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Input tax credit subject to such conditions and restrictions

J Praveen Kumar 
on 11 December 2017

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A registered person shall not be entitled to take credit of input tax charged on any supply of goods or services or both notwithstanding anything contained in subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49.

Explanation - For the purpose of this section,- Every person who has paid the tax on goods or services or both under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the recipient of such goods or services or both.

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon 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.

Provided further that the registered person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act:

Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

The amount claimed as input tax credit that is found to be in excess on account of duplication of claims shall be added to the out tax liability of the recipient in his return for the month in which the duplication is communicated.

Provided that the registered person shall be allowed to reduce his tax liability on account of issue of the credit note only if the recipient of the credit note has reduced his input tax credit corresponding to such reduction of tax liability.

A taxable person who makes an excess claim of input tax credit u/s 42(10) or excess reduction in output tax liability u/s 43(10), shall pay interest at such rate not exceeding twenty-four percent, as may be notified by the Government on the recommendations of the Council.

A registered person shall not be entitled to take credit of input tax on exempt supply which attracts nil rate of tax or which may be wholly exempt from tax under section 11 of CGST Act, or under section 6 of the IGST Act, and includes non-taxable supply.

A registered person shall not be entitled to take input tax credit as is attributable to the discount after the supply has been affected, if such discount is established in terms of an agreement entered into at or before the time of such supply specifically linked to relevant invoices.

Where the registered person has claimed depreciation on the tax 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.

A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date 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 or furnishing of the relevant annual return, whichever is earlier.

Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

Motor vehicles and other conveyances except when they are used for transportation of goods and used for making the following taxable supplies, namely:-

(1) further supply of such vehicles or conveyances; or
(2) transportation of passengers; or
(3) imparting training on driving, flying, navigating such vehicles or conveyances;

The following supply of goods or services or both except 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 :

  • Food & beverages
  • Outdoor catering
  • Beauty Treatment
  • Health Services
  • Cosmetic and Plastic Surgery
  • Rent-a-cab, life insurance and health insurance except where 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
  • works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service

A registered person shall not be entitled to take credit of input tax for following supply of goods or services or both

  • Membership of a club
  • Health and fitness centre
  • Travel benefits extended to employees on vacation such as leave or home travel concession
  • Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
  • Goods or services or both on which tax has been paid under section 10
  • Goods or services or both used for personal consumption
  • Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
  • Any tax paid in accordance with the provisions of sections 74, 129 and 130.
  • In respect of any supply of any goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply.

Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly exempt, then a registered person becomes liable to pay tax equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such options.

Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

In case of supply of capital goods or plant and machinery, the value which is capitalized in the books of account on which input tax credit availed, such credit of a registered person becomes liable to pay tax to such extent as may be prescribed under this Act.

The author can also be reached at praveenjalagari@gmail.com


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