Eligibility and Conditions for taking ITC (Input Tax Credit) [Section 16 of the CGST Act, 2017]

Home   /   Eligibility and Conditions for taking ITC (Input Tax Credit) [Section 16 of the CGST Act, 2017]

Under the GST regime. the Centre will give input tax credit for Central GST/IGST and the States will give input tax credit for State GST/IGST. However, cross-utilization of credit between Central GST and State GST will not be allowed. Nevertheless, the supplier of goods or services or both shall be able to claim Input Tax Credit (ITC) within the respective heads and so long as ITC does not get wasted it will have only temporary cash flow issues.

1. Input Tax Credit (ITC) [Section 2(63)] :  “Input tax credit” means the credit of input tax.

2. Input Tax  [Section 2(62)] : “Input tax” in relation to a registered person, means the central tax, State tax, 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 reverse charge by the recipient in case of certain notified goods and services under the provisions of section 9(3) of CGST Act or section 5(3) of the IGST Act, or section 7(3) of the UTGST Act, or section 9(3) of the SGST Act, as the case may be. (c) Tax payable under reverse charge by the recipient registered person on purchase of goods and services from the unregistered dealer under the provisions of section 9(4) of CGST Act or section 5(4) of the IGST Act, or section 7(4) of the UTCJST Act, or section 9(4) of the SGST Act, as the case may be. Section 9(4) or section 5(4), etc. have been deferred till 30.6.2018; but does not include the tax paid under the composition levy.

3. “Input [Section 2(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.

4. “Input Service [Section 2(60)] : “input service” means any service used or intended to be used by a supplier in the course or furtherance of business.

5. Capital Goods [Section 2(19)] : “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 arc used or intended to be used in the course or furtherance of business.

6. Electronic Credit Ledger [Section 2(46)] :  “Electronic credit ledger” means the electronic credit ledger referred to in sub-section (2) of section 49(2).

1. Registered Person only entitled to take Input Tax Credit (ITC) [Section 16(1)]

The person shall be entitled to take credit of input tax only when—

(i) he is registered under GST,

(ii) the goods and/or services arc used or intended to be used in the course or furtherance of his business, and

(iii) he satisfies the conditions prescribed below :

2. Conditions for claiming Input Tax Credit [Section 16(2)]

No registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both unless he satisfies the following conditions:

(a)        he is in possession of

       (i)         a Tax Invoice or

      (ii)        debit note issued by a supplier registered under this Act, or

      (iii)       such other tax paying documents as may be prescribed (see below) ;

(b)       he has received the goods or services or both.

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;

(c)        The tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply.

Example :

Mr. Dust of Pune provided Consultancy Servicesto Mr. Clean, a trader for agreed consideration of Rs. 2,00,000 + GST of Rs. 36,000 [consisting of CGST of Rs. 18,000 and SGST of Rs. 18.000] on 19.8.2018 in Mumbai. Mr. Clean shall not be able to avail credit of aforesaid GST Rs. 36,000 until Mr. Dust has paid Rs. 18,000 each to the credit of the Central Government and Maharashtra Government respectively

(d)        He has furnished the Return under Section 39:

3.    Documentary requirements and Conditions for Claiming Input Tax Credit (ITC) [Rule 36]

(1)       The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely:

(a)        an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31;

(b)       an invoice issued in accordance with the provisions of section 31(3)(f) (relating to invoice to be issued by registered person for purchases from unregistered dealer), subject to the payment of tax (since reverse charge payable under section 9(4) has been deferred till 30.6.2018, this invoice is not to be issued till 30.6.2018);

(c)        a debit note issued by a supplier in accordance with the provisions of section 34;

(d)       a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports;

(e)        an input service distributor invoice or input service distributor credit note or any document issued by an input service distributor in accordance with the provisions of rule 54(1).

(2)       Input tax credit shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI arc contained in the said document, and the relevant information, as contained in the said document, is furnished in FORM GSTR-2 by such person.

(3)       No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.

4. Input Tax Credit (ITC) on Goods Received in Lots or Instalments [First proviso to Section 16(2)]

Where the goods against an invoice arc received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment.

Illustration-1

Mr. Dust agrees to supply to Mr. Clean (a Trader) certain goods worth Rs. 10,00.000 in the following lots:

DateLotValue of Goods
18.09.2018First LotRs. 2,00,000
18.10.2018Second LotRs. 3,00,000
18.11.2018Third LotRs. 5,00,000

When and for what amount will Mr. Clean be able to take Input Tax Credit (ITC) ? Assume the rate of GST is 18%.

Solution

Input credit shall be available to Mr. Clean only after receipt of third lot of goods i.e. after 18.11.2017. The amount of input credit shall be Rs. 1,80,000 (10,00,000 x 18%)

Illustration-2
Mr. Dust makes an advance payment of Rs. 5,00,000 to Mr. Clean on 5.9.20 17 for supply of 6,000 kg of certain material. Mr. Clean raises an invoice for the entire amount on 5.9.20 17 itself but the material is delivered to Mr. Dust in 6 lots over a period of 6 months starting from October, 2017. When will Mr. Dust be able to take input credit?

Solution

In this case, although Mr. Dust has made the entire payment in September 2017 but he will able to claim the input tax credit in the month of March 2017 i.e. at the time of receipt of the last lot of material.

5. Reversal of input tax credit if payment for the invoice is not made within 180 days from the date of issue of invoice [Second Proviso to Section 16(2)]

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 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, in such manner as may be prescribed below :

It may be noted that the above condition of payment of the value of supply within 180 days does not apply in the following two cases:

(a)        In case of supplies on which tax is payable by the recipient under the Reverse Charge Basis;

(b)       deemed supplies made without consideration 


Reversal of Input Tax Credit (ITC) in the case of Non-Payment of Consideration (Rule 37]

(1)       A registered person. who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof the value of such supply along with the tax payable thereon within the time limit specified in the second proviso to section 16(2) (i.e. 180 days from the date of issue of invoice by the supplier), shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of 180 days from the date of the issue of the invoice.

Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the deemed supply mentioned under clause (b) above.

Provided further that the value of supplies on account of any amount added in accordance with the provisions of section 15(2)(b) shall be deemed to have been paid for the purposes of the deemed supply mentioned under clause (b) above.

(2)       The amount of input tax credit referred to in rule 37(1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.

(3)       The registered person shall be liable to pay interest at the rate not exceeding 18% as notified under section 50(1) for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in rule 37(2), is paid.  

6. Re-availment of Input Tax Credit (ITC) after Reversal under Second Proviso to Section 16(2) [Third Proviso to Section 16(2)]

After reversal of input tax credit as per second proviso to section 16(2) (see above), 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. Further, in case part payment is made, ITC would be allowed proportionately. [See also Rule 37(4)]

The time limit specified in section 16(4) shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter. that had been reversed earlier. [Rule 37(4)]

Illustration-1

Mr. Dust, recipient of specified goods submit the following information:

Date of invoice10.8.2017
(Rs.)
Value of specified goods5,00,000
Central Tax i.e. CGST charged on above @ 9%45,000
State Tax i.e. SGST charged on the above 9%45,000
Total5,90,000

Mr. Dust does not make payment of Rs 5,90,000 till 6.2.2018.

Determine how much amount of input tax credit will be added to the output tax liability.

Solution

Since the payment has not been made within 180 days from the date of issue of invoice by the supplier, ITC of Rs. 90,000 on account of above-mentioned Central Tax and State Tax shall be added to the output tax liability of Mr. Dust along with interest thereon from the date of claim of credit.

7. No Input Tax Credit will be allowed if depreciation is claimed on the tax component of the cost of capital goods [Section 16(3)]

Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.

8. Time Limit for availing Input Tax Credit (ITC) [Section 16(4)]

A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of 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.

In other words, time limit for taking availing ITC in respect of any invoice or debit note for supply of goods or services or both shall be earlier of:

(i)         Due date of furnishing of Return under section 39(1) for the month of September following the end of the financial year to which such invoice or invoice relating to such debit note pertains; or

(ii)        Date of furnishing of Annual Return.

As per section 39(1), due date for filing of return for every calendar month is 20 days after the end of the calendar month

In terms of section 44(1), Annual Return for every financial year is to be furnished on or before the 31St December following the end of such financial year.

It may be noted that the return for the month of September is to be filed by 20th October and annual return of a financial year is to be tiled by 31st December of the succeeding financial year.

Therefore, the time limit for taking ITC is 20th October of the next financial year or the actual date of filing of annual return, whichever is earlier. The underlying reasoning for this restriction is that no change in return is permitted after September of next financial year. If annual return is filed before the month of September, then no change can be made after filing of annual return.

Exception

The time limit u/s 16(4) does not apply to claim for re-availing of credit that had been reversed earlier under second proviso to section 16(2) (i.e. which has been reversed after a period of 180 days from the date of issue of invoice by the supplier due to non-payment to the supplier).

Illustration :

(a) Date of Invoice for supply of goods18.10.2017
(b) Due date of furnishing return for the month of September 201820.10.2018
(c) Annual Return for the year 2017-18 furnished on24.12.2018

(i) Determine the time limit for availing input tax credit.

(ii) What will be the answer if the annual return is furnished on 15.10.2018

Solution (i) :

Time Limit for taking ITC in respect of invoior dated 18.10.2017 shall be earlier of the following two dates:

(a) 20.10.2018 or(b)24.12.20l8 i.e. it will be 20.10.2018

Solution (ii) :

Time Limit for taking ITC in respect of invoice dated 18.10.2017 shall be earlier of the following two dates:(a) 20.10.2018 or(b) 15.10.2018 i.e. it will be 15.10.2018

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