Decoding Input Tax Credit (ITC) under GST

Table of Contents

1. Relevant Notification
2. Relevant Circulars
3. Relevant Case Laws

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1. Relevant Notification

Notified rate of tax to be levied on specified first intra-State supplies of goods or services – Notification No. 2/2019-Central Tax (Rate), dated 7-3-2019—For details see section 9 of Central Goods and Services Tax Act, 2017.

2. Relevant Circulars

Availability of input tax credit to the principal and job worker  – In view of the provisions contained in section 16(2)(b) of the CGST Act, the input tax credit would be available to the principal, irrespective of the fact whether the inputs or capital goods are received by the principal and then sent to the job worker for processing, etc. or whether they are directly received at the job worker’s place of business/premises, without being brought to the premises of the principal. Further the job worker is also eligible to avail ITC on inputs, etc. used by him in supplying the job work services if he is registered.— Circular No. 38/12/2018, dated 26-3-2018, as amended by, Circular No. 88/7/2019, dated 1-2-2019.

Input Tax Credit in case of Buy one get one free offer – ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of ‘Buy one get one free offers’.— Circular No. 92/11/2019-GST, dated 7-3-2019.

Input Tax Credit in case of discounts including ‘Buy more, save more’ offers – The supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply of goods or services or both on discounts including ‘buy more save more offers’.— Circular No. 92/11/2019-GST, dated 7-3-2019.

ITC on Secondary Discounts – There is no impact on availability or otherwise of ITC in the hands of supplier in case of issue of financial/credit notes without commercial GST.—Circular No. 92/11/2019-GST, dated 7-3-2019.

Availing of ITC by RWA – RWAs are entitled to take ITC of GST paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services. The ITC can be used to discharge GST liability of RWA.— Circular No. 109/28/2019-GST, dated 22-7-2019.

Restriction in availment of ITC under rule 36(4) of self assessment basis – The availment of restricted credit in terms of sub-rule (4) of rule 36 of CGST Rules shall be done on self-assessment basis by the taxpayers. Note the following.

Invoices/debit notes on which the restriction under rule 36(4) of the CGST Rules shall apply – The restriction of availment of ITC is imposed only in respect of those invoices/debit notes, details of which are required to be uploaded by the suppliers under sub-section (1) of section 37 and which have not been uploaded. Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD etc. which are outside the ambit of section 37(1), provided that eligibility conditions for availment of ITC are met in respect of the same. The restriction of rule 36(4) will be applicable only on the invoices/debit notes on which credit is availed after 09.10.2019.

Restriction is to be calculated supplier wise or on consolidated basis – The restriction imposed is not supplier wise. The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Further, the calculation would be based on only those invoices which are otherwise eligible for ITC. Accordingly, those invoices on which ITC is not available under any of the provision (say under sub-section (5) of section 17) would not be considered for calculating 20 per cent, of the eligible credit available.

GSTR-2A which is to be considered for computing restriction in ITC – The amount of input tax credit in respect of the invoices/debit notes whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible input tax credit available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under section 37(1) as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period. The taxpayer may have to ascertain the same from his auto populated FORM GSTR-2A as available on the due date of filing of FORM GSTR-1 under section 37(1).

Computing ITC that can availed as per Rule 36(4) – Rule 36(4) prescribes that the ITC to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under section 37(1), shall not exceed 20 per cent, of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under section 37(1).

Availing of balance restricted ITC in future month – The balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers. He can claim proportionate ITC as and when details of some invoices are uploaded by the suppliers provided that credit on invoices, the details of which are not uploaded (under section 37(1)) remains under 20 per cent of the eligible input tax credit, the details of which are uploaded by the suppliers. The taxpayer may avail full ITC in respect of a tax period, as and when the invoices are uploaded by the suppliers to the extent Eligible ITC/1.2.— Circular No. 123/42/2019-GST, dated 11-11-2019.

Taxability of servicing of cars involving both supply of goods (spare parts) and services (labour), where the value of goods and services are shown separately – Circular No. 47/21/2018-GST, dated 8-6-2018—For details see section 7 of Central Goods and Services Tax Act, 2017.

Clarification relating to application of sub-rule (4) of rule 36 of the CGST Rules, 2017 for the months of February, 2020 to August, 2020 – The clarifications issued earlier vide Circular No. 123/42/2019-GST dated 11-11-2019 shall still remain applicable, except for the cumulative application as prescribed in proviso to sub-rule (4) of rule 36 of the CGST Rules. Accordingly, all the taxpayers are advised to ascertain the details of invoices uploaded by their suppliers under sub-section (1) of section 37 of the CGST Act for the periods of February, March, April, May, June, July and August, 2020, till the due date of furnishing of the statement in FORM GSTR-1 for the month of September, 2020 as reflected in GSTR-2A.

Taxpayers shall reconcile the ITC availed in their FORM GSTR-3B for the period February, 2020 to August, 2020 with the details of invoices uploaded by their suppliers of the said months, till the due date of furnishing FORM GSTR-1 for the month of September, 2020. The cumulative amount of ITC availed for the said months in FORM GSTR-3B should not exceed 110% of the cumulative value of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37 of the CGST Act, till the due date of furnishing of the statements in FORM GSTR-1 for the month of September, 2020.

It may be noted that availability of 110% of the cumulative value of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37 of the CGST Act does not mean that the total credit can exceed the tax amount as reflected in the total invoices for the supplies received by the taxpayer i.e. the maximum credit available in terms of provisions of section 16 of the CGST Act.

The excess ITC availed arising out of reconciliation during this period, if any, shall be required to be reversed in Table 4(B)(2) of FORM GSTR-3B, for the month of September, 2020. Failure to reverse such excess availed ITC on account of cumulative application of sub-rule (4) of rule 36 of the CGST Rules would be treated as availment of ineligible ITC during the month of September, 2020.— Circular No. 142/12/2020-GST, dated 9-10-2020.

Time barring of ITC in case of debit notes – With effect from 1-1-2021, in case of debit notes, the date of issuance of debit note (not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of the CGST Act.

The availment of ITC on debit notes in respect of amended provision shall be applicable from 01.01.2021. Accordingly, for availment of ITC on or after 01.01.2021, in respect of debit notes issued either prior to or after 01.01.2021, the eligibility for availment of ITC will be governed by the amended provision of section 16(4), whereas any ITC availed prior to 01.01.2021, in respect of debit notes, shall be governed under the provisions of section 16(4), as it existed before the said amendment on 01.01.2021.— Circular No. 160/16/2021-GST, dated 20-9-2021.

Availing of ITC in respect of invoice without any underlying supply of goods or services – In view of contravention of Section 16(2)(b) of the CGST Act such recipient shall be liable for demand and recovery of the said ITC, along with penal action, under the provisions of Section 74 of the CGST Act along with interest under section 50 the CGST Act.— Circular No. 171/03/2022-GST, dated 6-7-2022.

Clarification to deal with difference in Input Tax Credit (itc) availed in Form GSTR-3B as compared to that detailed in Form GSTR-2A for FYs. 2017-18 and 2018-19 – Circular No. 183/15/2022-GST, dated 27-12-2022—For details see section 168 of Central Goods and Services Tax Act, 2017.

Clarification on entitlement of Input Tax Credit where the place of supply is determined in terms of proviso to sub-section (8) of section 12 of the Integrated Goods and Services Tax Act, 2017 – Circular No. 184/16/2022-GST, dated 27-12-2022—For details see section 168 of Central Goods and Services Tax Act, 2017.

3. Relevant Case Laws

Constitution Validity – Validity of section 16(2)(c) of CGST Act/MGST Act prescribing condition on payment of tax by supplier to Government to confer entitlement of input tax credit to recipient challenged; Bombay High Court directs issuance of notice to GST department and Attorney General of India – Unifab Engineering Project (P.) Ltd. v. Dy. Commissioner CGST and Central Excise [2021] 132 taxmann.com 169 (Bombay)

n Where Authority filed petitions seeking transfer of writ petitions pending before High Courts to Supreme Court and in these writ petitions, constitutional validity of section 16(1)(c) of CGST Act had been challenged, High Court was requested to dispose of pending writ petition within 2 months – Union of India v. Cummins Technologies India (P.) Ltd. [2021] 133 taxmann.com 255/53 GSTL 129 (SC)

Scope of provisions – No input tax credit can be claimed of tax paid on input invoices of goods or services procured or availed by a registered person before its effective date of registration under GST – Knowlarity Communications (P.) Ltd., In re [2019] 110 taxmann.com 354 (AAR – Karnataka)

• Input tax credit availed on purchases related to particular outward supply can be utilized for discharging GST on different outward supply; section 16 does not prescribe one-to-one correlation of particular inputs with particular outward supply – Aristo Bullion (P.) Ltd., In re [2022] 136 taxmann.com 46/90 GST 743 (AAAR – Gujarat)

Input tax credit availed on inward supply without paying to supplier consideration and applicable tax amount before expiry of period of 180 days from date of issuance of invoice could not make petitioner ineligible to avail ITC so as to block electronic credit ledger – Sunny Jain v. Union of India [2022] 145 taxmann.com 601/[2023] 69 GSTL 164 (Delhi)

Advance ruling – Maintainability of – Question of admissibility of input tax credit on common input services falls within scope of advance ruling – Bharatiya Reserve Bank Note Mudran (P.) Ltd., In re [2022] 140 taxmann.com 654/93 GST 435 (AAAR – Karnataka)

Bill to ship to model, in case of – Input tax credit (ITC) of IGST paid on ‘bill to-ship to’ model as per sections 16 and 17 is allowable – Umax Packaging (A unit of Uma Polymers Ltd.), In re [2018] 100 taxmann.com 398/[2019] 71 GST 511 (AAR- Rajasthan)

Blocking of Electronic Credit Ledger – Where blocking of electronic credit ledger and suspension of registration brought business to a standstill, department should restrict blocking to extent of demand amount only and issue show cause notice; registration was to be restored to enable filing of return – Jyoti Commotrade (P.) Ltd. v. State of West Bengal [2022] 141 taxmann.com 117/93 GST 402/66 GSTL 305 (Calcutta)

Book adjustment – Unless law specifically restricts recipient from claiming input tax credit when consideration is paid through book adjustment, credit of input tax cannot be denied and, thus, GST Act and Rules do not restrict claiming of ITC merely because consideration is paid through book adjustment; input tax credit is admissible to an assessee even when he settles debt created on inward supplies from Franchisee through book adjustment – Senco Gold Ltd., In re [2019] 105 taxmann.com 143/74 GST 191 (AAR – West Bengal)

Cash carry van – Input Tax Credit is available to applicant against GST paid on purchase and fabrication of motor vehicles i.e. cash carry vans which are purchased, used for cash management business and supplied post usage as scrap – CMS Info Systems Ltd., In re [2020] 117 taxmann.com 318 (AAAR – Maharashtra)

n ITC claim was to be made to jurisdictional GST Officer in State where Head Office was situated; claim should not be rejected for reason that GSTIN of assessee was different as a result of change in composition of erstwhile partnership firm into private limited company – Travancore Mats & Mattings (P.) Ltd v. Assistant Commissioner [2022] 141 taxmann.com 329/65 GSTL 35 (Madras)

Coaching Service – Where applicant intends to provide coaching services to its enrolled students through Network partner and students enrolled with applicant will be charged a consolidate amount which will include supply of goods and/or services, applicant can avail eligible input tax credit as per provisions of GST Act – Symmetric Infrastructure (P.) Ltd., In re [2021] 130 taxmann.com 136/88 GST 816 (AAR – Rajasthan)

Complimentary Tickets – Where tickets supplied by applicant including complimentary tickets would be considered as supply of services and would be taxable under GST, applicant would clearly be eligible for claim of input tax credit as per provisions of section 16 – K.P.H. Dream Cricket (P.) Ltd., In re [2018] 98 taxmann.com 243 (AAR – Punjab)

CSR expenses – Where applicant, engaged in supplying insecticides, fungicides and herbicides, has been spending mandatory amount on CSR activities and vendors who supply goods/services to applicant for purpose of undertaking CSR activities charge GST on their output supplies since CSR activities, as per Companies (CSR Policy) Rules, 2014 are excluded from normal course of business of applicant, applicant is not eligible for ITC as per section 16(1) – Adama India (P.) Ltd., In re [2021] 132 taxmann.com 45/88 GST 769 (AAR – Gujarat)