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Eligibility and Conditions for taking Input Tax Credit (ITC) under GST Law [ 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. Registered Person only entitled to take Input Tax Credit (ITC) under GST Regime [Section 16(1)]

Every registered person shall,— 

— subject to such conditions and restrictions as may be prescribed

and 

— in the manner specified in section 49, 

be entitled to take credit of input tax charged on any supply of goods or services or both 

— 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 (ECL) of such person. 

Thus, 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 are used or intended to be used in the course or furtherance of his business, and 

(iii)          he satisfies the conditions prescribed.

2. Conditions for Claiming Input Tax Credit (ITC) under GST [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 

  1. a tax invoice or 

  2. debit note issued by a supplier registered under this Act, or 

  3. such other tax paying documents as may be prescribed; 

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

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

Example  :

Mr. Dust of Pune provided Consultancy Services to Mr. Dirty, 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 19.8.2019 in Mumbai. Mr. Dirty 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) under GST  [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: 

  1. an invoice issued by the supplier of goods or services or both in accordance with the provisions of  section 31;

  2. 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); 

  3. a debit note issued by a supplier in accordance with the provisions of section 34; 

  4. 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; 

  5. 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 are 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, wilful  misstatement or suppression of facts.

4. ITC (Input Tax Credit) under GST on Goods received in Lots or Instalments [First proviso to section 16(2)]:

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

Example-1 : 

Mr. Dust agrees to supply to Mr. Dirty (a Trader) certain goods worth Rs. 10,00,000 in the following lots: 

Date

LOT

Value of Goods

10-07-2019

First LOT

Rs. 5,00,000

10-08-2019

Second LOT

Rs. 3,00,000

10-09-2019

Third LOT

Rs. 2,00,000

When and for what amount will Mr. Dirty be able to take input credit? Assume the rate of GST is 18%. 

Solution :

Input credit shall be available to Mr. Dirty only after receipt of third lot of goods i.e. after 10.09.2019.

The amount of  input credit shall be Rs. 1,80,000 (10,00,000 × 18%) 

Example-2 : 

Mr. Dust makes an advance payment of Rs. 5,00,000 to Mr. Dirty on 5.9.2019 for supply of 6,000 kg of certain material. Mr. Dirty  raises an invoice for the entire amount on 5.9.2019 itself but the material is delivered to Mr. Dust in 6 lots over a period  of 6 months starting from October, 2019. When will Mr. Dust be able to take input credit? 

Solution  :

In this case, although Mr. Dust has made the entire payment in September 2019 but he will able to claim the input tax  credit in the month of March 2019 i.e. at the time of receipt of the last lot of material.

5. Reversal of ITC (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 in case of Rule 37.

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: 

  1. In case of supplies on which tax is payable by the recipient under the reverse charge basis; 

  2. deemed supplies made without consideration 

6. Reversal of Input Tax Credit (ITC) under GST 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 1 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.

7. Re-Availment of Input Tax Credit (ITC) under GST 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) below)

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 that had been reversed earlier. [Rule 37(4)]

Example -1
Mr. Dust, recipient of specified goods submit the following information: 

Date of invoice

10.8.2018 

 

Rs.

Value of specified goods

10,00,000 

Central Tax i.e. CGST charged on above @ 9%

90,000

State Tax i.e. SGST charged on the above @ 9%

90,000 

Total

11,80,000

 

Mr. Dust does not make payment of Rs. 11,80,000 till 6.2.2019. 

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

Solution -1 :

Since the payment has not been made within 180 days from the date of issue of invoice by the supplier, ITC  of Rs. 1,80,000 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.

Example -2 :

Take the above illustration and assume Mr. Dust makes payment of Rs. 11,80,000 to the supplier on 26.02.2019. 

Solution -2 :

Mr. Dust shall be entitled to take credit of following taxes on 26.2.2019:

  • Credit of Central Tax (CGST)        : Rs. 90,000 

  • Credit of State Tax (SGST)             : Rs. 90,000

8.  Time Limit for Availing Input Tax Credit (ITC) under GST Law  [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 filed 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).

Example – 3 :

(a) Date of Invoice for supply of goods

18.10.2017 

(b) Due date of furnishing return for the month of September 2018

20.10.2018 

(c) Annual Return for the year 2017-18 furnished on

24.12.2018

 

(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 (1) 

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) 24.12.2018 i.e. it will be 20.10.2018 

Solution  (2) :

(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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