INPUT TAX CREDIT (ITC) IN GST (PART-II)
By: – Alkesh Jani
Goods and Services Tax – GST
Dated:- 29-5-2018
In our earlier discussion, we have gone through the conditions, restriction and manner by which ITC can be taken. In this session, we shall discuss Section 17 of CGST Act, 2017. The whole Section exhibits the different scenario for availing ITC and also goods and/or services, although said goods and/or services has passed the conditions and restriction, for which ITC is not available. In simple language, it can be said that negative list of goods and/or services, for which ITC is not available.
2. Let's start with sub-section (1) of Section 17 of the said Act, which reads as under:-
“(1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business”.
From above, it is
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section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building”.
The above sub-section reveals that, when goods and/or services are used for taxable as well as exempted goods or services, the ITC can be utilized to the proportionate to taxable supplies (including exports). To arrive at the eligibility of ITC available in terms of sub-section (1) and (2) of Section 17 of the said Act, the formulae are given in Rule 42 of CGST Rules, 2017. It is important to note that for sub-section (2) the value of goods and/or services includes, the value on which the tax is paid on reverse charge, transaction of securities and sale of land and /or building.
4. The GST Act, is said to be very specific Act. The sub-section (4) of Section17 of the said Act, deals with the ITC available by the banking and fi
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r registered or are approved by the Reserve Bank of India and are statutorily under the supervision of RBI. The banking services is limited to the activities covered by the definition of the term “banking” given at Section (5) (b) of The Banking Regulation Act,1949, which is as under:-
“(b) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or other wise;”
In view of above, it implies that as the above mentioned entities may be providing services other than banking services which are classified under HSN code 9971, which may be taxable and/or other than taxable. The sub-section (4) of Section17 of the said Act, stipulates that the entities mentioned therein, shall have the option to comply with sub-section (2) i.e. taxable supply (including export of goods and/or service) and exempted services (please refer Notification No.12/2017-CT (Rates)
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xcept when they are used
(i) for making the following taxable supplies, namely:-
(A)further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C)imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) for transportation of goods;
(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category 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;
(ii) membership of a club, health and fitness centre;
(iii) rent-a-cab, life insurance and health insurance except where
(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or
(B) su
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able property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except on goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
(i) any tax paid in accordance with the provisions of sections 74, 129 and 130″.
5.1 The very first in the negative list for which ITC is not available is “motor vehicle”. This has been defined at Section 2(28) of Motor Vehicle Act, and is as under:-
“28. 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 on
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t not to the end user, further, if this car is used for further supply of taxable services, i.e. one cab operator to another, for transportation of passengers, imparting training, the ITC is available. Here the question arises is that if the said car is booked as a capital goods in the book of accounts, the depreciation under Income Tax Act, may be availed or else ITC under GST. The useful life under GST for capital goods is termed for five years, so before availing ITC proper calculation is required (please refer Rule 43 of CGST Rules,2017). Moreover, ITC is made available if the said motor vehicle is used for imparting training on driving i.e. ITC available for driving school. The ITC is also available if the said vehicle is used for transportation of goods. Summarizing above, it can be said that ITC on motor vehicle or conveyance is available only if it is used for further supply, for transportation of passengers or goods and for imparting training.
5.3 Further, in terms of clause
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g outward services ITC is available. Here, it is surprising to learn that although motor vehicle or conveyance is mentioned, rent-a-cab, which is not mentioned in HSN code, is mentioned under this clause. The reason may be under any guise, ITC is not available. The most discussed issue is transportation facility extended to employee by staff bus or whatever name called, ITC is not available as Motor vehicles if used for supply of above mentioned taxable services namely, transportation of passengers, imparting training or transportation of goods. The pickup and drop of the employee is not notified under any law and same is not falling within the ambit of above clause. The ITC for any travel benefit extended to employee on vacation such as leave or home travel concession, is also not available. Here, it is pertinent to note that services and/or goods from employer to employee is specifically mentioned at various section and schedules, any other than those shall be dealt with one's own wi
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be included for capitalization of immovable property.
5.7 The sub-section (e) to (i) stipulates that ITC is not available for composition scheme, under Section10, goods and/or services is supplied by non-resident taxable person, other than goods and/or services imported by him. Moreover, if goods and/or services are used for personal consumption, ITC is not available, the same concept of erstwhile law.
5.8 If goods are lost, stolen, destroyed or written off or gifted or free sample, ITC if availed is required to be reverse. The same concept continues in GST regime. No ITC is available if taxes paid in terms of notice for non-payment, short payment or erroneously refunded, or taxes paid on detention, seizure of goods and/or conveyance, or confiscation of goods and conveyance (Section 74,129 and 130 of the said Act.).
6. As plant and machinery has already been discussed in our earlier session, it is not wise to repeat the same here. The sub-section (6) of Section17, mandates for mann
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tor to principal or main contractor.
(vii) Goods and / or services used for construction of immovable property although used in the course or furtherance of business or on his own account.
(viii) Goods and /or services provided by composition dealer or non-resident taxable person, however, if goods are imported by non-resident taxable person ITC is available and not for the services imported by him.
(ix) Goods and/or services if used for personal consumption, if goods are lost, stolen, destroyed, written off or disposed of by way of gift or free samples, ITC if availed is required to be reversed.
(x) Any taxes paid in terms of section 74,129 and 130 of CGST Act, 2017, ITC not available.
8. In conclusion of this session, it is reiterated that as no case law has attained its finality and each case has its own facts and circumstances, therefore, to arrive at any conclusion one must rely on own wisdom and knowledge. We shall deal with Section 18 in our next part. A small effort has be
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