Taxmann X GSTPAM GST Practical Guides | Unlocking Input Tax Credit – Navigating the GST Maze

Quantum of ITC - Tax Charged or Tax payable as per Law 3

Section 16(1) provides that a registered person can take the ITC of the “input tax charged” on any supply. The issue, therefore, is whether the registered recipient intending to take the ITC should worry about whether the correct rate of tax has been charged by the supplier or not? Since Section 16(1) provides that ITC of the tax “charged” would be available, it would imply that the registered recipient can take the ITC of whatever the tax which has been charged on the invoice and need not worry about whether the same is as per law or not. This would also be fair from the viewpoint that the concerned supplier would have deposited the tax charged on the given invoice and therefore ITC of the same should be allowable to the registered recipient. Another issue would arise in the context of ITC availed on the self-invoice in cases where the tax is payable under reverse charge mechanism on stipulated supplies (e.g., GTA) received from the unregistered suppliers. Here also I would submit that even though the definition of “input tax” u/s 2(62) of the CGST Act, 2017 refers to the tax payable in the context of the reverse charge as section 16(1) provides for ITC for tax charged, therefore even the tax charged on the self-invoice more than the stipulated rate should be admissible for credit.

IN THE COURSE OF BUSINESS OR FURTHERANCE OF BUSINESS

Section 16(1) provides that ITC can be taken with respect to those inward supplies of goods or services which are used or intended

to be used in the course or furtherance of business. The phrase “in the course of business” has been interpreted to mean the way that business (which may be of a purely private or trivial nature) is conducted (Md. Yusuf v. D. AIR 1968 Bom. 112). Further, the expression “for the purpose of business” has been given a wider meaning than the expression “for the purpose of earning profits” to imply that the direct nexus between the expenditure and the profits of the business is not warranted (CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC)). Therefore, I would submit that expenditure on research and development (which may not result in the direct increase in the profits of the taxpayer) would be considered to be incurred in the course or furtherance of business and therefore ITC on such expenditure would be permissible.

It may also be noted that ITC can be taken even if there is an intention to use the given supplies in the course or furtherance of business. This is because Section 16(1) permits taking the ITC on the use or even intended use. However, if it is eventually found that the given supplies have been actually used for some other purpose (nonbusiness), ITC related to such non-business use would be restricted under section 17(1) of the CGST Act, 2017.

ITC taken

Section 16(1) provides that the amount of ITC taken shall be credited in the electronic credit ledger. Therefore, the act of “taking the ITC” is clearly different from the act of “crediting” that amount in the electronic credit ledger.

Section 16(2) provides that notwithstanding anything contained under section 16, a registered person would not be entitled to ITC unless the given conditions are satisfied. The following four conditions are provided under section 16(2):

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

Section 16(2) clause (aa) inserted w.e.f. 01-01-2022 as under: the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37

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

Explanation. - For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services—

(i) 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;

(

ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.

[(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;]

[Inserted (w.e.f. 1st October, 2022 vide Notification No. 18/2022- CT dated 28-09-2022) by section 100 of the Finance Act, 2022 (No. 6 of 2022)]

(c) subject to the provisions of section 41 or section 43A, (omitted w.e.f. 01-10-2022) deleted 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; and

(d) he has furnished the return under section 39.

Now many issues would arise on account of the above-referred conditions. Before we go into that we need to address the basic issue of whether the compliance of all the above four six conditions is a prerequisite for taking the ITC or not? I would submit that all the four six conditions need not be fulfilled before taking the ITC. This is because section 16(2) deals with the entitlement of ITC and not taking of the ITC. Rule 36(1) provides that a registered person can take the ITC based on stipulated documents (e.g., tax invoice, Bill of Entry, etc.). Further Rule 36(2) provides that the ITC can be taken only if all the details of the relevant documents are submitted in GSTR - 2. As GSTR - 2 has been suspended we can say that a registered person can take the ITC on receipt of the documents (i.e.,

on fulfilling the first condition u/s 16(2)). The other two subsequent conditions are anti-avoidance conditions to determine the eventual eligibility of ITC. Therefore, if it is found that the goods or services have not been received at all or the transaction is fraudulent and tax has not been paid, then the ITC would become ineligible and hence the same would be recovered if taken by resorting to Section 73 or 74. For the last condition about the filing of the return u/s 39 it can be submitted that it is a condition to ensure that the eligible ITC has been credited in the electronic credit ledger by way of its reflection in the return filed u/s 39. To interpret the above conclusions otherwise would imply that the registered person can take the ITC only after the concerned vendor has paid the tax and the registered person has filed the return. That would then be to do the impossible. The same could not have been intended.

However after the amendment to section 16(2(aa) from 01-10-2022 the ITC cannot be availed unless the details of invoice or debit note is furnished by the supplier in his GSTR-1 and is communicated to the recipient in Form GSTR 2A up to and GSTR-2B from 01-01-2022.

ITC on RCM

Now coming to the specific issues related to each of the conditions. First condition u/s 16(2)(a) deals with the documents based on which ITC can be availed. The issue to discuss here is concerning the ITC of tax payable under RCM on specified supplies received from the unregistered suppliers. As per section 31(3)(f) of the CGST Act, 2017 the registered recipient is required to make a self-invoice for the receipt of goods or services from unregistered suppliers which are liable for payment of tax under RCM. Rule 36(2) therefore provides that it is the said self-invoice which is the base document for availing the ITC. Hence two conclusions would come to our minds. First is that the preparation of the said invoice is a must to discharge the tax under RCM and also avail the ITC. Second, as the ITC can be availed on the self-invoice it can be availed in the same tax period in which the invoice is prepared and the taxpayer need not wait for the payment of tax under RCM to avail the ITC.

Receipt of Goods or Services At the Place of Registration

Second condition u/s 16(2)(b) deals with the receipt of goods or services. The issue is whether such goods or services should be

received at the registered place of business? The given condition only provides that the goods or services should have been received. It does not provide that the same should be received only at the registered place of business. Therefore, even if the registered person receives goods or services outside the registered place of business ITC would be available. This also brings us to another interesting issue. What would happen where a legal entity has more than one registration (distinct persons) and the goods or services are received at a registered place of business which is different from the registered place of business where the invoice is raised? As an example, the services of manpower are supplied at location A (distinct person) but invoicing is done at location B (distinct person). Whether ITC can be taken at location B if services have been actually received at location A? The definition of “recipient” as provided u/s 2(93) of the CGST Act, 2017 means the person who is liable to pay the consideration. Therefore, it can be submitted that as the invoice is raised on a distinct person located at B, such distinct person would be the recipient and therefore even if the services are received at location A, ITC can be availed at location B since the receipt of goods/services at the place of business is not mandatory. This would however imply that the distinct person at location B will have to raise an invoice to a distinct person located at A since the eventual consumption of services has happened at the said location. As far as valuation is concerned the second proviso to Rule 28 can come to the rescue by way of preventing a challenge to the open market value adopted for such invoice provided full ITC is available at location A.

Actual Payment of Tax

Third condition u/s 16(2)(c) deals with the actual payment of tax. As discussed earlier the said condition would have to be considered as an anti-evasion condition and hence needs to be applied only if it appears that the transaction in question is not genuine. Therefore, the provision would have to be read down and applied only in the case of non-genuine transactions. In case of genuine transactions, the recovery of tax should be made from the supplier only who has charged the tax. Said approach has been upheld in the VAT era by Hon’ble Delhi High Court in the case of AriseIndiaLimited v. CommissionerofTrade&Taxes (Delhi High Court) (W.P.(C) 2106/2015) as well as Hon’ble Rajasthan High Court in the case of

S.InfraTransmissionLtd. v. StateofRaj (CWP No. 12445/2016) (DB). Also SLP against the ruling of Hon’ble Delhi High Court has been dismissed by the Supreme Court.

GST Practical Guides | Unlocking Input

Tax Credit – Navigating the GST Maze

AUTHOR : THE GOODS & SERVICES TAX PRACTITIONERS’ ASSOCIATION OF MAHARASHTRA, HIRAL SHAH

PUBLISHER : TAXMANN

DATE OF PUBLICATION : MARCH 2024

EDITION : 2024 EDITION

ISBN NO : 9789357788779

NO. OF PAGES : 76

BINDING TYPE : PAPERBACK

Description

This book is a part of the GST Practical Guide – Five Book Series, which covers dayto-day practical requirements under the law in simple language. The coverage of GST Practical Guide – Five Book Series includes:

u Accounts & Records Maintenance under the GST Act

u Registration, Suspension, Cancellation and Revocation of Cancellation

u Reverse Charge Mechanism under GST

u Introduction to GST Returns, Statements and Other Compliance Forms

u Unlocking Input Tax Credit – Navigating the GST Maze

This book will be helpful for tax practitioners, the legal fraternity, and departmental authorities.

The Present Publications is the latest 2024 edition and has been updated till 29th February 2024. This book is authored by the Goods & Services Tax Practitioners’ Association of Maharashtra and CA. Hiral Suresh Shah. The detailed contents of this book are as follows:

u Input Tax Credit (ITC) under GST Laws – Important Issues

u Section 16 of the Central Goods and Services Tax Act 2017 (CGST Act)

u Quantum of ITC – Tax Charged or Tax Payable as per Law

u Filing of Return

u Section 17 of the CGST Act

u Section 17 – Apportionment of Credit and Blocked Credits

u Section 18 – Availability of Credit in Special Circumstances of CGST Act

u Circular – CGST & IGST

u Conclusion