Eligibility and conditions for taking input tax credit [sec. 16]
Ø Subject to condition and restriction specified in Section 49 (Section 49 prescribes provisions relating to payment of tax, interest, penalty & other amounts)
Ø Every Registered person shall be entitled to take credit of tax paid on inward supplies of goods and/or services
Ø used/ intended to be used in the course or furtherance of business
Ø if the all 4 conditions are fulfilled as below:
1. He has valid tax invoice/debit note/prescribed tax paying document
2. He has received goods and/or services
3. Tax on such supply has been paid either in cash or Utilisation of ITC
4. He has furnished the return u/s 39 (i.e. GSTR-3)
Point to be noted:-
ITC can be availed if he is in possession of Invoice /debit note/prescribed tax paying documents. issued by a supplier registered under this Act,
Under Rule 36(1) of CGST Rules following tax paying documents has been prescribed-
i) Invoice issued by a supplier of goods and/or services
ii) Invoice issued by recipient (receiving goods and/or services from unregistered supplier) along with proof of payment of tax (in case of reverse charge)
iii) A debit note issued by supplier
iv) Bill of entry or similar document prescribed under Customs Act
v) Revised invoice
vi) Document issued by Input Service Distributor
Input Tax Credit only if invoice complete in all respects
Input tax credit shall be availed by a registered person only if
ü all the applicable particulars as prescribed in Invoice Rules are contained in the said document, and
ü the relevant information, as contained in the said document, is furnished in form GSTR-2 by such person – rule 36(2) CGST Rules.
The person taking the ITC must have received the goods and / or services here “Bill to Ship to” Model also included.
Goods delivered to third person on the direction of the registered person deemed to be received by the registered person ⇒ ITC available to registered person
Eg. A is a trader who places an order on B for a consignment of soda ash. A receives a buying order from C for the same quantity of soda ash. A instructs B to deliver the goods to C, and in turn he raises an invoice on C. Though the goods are not physically received at the premises of A, the condition of section 16(2)(b) is satisfied, and A is entitled to ITC on the consignment.
When goods are received in lots or installments
When goods are received in lots or installments, ITC can be availed only upon receipt of the last lot or installment.
Example – XYZ makes an advance payment in August and orders 10 MT of a particular chemical which is in short supply. The supplier of the chemical raises a bill for the entire amount in August and collects GST from XYZ on the advance paid. The chemical is delivered in lots over a period of three months and the supply is completed in November. Though XYZ paid some tax in advance as early as August, he can take the ITC only on receipt of last installment of the chemical in the month of November.
Example: You are a mobile phone dealer. On 1st August 2017, you purchase 100 mobile phones from a manufacturer, valued at Rs. 5,000 each and invoice was raised on the same day. It is agreed that the mobile phones will be sent by the manufacturer in 2 lots of 50 mobile phones each, on 1st of the following two months. Your inward supplies register appears as shown below-
Here, even though a portion of the mobile phones was received on 1st September 2017, you can avail the ITC of Rs. 90,000 only on the receipt of the last lot on 1st October 2017.
On tax component of cost of capital goods, if depreciation has been claimed on the tax component
ITC cannot be availed on the tax component of cost of capital goods, if depreciation has been claimed on the tax component in Income Tax return.
Example: Super Cars Pvt Ltd purchases machinery for Rs.50,00,000 to be used for the manufacture of cars. The GST paid on the machinery is Rs.9,00,000. Super Cars Pvt Ltd claims depreciation of Rs.59,00,000 on the machinery under Income Tax, which is including the GST component. In this case, Super Cars Pvt Ltd cannot avail the ITC of Rs.9,00,000 on the machinery.
Reversal of input tax credit if payment not made to supplier within 180 days [Second proviso to section 16(2) read with rule 37 of CGST Rules]
ü The registered person must pay the supplier, the value of the goods and/or services along with the tax within 180 days from the date of issue of invoice. This condition of payment of value of supply plus tax within 180 days does not apply in the Supplies on which tax is payable under reverse charge
ü If value of the goods or/and Services along with the tax of goods and /or services is not paid within 180 days of the issuance of invoice, the details of such supplies and corresponding credits thereon must be furnished in the GSTR 2 of the month immediately following such 180 days.
ü Such credits availed by the registered person would be added to his output tax liability of the month in which the details are furnished, with interest.
ü Interest will be paid @ 18% from the date of availing credit till the date when the payment is made to the supplier.
ü However, once the payment is made, the recipient will be entitled to avail the credit again without any time limit.
ü In case part payment has been made, proportionate credit would be allowed. if (say) 90% amount of supplier’s invoice (including tax amount) is paid, only 10% tax amounts should be reversed.
Eg. You have taken auditing and consultancy services from a Chartered Accountant. The value of the service is Rs.50,000 and the GST charged is Rs.9,000 (@18%). If you do not make the payment of Rs.59,000 within 180 days of the invoice date, the ITC of Rs.9,000 availed by you will be added to your liability, along with the interest due.
Eg. Due to a quality dispute, PZP Ltd withheld payment on a machine supplied by a vendor till it could be rectified. Over 180 days went by in this dispute. The credit taken by PZP on the invoice got added to the output tax liability of PZP and thus, it had to pay back the credit. Only after the vendor rectified the machine and PZP released the payment, could PZP take the
Time limit for availing ITC–
ü A taxable person shall not be entitled to take input tax credit in respect of any supply of goods and/or services to him after the expiry of one year from the date of issue of tax invoice relating to such supply – section 18(2) of CGST Act.
ü Further, ITC on invoices pertaining to a financial year or debit notes relating to invoices pertaining to a financial year can be availed any time till the due date of filing of the return for the month of September of the succeeding financial year or the date of filing of the relevant annual return, whichever is earlier.
ü The time limit u/s 16(4) does not apply to claim for re-availing of credit that had been reversed earlier
Example: Rajesh Apparel Pvt Ltd is a dealer in men’s apparel. It purchases apparel for Rs.1,00,000 from the manufacturer on 15th July, 2017. GST paid on the purchase is Rs.18,000 (18%). They have filed their annual return for the year ‘17-’18 on 31st July 2018, and the return for September 2018 is filed on 20th October 2018.
Here, the dates to be checked are-
As date of filing of annual return is the earliest among the dates above, ITC on the invoice must be availed upto 14th July 2018.
Example – Hercules Machinery delivered a machine to XYZ in January 2018 under Invoice no. 49 dated 28th January, 2018 for Rs. 4,15,000 plus GST, and undertook trial runs and calibration of the machine as per the requirements of XYZ. The amount chargeable for the post-delivery activities was covered in a debit note raised in April 2018 for Rs. 50,000 plus GST. Hercules Machinery did not file its annual return till October, 2018.
Though the debit note was received in the next financial year, it relates to an invoice received in the financial year ending March 2018. Therefore, the time limit for taking ITC available on Rs. 50,000 as well as on Rs. 4,15,000 is 20th October, 2018; earlier of the date of filing the annual return for 2017-18 or the return for September 2018.