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.
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:
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.
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.
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.
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.
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 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.
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.
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.
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)