Meaning of Input Tax Credit (ITC);
Section 2(63) of CGST Act, ITC means the credit of input tax and Section 2(62) of CGST Act, Input Tax means, in relation to registered person, tax charged on any supply of goods or services or both made to him and specifically includes, IGST paid on imports, RCM paid under CGST act, IGST act, SGST act and UTGST and with specific exclusion of taxes paid under composition levy of CGST, IGST, SGST and UTGST taxes.
Ineligible ITC under GST;
GST input tax credit mechanism allows registered dealers to set-off their credit balances against GST output tax liabilities. At the time of introduction of GST act, it was stated as taxes paid under this act in connection with furtherance of business can be claimed as ITC, but over a period of time, the cannon has changed in the minds of the government and issued numerous notifications from time to time imposing restrictions on some types of goods and services which are not eligible for input tax credit claim. In this article, I shall present a consolidated view on ITC at such goods and services, which are not eligible for input tax credit under GST based on the different notifications as on 25th April 2020.
Apart from the specific exclusion of composition levy under the definition itself, the following are the ineligible Input Tax Credits.
Recipient who receives goods and services from a dealer who pays tax at lesser rate than the normal rate as per the notifications issued by the department, subject to certain restrictions noted therein.
Where the dealer 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 ITC on capital goods is not available. Alternatively where the dealer has claimed ITC on capital goods, depreciation under income tax act on tax components will not be allowed under income tax act.
The ITC is not available for the inwards supplies of goods and service in respect of the financial year after furnishing returns for the month of September following the end of the financial year to which the invoice relates to or the date of filing of annual return under this act, whichever is earlier.
Any tax paid in accordance with the provisions of sections 74, 129 and 130 under CGST Act.
Following are the situations, where in the registered dealer is not eligible for credit of ITC in the electronic credit ledger of the dealer maintained with the department in their login account, even though it appeared under GSTR-2A of the dealer, presented in the table format along with the conditions/ remarks appropriately, as under;
|
Sl |
Sources of ITC / Nature impact |
Condition(s)/ Remark(s) |
|
a |
Goods and services used by the dealer for personal purpose and/or for both personal and official purposes |
ITC not eligible to the extent of personal use or used for other than business nature |
|
b |
Goods and services used by the dealer for use in manufacturing of or dealing of exempted goods under this act or under IGST act or for use in partly for manufacturing of taxable and partly for exempted goods |
ITC not eligible to the extent of use in manufacturing or use in dealing of exempted goods. Sale to SEZ is not part of exempted sale. |
|
c |
Motor vehicles and other conveyances for further supply of such vehicles or conveyances; or transportation of passengers; or imparting training on driving, flying, navigating such vehicles or conveyances; (including services of General insurance, repair and maintenances) |
Use of motor vehicles for official purposes, claim of ITC is not permitted |
|
d |
Vessels and aircraft used for further supply of such vessels or aircraft or transportation of passengers or imparting training on navigating such vessels or flying such aircrafts and transportation of goods (including services of General insurance, repair and maintenances). |
Use of aircraft for official purposes, claim of ITC is not permitted |
|
e |
Supply of goods or services or both in the form of food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery |
ITC allowed, subject to the condition that the registered person uses these good and/or services 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; (not a composition tax u/s 10 of CGST act) |
|
f |
Services of membership of a club, health and fitness centre and travel benefits extended to employees on vacation such as leave or home travel concession |
ITC allowed, subject to the condition that it should be an obligatory on part of the employer under any of the law(s) in force for the time being. |
|
g |
Works contract services when supplied for construction of an immovable property (other than plant and machinery) (including re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property). |
ITC allowed, subject to the condition that it should be an input service for further supply of works contract service; |
|
h |
Works contract services when supplied for construction of an immovable property in respect to plant and machinery (including re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property). |
ITC allowed |
|
i |
Goods or services or both received by a non-resident taxable person |
Generally ITC is not available with exemption for the IGST paid on imports. |
|
j |
Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples |
The list do not include goods used in production and considered as process waste as per the standard norms and hence ITC allowed on goods used but considered as process waste in the process of manufacture. |
|
k |
ITC taken on goods or conveyances and subsequently the process of confiscation were carried |
Subject to reversal of ITC taken on the transaction. |
|
L |
Purchase of good from a registered dealer who deals second hand goods and pay taxes adhering the notification 10/2017 CT(R) dated 28th June 2017 |
ITC not allowed |
|
m |
Payments made as late fee, interest, penalty and other charges |
ITC not available |
Conclusion:
In case, by mistake, if the dealer has taken such credits, the same requires to be revered voluntarily to avoid penal action by the department. The relevant provisions quoted are under CGST act only and hence relevant references under SGST/ UGST/ IGST act(s) and updates subsequent to publication of this article; need to be referred appropriately for addressing the disputes with department in this regard.
Disclaimer: The readers are informed to note that the facts and information’s stated in this article is extracted from different provisions and summarized for the purpose of presentation and this itself cannot be assumed to be a legal opinion. For any specific requirement of legal opinion on the facts of the case, the reader may reach the author for professional support.
The author is a Practitioner under GST act and under earlier VAT acts of multiple states in the country. One of the authors for the book published in the name of “Simplifying Multi State VAT on Works Contracts” in 2015-16 & 2016-17, authored by 23 leading eminent CA’s & Advocates in the country and can be reached at eswaran60@yahoo.com, eswaran1960@gmail.com
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