shall not be available proportionately (i.e. to be reversed) = Te = Exempt supply / Total Supply * Tr (excluding non-taxable supplies in both the factors) (based upon previous month turnover) Add amount equal to Te in the output tax liability along with interest for every tax period Determine Tr and Te for ‘CGST’, ‘SGST’/’UTGST’ and ‘IGST’ separately for every tax period

ITC – Banks, FI, NBFC Sec 17(4)/GST : 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 shall have the option to either - comply with the provisions of sec 17(2) regarding proportionate availment, OR avail of, every month, an amount equal to 50% of eligible ITC on inputs, capital goods & input services in that month. The option once exercised shall not be withdrawn during the remaining part of the financial year. Rule -3- Formula- 50% [Total ITC on inputs &input services (-) {Tax paid on inputs & input services used for non-business purposes (+) Tax paid towards non-creditable supplies under sec 17(5)}]

ITC Rule 3 – Banks, FI, NBFC (a) Such co. shall not avail ITC of tax paid on inputs and input services that are used for non-business purposes and the credit attributable to supplies specified in sec 17(5) [non- creditable goods/supplies], in FORM GSTR-2; (b) Such co. shall avail ITC on inputs / input services referred to in the 2nd proviso to sec 16(4) {seems to be a mistake in the rules; it should be 2nd proviso to sec 17(4)} and not covered under clause (a). (c) 50% of the remaining ITC shall be the input tax credit admissible to the company or the institution and shall be furnished in FORM GSTR-2; (d) Said amount, subject to matching of ITC with supplier, shall be credited to the electronic credit ledger of such Co.

ITC – Non-Creditable – S.17(5)
Goods/Services/ Taxes Exceptions 1 All motor vehicle & other conveyance S. 2(34) “conveyance” includes a vessel, an aircraft and a vehicle (i) When they are used for making the following taxable supplies - Further supply of such vehicles or conveyance Transportation of passengers Imparting training on driving, flying, navigating such vehicles/ conveyance (ii) When they are used for Transportation of goods

Goods/Services/Taxes Exceptions 2 Food and beverages Outdoor catering Beauty treatment Health services Cosmetic and plastic surgery Where such inward supply of a particular category is used for making outward taxable supply of same category of goods or services; or as an element of a taxable composite/mixed supply 3 Membership of a club, health and fitness centre - 4 Travel benefits extended to employees on vacation such as leave or home travel concession

Goods/Services/Taxes Exceptions 5 Rent-a-cab Life insurance Health insurance Where the govt notifies services which are obligatory for an employer to provide to its employees under any law for the time being in force. or as an element of a taxable composite/mixed supply 6 Works contract services when supplied for construction of immovable property, other than plant and machinery. [also see notes below this table] Where it is an input service for further supply of works contract service

Goods/Services/Taxes Exceptions 7 Goods or services received by a person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business. [also see notes below this table] - 8 Goods/services on which tax has been paid under section 10 as composition levy 9 Goods/services received by a non-resident taxable person Goods impo- rted by him 10 Goods/ services used for personal consumption 11 Goods lost, stolen, destroyed, written off, (such as transport loss, loss on expiry, etc) or Goods disposed of by way of gift or free samples.

Goods/Services/Taxes Exceptions 12 Any tax paid in terms of sec 74, 129 or 130. Sec 74 deals with determination of tax not paid or short paid or erroneously refunded ITC wrongly availed or utilized by reason of fraud, etc. Sec 129 deals with payment of tax at the time of detention, seizure and release of goods and conveyances in transit. Sec 130 deals Confiscation of goods and/or conveyances and levy of penalty. -

Goods/Services/Taxes Exceptions Notes: The word “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. ‘Plant and Machinery’ means apparatus, equipment, machinery fixed to earth by foundation or structural support that are used for making outward supply 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.

ITC – Available vs. Availment Later On
(1) Tax invoice is not in possession (2) Goods and/or services not received (3) Credit on receipt of last lot of goods (4) Tax Charges must have been paid by the Supplier (5) Furnishing of Returns, i.e., there should be no default (6) Payment of consideration + tax to supplier within 6 Months (7) ITC on all goods/services/ in one go

ITC – Available vs. No Availment At All
(1) In respect of non-creditable goods (2) Used for non-business supplies (3) Used for non-taxable supplies in that State/Act (4) Used for taxable supplies exist in some other State (5) Normal taxable person switches to composition scheme (6) Taxable goods/services later on becomes exempt

ITC – Illustration Every branch is a distinct person. Eligibility of ITC depends upon taxable supplies in the respective Act/State. Unit A – Sale of Books (Exempt) Purchase of 300 Rims of Paper-Tax paid 3 lacs (CGST:1.5 L; SGST:1.5L); Tfr 100 Rims to B & 100 to C Output GST-1+1 L (on tfr to branches); Input GST of L lac is not creditable; Neither CGST nor SGST be tfd to unit B or C Unit B – Sale of Stationery (Taxable) Receipt of 100 Rims from A (suffered IGST of 1 lac) Can claim input IGST of 1 lac from its output tax from sale of Stationery Unit C – Sale of Stationery + Books (50:50) Can’t claim input IGST in respect of sale of Books (1 lacs is not creditable)

ITC – Special Cases – Sec 18
Eligible persons Credit entitled (Nature of goods) Stock As on 18 (1) (a) Person applied for registration within 30 days from the date of liability to pay tax and registered Inputs held in stock and inputs contained in semi-finished or finished goods held in stock (NO to CG) The day immediately preceding the date from which he becomes liable to pay tax - Person applied for registration after 30 days from the date of liability to pay tax Nil NA (b) Person who is not required to register, but obtains voluntary registration Inputs held in stock and inputs contained in semi-finished or finished goods (NO to CG) The day immediately preceding the date of grant of registration

ITC – New Registration S.N. Eligible persons
Credit entitled (Nature of goods) Stock As on 18 (1) (c) & (d) (a) Switching over from composition scheme to regular taxation (or) (b) where exempt supply becomes taxable Inputs held in stock and inputs contained in semi- finished or finished goods and on the capital goods The day immediately preceding the date of switchover (or) when supplies become taxable Subject to restrictions and conditions specified in the relevant Section and the prescribed Rule. ITC on Capital per quarter (60 months life)

ITC u/s Sec. 18(1) – Rule 5(1) ITC not available in respect of supply of goods/ services to him after expiry of 1 Year from date of issue of tax invoice.- S.18(2) The registered person shall within 30 days from the date of his becoming eligible to avail of ITC shall make a declaration, electronically, in FORM GST ITC-01 Said declaration shall clearly specify details relating to inputs lying in stock or inputs contained in semi-finished or finished goods lying in stock, or as the case may be, capital goods Declaration shall be duly certified by a practicing chartered account or cost accountant if the aggregate value of claim on account of CGST, SGST & IGST exceeds INR 2 Lakh. ITC claimed shall also be verified with the corresponding details furnished by the corresponding supplier in FORM GSTR-1 or FORM GSTR- 4, on the Common Portal.

ITC – New Registration Sec. 18(1) - Mandatory Registration: A person who has applied for registration within 30 days from the date on which he becomes liable for registration, and has been so granted, shall be entitled to ITC in respect of the following held on the day immediately preceding the date from which he becomes liable to pay tax under this Act– inputs held in stock inputs contained in semi-finished or finished goods held in stock. Sec. 18(2) - ITC shall, however, not be available in respect of supply of goods/services to him after expiry of 1 year from the date of issue of tax invoice relating thereto. Pl. Note: ITC is not available on capital goods in stock. ITC is available only if registration is applied in time.

ITC – New Registration Sec. 18(1) - Voluntary Registration: A person who has applied for voluntary registration - shall be entitled to take credit of input tax in respect of the following held on the day immediately preceding the date of registration – inputs held in stock inputs contained in semi-finished or finished goods held in stock. Sec. 18(2) - ITC shall, however, not be available in respect of any supply of goods/services to him after the expiry of one year from the date of issue of tax invoice relating to such supply Pl. Note: ITC is not available on capital goods in stock.

ITC – From Compo. To Regular
Sec. 18(1) - Person ceases to pay tax under composition scheme : Such person shall be entitled to take credit of input tax in respect of the following held on the day immediately preceding the date from which he becomes liable to pay tax under regular scheme – inputs held in stock inputs contained in semi-finished or finished goods held in stock. capital goods, as reduced by such percentage points as may be prescribed in this behalf Sec. 18(2) - ITC shall, however, not be available in respect of supply of goods/services to him after expiry of one year from the date of issue of tax invoice relating to such supply.

ITC – Exempt supply become taxable
Sec. 18(1) – Exempt supply becomes taxable : Such person shall be entitled to take credit of input tax in respect of the following held on the day immediately preceding the date from such supply becomes taxable – inputs held in stock inputs contained in semi-finished or finished goods held in stock. capital goods exclusively used for such exempt supply. ITC on capital goods, however, shall be reduced by such percentage points as may be prescribed in this behalf. Sec. 18(2) - ITC shall, however, not be available in respect of supply of goods/services to him after expiry of one year from the date of issue of tax invoice relating to such supply.

ITC – Merger Acquisition, etc.
Sec. 18(3) - 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 provision for transfer of liabilities, said registered person shall be allowed to transfer the input tax credit that remains unutilized in its books of accounts to such sold, merged, demerged, amalgamated, leased or transferred business in manner prescribed As per Rule 6, the transferor shall fill Form GST ITC-02 on common portal, which will be accepted by the transferee. CA certificate shall also be filed that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for transfer of liabilities

ITC – Merger Acquisition, etc.
Rule 6 – Obligations of the transferor The transferee shall, on the Common Portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC- 02 shall be credited to his electronic credit ledger. The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account. Demerger in the case of demerger, the ITC shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.

ITC – From Regular to Compo./ Taxable to exempt
Sec. 18(4) - Where any person, who has availed of ITC, switches over to Composition scheme or goods becomes exempt he shall pay an amount, by way of debit in the electronic credit/cash ledger, equivalent to the ITC in respect of the followings on the day immediately preceding the date of such switch over – inputs held in stock inputs contained in semi-finished or finished goods held in stock. capital goods, as reduced by such percentage points as may be prescribed in this behalf Further, after payment of such amount, the balance of ITC, if any, lying in his electronic credit ledger shall lapse ITC on Capital per quarter (60 months life)

Rule 9 – Manner of determination of tax payable: For inputs lying in stock, and inputs contained in semi- finished and finished goods lying in stock, ITC shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed on such input. For CG lying in stock, ITC involved in the remaining residual life in months shall be computed on pro-rata basis, taking the residual life as five years; The amount, as specified above shall be determined separately for ITC of IGST CGST and SGST.

Rule 9 – Manner of determination of tax payable: Illustration Capital goods have been in use for 4 years, 6 month and 15 days. The residual remaining life in months = 5 months ignoring a part of the month Input tax credit taken on such capital goods = INR 100 Input tax credit attributable to remaining residual life = 100 (x) 5 / 60

ITC – Supply of Capital Goods
Sec. 18(6) - In case of supply of capital goods or plant & machinery on which ITC has been taken, the registered person shall pay an amount equal to - ITC taken on the said capital goods as reduced by the percentage points as may be specified (5% per quarter), or the tax on the transaction value of such capital goods, whichever is higher Further, 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.

Seamless ITC in GST - Exceptions
Subject to payment of output tax by supplier Non-creditable List Place of supply In respect of immovable goods – Location of immovable property Restaurant and catering services; Personal grooming; Fitness; Beauty treatment; Health service including cosmetic and plastic surgery – Place of Performance In these cases, the LOS and POS would coincide No payment of consideration in 180 days No cross set-off between SGST & CGST

Input Tax Credit – Summary
Input Tax Credit in respect of IGST, CGST & SGST ITC claim can be claim only in that GST Law (except IGST) where taxable supplies exist (1) Claim to be taken state-wise (2) No set-off between CGST & SGST On goods, Capital Goods & Services (except Non-Creditable); in one go (Except common CG) (1)Include tax on reverse charge (2) Excludes composition levy Available only to that extent to which taxable supplies (+ zero rated) made (1) Subject to certain restrictions/conditns (2) Eligibility of ITC and its availment are different concepts

JOB WORK

ITC – Goods Transf. for Job Work
INPUTS & CAPITAL GOODS - Sec. 19 Principal shall be entitled for ITC on inputs and capital goods sent to a job-worker for job-work Not necessary that inputs/capital goods must first be received at the premises of the Principal Goods should be received back in accordance with sec 143(1) within specified period: Inputs – 1 year of their being sent out. Capital goods – 3 years of their being sent out.

ITC – Goods Transf. for Job Work
INPUTS & CAPITAL GOODS - Sec. 19 If inputs are not so received, it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when said inputs/capital goods were sent out (or the date when receipt by the job- worker, where goods are directly sent to job worker). Since the delay under this section is linked to the date of dispatch; therefore, the principal shall pay an amount equivalent to the ITC availed of on the said inputs along with interest. These provisions are not applicable to supply of moulds, dies, jigs and fixtures, or tools to a job-worker for job- work.

Job Work – Sec. 143 S. 143(1) – Principal - “Principal” means a registered person sending taxable goods for job work. Thus, sec 143 is NOT applicable to “unregistered person” Facilities to the Principal (Sec. 143 and 19): To send any inputs/capital goods to a job worker for job work without payment of tax To send inputs/capital goods subsequently from one job worker to another job worker without payment of tax To claim ITC on goods transferred to J.W. Section 143 is optional. Principal may supply goods to J.W. after charging of GST

Job Work – Sec. 143 Sec. 143 enables the Principal to send taxable goods to a job worker (and also to another job-worker therefrom) without payment of tax, subject to- Intimation, and certain prescribed conditions, If the benefit under sec 143 is availed, the Principal shall be responsible and accountable for all the transactions between him and the job worker [S. 143(2)].

Job Work – Sec. 143 Conditions contained in section 143(1) in relation to INPUTS: Within 1 year of their being sent out inputs, Principal shall – Bring back inputs, after completion of job-work or otherwise, to any of his place of business, or Supply these inputs, after completion of job-work or otherwise, after payment of tax, or Export these inputs with or without payment of tax. Where inputs are not so received back or supplied, 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. [S. 143(3)] For the purposes of J.W., input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker

Job Work – Sec. 143 Conditions contained in S. 143(1) in relation to CAPITAL GOODS: Within 3 years of their being sent out the capital goods (other than moulds and dies, jigs and fixtures, or tool), the Principal shall - Bring back these goods to any of his place of business, or Supply these goods, after completion of job-work or otherwise, after payment of tax, or Export these goods with or without payment of tax. Where the above-stated capital goods are not so received back or supplied, it shall be deemed that such capital goods had been supplied by the principal to the job-worker on the day when the said goods were sent out.[S. 143(4)]

Job Work – Sec. 143 Proviso to S. 143(1): Goods may be supplied directly from the place of business of job worker by the principal only when the principal declares place of business of the job worker as his additional place of business; except where- (a) the job worker is registered under Section 25; OR (b) Principal is engaged in supply of notified goods. S. 143(5): Any waste and scrap generated during the job work may be supplied - (a) by the job worker directly from his place of business on payment of tax if such job worker is registered, OR (b) by the principal, if the job worker is not registered. 66

Input Service Distributor

Input Service Distributor (ISD)
Need for ISD Mechanism Relevant only if the taxpayer is engaged in multi-state activities Input tax credit could be claimed only under that Act where output supply exists If invoices for input services are received in one state, whereas output supply exists in other state, ITC can’t be claimed in first state, and need to be transferred. Head office incurs various common expenses, and ITC suffered on which need to be apportioned to various branches/units Scope of ISD is restricted only in respect of input services. Thus ITC of goods/capital goods cannot be distributed.

Who is input service distributor (ISD) – S. 2(61)- an office of the supplier of goods and/or services, which receives tax invoices issued under sec 31 towards receipt of input services, issues a prescribed document for the purposes of distributing the credit of CGST/SGST/IGST/UTGST paid on the said services, to a supplier of taxable goods and/or services having same PAN as that of the office referred to above. For the purposes of distributing credit of CGST/SGST/IGST, ISD shall be deemed to be a supplier of services. This definition is on lines of distribution of CENVAT Credit of service tax paid.

Registration under GST by ISD- An ISD is required to obtain registration as a deemed supplier of services [Section 24]. Threshold limit of registration is not applicable to ISD. The registration of ISD under the existing regime (i.e. under the Service Tax) would not be migrated in the GST regime. All the existing ISDs will be required to obtain fresh registrations under the new regime in case they want to operate as an ISD. ISD is required to file monthly return by 13th of the following month in form GSTR-6.

Conditions/Restrictions for distribution of credit- Distribution of credit would be subject to the following conditions: (a) Credit can be distributed against a prescribed document issued to each of the recipients of the credit so distributed, and such document shall contain details as may be prescribed. (b) Amount of credit distributed should not exceed the amount of credit available. Credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient. For example, finance charges related to MP unit cannot be distributed to Kerala unit.

Manner of distribution of credit by ISD- (a) Credit of tax paid on input services attributable to a recipient of credit It shall be distributed only to that recipient whom it is attributable. For example, finance charges related to MP unit cannot be distributed to UP unit (b) Credit of tax paid on input services attributable to more than one recipient of credit (a) It shall be distributed amongst such recipients to whom the input service is attributable, and (b) Such distribution shall be pro rata on the basis of the turnover in a State/UT of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period (c) Credit of tax paid on input services attributable to all recipients of credit It shall be distributed to all recipients and which are operational in the current year, during the said relevant period in the manner stated in (iii) (b) above.

Manner of distribution of credit- Meaning of Relevant Period: (a) If the recipients of the credit have turnover in their States in the financial year preceding the year during which credit is to be distributed, the said financial year; or (b) If some or all recipients of the credit do not have any turnover in their States 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. Meaning of Recipient of credit: Supplier of goods and/or services having the same PAN as that of Input Service Distributor

Manner of distribution – Rule 4 of Draft ITC Rules Distribution of credit would be done subject to the following conditions: It is to be distributed to - All the eligible recipients whether registered or not, All the recipients to whom input tax credit is attributable, All the eligible recipient(s) who are engaged in making exempt supply, or are otherwise All the eligible recipients, not registered for any reason, Eligible recipients also include those recipients who cannot utilize the credit due to whatsoever reason.

Manner of distribution – Rule 4 of Draft ITC Rules Amount to be distributed to one of such recipient (R1) shall be amount, “C1”, to be calculated by applying following formula: - Formula C1 = (t1÷T) × C Where, C Amount of credit to be distributed T1 The turnover, as referred to in section 20, of person R1 during the relevant period T Aggregate of the turnover of all recipients during the relevant period

Manner of distribution – Rule 4 of Draft ITC Rules Credit shall be distributed in the proportion of turnover. Turnover means total turnover (-) Duties and taxes on non Taxable supplies ITC available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6 in accordance with the provisions of Chapter ---- (Return Rules).

Manner of distribution – Rule 4 of Draft ITC Rules The ISD shall issue an ISD invoice, as prescribed in rule invoice-7(1), clearly indicating in such invoice that it is issued only for distribution of input tax credit. The ISD shall issue an ISD credit note, as prescribed in rule Invoice-7(1), for reduction of credit in case the input tax credit already distributed gets reduced for any reason. Any additional amount of input tax credit on account of issuance of a debit note to an ISD by the supplier shall be distributed in the manner and subject to the conditions as specified

Order of ISD Distribution –S.20(1); R.4
Manner of Distribution of Credit of ISD – Order of Distribution Nature of Tax Manner of Distribution Distributor and Recipient of credit are located in same State 1 Distribution of CGST To be distributed as CGST 2 Distribution of SGST To be distributed as SGST 3 Distribution of IGST To be distributed as IGST Distributor and Recipient of credit are located in Different State To be distributed as IGST* * Shall be equal to the aggregate of amount of ITC of CGST and SGST that qualifies for distribution to such recipient

Manner of recovery of credit excess distributed
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.

Input Tax Credit Input tax credit is the backbone of GST; and it is the only benefit available to the taxpayer under the GST All other provisions in GST relates to the liability and obligations of the person However, the eligibility of ITC is subject to certain restrictions and conditions. Therefore, please take care in advance to have maximum gain through mechanism of ITC

THANK YOU RAKESH GARG, LLB, FCA S S A R & ASSOCIATES, N. DELHI
(Author of Central Sales Tax, Delhi VAT, Service Tax & GST) S S A R & ASSOCIATES, N. DELHI Ph: (011) ,

INDIAN GST INPUT TAX CREDIT

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