UNIT III
INPUT TAX CREDIT
Eligibility U/S 16(1):
Only registered person eligible to take ITC [Section 16(1)]:
Every registered person shall be entitled to take credit of input tax:
a) charged on any supply of goods or services or both to him.
b) which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. In other words goods which are used for non-business purpose or not for furtherance of business cannot get input tax credit.
2.] Conditions to be satisfied for Taking ITC [Section 16(2)]:
A registered person shall be entities to the credit of any input tax in respect of any supply of goods or services or both to him unless:
a) Possession of Tax Paying Document:
He is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying documents as many be prescribed.
b) Receipt of Goods / Services:
He has received the goods or services or both.
Delivery of Goods at Instruction of Registered Person is Valid Receipt of Goods:
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) Tax Charged is Paid to Government:
Subject to the provision of Section 41, the tax charged is 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.
d) Furnishing of Returns:
He has furnished the return under Section 39.
e) Goods Received in Lots of Installments:
Where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment.
f) Payment If Not Made Within 180 Days From Date of Invoice:
Where a recipient fails to pay:
i) to the supplier of goods or services or both (Except supplies on which tax is payable on reverse charge basis).
ii) the amount towards the value of supply along with tax payable thereon
iii) 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.
3.] Re – Credit if Payment is Made Subsequently:
However, 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.
4.] ITC Not Admissible if Depreciation Claimed on the Tax Component [Section 16(3)]:
Where the registered person has claimed depreciation on the 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.
5.] Time Limit for Availing ITC [Section 16(4)]:
A registered person shall not be entitled to take input tax credit in respect of any invoice or debit not for supply of goods or services or both after:
a) the due 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 (i.e. 20th October of the next financial year) or
b) furnishing of the relevant annual return (i.e. 31st December of the next financial year) whichever is earlier.
Goods / Services Partly Used for Business & Partly for Other Use [Section 17(1)]:
Where the goods or services or both are used by the registered person:
a) partly for the purpose of any business; and
b) 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 (i.e. pro – rata distribution of Input credit)
2.] ITC Restricted to Goods / Services Used for Taxable Supplies of the Same are Used for Effecting Taxable As Well As Exempt Supplies [Section 17(2)]:
Where the goods or services or both are used the registered person:
a) partly for effecting taxable supplies including zero – rated supplies under this Act or under the Integrated Goods & Services Tax Act, and
b) partly for effecting exempt supplies under the said act,
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.
3.] Inclusion in Exempt Supplies [Section 17(3)]:
The value of exempt supply U/S 17(2) shall be such as may be prescribed, and shall include:
a) supplies on which the recipient is liable to pay tax on reverse charge basis, and
b) transaction in securities,
c) sale of land and
d) subject to clause (b) of paragraph 5 of Schedule II, sale of building.
4.] Input Tax Credit in Case of Banking Company & Financial Institution: [Section 17(4)]
a) 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:
i) either comply with the provisions of Section 17(2); or
ii) avail of every month, an amount equal to 505 of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse.
b) The option once exercised shall not be withdrawn during the remaining part of the financial year.
c) 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.
5.] Input Tax Credit Not to be Availed in Respect of the Following Situations Section 17(5):
a) Motor vehicles and other conveyances.
However, credit can be availed if they are used:
i) for making the following taxable suppliers, namely:
1) further supply of such vehicles or conveyances; or
2) transportation or passengers; or
3) imparting training on driving, flying, navigating such vehicles or conveyances.
ii) for transportation of goods.
b) Input tax credit will not be availed for supply of goods or services or both in case of
i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery.
However, credit will be eligible where an 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 an element of a taxable composite or mixed supply
ii) membership of a club, health and fitness Centre.
iii) rent – a – cab, life insurance and health insurance.
However, Input tax credit will be eligible where:
1) 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
2) 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; and
iv) travels benefits extended to employees on vacation such as leave or home travel concession.
c) Works contract services when supplied for construction of an immovable property.
However, input tax credit is allowed:
i) Where is supplied for construction of plant and machinery.
ii) Where it is an input service for further supply of works contract service.
Here “Construction” includes re – construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. And “Plant and Machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes:
i) land, building or any other civil structures;
ii) telecommunication towers; and
iii) pipelines laid outside the factory premises.
d) Goods or services or both received by a taxable person for construction of an immovable property on his own account including when such goods or services or both are used in the course or furtherance of business.
However, credit is allowed if they are supplied for construction of plant and machinery.
e) Goods or services or both on which tax has been paid under Section 10. i.e. under Composition Scheme.
f) Goods or services or both received by a non-resident taxable person except on goods imported by him.
g) Goods or services or both used for personal consumption.
h) Goods lost, stolen, destroyed, written off or disposal of by way of gift or free sample.
i) Any tax paid in accordance with the provisions of Section 74, 129 and 130.
i.e. Evasion, confiscation etc.
Tax Invoice
Invoice under GST
Under the GST regime, an “invoice” or “tax invoice” means the tax invoice referred to in section 31 of the CGST Act, 2017. This section mandates issuance of invoice or a bill of supply for every supply of goods or services. It is not necessary that only a person supplying goods or services need to issue invoice. The GST law mandates that any registered person buying goods or services from an unregistered person needs to issue a payment voucher as well as a tax invoice. The type of invoice to be issued depends upon the category of registered person making the supply. For example: if a registered person is making or receiving supplies (from unregistered persons), then a tax invoice needs to be issued by such registered person. However, if a registered person is dealing only in exempted supplies or is availing of composition scheme (composition dealer), then such a registered person needs to issue a bill of supply in lieu of invoice. The invoice should contain description, quantity and value & such other prescribed particulars (in case of supply of goods) and the description and value & such other prescribed particulars (in case of supply of services). An invoice or a bill of supply need not be issued if the value of the supply is less than Rs. 200/- subject to specified conditions.
Importance of tax invoice under GST
Under GST a tax invoice is an important document. It not only evidences supply of goods or services, but is also an essential document for the recipient to avail Input Tax Credit (ITC). A registered person cannot avail input tax credit unless he is in possession of a tax invoice or a debit note.
GST is chargeable at the time of supply. Invoice is an important indicator of the time of supply. Broadly speaking, the time of supply of goods or services is the date of issuance of invoice or receipts of payment whichever is earlier. However, a special procedure for payment of tax has been prescribed for registered persons (other than composition dealers) supplying goods. Such category of persons (suppliers of goods other than composition dealers) needs to pay GST only at the time of issue of invoice irrespective of when they receive payment.
Thus the importance of invoice under GST cannot be over- emphasized. Suffice it to say, the tax invoice is the primary document evidencing the supply and vital for availing input tax credit.
Contents of invoice
There is no format prescribed for an invoice, however, Invoice rules makes it mandatory for an invoice to have following fields (only applicable field are to be filled):
Bill for Supply
A bill of supply shall be issued by the supplier containing the following details:-
Debit Note and Credit Note
In cases where tax invoice has been issued for a supply and subsequently it is found that the value or tax charged in that invoice is more than what is actually payable/chargeable or where the recipient has returned the goods, the supplier can issue a credit note to the recipient. A registered person who issues such a credit note has to declare details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made or date of furnishing of the relevant annual return whichever is earlier. The tax liability of the registered person will be adjusted in accordance with the credit note issued, however no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.
In cases where tax invoice has been issued for a supply and subsequently it is found that the value or tax charged in that invoice is less than what is actually payable/chargeable, the supplier can issue a debit note to the recipient.
Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued and the tax liability shall be adjusted in such manner as may be prescribed.
A revised tax invoice and credit or debit note has to contain the following particulars-
Payment Voucher
There are cases where a registered person under GST is liable to pay tax under reverse charge mechanism. These would include circumstances where:
A registered person makes supplies of such nature on which tax is payable under reverse charge mechanism
Recipient receives supplies from an unregistered person
In such cases, the registered person liable to pay tax is required to issue an invoice for the goods or services received by him from the supplier.
Furthermore, such a registered person receiving supplies is also required to issue a Payment Voucher to the supplier at the time of making payment.
Thus, Payment Voucher is a type of GST invoice which is issued by a registered person liable to pay tax under Reverse Charge. Further, the payment invoice is an evidence of goods and services received by such a registered person from the supplier.
Payment Voucher Example
Kapoor Cotton Mill located in Mumbai purchased raw cotton from Sham Cotton for Rs 2 Lakhs in Delhi at the rate of 5%. In this circumstance, Kapoor Cotton Mill will have to pay GST under reverse charge. Hence, CGST and SGST would be applicable on reverse charge basis of Rs 10,000 (5% of 2,00,000).
Further, Kapoor Cotton Mill would also issue a Payment Voucher to Sham Cotton for Rs 2 Lakhs.
Payment Voucher Particulars
Following are the particulars to be mentioned in Payment Voucher:
a) Name, Address and GSTIN of the supplier if registered.
b) Serial Number which is unique for the financial year.
c) Date of issue of Payment Voucher.
d) Name, Address and GSTIN of the recipient.
e) Description of goods and services.
f) Amount paid to the supplier.
g) GST Rate (Central Tax, State Tax, Integrated Tax, Union Territory Tax or CESS).
h) Amount of GST payable with regards to taxable goods and services (Central Tax, State Tax, Integrated Tax, Union Territory Tax or CESS).
i) Place of Supply together with the name of the State and its code in cases where inter-state supply is made.
j) Signature or Digital Signature of the Supplier or his authorized representative.
Receipt Voucher
There are cases when a registered person receives an advance payment with respect to any supply of goods or services or both. In this case, such a person receiving advance payment needs to issue a receipt voucher evidencing the receipt of such advance payment.
Such a receipt voucher must contain particulars as prescribed in rule 50 of CGST rules, 2017.
Further, there can be various possibilities with regards to issuing tax invoice while receiving advance payment under GST.
No Tax Invoice is Issued
There are cases when a registered person receives an advance payment for any supply of goods or services and issues a receipt voucher in respect of the same. But, he neither makes any supply nor issues a tax invoice subsequent to issuing a receipt voucher. In this case, such a person can refund the amount of advance payment received and issue a refund voucher against such an advance payment.
Tax Invoice is Issued
There are cases when a registered person receives an advance payment for any supply of goods or services and issues a receipt voucher in respect of the same. Further, he does not make any supply but issues a tax invoice subsequent to issuing a receipt voucher. In this case, such a person needs to issue a credit note in order to cancel the transaction. Furthermore, such a credit note needs to be issued as per section 34 of the CGST act.
In addition to the above, there can be cases when it is challenging to determine the rate of tax to be charged or place of supply at the time of receiving advance payment. Therefore, as per rule 50 of the CGTS act, if the rate of tax is not determinable at the time of receipt of the advance payment, tax at the rate of 18% shall be paid. And, if the nature of supply is not determinable at the time of receipt of advance payment, then such a supply would be taken as inter-state supply and GST shall be paid accordingly.
Components of Receipt Voucher
As per rule 50 of CGST rules, 2017, a receipt voucher must contain the following particulars:
a) Name, address and GSTIN of the supplier.
b) A consecutive serial number not exceeding 16 characters, in one or multiple series, containing letters or numerals or special characters (hyphen or dash and slash symbolised as ‘-‘ and ‘/’ respectively) and any combination thereof, unique for a financial year.
c) Date of its issue.
d) Name, address and GSTIN or UIN, if registered, of the recipient.
e) Description of goods or services.
f) Amount of advance taken.
g) Rate of tax (central tax, state tax, integrated tax, union territory tax or cess).
h) Amount of tax charged in respect of taxable goods or services (central tax, state tax, integrated tax, union territory tax or cess).
i) Place of supply along with the name of state, in case of a supply in the course of inter-state trade or commerce.
j) Whether the tax is payable on reverse charge basis.
k) Signature or digital signature of the supplier or his authorized representative.
E-Way Bill
E-way Bill is an Electronic Way Bill for the movement of goods from one place to another which is to be generated on the E-way bill portal i.e. on ewaybillgst.gov.in. If the value of goods exceeds Rs. 50,000 a GST registered person cannot transport goods in a vehicle without an E way Bill. When an E-way bill is generated, a unique E way Bill Number (EBN) is allocated and is available to the supplier, recipient, and transporter.
Validity of E way Bill:
The validity of the e-way bill depends on the distance to be traveled by the goods. For a distance of less than 100 Km, the e-way bill will be valid for a day from the relevant date. For every 100 Km thereafter, the validity will be an additional one day from the relevant date. The “relevant date” shall mean the date on which the e-way bill has been generated.
Who should generate an E Way Bill?
Registered Person – E-way bill must be generated when there is an inter-state movement of goods of more than? 50,000(Including GST) in value to or from a registered person. For the intra-state movement of goods, an E-way bill must be generated for the movement of goods of more than the amount as notified by the state governments. For example, amount notified for Delhi is ? 1,00,000, For Haryana ? 50,000 and for Utter Pradesh? 50,000. Registered person or the transporter may choose to generate and carry E way bill even if the value of goods is less than the above limits.
Unregistered Persons – Where a supply is made by an unregistered person to a registered person, the receiver will have to ensure all the compliances are met as if they were the supplier.
Transporter – Transporters carrying goods by road, air, rail, etc. also need to generate E Way Bill if the supplier has not generated an E Way Bill.
Documents required to generate E Way Bill:
In order to generate an E way Bill, a consigner should be prepared with the following details:
1. Invoice/Delivery Challan/Bill of Supply.
2. For transportation by road – Vehicle number/Transporter ID, Part B of E-way bill has to be filed.
3. For transportation by rail, air, or ship – Transporter ID, Transport document number, and date on the document.
Blocking of E-way bill facility:
E way Bill generation can be blocked for taxpayers who haven’t filed their GSTR-3B returns for the previous two consecutive months.
Only when a taxpayer files GSTR-3B, the e way bills will get unblocked on the subsequent day.
Consequences of not generating E-way bill or wrong E-way bill:
a) Detention or seizer of vehicle during movement.
b) Detention or seizer of Goods during the movement.
c) Confiscation of vehicle or goods on non-payment of penalty within 7 days of detention.
d) Sale of vehicle or goods by the officials after confiscation.
e) Imposition of penalty of Rs. 10,000 or equivalent amount of tax of goods in transit, whichever is higher.
Common Errors made by businesses on the E way bill Portal:
a) Issuance of a single E way Bill against multiple invoices.
b) Furnishing Vehicle numbers in an invalid format.
c) Improper use of bulk generation facility.
d) Generations of e-way bills through incorrect user ID’s.
e) Inability to track the validity period of e-way bills.
f) Not furnishing a transporter ID.
g) Inability to maintain a record of e-way bills generated by the counterparty.
h) Incorrect document details while generating e-way bills.
i) Difference in total invoice value in tax invoice and E-way bill.
How to Release goods after detention:
a) On detention of vehicle and goods, officer shall issue the following notices and orders:
1. MOV-06- Order of detention u/s 129(1).
2. MOV-07- Notice u/s 129 for tax and penalty.
b) On receipt of above notice and order, taxpayer needs to pay tax and penalty as specified in MOV-07. After the payment is being made, concerned officer shall issue MOV-05 to release the vehicle and goods.
What after Release of goods:
a) The taxpayer can file an appeal against the order received in MOV-09 form.
b) Appeal shall be filed at the jurisdiction at which vehicle and goods were detained.
c) Tax and penalty paid can be refunded to the taxpayer considering the merit of the case.
HSN Code and SAC Code
The Harmonized System of Nomenclature (HSN) is an internationally accepted method of naming, classifying and identifying products. HSN codes are used to classify goods to calculate GST.
Service Accounting Codes (SAC) is a unique code provided for recognition, measurement and taxation of services.
These codes must be mentioned when you register for GST, on your invoices, and on your GST returns which you need to upload on the GST Portal.
References:
