Goods and Services Tax – GST – By: – Alkesh Jani – Dated:- 19-5-2018 Last Replied Date:- 17-8-2018 – The Input Tax Credit is one of the key features of Indirect tax. The objective of ITC is to avoid cascading effect on tax. GST is supply based and the entire supply chain would be subject to GST. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage and ultimately to be borne by the end user of goods or service or both. 2. The main objective is to avoid cascading effect on tax, but always been major part of litigation matter and ambiguity. The ITC has been always an issue of discussion and subject of litigation both by department and tax payer (assessee in erstwhile law). The erstwhile law i.e. Central Excise, Service Tax, which was based on production or manufacture, while GST is supply based, therefore, we need to come out of the old
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ed on inputs and input services, which are to be used or intended to be used in the course or furtherance of business. Here, the Section mandates that inputs and input services should have nexus with the business. It is now obligatory on the part of the tax payer to prove the nexus of ITC with regards to business. Further, the input tax credit has been defined in Section (2) (63) of CGST, Act, 2017 and definition of input , input service and input tax which is given at Section (2) (59), (60) and (62) respectively, being pertinent to reproduced below:- (63) input tax credit means the credit of input tax; (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; (60) input service means any service used or intended to be used by a supplier in the course or furtherance of business; (62) input tax in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged o
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shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; (b) he has received the goods or services or both. Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise; From above, it becomes clear that ITC can be availed by a registered person on the basis of tax invoice and debit note issued by the supplier of goods or services and the same should be in the possession of recipient of goods or service or both. It is also important that goods and/
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ion 39: Provided that 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: Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed: Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon . This sub-clause restricts that recipient of the inputs and/or input services
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-tax Act, 1961, the input tax credit on the said tax component shall not be allowed . This sub-clause deal with the ITC availed on the capital goods and plant and machinery. For better understanding the definition of capital goods is necessary and it is defined at Section (2)(19) of CGST Act, 2017, is as under (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; In erstwhile law the capital goods were separately defined but in GST, it is liberalized and indirectly restricted, to the value which is capitalized in books of Account. On going through the Balance sheet, we can know the supplies which are capitalized. GST restricts to double benefit of claiming ITC and also deprecation. The plant and machinery are defined by way of explanation given after the sub-section 6 of Section 17 of CGST Act, 2017 and is given below:- Expl
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f 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 . The sub-section urges on taking the ITC as soon as goods and / or services are received along with the documents. In some scenario or due to any reason person fails to take such credit the limit is to avail such credit before due date of furnishing the return i.e. GSTR-1 for the month of September following the end of financial year to which such invoice pertains. However, as per the design of GST, returns as per law has been changed, this may create ambiguity and litigation may arise in future. Hopefully, Government may come out with some clarification. 8. From above, we can conclude that, (i) ITC of inputs and/or input services can be availed only by the registered person; (ii) ITC availed on inp
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