Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Input Tax Credit or ITC under GST

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 [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 1(1ST 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 1(1ST Act, or section 7(4) of the UTGST Act, or section 9(4) of the S(1ST 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(9)]:

“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).

Input Tax Credit or ITC under GST
Input Tax Credit or ITC under GST

Table of Contents

1.   Eligibility and Conditions for taking Input Tax Credit (ITC)

Before beginning study of input  tax credit provisions, one should know the following –

1.    Input means any goods other than capital goods. Capital goods means goods, value of which is capitalised in books of account. Input tax credit on capital goods can be availed at one shot (i.e., 100 per cent at the time of capitalisation in books of account). There is no requirement to defer some portion of input tax credit on capital  goods to the subsequent year. In other words, there is no distinction between inputs and capital goods under GST  for the purpose of availment of input tax credit.

2.    Basic condition for availing input tax credit is that input/input services/capital goods are used (or intended to be used) in the course of or furtherance of business. There are a few more conditions which are discussed in  para 493.

3.    In GST regime, IGST is levied on inter-State supply. CGST and SGST/UTGST are levied on intra-State supply. These taxes on inward supply are creditable. However, one has to keep in mind that there is no centralized  registration under GST. Registration is required in all States/Union Territories from where one makes taxable  supplies of goods/services. Each registration is treated as distinct person. Consequently, input tax credit of one  State cannot be used to set off output GST liability of another State.

4.    GST which is paid by recipient of supply under reverse charge mechanism during the current month, will become eligible input tax credit.

5.    Tax on inward supply paid by a person who is registered under Composition Scheme, is not eligible for input tax credit.

6.    Input SGST credit cannot be used to pay output CGST. Likewise, input CGST credit cannot be used to pay output SGST. Barring this limitation, input tax credit can be used to pay any output tax liability. For instance –

– IGST input credit can be used to set off output liability of IGST/CGST/SGST (in the same sequence).

– CGST input credit can be used to set off output liability of CGST/IGST.

– SGST input credit can be used to set off output liability of SGST/IGST.

7.    Input tax credit is available only when GST is leviable on outward supply of goods / services. To put it differently, if GST is not leviable on outward supply of goods/services, input tax credit is not available. Those transactions where input tax credit is not available (because outward supply of goods/services is exempt) can  be termed as exempt transactions. There are certain output supplies which are “zero rated”. In such cases, GST  is not payable on outward supply (because applicable rate is zero) even then input tax credit is available. The  following transactions are zero rated transactions –

– Export of goods/services.

– Supply of goods/services to special economic zone (SEZ).

These two supplies are zero rated supplies (applicable GST rate is zero). In the case of zero rated supplies, input  credit is available. However, input credit is not available in the case of exempt transactions.

8.   Goods/services are purchased. Benefit of input tax credit has been taken. Out of goods/services so acquired, taxpayer makes taxable supply as well as exempt supply. In such a situation, proportionate input tax credit  (which he has already availed) pertaining to exempt supply, shall be reversed (formula for reversal of input tax  credit is given in GST Rules). Similar reversal is required when capital goods are used for making taxable and  non-taxable supplies.

9.   Entire input tax credit is available even if a part of input goes in waste or by products like sludge which is not taxable.

10.   Input credit is available as soon as inputs/input services are received (there is no need to wait till these inputs are actually used in production or actually sold). Moreover, entire input tax credit forms a common pool (law  does not require invoice to invoice co-relation between input and output).

11.   “Input tax” is defined by section 2(62). According to this definition, “input tax” in relation to a registered person means CGST, IGST, UTGST on supply of goods/services to him. Further it includes the following –

– IGST charged on import of goods.

– CGST/IGST/SGST/UTGST payable on reverse charge mechanism.

However, it does not include tax paid under Composition Scheme.

A. 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—

See also  Penal Provisions in case of TCS

(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 :

B. 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 Services to 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:

(i) 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.

(ii) 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:

Date Lot Value of Goods
18.09.2018 First Lot Rs. 2,00,000
18.10.2018 Second Lot Rs. 3,00,000 18.10.2018
18.11.2018 Third Lot Rs. 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.

(iii) 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.

(iv) 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 invoice 10.8.2017
(Rs.)
Value of specified goods 5,00,000
Central Tax i.e. CGST charged on above @ 9% 45,000
State Tax i.e. SGST charged on the above 9% 45,000
Total 5,90,000

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.

(C) 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.

(D) 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 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 (i) :

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) 24.12.20l8 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

2.   Apportionment of Input Tax Credit (ITC) – How to determine [Section 17(1), (2) & (3) of CGST Act, 2017]

Where goods/services are used by the registered person partly for business purposes and partly for other purposes, the amount of input credit will be reduced proportionately. Similarly, where goods/services are used by the registered person partly for affecting taxable supplies (including zero rated supplies) and partly for exempt supplies, input credit will be reduced proportionately. In such cases, if the registered person has already availed input credit, the amount calculated proportionately will have to be reversed. The mode of calculating proportionate amount in such cases is explained and given below with examples.

When Input Tax Credit (ITC) available / not-available –

The table given below highlights when input tax credit is available/not available –

Section Use of input goods/services by registered dealer Input tax credit available / not available
17(1) Used for business purposes Input tax credit available
Used for other purposes Input tax credit not available
17(2)/(3) Used for taxable supplies Input tax credit available
Used for zero rated supplies (i.e., export outside India or supply to SEZ units).
Use for activities/transaction specified in Schedule III (except for sale of land and building)
Used for non-taxable supplies (i.e., alcoholic liquor for human consumption, petroleum products, etc., not currently covered under GST) Input tax credit not available
Used for exempt supplies (i.e., different entries covered under Exemption Notification) or used for supplies which are covered under reverse charge mechanism. Exempt supply also covers transaction in securities, sale of land/building.

1. Where Goods or Services are used Partly for Business Purposes and Partly for Other Purposes [Section 17(1)  of CGST Act, 2017]

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.

Example :

Mr. Dust owning a bakery provides the following information for the month of November, 2020:

Total ITC in respect of milk products received Rs. 80,000
Milk products sold in the course of business 70%
Milk products used in the birthday party of his daughter 30%

In the above-case, Mr. Dust shall be entitled to take ITC of Rs. 56,000 (Rs. 80,000 × 70%) in terms of provisions of section 17(1)

2. Where Goods and Services are used Partly for effecting Taxable Supply including Zero Rates Supply and Partly for Exempted Supplies [Section 17(2) of CGST Act, 2017 ]

Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

The value of exempt supply under section 17(2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. [Section 17(3)]

Example  :
Mr. Dust, a registered person provides the following information for the month of November 2018:

  Particulars Amount
(A) Eligible Input Tax Credit in respect of services Rs. 1,50,000
(B) Taxable Supplies [excluding Zero-rated Supplies] Rs. 8,00,000
(C) Exports [Zero-Rated Supplies] Rs. 4,00,000
(D) Exempt Supplies Rs. 3,00,000
(E) Supplies on which recipient is liable to pay tax on reverse charge basis Rs. 1,00,000
(F) Total supplies [B+C+D+E] Rs. 16,00,000
(G) Percentage of Taxable Supplies including Zero Rated Supplies to the Total  Supplies 75%  [12,00,000/16,00,000×100]
In the above-case, Mr. Dust shall be entitled to take Input Tax Credit of Rs. 1,12,500 [75% of Rs. 1,50,000]

3. Optional method for Bank, etc. for taking Input Tax Credit (ITC) [Section 17(4)]

A banking company or a financial institution including a non-banking financial company, engaged in  supplying services by way of accepting deposits, extending loans or advances shall have the option to either —

—  comply with the provisions of section 17(2) (see above), or

—  avail of, every month, an amount equal to 50% of the eligible input tax credit on inputs, capital goods and  input services in that month and the rest shall lapse.

The option once exercised shall not be withdrawn during the remaining part of the financial year.

Further, the restriction of 50% shall not apply to the tax paid on supplies made by one registered person to  another registered person having the same Permanent Account Number.

Example : 

State Bank of India provides the following information for the month of November 2017 for their Registration in  Punjab:

Particulars Amount (Rs.)
ITC from suppliers of goods or services or both 1,00,000
ITC from other offices 20,000

Eligible credit for the month of November — 50% of Rs. 1,00,000 i.e. Rs. 50,000 + Rs. 20,000 (ITC from other  offices for which restriction of 50% is not applicable) = Rs. 70,000

4.     Goods or Services or Both on which Input Tax Credit (ITC) shall Not be Available under GST Act. [Section 17(5)]

Input credit shall not be available under Section  17(5) in respect of the following:

1.      Motor Vehicles and other Conveyances except when they are used—

(i) for making the following taxable supplies, namely:—

  • (A) further supply of such vehicles or conveyances; or
  • (B) transportation of passengers; or
  • (C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods.

2.      The following Supply of Goods or Services or Both:

(i)         food and beverages,

(ii)        outdoor catering,

(iii)       beauty treatment,

(iv)       health services,

(v)        cosmetic and plastic surgery

However, where an inward supply of above 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  input tax credit shall be available.

Example :

Mr. Dust is engaged in providing Beauty Treatment Services. On a particular day, with a view to cater to the  demand of large number of customers, he availed the Beauty Treatment Services from Mr. Dirty Accordingly, Mr. Dirty  raised an invoice on Mr. Dust for stipulated consideration along with applicable GST. Since in the given case, Beauty Treatment Services have been used by Mr. Dust for making an outward supply of services of the same  category of services, he shall be eligible to avail ITC of the Beauty Treatment Services.

3. Membership of a Club, Health And Fitness Centre

4. 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.

5. Travel benefits extended to employees on vacation

such as leave or home travel concession.

6. 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.

(7) Construction of an Immovable Property on his Own

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.

[The expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the  extent of capitalisation, to the said immovable property.]

(8) Composition Scheme

Goods or services or both on which tax has been paid under the composition scheme

(9) Non-Resident Taxable Person

Goods or services or both received by a non-resident taxable person except on goods imported by him

(10) Personal Consumption

Goods or services or both used for personal consumption

(11) Goods Lost, Stolen, Destroyed, Written Off or Disposed of by way of Gift or Free Samples

(12) No Credit for any GST paid in accordance with the provisions of sections 74, 129 and 130.

These sections  prescribe the provisions relating to tax paid as a result of evasion of taxes, or upon detention of goods or  conveyances in transit, or towards redemption of confiscated goods/conveyances.

3. Taking Input Tax Credit (ITC) in respect of ‘Inputs’ and ‘Capital Goods’ sent for Job Work [Section 19 of the CGST Act, 2017]

(1) Principal allowed to take Input Tax Credit (ITC) on Inputs sent to a Job Worker for Job Work [Section 19(1)]

The principal shall, be allowed input tax credit on inputs sent to a job worker for job work this shall be subject to such conditions and restrictions as may be prescribed.

(2) Input Tax Credit (ITC) allowed to Principal even if Inputs are sent to a Job Worker directly [Section 19(2)]

The principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job work without being first brought to his place of business.

(3) Consequences If Inputs sent for Job Work are not received back by the Principal [Section 19(3)]

Where the inputs sent for job work arc not received back by the principal—

— after completion of job work or otherwise or

— are not supplied from the place of business of the job worker in accordance with section [143(1)(a) or(b)]

— within one year of being sent out,

it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out.

Where the inputs arc sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker.

The period of 1 year mentioned above shall not be applicable in case of moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.

Section 143 of CGST Act, 2017 states that a Principal under intimation and subject to such conditions as may be prescribed can send inputs or capital goods to a job worker without payment of tax for further process or treatment and from there subsequently to another job worker(s) and shall either bring back such inputs/capital goods after completion of job work or otherwise within 1 year / 3 years of their being sent out or supply such inputs/capital goods after completion of job work or otherwise within I ycar!3 years of their being sent out, from the place of business of a job worker on payment of tax within India or with or without payment of tax for export.

Input Tax Credit (ITC) on Capital Goods sent to a Job Worker [Section 19(4), (5) and (6)]

The principal shall be allowed input tax credit on capital goods sent to a job worker for job work.

The principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job work without being first brought to his place of business.

Where the capital goods sent for job work arc not received back by the principal within a period of 3 years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out.

Where the capital goods arc sent directly to a job worker, the period of 3 years shall be counted from the date of receipt of capital goods by the job worker.

The period of 3 years mentioned above shall not be applicable in case of moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work,

4.   Claim of Input Tax Credit (ITC) and Matching, Reversal and Reclaim of Input Tax Credit (ITC) under GST Act.

(A) Provisional acceptance of Claim of Input Tax Credit [Section 41]

1.   Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled  to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a  provisional basis to his electronic credit ledger.

2.   The credit referred to in section 41(1) shall be utilised only for payment of self- assessed output tax as per  the return referred to in the said sub-section.

(B) Matching, Reversal and Reclaim of Input Tax Credit [Section 42]

(1) Matching of inward supply of the recipient with the outward supply of the supplier [Section 42(1)]:

The  details of every inward supply furnished by a registered person (i.e. the “recipient”) for a tax period shall, in  such manner and within such time as may be prescribed, be matched—

(a)        with the corresponding details of outward supply furnished by the corresponding registered person (i.e.  the “supplier”) in his valid return for the same tax period or any preceding tax period;

(b)        with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 in respect  of goods imported by him; and

(c)        for duplication of claims of input tax credit.

(2) Matching of the input tax credit claimed for inward supply with corresponding outward supply and  acceptance thereof [Section 42(2)]:

The claim of input tax credit in respect of invoices or debit notes relating to  inward supply that match with the details of corresponding outward supply or with the integrated goods and  services tax paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by him shall be  finally accepted and such acceptance shall be communicated, in such manner as may be prescribed, to the  recipient.

Matching of inward supply and input tax credit would be done only after the due date of furnishing of GSTR  3. ITC taken provisionally by the recipient on the basis of GSTR-2 will be matched by the system— 

— with the details of outward supplies furnished by the supplier in GSTR 3 (filed by 20th of the month  following the relevant month); 

— with the IGST paid on the goods imported by him; 

— for any duplication of claims of ITC.

(3) Discrepancy in input tax credit if any to be communicated [Section 42(3)]:

Where the input tax credit  claimed by a recipient in respect of an inward supply—

— is in excess of the tax declared by the supplier for the same supply or

— the outward supply is not declared by the supplier in his valid returns,
the discrepancy shall be communicated to both such persons in such manner as may be prescribed.

(4) Duplication of claims of input tax credit to be communicated to the recipient [Section 42(4)]:

The  duplication of claims of input tax credit shall be communicated to the recipient in such manner as may be  prescribed.

(5) Amount of discrepancy not rectified to be added to output tax liability of recipient [Section 42(5)]:

The  amount in respect of which any discrepancy is communicated under section 42(3) and which is not rectified by  the supplier in his valid return for the month in which discrepancy is communicated shall be added to the output  tax liability of the recipient, in such manner as may be prescribed, in his return for the month succeeding the  month in which the discrepancy is communicated.

(6) Excess on account of duplication of claims to be added to the output tax liability of the recipient  [Section 42(6)]:

The amount claimed as input tax credit that is found to be in excess on account of duplication of  claims shall be added to the output tax liability of the recipient in his return for the month in which the duplication  is communicated.

(7) Reduction from output tax liability if the discrepancy is corrected by the supplier in his return [Section  42(7)]:

The recipient shall be eligible to reduce, from his output tax liability, the amount added under section  42(5), if the supplier declares the details of the invoice or debit note in his valid return within the time specified in  sub-section (9) of section 39.

(8) Interest payable on addition in output tax liability [Section 42(8)]:

A recipient in whose output tax  liability any amount has been added under section 42(5) or section 42(6), shall be liable to pay interest at the rate  specified under section 50(1) on the amount so added from the date of availing of credit till the corresponding  additions are made under the said sub-sections.

(9) Interest paid on additional output tax liability to be refunded if there is a reduction under section 42(7)  [Section 42(9)]:

Where any reduction in output tax liability is accepted under section 42(7), the interest paid  under section 42(8) shall be refunded to the recipient by crediting the amount in the corresponding head of his  electronic cash ledger in such manner as may be prescribed:

Provided that the amount of interest to be credited in any case shall not exceed the amount of interest paid by  the supplier.

(10) Wrong reduction from output tax liability will also attract interest [Section 42(10)]:

The amount  reduced from the output tax liability in contravention of the provisions of section 42(7) shall be added to the  output tax liability of the recipient in his return for the month in which such contravention takes place and such  recipient shall be liable to pay interest on the amount so added at the rate specified in section 50(3).

5.   Utilisation of Input Tax Credit (ITC) [Section 49]

 (1) Input tax credit to be credited to electronic credit ledger [Section 49(2)]:

The input tax credit as self assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with  section 41, to be maintained in such manner as may be prescribed.

(2) Utilisation of amount available in electronic credit ledger [Section 49(4)]:

The amount available in the  electronic credit ledger may be used for making any payment towards output tax in such manner and subject to  such conditions and within such time as may be prescribed.

(3) Manner of utilization of input tax credit [Section 49(5)]:

The following will be the order in which the  input tax credit available in the electronic credit ledger shall be utilized for tax payment:

Input tax credit on account  of IGST  Input tax credit on account  of CGST Input tax credit on account of  SGST/UTGST
First for payment of IGST First for payment of CGST First for payment of SGST/UTGST
Then for payment of CGST Then for payment of IGST Then for payment of IGST
And then if balance is there,  for payment of SGST or  UTGST In case there is further balance it shall  not be utilized for payment of  SGST/UTGST In case there is further balance if  shall not be utilized for payment of  CGST
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