Journey of ITC
Journey of ITC
Section 16 of CGST Act, 2017 which prescribes the conditions for availing the ITC can be said to be the heart of the GST scheme. This is the most amended section in the law. This section has been notified vide Notification no.9/17-CT dt.28.06.17 and the effective date has been notified as 01.07.17. The conditions and regulations were prescribed under Sec. 49 of the said act. Sec 49 of the said act prescribed the order of utilization of the ITC. As it stands today, the ITC can be availed by the recipient of a supply subject to the below conditions:
1. Should be in receipt of invoice/debit note
2. Sec 16(2)(aa) of the said act was inserted vide Notfn 39/21-CT dt.21.12.2021 which prescribes that such invoice/debit note should have been declared by the supplier in his outward statement and should have communicated the details thereof to the recipient in such a manner as to be prescribed under Sec.37 of the said act. Sec 37 prescribes the manner of the furnishing of the outward supplies.
3. Should be in receipt of the supply viz., goods or service. This includes constructive delivery also.
4. Sec 16(2)(ba) of the said Act is proposed to be introduced vide Finance Bill, 2022 that such ITC should not have been restricted as per Sec 38 of the said act. Sec 38 prescribes the manner of the furnishing of inward supplies.
5. Sec 16(2)(c) of the said act is going to be introduced vide Finance Bill, 2022 that such tax shown in the invoice/debit note has been paid by the supplier subject of provisions of Sec.41 and 43 of CGST Act, 2017. Sec 41 prescribes the manner of the claim of ITC and provisional acceptance thereof. Sec 43 prescribes the matching, reversal, and reclaim of reduction in output tax liability.
6. The return for the same has been furnished as per Sec 39 of CGST Act, 2017 Sec 39 prescribes the manner of furnishing of various returns.
7. Should have paid the consideration for the same within six months of receipt of such supply. This clause is subject to the other terms and conditions in the case of MSME suppliers.
8.The outer limit for availing the ITC for any financial year is 30th November of the subsequent financial year or the date of filing the annual return, whichever is earlier as amended vide Sec 16(4) in FB, 2022.
9. However credit can be availed subject to Sec 17(5) of CGST Act, 2017. Sec 17(5) imposes various restrictions on the availment of ITC.
10.One needs to be aware the provisions in relation to the adjustment of the taxes against credit notes being issued against the supplies made earlier.
11.The credit on tax paid on reverse charge mechanism would be available on making such payment and ITC thereon can be availed on such payment.
12.The credit on capital goods can be availed subject to observance of depreciation clause under income tax act.
13.Sec 49 prescribes the order of utilization of the ITC. It prescribes that IGST should be exhausted before utilizing the other heads and no cross utilization of CGST and SGST/UTGST is permitted.
14.With the proposed amendments in Finance Bill, 2022 the various heads under the electronic cash ledger were permitted to be transferred between distinct persons belonging to the same PAN (Permanent Account Number).
Subject to these above conditions and restrictions, the input tax credit can be availed. But vide FB, 2022 interest is leviable on availing and utilizing erroneous credit at the rate of 18%. These conditions invariably cast an onus on the assessee to exhaust the IGST first before making use of the CGST/SGST/UTGST, when an assessee is in reasonable doubt on the correctness of the ITC availed by him will be forced to make use of such erroneous IGST first as otherwise, he would not be able to utilize the other heads viz., CGST, SGST, UTGST.
This is in contrast with the earlier position under the Central Excise law, wherein in case of reasonable doubt about the correctness of the credit, the assessee is able to avail the credit and not use it till he confirms the veracity of the same and thereby could avoid the payment of interest which is payable only when such erroneous credit is availed and utilized. Hence there appears to be a need for the GST council to take cognizance of the practical difficulty in following the onerous order of utilization of ITC in order to exhaust the IGST when there is reasonable doubt in the minds of the recipient on the responsibilities.
The trade needs to represent in a strong manner on this issue, otherwise one ends up with paying interest which cannot be refunded when the needed rectification has been done at the end of the supplier in order to make good of the input credit, so that the recipient will be in a position to take the input credit only, but not the interest paid earlier.
Similarly, the trade needs to have clarity on how the authorities intend to communicate the eligible credit in the form of GSTR2B once they have discontinued with the originally planned two-way communication by way of prescribing the GSTR1-GSTR2-GSTR3-GSTR9 and have brought in the new concept of GSTR1-GSTR2B-GSTR3B-GSTR9.
The questions that need answer are:
1. Whether the communication would be at invoice level?
2. If so, in case of any further corrections done by way of credit note/debit note, how the same would be communicated?
3. Will there be any change in the order of utilizing the ITC by doing away with the exhaustion of IGST first in order to be eligible to make use of other heads?
4. Will they consider the option to refund the interest paid originally when credit is erroneous and subsequently became good as the supplier has made rectification at his end, by way paying the tax/ uploading the return, etc
5. Whether the restrictions imposed under Sec 17(5) will be made exhaustive and any clarificatory instructions would be issued as regards issues like cab expenses incurred for dropping women employees at their homes post office hours/in the night; CSR related expenses; factory canteen expenses; the difference between immovable property and a factory etc.