Eligibility and conditions for taking input tax credit

Section 16: Eligibility and conditions for taking input tax credit

The new provision reads as follows:

(1) Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 44, be entitled to take credit of input tax charged on any supply of goods or services to him 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:

PROVIDED that credit of input tax in respect of pipelines and telecommunication tower fixed to earth by foundation or structural support including foundation and structural support thereto shall not exceed -

(a) one-third of the total input tax in the financial year in which the said goods are received,

(b) two-third of the total input tax, including the credit availed in the first financial year, in the financial year immediately succeeding the year referred to in clause (a) in which the said goods are received, and

(c) the balance of the amount of credit in any subsequent financial year.

(2) Notwithstanding anything contained in this section, but subject to the provisions of section 36, no registered taxable person shall be entitled to the credit of any input tax in respect of any supply of goods and/or services to him unless,-

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying document(s) as may be prescribed;

(b) he has received the goods and/or services;

(c) the tax charged in respect of such supply has been actually paid to the account of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 34:

PROVIDED that where the goods against an invoice are received in lots or installments, the registered taxable person shall be entitled to take credit upon receipt of the last lot or installment:

PROVIDED FURTHER that where a recipient fails to pay to the supplier of services, the amount towards the value of supply of services along with tax payable thereon within a period of three months 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 the manner as may be prescribed.

Explanation. For the purpose of clause (b), it shall be deemed that the taxable 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 taxable 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.

(3) Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961 (43 of 1961), the input tax credit shall not be allowed on the said tax component.

(4) A taxable person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services after furnishing of the return under section 34 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.

The key takes of the revised provisions are as follows:

1. The concept of admissibility of input tax credit is elaborated and mentioned in the provision itself (intended to be used or used in the furtherance of business)

2. Capital goods will be entitled for 100% credit immediately except for pipelines and telecommunication tower fixed to earth by foundation or structural support which is as follows:- Maximum upto 1/3rd of total ITC in the first financial year and maximum upto 2/3rd till the end of second financial year.

3. Person supplying goods and services , where tax is payable under reverse charge is not eligible for input tax credit, which is in line with service tax provisions

4. ITC not available on the basis of supplementary invoices since debit note is required to be issued in lieu of supplementary invoice.

5. ITC needs to be reversed in case of non-payment towards value of supply of services within three months of the invoice date, however at present there is no information which is captured for payment to the supplier in the various returns. Therefore format of return to be changed. This provision unjust enriching the Government.

6. Last day of availing credit is 12 months from the date invoice (in accordance with section 18) or 30 September of subsequent year or date of filing annual return whichever is earlier.