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1. A list of exclusions has been provided wherein it is specified that the credit shall not be available for motor vehicles and other conveyances except when used for making taxable supplies like supply of such conveyances, transportation of passengers, imparting training or driving or for transportation of goods. There is no change in the above provision with the only difference that other conveyances have also been added.
2. Similarly, it is provided that the supply of food and beverages, outdoor catering, beauty treatment, health services etc. will not be allowed except when used for providing outward taxable supplies of similar nature. This will have the effect that corporate would not be able to claim input tax credit in respect of restaurant services availed during the course of business functions. Under the old GST Law, credit was denied for such services if they were primarily used for personal use or consumption of employee. This will have effect in hotel industry also where they can take credit only when it is used for providing outward taxable supply of similar nature. The dispute may arise on term "supply of similar nature". Suppose, a hotel take service of outward catering for marriage function of a client (Mandap Keeper service). Whether it will be treated as outward taxable supply of similar nature. Same will be the case of event management company.
3. The credit of rent-a cab, life insurance, health insurance will also not be available unless Government notifies that such services are obligatory for an employer to provide to its employees under any law for the time being in force. The admissibility of credit when such services are availed under obligation is a welcome step and was not there in earlier law.
4. With respect to availability of credit in special circumstances, where a registered person ceases to pay tax under composition scheme, he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on the capital goods on the day immediately preceding the date from which he becomes liable to pay tax under normal scheme. The credit of capital goods shall be reduced by such percentage points as may be prescribed in this behalf. In the old GST Law, the provision regarding admissibility of credit of capital goods was not there and is a welcome step. The question may arise that an assessee can take credit on how old capital goods? But the limit of taking credit on invoices of one year old will give answer to this question.
5. The registered taxable person shall be liable to pay an amount equal to input tax credit on capital goods reduced by the percentage points or tax on transaction value whichever is higher, in case of supply of capital goods or plant or machinery on which input tax credit has been taken. A new proviso has been added to provide that in case of refractory bricks, moulds and dies, jigs and fixtures supplied as scrap, taxable person may pay tax on transaction value of such goods. But the current Cenvat credit Rules provided for duty payment on value of scrap of all capital goods. But as per these new proposed provisions in revised draft GST law, the duty is to be paid on such capital goods only even if they are scrap only.