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Before starting this chapter, we need to rewind the following definition to understand the concepts more clearly.

1.'Input' means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. [Sec 2(59)]

2.'Input Service' means any service used or intended to be used by a supplier in the course or furtherance of business . [Sec 2(60)]

3.'Input Service Distributor' means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office. [Sec 2(61)]

4.'Input Tax' in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes -

(a) IGST charged on import of goods
(b) the tax payable u/s 9(3) & 9(4)
(c) the tax payable u/s 5(3) & 5(4) of the IGST Act
(d the tax payable u/s 9(3) & 9(4) of the respective SGST Act
(e) the tax payable u/s 9(3) & 9(4) of UTGST Act

but does not include the tax paid under the composition levy.

In Short, 'Input Tax' in relation to a taxable person, means the GST charged on any supply of goods and/or services to him which are used or are intended to be used, during furtherance of his business & same is allowed to be used in payment of output tax.

Fulfillment of Input Tax Credit under GST & Conditions to claim it is one of the most critical activity for every business to settle its tax liability.

ITC being the backbone of GST and a major matter of concern for the registered persons, conditions for eligibility to ITC and eligible ITC have been prescribed which in majority in line with pre- GST regime. These rules are also quite particular and stringent in its approach.

Example 1: An example will make things much clear. Suppose that a readymade garment firm buys polyester (input) from a supplier (of input) at Rs 100 and a CGST of Rs 10 is also has to be paid (CGST rate of 10%). The price of polyester input will be Rs 110.

Now the garment manufacturer sells the product at Rs 200 plus tax (means his value addition is Rs 100). Imagine that the GST rate of readymade shirt is 12%. Here, the manufacturer must pay a tax of Rs 24. But he has previously paid a tax of Rs 10 while purchasing the input of polyester. Hence, he can claim this Rs 10 and has to pay only the remaining Rs 14 (of the total Rs 24). The Rs 10 that the manufacturer claimed is the input tax credit.

GST comprises of the following levies:

  1. CGST
  2. SGST
  3. UTGST
  4. IGST

How input tax can be claimed

Claiming of ITC is to be made in the proper way. According to the GST rules, taxes paid on inputs cannot be deducted or credited between CGST and SGST. This means that input tax paid on CGST can be availed to pay SGCST. Similarly, an input tax paid on SGST cannot be used to pay CGST. Following are the rules for claiming the ITC.

(i) When ITC is received from CGST
First preference is to pay CGST.
The remaining amount can be used to pay IGST.
ITC from CGST can not be used to pay SGST.

(ii) When ITC is received from SGST
First preference is to pay SGST.
The remaining amount can be used to pay IGST.
ITC from SGST can not be used to pay CGST.

(iii) When ITC is received from IGST
First preference is for the payment of IGST.
Second preference is to pay CGST.
If remaining, it an be used for the the payment of SGST.

The protocol to avail and utilize the credit of these taxes is as follows:

Credit of CGST cannot be used for payment of SGST/UTGST and credit of SGST/UTGST cannot be utilized for payment of CGST.

Example 2: Let's assume that the tax credit of Rs. 5,00,000 of CGST is available with the supplier and output CGST is Rs. 1,00,000, output IGST is Rs. 3,00,000, and output SGST is Rs. 2,00,000.

INPUT TAX CREDIT UNDER CGST

In above example the credit of CGST is firstly utilized towards payment of output CGST & then towards payment of IGST. However, credit of CGST can't be used to set off SGST.

Example 3: Let's assume that the tax credit of Rs. 5,00,000 of SGST is available with the supplier and output SGST is Rs. 1,00,000, output IGST is Rs. 3,00,000, and output CGST is Rs. 2,00,000.

In above example the credit of SGST is firstly utilized towards payment of output SGST & then towards payment of IGST. However, credit of SGST can't be used to set off CGST.

Example 4: Let's assume that Input Tax Credit of Rs. 300000/- of IGST, Rs.100000/- of SGST & Rs. 100000/- is available with the supplier and output CGST is Rs. 1,00,000, output IGST is Rs. 3,00,000, and output SGST is Rs. 2,00,000.

Now in order to avail the benefits of the tax credit of IGST, the Input Tax Credit under GST shall be first adjusted from IGST, then CGST and then SGST.

CGST first adjusted from CGST and then IGST.
SGST first adjusted from SGST and then IGST.

How Input Tax Works Under GST

Suppose Mr. A is a seller. He sells goods to Mr. B. The buyer Mr. B is now eligible to claim the purchase credit using his purchase invoices.

This is how it works:

  • A uploads all his tax invoices details as issued in GSTR-1.
  • The details uploaded by Mr. A is automatically populated or reflected in GSTR-2A. This same data will get reflected when Mr. B files the GSTR-2 returns which are nothing but the details of his purchase.
  • The details of the sale are then accepted and acknowledged for by Mr. B, and subsequently the purchase tax is credited to Mr. B's Electronic Credit Ledger. He can use this to adjust it later for future output tax liability or receive a refund.

Eligibility & Conditions for availing Input Tax Credit [Section16]

1. Any registered person can avail credit of tax paid on the inward supply of goods or services or both, which is used or intended to be used in the course or furtherance of business.

(ITC available if goods or services used for business)

2. A registered person will be eligible to claim Input Tax Credit (ITC) on fulfillment of the following conditions:

a. Possession of a tax invoice or debit note or other document issued by supplier evidencing payment.

b. Receipt of goods and/or services. It is assumed that goods received by registered person where goods are delivered by supplier to other person on the direction of registered person against a document of transfer of title of goods.

c. 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.

d. Furnishing of a return u/s 39.

Provided that 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.

Provided further that failure to the supplier towards supply of goods and/or services within 180 days from the date of invoice, ITC already claimed will be added to output tax liability and interest to paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed.

Author's Summary Note:

ITC available only if goods are evidenced by invoice or other document & goods received by registered person or other person on direction of of him.

It is also required that return has been properly filed & tax charged on inward supply paid to Government in cash or through utilization of ITC.

ITC available on last installment if goods received in lots or installments.

Credit lapsed if payment not made to supplier in 180 days & same will be allowed on payment.

Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under IT Act then no ITC will be allowed if on tax component of a capital goods.

(No ITC if depreciation claimed on tax amount also. For example if a person purchase machine for Rs.50000 plus GST@12% & capitalized machine in books at Rs.56000/-(50000+12% of 50000) then no ITC will be available.)

A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note which is received after:

  1. the due date of filing return for September of next financial year, or
  2. filing annual return

whichever is earlier.

APPORTIONMENT OF CREDIT AND BLOCKED CREDITS [SECTION 17]

1. Where the goods or services or both are used by the registered person partly for the purpose of any business and 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.

ITC available for business purpose only if goods used for both business & personal purpose.

ITC allowed = Total ITC* Value of supply used for Business .
Total Inward Supply(For Business + Personal)

2. Where the goods and / or services are used by the registered taxable person partly for effecting taxable supplies including zero-rated supplies under this Act or under the IGST Act, 2016 and partly for effecting exempt supplies under the said Acts, 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.

ITC available only for goods used in taxable supply when goods used for both taxable & exempted supplies.

ITC allowed = Total ITC* Total Taxable Value .
Total Inward Supply (Taxable + Exempt)

3. The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

4. 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 either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to fifty per cent of the eligible input tax credit on inputs, capital goods and input services in that month.

Explanation.- The option once exercised shall not be withdrawn during the remaining part of the financial year.

5. Input tax credit shall not be available in respect of the following:

(a) motor vehicles and other conveyances except when they are used:

(i) 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;

(ii) for transportation of goods.

(b) supply of goods and services, namely,

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services;

(ii) membership of a club, health and fitness centre,

(iii) rent-a-cab, life insurance, 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

Example: Mr. Dev takes the service of rent-a-cab to supply to Mr. Manoj, a customer, then credit of ITC paid on purchases will be allowed.

(iv) travel benefits extended to employees on vacation such as leave or home travel concession.

(c) works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service;

(d) goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business;

'construction' includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.

(e) goods and/or services on which tax has been paid under section 10 i.e composition levy;

(f) goods and/or services used for personal consumption;

(g) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

6. The Central or a State Government may, by notification issued in this behalf, prescribe the manner in which the credit referred to in sub-sections (1) and (2) above may be attributed.

Illustration 1. Pankhi Limited, a registered manufacturer engaged in taxable supply of goods procured the following goods in the month of the December 2017. The same has been capitalised in the books of accounts of Pankhi Ltd.

Determine the amount of input tax credit available.


Particulars

Amount

Machine used in the factory

Moulds and dyes used in the factory

Energy saving equipment used in the factory

Raw Material for production of finished goods

Capital goods purchase on which depreciation has taken on value including tax thereon

Capital goods used as parts purchase from supplier who paid tax of Rs.5500/- under composition scheme and the composite tax has not been collected from Pankhi Ltd.

215000

58000

63000

89000

55000

55000


Solution: Calculation of Input Tax Credit of Pankhi Ltd.


Particulars

Amount

Machine used in the factory

Moulds and dyes used in the factory

Energy saving equipment used in the factory

Raw Material for production of finished goods

Capital goods purchase on which depreciation has taken on value including tax thereon

Capital goods used as parts purchase from supplier who paid tax of Rs.5500/- under composition scheme and the composite tax has not been collected from Pankhi Ltd.

215000

58000

63000

89000

0

0

Total Input Tax Credit available

425000


Illustration 2. Ashok Limited, a registered manufacturer is engaged in taxable supply of goods. It procured the following goods during the month of December 2017.Determine the amount of input tax credit available by giving necessary explanation for treatment of various items:


Particulars

Amount

Laptop used in office within the factory

Trucks used for transportation of inputs in the factory

Goods used exclusively for personal purpose

Pumps obtained from the unregistered supplier on which tax has been paid by Ashok Ltd on reverse charge basis

Goods used in construction of office and building

Capital goods used exclusively for making outward supply to SEZ unit

48000

428000

53000

15000

85000

90000


Solution: Calculation of ITC of Ashok Ltd.


Particulars

Amount

Laptop used in office within the factory

Trucks used for transportation of inputs in the factory

Goods used exclusively for personal purpose

Pumps obtained from the unregistered supplier on which tax has been paid by Ashok Ltd on reverse charge basis

Goods used in construction of office and building

Capital goods used exclusively for making outward supply to SEZ unit

48000

428000

0

0

0

90000

Total Input Tax Credit

566000


Illustration 3. Determine the amount of input tax credit available to Vdeshi Ltd. in respect of the following items prepared by them in the month of January 2018


Particulars

Amount

Input used in the process of manufacture of the final product

Food and beverages procured from Gopal Caterers for being used in dealer's meet Goods used for providing services during warranty period

Goods used for setting up machinery being immovable property

Inputs stolen from the store

Membership of club to all members.

105000

58000

15000

75000

99000

87000


Solution: Calculation of ITC of Vdeshi Ltd.


Particulars

Amount

Input used in the process of manufacture of the final product

Food and beverages procured from Gopal Caterers for being used in dealer's meet Goods used for providing services during warranty period

Goods used for setting up machinery being immovable property

Inputs stolen from the store

Membership of club to all members.

105000

0

15000

75000

0

0

Total Input Tax Credit

195000


Illustration 4.Determine the amount of input tax credit admissible to SRK Limited in respect of the following profit by it in the month of April 2018.


Particulars

Amount

Goods used in the construction of an additional floor to office building

Packing material

Goods disposed of

Goods used for repairing the office building (revenue in nature)

Paper for photocopy machine used for administrative work

Goods given as gifts

Input used for test or quality check

82500

20000

15900

18000

6000

50000

21000


Solution: Calculation of ITC of SRK Ltd.


Particulars

Amount

Goods used in the construction of an additional floor to office building

Packing material

Goods disposed of

Goods used for repairing the office building (revenue in nature)

Paper for photocopy machine used for administrative work

Goods given as gifts

Input used for test or quality check

0

20000

0

18000

6000

0

21000

Total Input Tax Credit

65000


Illustration 5. A Motor Training Institute provide services of Motor Training pilot in candidates become eligible for opting driving licence. Determine whether the institute is eligible to take credit on motor car purchased for imparting training.

Solution: As per section 17(5)(a)(i) input tax credit shall not be allowed on motor vehicles and other conveyance, except when they are used for making following taxable supplies

  1. Further supply of search vehicle or conveyance
  2. Transportation of passengers
  3. Imparting training on driving, flying, navigating such vehicles or conveyances.

Here, motor car is used to import training for a driving, therefore credit of input tax paid on purchase of motor cars shall be available to the institute

Illustration 6: ABC Limited manufacture which is engaged in supply of taxable goods has purchased 5000 kgs of product ‘A' for RS. 5 lakh (exclusive of CGST @ 14% and SGST @ 14%) on which input tax credit has been taken. Due to changes in fashion process, the said product become obsolete and their value has been written off in the books of accounts. Explain input tax credit statement in about case.

Solution :As per section 17(5) of the CGST Act 2017,if the value of the any goods is written off in the books of account, then no input tax shall be allowed in respect of said input. Where ITC has been taken in respect of said goods, the same has to be paid by recipient.

Since in the given case ABC Ltd has availed ITC, thus he has to pay Rs.70000 towards CGST and 70000 towards SGST .

Illustration 7: Jay Limited is engaged in supply of works contract services. It gives a part of the construction work to a sub contractor. The sub- contractor charges GST in his invoice to Jay Limited. You are required to advise Jay Limited about input tax credit.

Solution: As per section 17(5), input tax credit shall not be available in respect of work contract services when supplied for construction of an immovable property.

However, credit is allowed when it is an input service for further supply for contract services. In the given case, the services supplied by sub-contractor have been used by Jay Limited for further supply of work contract services. Hence, Jay Ltd can avail the input tax credit of the GST charged on the input services provided by the sub-contractor.

Availability of Credit in Special Circumstances

1. New Registration:

A person who compulsorily required to get registered & has applied for registration within 30 days of becoming liable for registration, then he is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day immediately preceding the date from which he becomes liable to pay tax.

A person who has taken voluntary registration u/s 23(3) of the CGST Act, 2017 is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day, immediately preceding the date of registration.

2. Switching from Composition to Normal Scheme:

A person switching over to normal scheme from composition scheme is entitled to ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) and capital goods on the day immediately preceding the date from which he becomes liable to pay tax as normal taxpayer.

3. Taxability of exempted goods:

Where an exempt supply of goods or services or both become taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) relatable to exempt supplies.

He shall also be entitled to take credit on capital goods used exclusively for such exempt supply. However, the credit on capital goods shall be reduced by such percentage points as may be prescribed.

4.Time Limit for claiming ITC:

A registered person shall not be entitled to take input tax credit in all above cases in respect of any supply of 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.

5.Change in Constitution:

In case of change of constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of business etc, the unutilised ITC shall be allowed to be transferred to the transferee.

6.Reversal of ITC.

A person switching over from composition scheme to normal scheme or where a taxable supply become exempt, the ITC availed in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) as well as capital goods will have to be paid

In case of supply of capital goods or plant and machinery, on which ITC is taken, an amount equivalent to ITC availed minus the reduction as prescribed in rules (5% for every quarter or part thereof) shall have to be paid. In case the tax on transaction value of the supply is more, the same would have to be paid.

Distribution of ITC by Input Service Distributor

'Input Service Distributor' means an office of the supplier of goods and/or services which receives tax invoices issued under section 23 towards receipt of input services and issues tax invoice or such other document as prescribed for the purposes of distributing the credit of CGST (SGST in State Acts) and/or IGST paid on the said services to a supplier of taxable goods and/or services having same PAN as that of the office referred to above.

1. Manner of distribution of credit by Input Service Distributor

The credit of CGST as CGST or IGST and IGST as IGST or CGST where the Distributor and the recipient of credit are located in different States.

The credit of SGST as SGST or IGST where the Distributor and the recipient of credit are located in different States.

The credit of CGST and IGST as CGST where the Distributor and the recipient of credit, being a business vertical, are located in the same State.

The credit of SGST and IGST as SGST where the Distributor and the recipient of credit, being a business vertical, are located in the same State

2.Conditions for distribution of Input Tax Credit

The Input Service Distributor may distribute the credit as per following conditions:-

(i) the credit can be distributed against a prescribed document issued to each of the recipients of thecredit so distributed, and such invoice or other document shall contain such details as may be prescribed;

(ii) the amount of the credit distributed shall not exceed the amount of credit available for distribution;

(iii) the credit of tax paid on input services attributable to a supplier shall be distributed only to that supplier (of goods and services);

(iv) the credit of tax paid on input services attributable to more than one supplier shall be distributed only amongst such supplier(s) to whom the input service is attributable and such distribution shall be prorata on the basis of the turnover in a State of such supplier, during the relevant period, to the aggregate of the turnover of all such suppliers to whom such input service is attributable and which are operational in the current year, during the said relevant period.

3. Manner of recovery of credit distributed in excess

Where the credit distributed by the Input Service Distributor is in excess of the credit available for distribution by him, the excess credit so distributed shall be recovered from such distributor along with interest, and the provision of sections 66 and 67 shall apply mutatis mutandis for effecting such recovery


Location of ISD

& Recipient Unit(s)

Credit as

Credit of

IGST

CGST

SGST

Remarks

In the Same State

IGST

NO

YES

YES

IGST as CGST or IGST

CGST

YES

NO

NO

CGST as CGST alone

SGST

NO

NO

YES

SGST as SGST alone

In Different States

IGST

YES

YES

NO

IGST as IGST or CGST

CGST

YES

YES

NO

CGST as CGST or IGST

SGST

YES

NO

YES

SGST as SGST or IGST


ITC in respects of Inputs sent for job work

1. The registered taxable person (principal) shall be entitled to ITC on inputs / capital goods sent to a job-worker for job-work or even it is directly sent to the place of job worker without their being first brought to the principal's place of business, provided that

a. the said inputs are received back by ‘principal' within a period of one year of their being sent out. For capital goods this time limit is three years.

b. If said inputs or capital goods are not received back after job-work or otherwise or even not supplied from place of job worker within aforesaid period, it shall be deemed to be supplied by the principal to job-worker on the day when the said inputs or capital goods were sent out.

  • If inputs or capital goods are sent directly to job-worker, the period of one year or three years shall be counted from the date of its receipt by the job worker.
  • In case of Moulds, dies, jigs, fixtures or tools the aforesaid conditions are not applicable.

Transitional Provisions

Transitional Provisions of Migration of Existing Taxpayers

From the appointed day, every person registered under any of the existing laws and having a valid Permanent Account Number shall be issued a certificate of registration on provisional basis.

Unless the provisional registration certificate replaced by a final certificate of registration it shall be liable to be cancelled if the conditions so prescribed are not complied with.

The final certificate of registration shall be granted in such form and manner and subject to such conditions as may be prescribed.

The certificate of registration issued to a person under sub-section (1) shall be deemed to have not been issued if the said registration is cancelled in pursuance of an application filed by such person that he was not liable to registration under section 22 or section 24.

Transitional arrangements for ITC

Elaborate provisions have been made to carry forward the ITC earned under the existing law. Such credit should be permissible under the GST law. However, the taxable person opting for composition scheme would not be eligible for carry forward of the existing ITC. ITC of various taxes under the existing laws (CENVAT credit, VAT etc.) would be carried forward as under:

a. Closing balance of the credit in the last returns:

The closing balance of the CENVAT credit/VAT in the last returns filed under the existing law can be taken as credit in electronic credit ledger. Such credit would be available only when returns for the previous last six months have been filed under the existing law. In order to claim this credit, declaration in form GST TRAN 1 is required to be furnished on the common portal within 90 days from the appointed day i.e. the day on which the GST law would come into force.

However, no ITC shall be allowed to take credit in the following circumstances:-

  1. When such ITC not allowed in this Act; or
  2. When returns for 6 moths immediately preceding 6 months from the appointed day not furnished; or
  3. where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.

b. Un-availed credit on capital goods: The balance installment of un-availed credit on capital goods not carried forward in a return furnished under existing law can also be taken by filing the requisite declaration in the GST TRAN 1. The said credit is available only if such credit is admissible in existing law or this Act both.

c. Credit on duty paid stock: A registered taxable person, other than the manufacturer or service provider, may have duty paid goods in his stock on the appointed day. GST would be payable on all supplies of goods or services made after the appointed day. It is not the intention of the Government to collect tax twice on the same goods. Hence, in such cases, it has been provided that the credit of the duty/tax paid earlier would be admissible as credit. Such credit can be taken as under:

  1. Credit shall be taken on the basis of invoice evidencing payment of duty of excise or VAT
  2. Such invoices should be less than one-year old
  3. Declare the stock of duty paid goods within the prescribed time on the common portal

d. Credit on duty paid stock when Registered Person does not possess the document evidencing payment of excise duty/VAT: For traders who do not have excise or VAT invoice, there is a scheme to allow credit to them on the duty paid stock. The features of this scheme are as under:

(i) The scheme is operative only for six months from the appointed day. It is not available to manufacturer or supplier of service. It is available to traders only.

(ii) Credit @ 60% on such goods which attract central tax @ 9% or more and @ 40% for other goods of GST paid on the stock cleared after the appointed day would be allowed. However, such goods should not be unconditionally exempted goods or taxed at nil rate under the existing law. It has also been provided that where integrated tax is paid on such goods, the amount of credit shall be allowed at @ 30% and 20% respectively of the said tax.

(iii) Credit would be allowed after the GST is paid on such goods subject to the condition that the benefit of such credit is passed on to the customer by way of reduced prices.

(iv) The statement of supply of such goods in each of the six tax periods has to be submitted.

(v) Stocks stored should be easily identifiable.

e. Credit relating to exempted goods under the existing law which are now taxable: Input Tax Credit of CENVAT/VAT in respect of input, semi-finished and finished goods in stock attributable to exempted goods or services which are now taxable can also be taken in the same manner as prescribed in Point (c) & (d).

f. Input/input services in transit: There might be a scenario where input or input services are received on or after the appointed day but the duty or tax on the same was paid by the supplier under the existing law. Registered person may take credit of eligible duties and taxes, provided the invoice has been recorded in the books within 30 days from the appointed day. The period can be extended by the Commissioner GST by another 30 days. A statement of such invoices have to be furnished. ISD can also distribute such credit.

g. Tax paid under the existing law under composition scheme: Those taxpayers who paid tax at fixed rate or fixed amount in lieu of the tax payable under the existing law but are working under normal scheme under GST can claim credit on their input stock, semi-finished and finished stock on the appointed date, subject to the following conditions:

(i) Such input stock used for taxable supply under this Act.
(ii) Registered Person is not covered under section 10 (composition scheme) of this Act.
(iii) Registered Person is eligible for ITC under this Act.
(iv) Registered Person is in possession of the invoice or other duty payment documents.
(v) Such invoices are not more than twelve months old on the appointed day.

h. ITC in case of Centralized Registration under service tax: Such Registered Person can take credit of the amount of CENVAT carry forwarded in return furnished under the existing law, if the original/revised return under the existing law has been filed within three months. Such credit may be transferred to any of the Registered Persons having the same PAN for which the centralised registration was obtained.

i. Reclaim the reversed Input Service credit: CENVAT credit reversed on account of non-payment of consideration within three months can be reclaimed if the payment is made to the supplier of service within 3 months from the appointed day

(j) Where any goods or capital goods belonging to the principal are lying at the premises of the agent on the appointed day This provision is specific to SGST law. In such cases, agent shall be entitled to take credit, subject to the following conditions: (i) The agent is a registered taxable person (ii) Both the principal and the agent declare the details of stock (iii) The invoices are not older than twelve months (iv) The principal has either reversed or not been availed on the input tax credit

B. Transition provisions relating to job work, goods returned/sent on approval etc.

(a) Job work Inputs, semi-finished goods or finished goods were sent to the job worker or any other premises without payment of duty/VAT under the existing law: No GST is payable by the job worker when such goods are returned for further processing, testing, repair, reconditioning or any other purpose by him within six months after the appointed day. The period can be extended by the Commissioner, GST by another two months. If not returned within the prescribed period, then ITC shall be liable to be recovered from the principal.

In addition, the job worker will have to pay the GST on such supplies. In case of semi-finished goods, the manufacturer may transfer the goods to premises of a Registered Person without payment of tax within the prescribed period. In case of finished goods, the manufacturer may transfer the goods on payment of tax or clear for export within the prescribed period.

(b) Goods removed before 6 months of the appointed day but returned within 6 months from the appointed day: If such goods are returned by an unregistered person, then refund of the duty/VAT paid under the existing law can be claimed. If returned by a Registered Person, then the return of goods shall be treated as supply of goods (ITC can be claimed).

(c) Goods sent on approval basis before 6 months of the appointed day but returned within 6 months from the appointed day: No tax is payable by the person returning the goods. Commissioner may extend the period by 2 months. If returned after that, tax is payable if the supply is taxable under GST (by the recipient). If not returned, tax is payable by the person who sent the goods on approval basis.

(d) TDS deducted in VAT: Where a supplier has made any sale of goods, and tax was required to be deducted under VAT Act, and invoice was issued before the appointed day. however, the payment was made on or after the appointed day. In such cases, no TDS under GST is to be deducted.

(e) Price revision in respect of existing contracts: In case of upward price revision, a registered person will issue a supplementary invoice or debit notes within 30 days from the date of revision and such revision shall be treated as supply under GST, and tax is payable under this Act.

In case of downward revision, Registered Person may issue credit note within 30 days from such revision and credit note shall be deemed to have been issued in respect of outward supply made under this Act. A Registered Person will reduce his tax liability for such credit note, subject to reversal of credit by the recipient.

Proceedings under the existing laws

GST law would become operational w.e.f. the appointed day and existing laws would be repealed. Elaborate provisions have been made to save the pending as well future claims relating to existing law made before, on or after the appointed day. Such proceedings may pertain to refund claims of CENVAT credit/VAT or export related rebate or service tax, and the proceedings may either result in recovery of tax or refund.

All such cases would be disposed of under the existing law. If any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse. Refund of CENVAT credit shall be paid in cash. There will be no refund of CENVAT if already carry forwarded. If any amount becomes recoverable, the same shall be recovered as arrear of tax under GST Act.

Statutory provisions relating to transition are contained in chapter XX (section 139 to 142) of the GST law and the transition rules available at department website www.cbec.gov.in may be referred.

Miscellaneous Questions

Q.1. Does the GST paid for motor vehicles used for office purpose is eligible for ITC?

Answer: ITC is eligible for all the goods and services which are used within the business operations and course of furtherance. However, there are cases in which the ITC on goods and services has been restricted.

ITC on motor vehicle is permissible only when the motor vehicle is acquired for resale or for transportation of passengers/ goods or for imparting training. Only for above mentioned causes ITC will be available in respect of tax paid on inward supply of motor vehicles.

Q.2. Ready-made garments attracting 5% and polyester yarn at 18% GST. How much credit will be available?

Answer: The whole credit will be available subject to conditions & eligibility mentioned u/s 16 & 17.

Q.3. Can a refund be claimed from the duty-free supplies?

Answer: No credit will be available of ITC of inward supply used for exempt supplies as per Sec 17(2) . So, no refund claimed for such ITC.

Q.4. A manufacturing company providing canteen services to the workers. Will it provide input tax credit?

Answer: As per section 17(5), No ITC available in respect of tax paid on food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services.

Hence no credit available for canteen services provided to workers.

Q.5. Is there any provision to claim input tax credit and depreciation both on purchase of office furniture and machine?

Answer: As per Sec 16(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under IT Act then no ITC will be allowed on tax component of a capital goods.

So, one can claim either input tax credit under GST or depreciation under IT Act.

Q.6. In an imitation jewellery business, is there a concept of claiming input tax credit?

Answer: Yes, one can take input tax credit after paying all the due taxes and satisfying all provisions mentioned in respect of ITC u/s 16 & 17.

Q.7. Is there input tax credit available on the office stationery purchase?

Answer: Yes, there is a provision of input tax credit on all the purchases of office stationery because any registered person can avail credit of tax paid on the inward supply of goods or services or both, which is used or intended to be used in the course or furtherance of business.

Q.8. Will credit be available for the imported stocks available until 30 June?

Answer: If all the documents are there of the stocks, then the credit can be claimed.

Q.9. A raw material trader can get ITC for the transportation of goods?

Answer: The tax paid on transportation services can be availed for Input tax credit.

Q.10. How to avail ITC on old stocks of medicine?

Answer: If documents are complete than the ITC will be available but if in case, the documents are not there, then the product category with 18-28 percent will provide 60 percent CGST, while 5-12 percent tax items will give a CGST rate of 40 percent.

Q.11. Is there input tax credit available for the furniture and AC purchased for office purpose?

Answer: Yes, there will be input tax credit available for all the purchases made for the office purpose.

Q.12. What is the time limit for holding old stocks, and is there any GST applicable on it?

Answer: There is no time limit for keeping old stock but if input tax credit is to availed on that old stock than there is a time limit of six months.

Q.13. How to obtain input tax credit in GST if GSTN number is not mentioned on the invoice?

Answer: There must be GSTN number mandatory on all invoices regardless of mistakes

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