INPUT TAX CREDIT IN GST – Mainly in Works Contract

Goods and Services Tax (GST)

Goods and Service Tax (GST) introduced by the Indian Government has come into effect from 1st July 2017. Input Tax Credit (ITC) is an important part of GST.

Input Tax Credit in GST
GST-Successful implementation

Many initiatives are being taken by GST Council to make the transition smooth for the Tax Payers.

Large Corporate Tax Payers are facing a challenging time to implement GST as per the time line set by the Government.

Input Tax Credit (ITC)

Input Tax Credit is the backbone of GST Tax Regime. This is a major shift in the taxation system. Tax authorities has to align their mind according to the new system of taxation. In the earlier Indirect Tax Regime Tax Authorities had a very conservative mind as far as tax credit is concerned. Consequent upon smooth implementation of GST Network, the things seem to become much easier.

Definitions in GST Act

Some of the definitions in GST Act are as under which will help to understand the Input Tax Credit [ITC] better:

CAPITAL GOODS

Means goods, the value of which is capitalized 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

Means any goods other than capital goods which are used or intended to be used by a supplier in the course or furtherance of business.

INPUT SERVICE

Means any service used or intended to be used by a supplier in the course or furtherance of business.

INPUT SERVICE DISTRIBUTOR

Means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.

INPUT TAX

In relation to a registered person, means the Central tax, State tax and Integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy.

INPUT TAX CREDIT

Means the credit of input tax.

Recipient of supply of goods or services or both, means—
(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered;
and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.

REVERSE CHARGE

Means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub- section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act.

Note: RCM under section 9(4) has been kept in abeyance till 31.03.2018. See related notifications (i) 32/2017 and (ii) 38/2017.
Input Tax Credit under GST
Input Tax Credit – Core Aspect of GST

INPUT TAX CREDIT Is Core Aspect Of GST To Avoid The Cascading Effect Of Taxes.

DOCUMENTS REQUIRED FOR ITC:
(A) Supplier’s Invoice for Goods and Services.

(B) Supplier’s Debit Note.

(C) Bill of Entry in case of Imported Goods or Services.

(D) Invoice issued under Reverse Charge Scheme.

(E) Documents issued by Input Service Distributor.

REQUIREMENTS FOR AVAILING CREDIT:

(A) Invoices of Supplier;

(B) Goods or Services or BOTH Received;

(C) 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.

(D) GST Tax actually paid or Credit utilized; and

(E) Furnishing the Return under Section 39.

Payment within 180 days from the invoice issuing date necessary

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 (180) 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.

It is going to create a lot of turmoil in the days to come, because the Contracts Arrangements of Pre-GST era are framed as such, mainly in turn key contracts, where there is a cap of maximum limit of tax to be paid. Since, the Contracts are lump sum Contracts including all taxes, now being in GST era, the amount of taxes to be paid are being re-framed which Contractors may not agree also. In this situations Contractors have to pay GST but reimbursement is uncertain which will create litigation. Because of Contractual Terms and Conditions, Contractors may bill to the Service Receiver. However, the Service Receiver may not pay the amounts currently and will be settled at the time of Contract Closure. These type of situations will create a challenge to the organizations having CAPEX plans.

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GOODS RECEIVED IN LOTS

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 installments.

  • Hence, while giving purchase order delivery schedule must be taken care of. Because in certain lots some items are required at last to complete the construction. The item is brought at last and hence, creates a large time gap between 1st item and last shipment of the lot. This will have an impact on ITC also.
Goods used partly for Business and partly for other Purposes

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.

  • Firms having such type of expenses, must have proper record keeping system to file the returns.
SPECIAL MENTION

List of items of expenditure on which ITC is not available :
Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(a) motor vehicles and other conveyances except when they are used––
(i) for making the following taxable supplies, namely:—
further supply of such vehicles or conveyances ; or
goods or services or both used for personal consumption;

(ii) for transportation of goods;

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) such 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 part of a taxable composite or mixed supply.

(iv)  travel benefits extended to employees on vacation such as leave or home travel concession;

(v) 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;

(vi) 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.

Explanation – For the purposes of clauses (v) and (vi), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;

  • goods or services or both on which tax has been paid under section 10 or;
  • goods or services or both received by a non-resident taxable person except on goods imported by him;
  • transportation of passengers;
  • imparting training on driving, flying, navigating such vehicles or conveyances;
  • goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
  • any tax paid in accordance with the provisions of sections 74, 129 and 130.

The Government may prescribe the manner in which the credit referred to in sub-35 sections (1) and (2) may be attributed.

Explanation – For the purposes of this Chapter and Chapter VI, the expression “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.

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This is a compilation work for the benefit of the readers. In the mean time, if you have found this article useful, please don’t forget to share it with others on Facebook, LinkedIn, Twitter, Pinterest, StumbleUpon, Reddit & Google+.

Compiled by-Santosh Kumar Singh, ACA, ACMA, MBA(Fin)


GST – Now a Reality

gst
Goods and Services Tax, popularly known as GST is a hot topic for quite some time in Indian Indirect Taxation. It is a revolutionary step of the Government towards tax reform in the form of GST.
GST – Overview :

Concept of GST is not new to the world. In some countries it is termed as VAT. Around 160 countries all over the world has implemented GST or VAT in some form or other. GST or VAT is a destination based taxation on goods and services. France is the first country to implement GST. Canada has Dual GST and now India is going to implement the same w.e.f. April 1st 2017.

As GST is a destination based consumption tax it is for sure that the tax burden has to be borne by the ultimate consumer of the goods & services.

SOME INSIGHTS ON GOODS AND SERVICES TAX:

Goods and Services Tax is a topic of interest in recent times in India. Many people do not have any idea about Goods and Services Tax, though lot other have developed knowing more and more about it.

GST is now reality

With the passing of Constitutional Amendment Bill, 2014 (122nd Amendment), popularly known as “GST Bill” by Rajya Sabha on August 01, 2016, Central Government is moving at an amazing speed to implement GST w.e.f. April 01, 2017. GST is now a reality. Now it seems real and achievable. Rajya Sabha is the Upper House of Parliament in India.

What is Goods and Services Tax :

Goods and Services Tax is a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. After 1947, this is the biggest tax reforms in Independent India. There is a prediction that, with the implementation of GST law, reputation of our country will enhance globally; inflation and tax evasion will be reduced.

SOME OF THE NEW AMENDMENTS IN THE GST BILL :

  • Scrapping of 1 percent (1%) additional tax on inter-state supply of goods.
  • Compensation to States for up to 5 (five) years on revenue loss on account of implementation of GST.
  • Re-designing of framework for distribution of CGST (Central GST) and IGST (Integrated GST) that will be collected by Centre, amongst the Centre and States.
  • IGST collected by the Centre and apportioned to States will not form part of Consolidated Fund of India.
  • The GST Council shall establish a standing mechanism to adjudicate any dispute arising out of its recommendations.

WHAT ARE THE OLD AMENDMENTS ALREADY MADE TO THE GST BILL?

  • To replace the current indirect tax regime consisting of multiplicity of taxes with a single tax.
  • Conferring concurrent taxing powers on the Centre and States for levying GST on every transaction of supply of goods or services or both.
  • Subsuming of various Central indirect taxes and levies.
  • Subsuming of State Value Added Tax (VAT) / Sales Tax.
  • Dispensing with the concept of ‘declared goods of special importance’.
  • Levy of integrated GST on Inter-State transactions of goods and services.
  • Conferring concurrent power upon Parliament and the State Legislatures to make laws governing GST.
  • Coverage of all goods and services, except alcoholic liquor for human consumption, under GST.
  • In case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy of GST till a date notified on the recommendation of the GST Council.
  • The Union Cabinet has approved setting up of GST Council as per Article 279A of the amended Constitution and its secretariat with office at New Delhi. The GST Council will be responsible for deciding various issues including the GST tax rate and functioning of GST regime.

IMPORTANT TO CONSUMERS (after implementation of GST) :

a) Telephone bills to cost more.

b) Logistics, consumer goods, auto to benefit.

c) Buyers to get benefit.

d) Jewellery to be costlier.

RATIFICATION OF GST BILL BY STATES (in chronological order) :

  1. Assam
  2. Bihar
  3. Jharkhand
  4. Himachal Pradesh
  5. Chattisgarh
  6. Gujarat
  7. Madhya Pradesh
  8. Delhi
  9. Nagaland
  10. Maharashtra
  11. Haryana
  12. Sikkim
  13. Mizoram
  14. Telengana
  15. Goa
  16. Odisha

GST Rates on Goods & Services will be based on Revenue Neutral Rate (RNR) :-

—There will be four rates-

  • Merit rate for essential goods and services;
  • Standard rate for goods and services in general;
  • Special rate for precious metals; and
  • NIL rates.

Current Rates of GST in some other countries are:

  • Australia – 10%
  • France – 19.60%
  • Canada – 5%
  • Germany – 19%
  • Japan – 8%
  • Singapore – 7%
  • Sweden – 25%
  • New Zealand – 15%
  • Pakistan – 17%

LIABILITY TO BE REGISTERED UNDER GST (SCHEDULE III) :

  • Every supplier shall be liable to be registered under GST Act in the State from where he makes a taxable supply of goods and / or services if his aggregate turnover in a financial year exceeds Rs. 9 (Nine) Lakh.

> The threshold limit of Rs. 4 (Four) lakh will apply only if the taxable person conducts his business in any of the North Eastern States including Sikkim.

> North Eastern States include Seven Sister States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland & Tripura and the Himalayan State of Sikkim.

> The supplier shall not be liable to registration if his aggregate turnover consists of only goods and / or services which are not liable to tax under this Act.

UPDATE:

The GST Council agreed on to set the threshold exemption limit to Rs. 20.00 lakhs for all States except North-Eastern States where this limit will be Rs. 10.00 lakhs.

  • Every person who is already registered or holds a license under an earlier law like Excise Law, VAT Law, CST Law, etc., shall be liable to be registered under this Act with effect from the appointed day.
  • The following categories of persons shall be compulsorily required to be registered under Goods and Services Tax Act without any threshold limits: (Limit of Rs. 9 lakh / 4 lakh is not available)

1) the persons making any Inter-State taxable supply;

2) casual taxable persons;

3) the persons who pay tax under reverse charge;

4) non-resident taxable persons;

5) the persons who deduct tax under Section 37;

6) the persons who supply goods and / or services on behalf of other registered taxable persons whether as an agent or otherwise;

7) input service distributor;

8) the persons who supply goods and / or services, other than branded services, through electronic commerce operator;

9) every electronic commerce operator;

10) an aggregator who supplies services under his brand name or his trade name, irrespective of the threshold limit of 9 lakh / 4 lakh; and

11) such other person or class of persons as may be notified by the Central Government or a State Government on the recommendations of the GST Council.

Time limit for registration is within 30 (Thirty) days from the date of liable to get register arises.

SOME IMPORTANT POINTS REGARDING GST REGISTRATION :

(1) Every person who is liable to be registered under Schedule III of this Act shall apply for registration in every such State in which he so liable within 30 (thirty) days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed.

(2) A person having multiple business verticals in a State may obtain a separate registration for each business vertical, subject to such conditions as may be prescribed.

(3) There is a provision for a person to get himself registered voluntarily.

(4) Every person shall have a Permanent Account Number (PAN) in order to be eligible for grant of registration.

(5) A non-resident taxable person may be granted registration on the basis of any other document as may be prescribed.

(6) The registration or the Unique Identity Number (UIN) shall be granted, or as the case may be, rejected after due verification in the manner and within such period as may be prescribed.

(7) The proper officer shall not reject the application for registration or the Unique Identity Number without giving a notice to show cause and without giving the person a reasonable opportunity of being heard.

(8) A certificate of registration shall be issued in the prescribed form with effective date as may be prescribed.

(9) A registration or a Unique Identity Number shall be deemed to have been granted after the period, if no deficiency has been communicated to the applicant by the proper officer within that period.

(10) Any rejection of application for registration or the Unique Identity Number under the CGST Act /SGST Act shall be deemed to be a rejection of application for registration under the SGST Act / CGST Act.

(11) The grant of registration or the Unique Identity Number under the CGST Act / SGST Act shall be deemed to be a grant of registration or Unique Identity Number under SGST Act / CGST Act.

MORE WILL FOLLOW———–

This is a compilation work done for the benefit of the readers. In the mean time, if you have found this article useful, please don’t forget to share it with others on Facebook, LinkedIn, Twitter, Pinterest, StumbleUpon, Reddit & Google+.