Input Tax Credit Scenario in Indian GST System: Insights and Issues

1. Gst: input tax credit Presented By: Adv. C. B. Thakar

2. Credit not available Current Taxation Scenario INDIA KVAT Form F MVAT Input Tax reversal Import BCD CVD SAD Trader X Trader X ED + MVAT Manufacturer A Customer CST Factory LBT Hub W/H Spoke W/H Tamil Nadu Mumbai Pune Customer Maharashtra Karnataka • Tax Collection • Central Government – BCD, ED • Maharashtra State Government – MVAT • Pune Municipal Corporation – LBT • Karnataka State Government – KVAT, CST • Tamil Nadu State Government – NIL • Issues • Origin based tax • Loss of credit • Tax cascading

3. GST Taxation Scenario INDIA CGST + SGST Import BCD IGST Manufacturer A Trader X Trader X CGST + SGST Customer IGST IGST Factory Hub W/H Spoke W/H Tamil Nadu Mumbai Pune Customer Maharashtra Karnataka *Credit not available • Tax Collection • Central Government – BCD, CGST • Maharashtra State Government – NIL • Pune Municipal Corporation – NIL • Karnataka State Government – SGST • Tamil Nadu State Government – SGST component of IGST • IssuesRadical Changes • Origin based tax Destination based tax • Loss of creditSeamless credit • Tax cascadingReduced cascading (BCD) • Taxable Person

4. Input Tax Credit - Definitions 2(54) Input • “input” means any goods other than capital goods, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be usedby a supplier for making an outward supply in the course or furtherance of business 2(55) Input Service • “input service” means any service, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business 2(57) Input Tax • (57) "input tax" in relation to a taxable person, means the {IGST and CGST}/{IGST and SGST} charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7 • 2(58) Input Tax Credit • “input tax credit” means credit of ‘input tax’ as defined in section 2(56)

5. Input Tax Credit – Definitions analysis Pre-registration ITC – Only inputs. No Credit of capital goods and services Input Tax • IGST/CGST/SGST charged on any supply of goods and/or services to Taxpayer Used or intended to be used in the course or furtherance of business • Issues • Capital Goods used outside for pumping of water / used at captive mines? • Office equipment's • Condition of Rs10,000

6. Negative list of items • Motor vehicles, except when used for providing specified taxable services. • Specified goods and / or services used primarily for personal use or consumption of any employee. • Goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery. • Goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery. Issues : • Factory building / Storage tank / bunker / pipelines? • ITC on immovable property rented rented out • ITC by developer / works contractor on sub contractor services • Plant and machinery : Not defined

7. Input Tax Credit Section 2 (80) – Recipient ? Person making payment?

8. Place of supply and ITC : Bill-to/ Ship-to Model First Supply Vendor First purchaser invoice invoice Delivery of goods Second Supply Second purchaser Place of supply First supply: Principal place of business of first purchaser Second supply: Where delivery terminates i.e. location of second purchaser Input Tax Credit Deemed that first purchaser has received the goods and shall be eligible to avail ITC provided other eligibility conditions are satisfied.

9. General provisions on input tax Credit • Variable time limit for availing credit on goods/ services: • filing of the return under section 27 for the month of September following the end of financial year to which such invoice pertains; or • filing of the relevant annual return, whichever is earlier. • No Cross utilization between CGST and SGST. • No cross utilization between IGST, CGST and SGST of one GSTIN with other GSTIN. • Proportionate reversal of ITC on capital goods also for exempted supplies • No reduction of ITC on interstate-stock transfers • No provision like Rule 6 of Cenvat Credit Rules, 2004 • Pre-registration ITC allowed

10. Input Tax credit and job work • Principal entitled to take credit of inputs sent for job work only if returned within 180 days • Principal entitled to take credit of capital goods sent for job work only if returned within 2 years • Credit can be taken even if inputs/ capital goods are sent directly to the job worker’s premise • If goods are not returned within time, credit availed must be reversed Contradiction with Section 43A No provision to retain credit if goods are supplied directly from job-worker’s premise to final customer

11. Contradictions

12. Mismatch of Invoices • ITC credit eligible only on matching of invoices • The supplier should file the Return and pay TAX for the purchaser to claim ITC • Credit reversal with interest for purchaser • Demand of tax from supplier • Matching at invoice level v. TIN level • VAT /Carousel Fraud: collected but not deposited • Who should suffer – the innocent customer or the duped Government? • Mahalakshmi Cotton 2012 (51) VST 1 (Bom)

13. Input Service Distributor Location of Supplier Location of Immovable property State A State A State B Location of Service Receiver ISD 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 invoices for the purpose of distributing credit of CGST / SGST and / or IGST paid on the said services to a supplier of taxable goods and / or services having the same PAN as that of the office referred above. Explanation: For the purposes of distributing credit of CGST / SGST and / or IGST, ISD shall be deemed to be a supplier of services.

14. Transitional provisions on input tax Credit Transitional Credit - Eligibility • CENVAT credit/ input tax credit • balance reported in return • balance of capital goods not reported in return • goods held in stock – Output exempt under earlier law but taxable under GST • goods lying with agent • capital goods lying with agent Excise Service Tax VAT GST Transitional Credit CST? Entry Tax? CENVAT credit for Trader? VAT credit for service provider? Credit must be eligible in Current law as well as GST law Relevant documents to be preserved

15. Special situations – movement of goods NO GST on such return movement if goods are returned within 6 months from appointed date Taxable if returned after 6 months Precise identification of goods and records to be maintained Valuation provisions are not clear. Goods removed before appointed date and returned thereafter • Exempted goods • Duty paid goods • Inputs removed for job work • Semi-finished goods removed for job work • Finished goods removed for carrying out specified processes • Goods sent on sale or approval basis

16. Pending claims/ refunds and outcome of proceedings If amount due to the Taxpayer – Cash refund If amount due from the Taxpayer – recover as arrears of tax under GST law Pending matters to be governed by earlier law Pendency • Refund claims • CENVAT Credit claim/ recovery • Assessment or adjudication proceedings • Appeal, revision, review or reference relating to output duty liability • Revision of returns

17. Thank You Presented By: Adv. C. B. Thakar E-mail: cbtc@vsnl.com Mob: 9821135674