CS Professional:Advanced Tax Laws [Ch-3 ITC & GST liability]

(ITC=Input Tax Credit)

taxes paid on inward supply of inputs, capital goods or services=input taxes. also includes tax paid on reverse charge including tax paid by importer. however, tax paid under composition levy under section 10 isn't available as credit.

IMPORTANT DEFINITIONS

1. Section  2(19): CAPITAL GOODS
2.        "      2 (52): GOODS
3.        "      2 (59): INPUT
4.        "      2 (60): INPUT SERVICE
5.        "      2 (62): INPUT TAX
6.        "      2 (63): INPUT TAX CREDIT
7.        "      2 (68): JOB WORK

ELIGIBILITY/CONDITIONS FOR TAKING ITC (SECTION 16)

• every regstd. person entitled under section 49 used/intended for business furtherance and amt. credited to an electronic credit ledger.
• not entitled unless:
• tax invoice/debit note
• details of the above furnished by the supplier in statement of outward supplies and communicated to recipient under section 37.
• actual receipt of goods/services/both 16(2)(b)
• subject to 41/43A, the tax charged has actually been paid to the govt. (2)(c)
• return furnished under 39 [(2)(d)]
• upon receipt of last installment/lot [first proviso to (2)(d)]
• recipient fails to pay supplier except in reverse charge,supply+tax payable within 180 days from invoice; ITC availed+interest by recipient added to output tax liability. [second proviso]
• recipient allowed ITC=amt. paid+tax
• not entitled if already claimed depreciation on tax of capital goods/P&M cost 16(3)
• not entitled for invoices/debit notes after the due date of 39 to which such invoices/notes relate to. 16(4)

DOCUMENTARY REQUIREMENTS/CONDITIONS FOR CLAIMING ITC [16(2) read with RULE 36]

• [1]invoice issued by supplier a/c to Section 31
• subject to tax payment
• debit note a/c to 34
• bill of entry/similar doc under customs act, 1962 or rules made thereunder for integrated tax
• Input Service Distributor invoice/credit note a/c to rule 54.
• relevant particulars filed in GSTR-2
• no ITC against a fraudulent/wilfully misstated/fact suppressed demand
• details furnished by supplier in GSTR-1
• IMPORTANT CLARIFICATION BY CBIC ON RULE 36(4) DATED 11/11/19
• https://cbic-gst.gov.in/pdf/circular-cgst-123_New.pdf
  

ITC REVERSAL IN CASE OF NON-PAYMENT OF CONSIDERATION [RULE 37]

• a regstd. person who availed ITC but didn't pay the supplier within 16(2)  shall furnish such details in GSTR-2 for the month immediately following 180 days from the invoice.
• supplies made without consideration & value added under 15(2)(b) under schedule I shall be deemed paid.
• ITC of details furnished above added to output tax liability for months in which details are furnished.
• interest payable as under 50(1) from the period credit availed up to the period in which the amount added to the output tax liability is paid. 
• time limit of 16(4) inapplicable for re-availing for credit which had been reversed earlier.

TRANSITIONAL PROVISIONS UNDER ITC

to enable existing taxpayers to  migrate to GST. availing/carrying forward ITC earned in the pre-GST regime which has been currently subsumed under GST.

SECTION 140: TRANSITIONAL ARRANGEMENTS FOR ITC

1. regstd. person other than one opting to pay tax under Section 10 is entitled to CENVAT credit of eligible duties carried f/w in return relating to period ending immediately preceding appointed day.
2. credit not allowed if:
• claim not admissible as ITC
• not furnished all returns for 6 months preceding appointed day
• credit related to mft goods cleared under exemption notifications
3. credit w.r.t capital goods not carried f/w in return
4. person not liable to be regstd. engaged in ft. of exempted goods providing works contract service/1st stage/2nd stage dealer/regstd. importer entitled credit of eligible duties w.r.t inputs held in stock provided:
• used for making taxable supplies
• ITC eligible
• invoice/relevant doc issued not earlier than 12 months preceding appointed day
5. entitled to credit provided payment made to supplier under existing law and within time
• 30 days+30 days extension by commissioner
• furnish statement of credit taken
6. regstd. person paying tax @ fixed rate/amount entitled to credit
7. ITC of services received prior to appointed day by ISD eligible for credit distribution
8. credit transferred to any regstd. person having the same PAN for which central registration was obtained.
9. CENVAT credit reversed due to non-payment within 3 months; can be reclaimed as prescribed provided payment made within 3 months from appointed day.

OPERATIONAL MECHANISM UNDER CGST RULES TO GIVE EFFECT TO tax/duty credit carried forward/goods held in stock[RULE 117]

1. entitled to take credit under Section 140, shall within 90 days of appointed day submit an electronic declaration GST TRAN-1.
• increased by commissioner for a further 90 days
• [1A] declaration submission not extended beyond 31/03/2020 due to technical difficulties.
• if inputs are received from export oriented units (EOUs)/units in Electronic Hardware Tech parks; credit as per rule 3 of CENVAT credit rules,2004.
2. every declaration shall specify separately every item of capital goods such as tax/duty availed or yet to be availed.
• details of stock held separately
• in case of claim under 140(5), furnish:
• suppliers
• description/value of supply
• quantity/units
• eligible taxes and duties
• date of receipt in books of recipient
3. credit specified in GST TRAN-1 credited to the electronic credit ledger maintained in GST PMT-2.
4. person not regstd. under existing law allowed to avail ITC on goods on which custom duty is leviable and no doc evidencing payment is available.
• @60% which attract central tax @9%/more and 40% for other goods credited after central tax is paid.
• in case of integrated tax: 30/20% allowed
• available for 6 tax periods from appointed day
• central credit tax allowed subject to:
• goods weren't unconditionally exempt
• procurement doc available
• stock details furnished by claimant in GST TRAN-2 
• stock of goods easily identifiable

[RULE 118] DECLARATION UNDER 142(11)(c) in GST TRAN-1 of supply in which VAT/service tax has been paid but supply made post appointed day.

[RULE 119] DECLARATION of stock held by principal/job worker under Section 141

[RULE 120] DECLARATION OF GOODS SENT ON APPROVAL BASIS UNDER Section 142(12)

[RULE 120A] REVISION OF DECLARATION IN RULE 120

[RULE 121] AMT. CREDITED UNDER RULE 117 SUB-RULE (3) may be verified and proceedings under Section 73/74 shall be initiated for credit wrongly availed.

CBIC CLARIFICATION for above: https://www.taxheal.com

INELIGIBLE CREDITS [SECTION 17]

blocked/unavailable credits in 17(1,2,3,4)

here, "value of exempt supply" shall not include activities/transactions in Schedule III except para 5 of Schedule III.

ILLUSTRATION:Input X issued to produce and supply output Y which is exempt. No ITC is available on input X because it was used for exempt supply. In the above example if the output Y is exported or supplied to an SEZ unit, ITC is available on Input X as the outward supply is zero rated.

also refer to Rule 42: determination of ITC and reversal thereof.

17(4) banking co./FIs supplying services of accepting deposits, extending loans and advances as stated in above diagram once exercised shall not be withdrawn during the remaining FY. 50% inapplicable to transfers among the same PAN.

RULE 38: if a banking co./FI chooses not to comply then:

• shall not avail credit of:
• tax paid on inputs used for non-business purpose
• credit to supplies under 17(5) in GSTR-2
• avail credit of tax paid for inputs under 17(4)
• remaining 50%=ITC admissible to co./FI and furnished in GSTR-2
• above subject to Sections 41,42 & 43 credited to credit ledger

17(5) goods and/or services/both where credit remains ineligible even if used for business/taxable purposes.

notwithstanding Section 16(1)/18(1), ITC ineligible for

1. motor vehicles for transportation;approved seating of <13 including driver (12+1) except for making the following taxable supplies:
• further supply of such motor vehicles
• passenger transportation
• imparting driving training or goods transportation (except GTAs)
2. vessels & aircraft except when used for:
• further supply of such
• passenger transportation
• imparting flying/navigation training or goods transportation
3. insurance,servicing,repair & maintenance of above except when received by a taxable person engaged in:
• mft. of such units
• supply of general insurance insured by him
4. The following supply:
• food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for specified purposes.
• ITC is available where inward supply is used for making outward taxable supply of the same category/element of taxable composite/mixed supply.
• membership of a club,health and fitness centre
• travel benefits to employees on vacation but ITC will be available where this is obligatory under any law.
5. works contract services for construction of immovable property (except P&M) except when it is input for further supply
6. input received for constructing immovable property on his own a.c including when used for business.
• “construction” includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.
7. on which tax paid under Section 10
8. received by non-taxable residents except when imported by them
9. used for personal consumption
10. lost,stolen,destroyed,written off or disposed by gift/free samples
11. tax paid under Sections 74,129 and 130

for illustrations, refer ICSI module.

IMP CASE LAWS: RE : Wework India Management Pvt. Ltd. 2020 (37) G.S.T.L. 136 (App. A.A.R. - GST - Kar.); RE : Moksh Agarbatti Co. 2020 (36) G.S.T.L. 135 (A.A.R. - GST - Guj.)

CREDIT AVAILABLE IN SPECIAL CIRCUMSTANCES [SECTION 18]

earlier not entitled to avail ITC or vice-versa and ITC in case of transfer of existing business.legal position for tax payment of tax on capital goods supply

Section 18(1)

provided that, capital goods credit should be reduced by such percentage points as prescribed.

18(2) ITC disallowed after 1 year expiry from the issue of invoice.

RULE 40: PROCEDURE for claiming credit for Section 18

1. paid by reducing 5% points per quarter for ITC on capital goods from invoice/doc date.
2. in 18(1), a person becoming eligible shall register within 30 days/+extended period shall make electronic declaration in GST ITC-01 of his respective eligibility.
3. declaration should clearly specify input details as on the appointed day.
4. duly certified by PCA/PCMA if aggregate claim > 2 lakhs.
5. ITC claimed verified by the corresponding supplier in GSTR-1/4.

ITC in case of business transfer [18(3) & RULE 41]

change in regstd.person's constitution such as sale,merger,demerger,amalgamation,lease or transfer with specific provisions for transfer of liabilities, allowed to transfer unutilized ITC to the resulting unit as prescribed.

RULE 41

• furnish details in GST ITC-02 electronically with a transfer request.
• in case of demerger, value apportioned to new units per scheme
• "value of assets"= entire assets irrespective of availing ITC
• transferor to submit certificate issued by PCA/PCMA certifying liabilities transfer provision.
• The transferee accepts details on common portal and unutilized credit transfers.
• inputs/capital goods duly accounted by transferee in his books

RULE 41A

• separate registration for multiple places in accordance with rule 11 and transferring ITC to newly regstd. places; shall furnish within 30 days from obtaining registrations, details in GST ITC-02A electronically.
• transferee accepts on the common portal
• CBIC clarifications
• https://cbic-gst.gov.in
  
• https://cbic-gst.gov.in
  

REVERSAL OF CREDIT UNDER SPECIAL CIRCUMSTANCES [18(4) & RULE 44]

entitled to ITC but becomes disentitled forthwith such as opting to pay tax under Section 10 or supply becomes wholly exempt; he shall pay by debit in electronic credit/cash ledger=ITC reduced by %points as prescribed. post-payment, remaining ITC shall lapse.

RULE 44

1. ITC for 18(4) or 29(5) determined as:
• proportionately on corresponding invoices on which credit availed
• for capital goods: ITC involved in remaining valuable life (assuming 5 years) on pro-rata basis.
2. determined separately for C/S/I/UTGST
3. if tax invoices are unavailable,estimate based on market price as applicable
4. amount under 1. shall be part of output tax liability and furnished in GST iTC-03 if relating to 18(4) and GSTR-10 if related to registration cancellation.
5. duly certified by PCA/PCMA

ITC on SUPPLY OF CAPITAL GOODS/P&M [SECTION 18(6) & RULE 44(6)]

on which ITC availed, pay such reduced by %points as prescribed or tax on transaction value under Section 15,whichever is HIGHER.

Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15. 

ITC FOR INPUTS/CAP GOODS SENT FOR JOB WORK [SECTION 19 & RULE 45]

Section 16(2) states ITC availed when goods physically received.Section 143 permits sending inputs outside work premises and permits direct delivery as well.

19(1): principal shall, subject to below be allowed ITC on inputs sent for job work:

• notwithstanding 16(2)(b),ITC allowed even if sent directly and not first brought to the principal's business place.
• inputs not received back/not supplied after completion of job work a/c to 143(1)(a/b) within 1 year,deemed supplied.
• if supplied directly to job workers,1 year calculated from receipt by worker.
• principal allowed ITC on capital goods sent even if sent directly
• not received back within 3 years,deemed supplied
• calculated from receipt by worker
• "principal" defined in Section 143

CONDITIONS/RESTRICTIONS W.R.T. inputs sent to Job Worker [RULE 45]

1. must be sent under a challan cover
• challan is able to be endorsed by job workers and further endorsed by subsequent recipients.
• challan details as per RULE 55
2. challans during a quarter; details furnished in GST ITC-04 furnished on the 25th of the month succeeding the quarter+commissioner extension.
3. inputs not returned within stipulated time=deemed supply and declared in GSTR-1.
• "cap goods" include P&M
• "exempt supply" under 17(3):
• land and building taken as adopted for stamp duty
• security value=1% of sale value
4. The principal can supply it from the job worker's place if the principal declares it as his additional business place except when:
• job worker regstd. under Section 25
• principal engaged in supply of commissioner notified goods

INPUT SERVICE DISTRIBUTOR [Section 20 and Rule 39]

existing under erstwhile service tax. used by units not providing outputs directly but through factories/branches/premises and further providing ITC to taxable units having the same PAN.

it is an office of supplier receiving tax invoices under Section 31.

bills are raised in Head Office's name but HO itself wouldn't be rendering any services. ISD is required to obtain a separate registration having no threshold.

Credit Distribution by ISD [Section 20]

• by issue of a doc containing the amount being distributed having particulars in chapter VI [rule 46 to 55].
• furnished in GSTR-2 (inward supply)
• credit subject to:
• against a doc
• credit distributed not > credit available
• ITC distributed only to attributable recipient
• if 2/more recipients,distributed on pro-rata basis @ turnover which is operational in the relevant period.
• "relevant period"
• if having turnover,said FY
• if some/all do not have turnover,the last quarter for which turnover details are available.
• "credit recipient"= supplier
• "turnover"= reduced by duty/tax under ENtry 84/92A of List I and 51/54 of List II.
• ITC can't be availed of demands confirmed of fraud,willful misstatements,fact suppression. [rule 36(3)]

EXCESS DISTRIBUTED CREDIT'S RECOVERY [SECTION 21]

credit distributed contravening Section 20 recovered+interest and Sections 73/74 to apply mutatis mutandis for determination of the recovery amount.

[rule 39(1)(d)] determination of eligible amount

ITC claim and provisional acceptance [Section 41]

ITC MATCHING,REVERSAL AND RECLAIM [SECTION 42]

1. details of inward supply furnished as prescribed be matched
• with corresponding details of outward supply
• IGST under Section 3 of Customs Tariff act,1975 w.r.t imports
• for identification of duplication
2. ITC claimed w.r.t invoices/debit notes relating to inward supply that match with outward/IGST shall be finally accepted and communicated as prescribed to the recipient.
3. if ITC claimed>tax declared/not declared by the supplier, discrepancy communicated to both parties.
4. claim duplication communicated to recipient
5. discrepancy/excess/duplication not rectified by supplier added to output tax liability of recipient for month succeeding in which discrepancy communicated.
• discrepancy added can be reduced by recipient if declared by supplier within time under 39(3).
• if reduction accepted, interest refunded in electronic credit ledger but credit amount not to exceed tax paid.
• interest @ 50(1) from credit availing till corresponding additions made
6. reduction from output tax liability contravening above added to output tax liability liable to interest @ 50(3).

TAX/INTEREST/PENALTY AND OTHER PAYMENTS [SECTION 49]

• every deposit made towards any above payment by any method prescribed shall be credited to the electronic cash ledger.
• self-assessed ITC credit to e-credit ledger a/c to Section 41/43A and maintained as prescribed.
• amount used for payment towards output tax as prescribed
• ITC available in e-credit ledger on a/c of: [Rule 88A]
• integrated tax first fully utilized towards its output liability [49A]
• central used first towards central and remaining towards central not S/UTGST.
• state/UTGST first towards state and followed by ITGST if CGST doesn't cover it, not CGST.
• Govt. may on recommendation of council,prescribe order and utilization manner of ITC chronologically. [49B]

POWER TO BLOCK CREDIT UTILIZATION AVAILABLE IN E-CREDIT LEDGER [RULE 88A w.e.f.26/12/19]

1. commissioner/authorized officer not below asst. commissioner having reasons to believe that ITC is fraudulently availed/ineligible in as much as:
• ITC availed on invoices/debit notes under Rule 36
• issued by a non-existent/non-operational person
• w/o receipt of goods/services/both
• tax charged not paid to govt.
• person availing credit found non-existent/non-operational
• no invoices/debit notes/relevant docs
2. disabling conditions,if they exist no longer, to the officer's satisfaction may be allowed credit.
3. restriction not to have effect after expiry of an year from being imposed

RESTRICTIONS ON USING E-CREDIT LEDGER [RULE 86B w.e.f. 01/01/21]

notwithstanding this rule,regstd.person shall not use discharge output tax liability excess of 99% where the value of taxable supply other than 0-rated/exempt in a month> 50 lakhs.

said restriction inapplicable where:

• said person/proprietor/karta/MD/2 partners/WTD/members/managing committee/board of trustees have paid > 1 lakh as income tax in each last 2 FYs for which ITR time limit has expired; or
• regstd. person received refund of > 1 lakh in preceding FY on unutilized ITC
• has discharged output tax liability through e-cash ledger which is in excess of 1% of total liability cumulatively in current FY.
• person is:
• govt. dept.
• PSU
• local authority
• statutory body
• restrictions removed after verifications/safeguards as officers deem fit.

VARIOUS FORMS USED AND OTHER IMPORTANT INFO

SOME IMPORTANT CASE LAWS

1. The South Indian Bank Limited vs. Union of India (2019) - Kerala High Court
• Enable assessee to file rectified Form GST TRAN-1
2. Jay Bee Industries vs. Union of India (2019) - Himachal Pradesh High Court
• Input Tax Credit (ITC) cannot be denied on procedural grounds
3. IN RE : LAS PALMAS CO-OPERATIVE HOUSING SOCIETY LIMITED, 2020 (34) G.S.T.L. 293 (A.A.R. - GST - Mah.)
4. IN RE : Tata Motors Ltd. 2020 (41) G.S.T.L. 35 (A.A.R. - GST - Mah.)
• Question 1 : Whether Input Tax Credit (ITC) is available to applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen persons for transportation of employees to and from workplace?
• Answer : ITC is available to the applicant but only after 1-2-2019.
• Question 2 : Whether GST is applicable on the nominal amount recovered by applicants from employees for usage of the employee bus transportation facility in non-air conditioned bus?
• Answer : Answered in the negative.
• Question 3 : If ITC is available as per Question No. (1) above, whether it will be restricted to the extent of cost borne by the applicant (employer)?
• Answer : Answered in the affirmative.
5. M/s. Ram Auto (Appellant) vs. Commissioner of Central Taxes & Central Excise (2021)- Madras High Court
• Benefits of Input Tax Credit (ITC) cannot be denied on account of having entered details in the wrong column.
6. CIAL Duty Free and Retail Services Ltd. (CDRSL) vs Union of India and others (2020)- Kerala High Court
• Refund should be claimed only after paying GST on Input services
7. In re Enfield Apparels Ltd. (2020)- West Bengal AAR
• Taxability of Assignment of leasehold right on immovable property and admissibility of ITC
8.  VKC Footsteps India (P) Ltd. (Appellant) vs Union of India (2020)- Gujarat High Court
• Companies can claim refund using unutilized Input Tax Credit arising from input services under inverted duty structure
9. Uma Shankar Aggarwal (Appellant) vs. Union of India (2020)- Rajasthan High Court
• Fraudulent claim of Input Tax Credit (ITC) and rejection of bail application Facts