Input Tax Credit – An Overview in GST
By: – CSSANJAY MALHOTRA
Goods and Services Tax – GST
Dated:- 23-9-2016
Input Tax Credit – An analysis in Goods & Service Tax
Goods and Service Tax – One Nation, One Tax would benefit all the stakeholders i.e. Industry, Consumers, Government, Professional, Society, etc on account of Reduction in cost of various commodities as the Input Tax credit is available in the complete chain, which breaks in the present Indirect Tax (Excise/VAT) chain.
For e.g. In case of Garments, VAT is leviable on Cotton, Cotton yarn in the manufacturing chain but “Fabric” is Tax Free as is Goods Declared of Special Importance under Section 14 of Central Sales Tax Act 1956. Cost of Fabric goes up with the Input Tax cost not admissible due to Fabric Being Tax free. As a result of same, cost of Garments also goes by VAT cost (Presently 5% + surcharge applicable in few states).
Input Tax Credit in Model GST Law (Section 16 – 18)
CENVAT / VAT Credit in the
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rupees per piece .] but excludes-
(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;
[(B) any goods used for –
(a) construction or execution of works contract of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;]
[(C) capital goods, except when,-
(i) used as parts or components in the manufacture of a final product; or
(ii) the value of such capital goods is upto ten thousand rupees per piece;]
(D) motor vehicles;
(E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and
(F) any goods which have no relationship whatsoever w
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or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; [but excludes],-
[(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
(a) construction or execution of works contract of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of one or more of the specified services; or]
[(B) services provided
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s on commission basis.]
Sec 2(55) defines “Input Service” means any service, subject to exceptions as may be provided under this Act or the Rules made thereunder, used or intended to be used by supplier for making an outward supply in the course of furtherance of business.
Rule 2(a) of CCR defines"capital goods" means:-
(A) the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under 35[heading 6804 and wagons of sub-heading 860692] of the First Schedule to the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof;
(vii) [storage tank and]
[(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and
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s, spares and accessories of motor vehicles which are capital goods for the assesse,]
Sec 2(20) “capital goods” means: –
(A) the following goods, namely:-
(i) all goods falling within Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading
6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the
Schedule to this Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof;
(vii) storage tank; and
(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704,
8711 and their chassis but including dumpers and tippers
used-
(1) at the place of business for supply of goods; or
(2) outside the place of business for generation of electricity for captive use at theplace
of business; or
(3) for supply of services,
(B) motor vehicle designed
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, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7;
Hence, from above aspect of definition of Input, Input Service & Capital Goods under Model GST Law-2016 is self explanatory and also depicts the fact the Input Tax Credit in Model GST Law is linked to “Supply” as against “Manufacture” in the present Excise / VAT Act.
ELIGIBILITY OF INPUT TAX CREDIT
* Any person who has taken Registration within 30 days from the date when he becomes liable for registration and has been granted same is eligible to avail the Input Tax Credit of Input lying in stock, WIP & Inputs contained in finished goods on the day when he becomes liable to pay tax. Credit of Input Tax shall be recorded in his Electronic Ledger maintained at GSTIN site. Sec 16(2)
* The above provisions of Input Tax Credit are admissible to Persons who get themselves voluntarily registered under GST Act. (Persons falling under Sec 19(3)]
* Persons switching over from C
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, amalgamation, lease or transfer of the business with transfer of liabilities, the Input Tax Credit is allowed to be transferred by the said registered taxable person.(Sec 16(8)]
RESTRICTION ON AVAILING INPUT TAX CREDIT (SEC 16(9)]
As set out in the present Excise / VAT Laws, CENVAT Credit is not admissible on some of the items as covered under the definition part as listed in table produced above. Similarly, Input Tax Credit is not admissible in respect of goods and supplies as listed out below:
Sec 16(9) : Notwithstanding anything contained in sub-section (1), (2), (2A) or (3) input tax credit shall not be available in respect of the following:
(a) motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services-
(i) transportation of passengers, or
(ii) transportation of goods, or
(iii) imparting training on motor driving skills;
(b) goods and / or services provided in relation to food and beverages, outd
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f Input Tax Credit is allowed across goods and services supplied in the value chain.
No Input Tax Credit if Depreciation availed on Tax component (Sec 16(10)]
Input Tax Credit provisions in respect of Capital Goods shall stand on same footing as prevails in the present Tax Regime i.e. Input Tax Credit shall not be admissible on Capital Goods if the Depreciation has been availed in respect of the Tax component under Income Tax Act 1961.
Important aspects to be noted while availing Input Tax Credit – Sec 16(11)]
Registered Taxable Person availing Credit of Input Tax shall ensure following:
* Tax Invoice / Debit Note / Supplementary Invoice or any document as may be prescribed by the Government issued under CGST/SGST/IGST Act shall be available in his possession.
* Goods / Services must have been received
* Tax charged by the Supplier in documents prescribed above has ACTUALLY been paid into respective Government treasury in Cash / Utilisation of Input Tax credit. (This is the m
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by % points as specified or the Tax on transactional value of such capital goods whichever is higher.
* No input Tax credit is allowed once the registered taxable person has furnished the return for month of September falling in next F.Y. or filing of Annual return w.e. is earlier.
Input Tax in respects of Input sent on Job Work (Sec 16A)
* Input Tax credit is admissible to registered Taxable person if the inputs are sent to job worker for job work and are received back within a period of 180 Days. Credit of Input Tax is even admissible if the inputs are sent directly by job worker from supplier premises to Job worker premises, wherein period of 180 days would count from receipt of material by job worker.
* Period of 2 years shall be considered for bringing back Capital Goods after job work for availing Input Tax credit.
* In case of non receipt of Inputs / Capital goods within defined time frame, Input Tax credit has to be paid back with Interest and the same may be reclaim
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e distributed only to that supplier;
* credit of tax paid on input services attributable to more than one supplier shall be distributed only amongst such supplier(s) to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State of such supplier, during the relevant period, to the aggregate of the turnover of all such suppliers to whom such input service is attributable and which are operational in the current year, during the said relevant period.
Manner of recovery of credit distributed in Excess (Sec 18)
* Credit of Input tax distributed in excess to supplier and in contravention to the provisions as specified in GST Law, then the same shall be recovered from such distributor along with interest.
Reply By YAGAY AND SUN as =
Amazing work!
Dated: 24-9-2016
Reply By Ganeshan Kalyani as =
Nice article sir. Thanks for sharing.
Dated: 24-9-2016
Reply By KASTURI SETHI as =
Sir,
Read today. This is very much inform
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