1. GST – Input Tax Credit Bharat Raichandani Advocate Partner UBR Legal
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2. Introduction
International VAT/GST Guidelines published by OECD in April, 2014
Ottawa Taxation Framework Conditions (1998)
Neutrality
Efficiency
Certainty and Simplicity
Effectiveness and fairness
Flexibility
Does the Model GST Law achieve the above?
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3. IMPORTANT DEFINITIONS
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4. Section 2 Definition clause
109 definitions – Model GST law of September, had only 77. The sub-committee had suggested additional 9, thus, total of 86.
29 of the said definitions are bodily lifted or in essence reproduction of existing definitions
15 from Finance Act, 1994
3 from Place of Provision of Service Rules, 2012
1 from Service Tax Rules, 1994
2 from Cenvat Credit Rules, 2004
1 from Central Excise Act, 1944
6 from Maharashtra Value Added Tax Act, 2005
1 from Point of Taxation Rules, 2011
Yet, several terms/phrases/expressions undefined?
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5. Section 2 Section 2(17) – “business”
Section 2(20) – capital goods – Rule 2(a) of the Cenvat Credit Rules, – No schedule – No chapter heading ?
Section 2(19) – capital asset – why defined ?
Section 2(27) – composite supply – whether or not the same can be segregated
Daelim Industrial Corporation (SC)
Larsen & Toubro (SC)
Section 2(28) – Consideration “includes”..
Monetary value of any act or forbearance …
Deposit not consideration unless applied as consideration for the supply
Emerald Leisures (AAR)
Hanuman Cotton Mills V/s Tata Aircraft (SC)
No definition earlier – Now, no parity with section 5 of the Indian Contract Act
Can forfeited deposit be considered as consideration for a supply?
Is barter of goods covered?
Devi Das Gopal Das (SC)
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6. Section 2
Section 2(56) – Input service distributor – Rule 2(m) of the Cenvat Credit Rules
ISD deemed to be supplier of services – Meaning ?
Section 2(54) – input – any goods other than capital goods – meaning?
Different tax treatment ?
Section 2(55) – input service – used or “intended to be used” by a supplier for making outward supply
Rompelman (ECJ)
Cadila Healthcare (Guj HC)
Section 2(61) – inward supply - receipt of goods or services – whether for consideration or not – See Schedule I
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7. Section 2
Section 2(62) – Job work – undertaking any treatment or process on goods belonging to another registered taxable person
Section 2(66) – manufacturer – meaning assigned to in the Central Excise Act, – refer section 2(f)?
Activity amounting to manufacture or not?
Job worker or principal manufacturer ?
Loan licensee?
Section 2(80) – recipient – person who is liable to pay consideration
If not, person to whom the service is rendered ?
Payer? Receiver? Beneficiary? Rendering?
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8. INPUT TAX CREDIT
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9. Input Tax Credit Section 16(1)- Rule 3(1) of CCR –
Every “registered taxable person” shall be entitled to take credit of input tax
Registered taxable person?
If not registered – Mportal Wireless (Kar HC)?
Minerva Mills (SC)
Section 16(2) – A person who has applied for registration under the Act within 30 days from the date on which he becomes liable to registration and has been granted registration shall be entitled to take input tax credit of inputs held in stock, contained in work in progress and contained in finished goods
Meaning ?
Input Services ?
Past Litigation ?
Section 16(2A) – A person who takes registration under 19(3), shall be entitled to take input tax credit of inputs held in stock, contained in work in progress and contained in finished goods
Though not liable to be registered
Erstwhile Section 5A(1) – proviso ?
Passing on credit ?
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10. Input Tax Credit
Section 16(3) – registered taxable person ceased to pay tax under section 8 (composition scheme), he shall be entitled to take credit of input tax of inputs held in stock, contained in work in progress and contained in finished goods
Section 16(3A) – time limit of one year for sub-section 2, 2A and 3
Section 16(4) – amount shall be calculated in accordance with generally accepted accounting principles in such manner “as may be prescribed”
What needs to be prescribed?
Section 16(5) – goods or services are used by registered taxable person partly for purpose of any business and partly for “other purposes”, the amount of credit shall be restricted to so much as is attributable to purposes of his business
“Other purposes” – meaning?
“Private purpose” or “personal use” or “personal consumption” ?
Initially not for business purpose, but later used – whether credit available?
Lennarttz (ECJ)
Spenta International (Tri-LB)
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11. Input Tax Credit
Section 16 (6) – Similar to Rule 6(1) of CCR – where goods/services are used for effecting taxable supplies and non-taxable supplies, including exempt supplies – does not include zero rated supplies
Section 16(7) – notification to be issued prescribing manner in which credit may be attributed – Formula
Section 16 (8) – Similar to Rule 10 of CCR - where change on account of sale, merger etc, credit shall be allowed to be transferred
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12. Input Tax Credit Section 16 (9) – Old Legacy continues …
Motor vehicles
Insurance, maintenance and repair of motor vehicle?
Goods or services in relation to outdoor catering, beauty treatment, health services … when such goods/services are primarily for personal use or consumption of any employee
Goods or services acquired by principal in execution of works contract when such contracts results in immovable property
Goods and services used for private or personal consumption, to the extent they are so consumed
Telephone?
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13. Input Tax Credit Section 16(9) cont..
Goods or services used for private or personal consumption, to the extent so consumed
Charles Jigmens (ECJ) – part private use of holiday home ?
Section 16(10) – Rule 4(4) of CCR- Depreciation on capital goods and Cenvat credit cannot be availed simultaneously
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14. Input Tax Credit Section 16(11) – conditions:
Possession of tax invoice, debit note or such other duty paying documents
Debit note?
Jaquar & Co (Tri) – Pharma Lab (Tri)
Received the goods or services
Tax charged has been “actually paid” to the credit of the appropriate government either in cash or through utilization of input tax credit admissible
Onerous or not?
Valid ?
Mahalakshmi Cotton Mills (Bom HC)
Filed a return under section 27
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15. Input Tax credit Section 6(12) – Rule 11 of CCR – Lapsing of credit
Section 6(14) – Rule 3(5) of CCR – reversal of credit or payment of duty on removal of capital goods
“as such” – after use – no distinction?
Section 6(15) – no credit can be taken in respect of invoice after filing of return under section 27 for the month of September following the end of financial year to which such invoice pertains or filing the return, which ever is earlier
Section 6(16) – Rule 14 of CCR – cenvat has been taken wrongly, recovered in the manner prescribed
Taken ? Utilized ? Availed ?
Sagar Twister (Tri-Mum)
Bombay Dyeing (SC)
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16. Registration Section 19 – Registration
Person liable to be registered shall apply within 30 days
If registered under an earlier law, shall not apply for fresh registration and may follow the procedure prescribed
Multiple business verticals in a State may apply for separate registrations
Must have a PAN Number for registration
When a person liable for registration under the Act fails to do so, the proper officer shall proceed to register such person
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17. Tax Invoice
Section 23 – issuance of tax invoice- showing the description, value, tax and other particulars as may be prescribed
Section 24- credit and debit notes
Value or tax charged is found to be in excess of the value of tax payable, credit note shall be issued.
Explanation – Incidence of tax should not have been passed on to any other person
A K Spintex (Rajasthan High Court)
Value or tax charged is found to be less than the value or tax payable, debit note shall be issued.
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18. RETURNS
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19. Returns Section 25 – furnishing of details of outward supplies
Details shall include zero-rated supplies, inter- state supplies, return of goods received in relation to an inward supply, exports, debit notes, credit notes and supplementary invoices
Any error or omission can be corrected in the tax period and shall pay tax and interest thereon
No rectification of error or omission shall be allowed after filing of the return under section 27 for the month of September following the financial year to which such details pertain or filing of relevant annual return, which ever is earlier.
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20. Returns Section 26 – Furnishing of details of inward supplies
Every registered taxable person shall verify, validate, modify and if required, delete the details relating to outward supplies and credit/debit notes communicated to prepare the details of the inward supplies
Section 27 – Returns
Every registered taxable person shall for every calendar month furnish a return electronically within a period of 20 days after the end of such month
Pay tax as per such return not later than last date on which such return has to be furnished
Else, return shall not be treated as a valid return for allowing input tax credit
Return to be filed, irrespective whether supplies effected during such period or not
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21. Returns Section 29 – matching, reversal and reclaim
Details of every inward supply furnished by the taxable person for the tax period shall be matched with the corresponding outward supply furnished by the corresponding taxable person
The claim of input tax credit in respect of invoices matching with the outward supply shall be accepted and such acceptance be communicated
Section 30 – Annual return
Every registered taxable person shall file an annual return by 31st December
Every taxable person whose turnover exceed a prescribed limit shall furnish, along with the annual return, audited copy of the annual accounts and a reconciliation statement and other particulars, as prescribed
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22. INPUT SERVICE DISTRIBUTOR
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23. Input Service Distributor
Section 17(1) – Rule 7 of CCR –
distribution of credit CGST and IGST/ SGST as IGST, where distributor and recipient are located in different states
Section 17(2) – distribution of credit, where the distributor and recipient, being a business vertical, are located in the same state
Section 17(3) – conditions:
Credit of tax paid on input services attributable to a supplier shall be distributed to that supplier only
Attributable to more than one supplier, shall be distributed pro rata on the basis of turnover
Outsourced manufacturing unit?
Pharma companies ?
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24. Input Service Distributor
Section 18 – issuance of show cause notice under section 51 to ISD – clear departure from earlier provision
Clariant Chemicals (Tri-Mum)
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25. JOB WORK
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26. Job work Section 16A – Rule 4(5)(a) of CCR
Inputs should be returned – 180 days
Capital goods – 2 years
Section 16(A) (3) – where not returned in stipulated time – reverse amount equivalent to Cenvat credit – however, can reclaim tax and “interest” paid on receipt of the goods
Interest – departure from earlier rule ?
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27. TRANSITIONAL PROVISIONS
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28. Transitional Provisions
Section 142 – migration of existing taxpayers to GST
Every registered person shall be issued a registration on provisional basis
Such certificate shall be valid for a period of six months, extendable as notified
Section 143 – cenvat credit carried forward in return
Cenvat credit carried forward in the return, furnished under earlier law, shall be entitled to be carried forward
Provided such amount was eligible as cenvat credit under earlier law as well as input tax credit under the GST
Shall be recoverable as arrears of tax
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29. Transitional Provisions
Section 144 – unavailed capital goods credit
Registered taxable person shall be entitled to take credit of unavailed cenvat of capital goods not carried forward in return
Unavailed cenvat credit means the amount remaining after taking credit on such capital goods from the aggregate amount of credit under the earlier law
Section 145 – input held in stock
A registered taxable person, not liable to be registered under earlier law or manufacturing exempted goods, shall be allowed to take credit in repsect of inputs held in stock, contained in semi- finished goods or finished goods
Such inputs are used/intended to be used in taxbale supplies
But for the registration/exemption, cenvat credit in repsect of inputs was available under the earlier law
Taxable person is eligible for input credit under GST
Possession of the invoice/other prescribed documents evidencing payment of duty/tax under earlier law
Such invoices are not older than one year
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30. Transitional provisions
Section 146 – switching over from composition scheme
Registered taxable person who was paying tax under fixed rate or a fixed amount, shall be entitled to take credit on inputs held in stock, contained in semi-finished or finished goods
WCT – Restaurant Service – maintenance or repair
Such inputs are used/intended to be used in taxable supplies
Not paying tax under composition in GST
But for the composition, credit on such inputs would have been available under the earlier law
Taxable person is eligible for input credit under GST
Possession of the invoice/other prescribed documents evidencing payment of duty/tax under earlier law
Such invoices are not older than one year
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31. Transitional Provisions
Section 147 – Amount payable in case person switching over to composition scheme
Where credit has been carried forward in the returns and such person switches over to composition scheme under section 8, he shall pay amount, by way of debit, equivalent to credit on inputs held in stock, contained in semi-finished goods and finished goods
Balance credit shall lapse
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32. Transitional Provisions
Section 148 – Exempted goods returned
Where exempted goods are retuned to place of business after appointed day, no tax shall be payable thereon if such goods are returned to the place of business within six months from appointed day and to the satisfaction of the proper officer
Beyond a period of six months, tax shall be payable
Section 149 – Duty paid goods returned
Where duty paid goods are retuned to place of business after appointed day, no tax shall be payable thereon if such goods are returned to the place of business within six months from appointed day and to the satisfaction of the proper officer
Every taxable person who receives such goods within a period of six months shall be entitled to take credit of duty paid at the time of removal
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33. Transitional Provisions
Section 150 – Inputs removed for job work and returned after appointed day
No tax shall be payable if returned within six months from appointed day
Provided on sufficient cause being shown, competent authority may extend by 2 months
Provided further that tax shall be payable by job worker if such inputs are liable for tax and returned after six months or extended period
Provide further that manufacturer shall pay tax, if such goods are not returned after period of six months or extended period
The above provisions shall apply only if the manufacture and job worker declare the details in prescribed form
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34. Transitional Provisions
Section 151 – Semi finished goods removed for job work
No tax shall be payable if returned within six months from appointed day
Provided on sufficient cause being shown, competent authority may extend by 2 months
Provided further that tax shall be payable by job worker if such inputs are liable for tax and returned after six months or extended period
Provide further that manufacturer shall pay tax, if such goods are not returned after period of six months or extended period
Provide further that manufacturer may transfer the said goods to the premises of another taxable person for purpose of supplying them on payment of tax within a period of six months
The above provisions shall apply only if the manufacture and job worker declare the details in prescribed form
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35. Transitional Provisions
Section 152 – Finished goods removed for carrying out certain processes
Testing or any other process not amounting to manufacture – no tax if returned in six months from appointed day
Section 153 – Issue of supplementary invoice, debit or credit notes
Where contract entered into prior to appointed day, price has revised upwards, the taxable person who has removed the goods or provided service may issue supplementary invoice or debit note within 30 days of such price revision and the same shall be treated towards outward supply
Where contract entered into prior to appointed day, price has revised downwards, the taxable person who has removed the goods or provided service may issue supplementary invoice or credit note within 30 days of such price revision and the same shall be treated towards outward supply
Provided the recipient has to reduce the credit to the said extent
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36. Transitional Provisions
Section 154 – pending refund claims to be disposed of under earlier law
Every refund claim filed before the appointed day shall be disposed off under earlier law and amount accruing shall be refunded in cash notwithstanding provisions of section 11B
Provided where refund is fully or partially rejected, the amount so rejected shall lapse
Appeal? Earlier Law or new law? Saving clause?
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37. Transitional Provisions
Section 155 – claim of cenvat credit
Every proceedings of appeal, revision review or reference relating to claim for cenvat credit shall be disposed of in accordance with earlier law and if found admissible, will be refunded in cash and shall not be admissible as input tax credit
If cenvat credit becomes recoverable, the same shall be recovered as arrears of tax under this act
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38. Transitional Provisions
Section 156 – Finalization of proceedings relating to output duty liability
Every proceedings of appeal, revision review or reference relating to any output liability shall be disposed of in accordance with earlier law and if found recoverable, shall be recovered as arrears of tax under this Act and shall not be admissible as input tax credit
If found refundable, will be refunded in cash and shall not be admissible as input tax credit
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39. Transitional provisions
Section 157 – treatment of amount recovered or refunded in pursuance of assessment or adjudication proceeding
If found recoverable, same shall be recovered as arrears of tax under this Act and shall not be admissible as input tax credit
If found refundable, shall be refunded in cash and shall not be admissible as input tax credit
Section 158 – Treatment of amount recovered or refunded pursuant to revision of returns
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40. Transitional provisions
Section 159 – treatment of long term construction/works contracts
Goods or services supplied after the appointed day shall be liable to tax under the Act, for contract entered into prior to appointed day
Section 160 – progressive or periodic supply of goods or services
No tax shall be payable on supply of goods or services after the appointed day if the consideration for the supply has received prior to the said date and tax has been paid on such supply under the earlier law
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41. Transitional Provisions
Section 161 – treatment of retention payments
No tax shall be payable on supply of goods and services made before the appointed day where a part consideration of the supply is received after the appointed day but the full duty or tax payable on such supply has been paid under earlier law
Section 162 – Credit of distribution of service tax by ISD
Input tax credit on account of any services received prior to appointed day by an ISD shall be eligible for distribution even under the new Act if invoices relating to such services are received on or after the appointed day
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42. Thank You Partner UBR Legal Advocates Bharat Raichandani Advocate
Chambers: 806, 8th Floor, “D” Square, Opp. Goklibai School, Dada Bhai Road, Vile Parle (West), Mumbai
Branch office: 59, Swastik Plaza, Next to Kalaniketan, JVPD Scheme, Vile Parle (West), Mumbai
T: * F: * M: * E:
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