GST INPUT TAX CREDIT Presented By Adv C

GST: INPUT TAX CREDIT Presented By: Adv. C. B. Thakar

Credit not available Current Taxation Scenario INDIA Manufacturer A Factory ED + MVAT LBT Mumbai Trader X Hub W/H Form F MVAT Input Tax reversal Trader X KVAT Customer Spoke W/H Tamil Nadu Import BCD CVD SAD CST Pune Maharashtra Tax Collection v Central Government – BCD, ED v Maharashtra State Government – MVAT v Pune Municipal Corporation – LBT v Karnataka State Government – KVAT, CST v Tamil Nadu State Government – NIL Karnataka Issues v Origin based tax v Loss of credit v Tax cascading Customer

GST Taxation Scenario INDIA Manufacturer A *Credit not available CGST + SGST Trader X Customer IGST Factory Hub W/H Mumbai Pune Maharashtra Spoke W/H Karnataka Tamil Nadu Import BCD IGST CGST + SGST IGST Customer Tax Collection Issues Radical Changes v Central Government – BCD, CGST v Maharashtra State Government – NIL v Pune Municipal Corporation – NIL v Karnataka State Government – SGST v Tamil Nadu State Government – SGST component of IGST v Origin based tax Destination based tax v Loss of credit Seamless credit v Tax cascading Reduced cascading (BCD) v Taxable Person

INPUT TAX CREDIT - DEFINITIONS 2(54) Input “input” means any goods other than capital goods, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business 2(55) Input Service “input service” means any service, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business 2(57) Input Tax (57) "input tax" in relation to a taxable person, means the {IGST and CGST}/{IGST and SGST} charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7 2(58) Input Tax Credit “input tax credit” means credit of ‘input tax’ as defined in section 2(56)

INPUT TAX CREDIT – DEFINITIONS ANALYSIS Input Tax IGST/CGST/SGST charged on any supply of goods and/or services to Taxpayer Used or intended to be used in the course or furtherance of business Inputs / Input Services Capital Goods • • • Pre-registration ITC – Only inputs. No Credit of capital goods and services Goods/Service used or intended to be used by a supplier for making an outward supply in the course or furtherance of business; Issues Specified goods similar to Cenvat Credit Rules used • at the place of business for supply of goods • outside the place of business for generation of electricity for captive use • for supply of services a. Capital Goods used outside for pumping of water / used at captive mines? b. Office equipment's c. Condition of Rs 10, 000

NEGATIVE LIST OF ITEMS Motor vehicles, except when used for providing specified taxable services. Specified goods and / or services used primarily for personal use or consumption of any employee. Goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery. Goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery. Issues : a. Factory building / Storage tank / bunker / pipelines? b. ITC on immovable property rented out c. ITC by developer / works contractor on sub contractor services d. Plant and machinery : Not defined

INPUT TAX CREDIT Conditions for availing ITC • Valid document. • Taxpayer has received the goods and/or services. (Exception Bill to Ship to cases) • ITC only on last lot or instalment. • Supplier has actually paid the tax. • Buyer has filed GSTR 3/6. • Time limit for availing ITC Section 2 (80) – Recipient ? Person making payment?

PLACE OF SUPPLY AND ITC : BILL-TO/ SHIPTO MODEL Place of supply First supply: First Supply Vendor First purchaser invoice Principal place of business of first purchaser Second supply: Delivery of goods invoice Second Supply Where delivery terminates i. e. location of second purchaser Input Tax Credit Second purchaser Deemed that first purchaser has received the goods and shall be eligible to avail ITC provided other eligibility conditions are satisfied.

GENERAL PROVISIONS ON INPUT TAX CREDIT Variable time limit for availing credit on goods/ services: filing of the return under section 27 for the month of September following the end of financial year to which such invoice pertains; or filing of the relevant annual return, whichever is earlier. No Cross utilization between CGST and SGST. No cross utilization between IGST, CGST and SGST of one GSTIN with other GSTIN. Proportionate reversal of ITC on capital goods also for exempted supplies No reduction of ITC on interstate-stock transfers No provision like Rule 6 of Cenvat Credit Rules, 2004 Pre-registration ITC allowed

INPUT TAX CREDIT AND JOB WORK Principal entitled to take credit of inputs sent for job work only if returned within 180 days Principal entitled to take credit of capital goods sent for job work only if returned within 2 years Credit can be taken even if inputs/ capital goods are sent directly to the job worker’s premise If goods are not returned within time, credit availed must be reversed Contradiction with Section 43 A No provision to retain credit if goods are supplied directly from job -worker’s premise to final customer

CONTRADICTIONS Provisions under ITC Deemed Supply (Schedule I) Section 16(5) • Temporary application Where the goods and/or services are used by the registered taxable of business assets to a person partly for the purpose of any business and partly for other private or non business purposes, the amount of credit shall be restricted to so much of the use input tax as is attributable to the purposes of his business. • Services put to a private or non business use. Section 21(7) Every registered taxable person whose registration is cancelled shall pay an amount equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods or the output tax payable on such goods, whichever is higher. • Assets retained after deregistration

MISMATCH OF INVOICES ITC credit eligible only on matching of invoices The supplier should file the Return and pay TAX for the purchaser to claim ITC Credit reversal with interest for purchaser Demand of tax from supplier Matching at invoice level v. TIN level VAT /Carousel Fraud: collected but not deposited Who should suffer – the innocent customer or the duped Government? Mahalakshmi Cotton 2012 (51) VST 1 (Bom)

INPUT SERVICE DISTRIBUTOR ISD means an office of the supplier of goods and / or services which receives tax invoices issued under Section 23 towards receipt of input services and issues tax invoices for the purpose of distributing credit of CGST / SGST and / or IGST paid on the said services to a supplier of taxable goods and / or services having the same PAN as that of the office referred above. Explanation: For the purposes of distributing credit of CGST / SGST and / or IGST, ISD shall be deemed to be a supplier of services. Location of Supplier Location of Immovable property State A State B Location of Service Receiver

TRANSITIONAL PROVISIONS ON INPUT TAX CREDIT CENVAT credit/ input tax credit balance reported in return balance of capital goods not reported in return goods held in stock – Output exempt under earlier law but taxable under GST goods lying with agent capital goods lying with agent CST? Entry Tax? CENVAT credit for Trader? VAT credit for service provider? Transitional Credit Eligibility Excise Service Tax VAT Transitional Credit GST Credit must be eligible in Current law as well as GST law Relevant documents to be preserved

SPECIAL SITUATIONS – MOVEMENT OF GOODS Goods removed before appointed date and returned thereafter Exempted goods Duty paid goods Inputs removed for job work Semi-finished goods removed for job work Finished goods removed for carrying out specified processes Goods sent on sale or approval basis NO GST on such return movement if goods are returned within 6 months from appointed date Taxable if returned after 6 months Precise identification of goods and records to be maintained Valuation provisions are not clear.

PENDING CLAIMS/ REFUNDS AND OUTCOME OF PROCEEDINGS Pendency Refund claims CENVAT Credit claim/ recovery If amount due to the Taxpayer – Cash refund Assessment or adjudication proceedings If amount due from the Taxpayer – recover as Appeal, revision, review or reference relating to output duty liability arrears of tax under GST law Revision of returns Pending matters to be governed by earlier law

Presented By: Adv. C. B. Thakar E-mail: cbtc@vsnl. com Mob: 9821135674 THANK YOU