WIRC of Institute of Chartered Accountants of India

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1 WIRC of Institute of Chartered Accountants of India Event : GST Course for CA Students Date & Day : 25 th May, 2017 (Thursday) Subject : - Input tax credit including Input Tax Credit Rules - Provisions related to job-work - Related transitional provisions - Refund Venue : ICAI Tower, Plot No. C-40, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai Presented by : CA Shraddha Mehta CA Shraddha Mehta 1

2 Determination of Tax liability Supply Exempt or non-taxable Taxable No Tax Determine tax liability Transaction Value Rate of Tax Tax paid on purchases Tax Payable INPUT TAX CREDIT Cash Payment CA Shraddha Mehta 2

3 Relevance & Purpose of ITC mechanism in indirect taxes CA Shraddha Mehta 3

4 Input Tax Credit Mechanism Relevance Basic principles/objectives of Indirect taxes such as VAT, Excise, Service Tax and GST: It is a value added tax wherein every player in transaction chain pays tax on value added by him in the transaction Business entities in transaction chain are pass through entities and should not bear indirect tax incidence It is a destination based consumption tax Tax on goods and services to be borne by ultimate customer Ultimate consumer to bear tax on final value of goods / services excluding tax incidences in intermediate stages in distribution chain Two alternative mechanism for achieving above objectives: No tax at intermediate stages and levy of tax only at last stage of transaction chain i.e. at stage when goods are sold to end consumer Levy tax on value of goods / service on vendors at each stage of transaction chain with set off input tax paid by such vendors on procurement of goods/service for business/profession CA Shraddha Mehta 4

5 Transaction Chain Cost Rs.1,000 Profit Rs. 100 Total Rs. 1,100 GST Rs. 198 Cost Rs.1,100 Profit Rs. 100 Total Rs. 1,200 GST Rs. 216 Price Rs.1,000 GST Rs. 180 Total Rs. 1,180 Total Rs. 1,298 Total Rs. 1,416 Manufacturer Wholesaler Distributer Consumer ITC = Rs. 0 Tax paid = Rs. 180 ITC = Rs. 180 Tax paid = Rs. 18 [ ] ITC = Rs. 198 Tax paid = Rs. 18 [ ] Total Tax Paid = = Rs. 216 CA Shraddha Mehta 5

6 GST Input Tax Credit Mechanism Objectives To ensure fungibility of tax credit To ensure levy of tax on value addition by respective assesse in transaction chain To ensure efficient system of value added tax is in place To eliminate or minimize possibilities of levy of tax on tax To eliminate or minimize cascading effect of indirect taxes To minimize tax incidence on ultimate consumer of goods / services CA Shraddha Mehta 6

7 ITC under GST - Basic Concepts CA Shraddha Mehta 7

8 Meaning of Input Tax Credit ( ITC ) and Input tax Input Tax Credit means credit of input tax [Section 2(63)] Input Tax in relation to a registered person: [Sec 2(62)]: Means Includes Excludes Central tax; State tax/ Union territory tax; Integrated tax; Charged on any supply of goods or services or both made to him IGST charged on import of goods Tax payable under Reverse charge by recipient: Central tax/ State tax u/s 9(3) of CGST/SGST Act; Integrated tax u/s 5(3) of IGST Act; Union territory tax payable u/s 7(3) of UTGST Act Tax payable under Reverse Charge by registered person on supply made by unregistered person: Central tax/ State tax u/s 9(4) of CGST/SGST Act; Integrated tax u/s 5(4) of IGST Act; Union territory tax payable u/s 7(4) of UTGST Act Tax paid under composition levy CA Shraddha Mehta 8

9 Availability of ITC ITC of tax paid on Capital goods Inputs Input Services Means Means Means Goods, the value of which is capitalized in the books of accounts of the person claiming the credit Any goods other than capital goods Any Service used or intended to be used by a supplier in the course or furtherance of business CA Shraddha Mehta 9

10 Exclusion from ITC [Section 17(5)] Particulars Motor vehicles and other conveyance [Section 17(5)(a)] Credit restricted on All Motor Vehicle and other conveyance except when they are used for: Making the following taxable supplies: Further supply of such vehicles or conveyances; or Transportation of passengers ; or Imparting training on driving, flying, navigating such vehicles or conveyances Transportation of goods CA Shraddha Mehta 10

11 Exclusion from ITC [Section 17(5)] Particulars Specified supply of goods or services [Section 17(5)(a)] Credit restricted on Food and beverages Outdoor catering Beauty treatment Health services Cosmetic and plastic surgery Except where said category of inward supply of goods or services or both are used for making an outward taxable supply of same category of goods or services or both or as a part of taxable composite or mixed supply Membership of a club, Health and fitness center Travel benefits extended to employees on vacation such as leave or home travel concession CA Shraddha Mehta 11

12 Exclusion from ITC [Section 17(4)] Particulars Specified supply of goods or services Credit restricted on Rent-a-cab, Life insurance and Health insurance except where: Government notifies the services which are obligatory for an employer to provide to its employees under any law time being in force [Section 17(5)(b)] such inward supply of goods or services or both is used by a registered person for making an outward taxable supply of same category of goods or services or both or as a part of taxable composite or mixed supply CA Shraddha Mehta 12

13 Exclusion from ITC [Section 17(5)] Particulars Works contract services [Section 17(5)(c)] Goods or services or both [Section 17(5)(d)] Credit restricted on When supplied for construction of immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service When it is received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when used in course or furtherance of business Whether ITC on works contract for completion & finishing services, repairs, maintenance, renovation or restoration in respect of immovable property are also excluded from ITC? ITC of Works contract resulting into plant and machinery is admissible CA Shraddha Mehta 13

14 Exclusion from ITC [Section 17(5)] Construction includes : Re-Construction Renovation Additions Alterations Repairs To the extent of capitalization to the said immovable property Plant and Machinery means : Apparatus Equipment Machinery fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes: land, building or any other civil structures Telecommunication towers; and Pipelines laid outside the factory premises CA Shraddha Mehta 14

15 Exclusion from ITC [Section 17(5)] Particulars Goods or services or both Credit restricted on Tax paid under Section 10 [Composition levy] - [Section 17(5)(e)] Received by a non-resident taxable person except on goods imported by him [Section 17(5)(f)] Used for personal consumption - [Section 17(5)(g)] Goods which are lost, stolen, destroyed, written off or disposed of by way of gift or free samples- [Section 17(5)(h)] Any tax paid in terms of the following : [Section 17(5)(i)] Tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts [Section 74] Detention or seizure and release of goods and conveyances in transit [Section 129] Confiscation of goods or conveyance and levy of penalty [Section 130] CA Shraddha Mehta 15

16 Exclusion from ITC [Section 17(5)] Whether services like car insurance, repairs and maintenance of cars, etc. availed for motor vehicles eligible for ITC? Whether assesse would be entitled to ITC of following : Pick up and drop facility for employees section 17(5)(b)(iii) Food provided to employees - section 17(5)(b)(i) Medical or health kit for employees - section 17(5)(b)(i) Group insurance for employees - section 17(5)(b)(iii) CA Shraddha Mehta 16

17 Manner of availment [sec 16(1)] - Every registered person - subject to such Entitled to take used or intended Said amount to be conditions and ITC charged on to be used in credited to the restrictions as may any supply of course or electronic credit be prescribed; and supply of goods furtherance of ledger of such - in the manner and/or services business person specified in section 49 CA Shraddha Mehta 17

18 Persons Eligible for ITC Person Eligible to take ITC: Registered Taxable person [Section 16(1) of CGST Act] Person making zero rated supplies [Section 16(2) of IGST Act] Person Not Eligible to take ITC: Non-registered taxable person Person having aggregate turnover below threshold limit Supplier under Composition Scheme Supplier exclusively engaged in making exempt or non-taxable supplies Agriculturist CA Shraddha Mehta 18

19 Conditions for availing ITC [Section 16(2)] Registered person shall not be entitled to take credit of any input tax in respect of any supply of goods and/or services to him unless: He is possession of: Tax invoice Debit note Bill of entry Invoice by receiver paying under RCM Document issued by ISD Issued by supplier registered under the Act Receipt of goods and / or services - ITC cannot be claimed on tax paid on advance Payment of tax charged in respect of such supply to credit of appropriate government in: Cash; or Utilization of ITC admissible in respect of said supply Furnished return u/s 39 - Return to be filed by both: Vendor ; and Assesse Where goods against an invoice are received in instalments / lots ITC will be available only after receipt of last lot / instalment [1 st proviso to Section 16(2)] CA Shraddha Mehta 19

20 Conditions for availing ITC [Section 16(2)] Explanation as to term receipt of goods [Explanation to sec 16(2)(b)]: For the purpose of receiving goods it shall be deemed that the registered 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 registered 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 Q 9 of Chapter 10 of FAQs released by CBEC on clarifies that: In Bill to ship to scenario, ITC on goods will be available to person on whose order the goods are delivered to third person CA Shraddha Mehta 20

21 Conditions for availing ITC [Section 16(2)] Where recipient fails to pay the supplier of goods and/or services within 180 days from the date of issuance of invoice by the supplier, following consequences follows [2 nd proviso to Section 16(2)] r.w. Rule 2 of ITC Rules: Amount of ITC credit taken proportionate to amount not paid to supplier shall be added to recipient s output tax liability for the month immediately following the period of 180 days from date of issue of invoice ; and Interest thereon will have to be discharged for the period starting from date of availing credit on such supplies till date when such added output tax liability is paid Recipient will be entitled to avail ITC on payment made by him towards value of supply along with tax payable thereon [3 rd proviso to Section 16(2)] Value of supplies made without consideration as specified in Schedule I shall be deemed to have been paid for the purpose of second proviso to section 16(2) CA Shraddha Mehta 21

22 Denial of ITC and Time limit [Section 16(3) & 16(4)] Input tax credit will not be allowed to the registered person on the tax component who has already claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of Income Tax Act, 1961 (43 of 1961) A taxable person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods and/or services after: Due date of filing of the return u/s 39 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 CA Shraddha Mehta 22

23 Time limit for availing ITC [Section 16(4)] Oct-18 Dec-18 Invoice date 1 st Jan F.Y ending Return filing of Sep X-X-X-X due date of filing X-X-X st March 2018 Due date 20 th Oct 2018 Annual return 291 Days Invoice date 1 st March 2018 June-18 Oct F.Y ending 31 st Annual return filed on -X-X-X Return filing of -X-X-X---X-X Sep-18 March th June 2018 Due date 20 th Oct Days Invoice date 1 st Apr 2017 Oct F.Y ending 31 st Return filing of Sep-18 -X-X-X-----X-X March X-X ITC cannot be claimed for this period Due date 20 th Oct 2018 Dec-18 due date of filing Annual return --X-X 567 Days CA Shraddha Mehta 23

24 Apportionment of ITC and blocked credits CA Shraddha Mehta 24

25 ITC Business and other purposes [Section 17(1)] Goods or Services or both Used for Business purpose Other purpose Input tax attributable to business purpose allowable Input tax attributable to other purpose NOT allowable CA Shraddha Mehta 25

26 ITC Exempt Supplies [section 17(2) and 17(3)] For -Taxable supplies - Zero Rated Supplies Input tax attributable to above allowable Goods or services or both Used for For Exempt supplies It shall include following supplies: Where recipient is liable to pay tax under RCM Transactions in securities Sale of land Sale of building [subject to clause 5(b) of schedule II] ITC attributable to above not allowable Value of following exempt supply shall be: land and building : same as adopted for the purposes of paying stamp duty security :1% of sale value of such security CA Shraddha Mehta 26

27 Manner of determination of ITC and reversal of Inputs and Input services - Rule 7 of ITC Rules Less: Less: Less: Less: Total Input tax credit involved on inputs and inputs services (T) 1,00,000 Input tax attributable to Input and input services used exclusively for purposes other than business (T 1) Input tax attributable to Input and input services used exclusively for effecting exempt supplies (T 2) Input tax attributable to Input and input services on which credit not available u/s 17(5) (T3) 10,000 20,000 10,000 Input tax credited to electronic credit ledger (C 1)) 60,000 Input tax attributable to Input and input services used exclusively for effecting taxable and zero rated supplies (T 4) 40,000 Common credit (C 2 20,000 Registered person will have to declare T1, T 2, T3 and T 4 at invoice level in form GSTR-2 CA Shraddha Mehta 27

28 Manner of determination of ITC and reversal of Inputs and Input services - Rule 7 of ITC Rules Amount of common credit (C2) attributable to exempt supplies to calculated as per formula = E/F X C2 Aggregate value of exempt supplies during tax period (E) Rs. 3,00,000 Total turnover in the State during tax period (F) Rs. 5,00,000 Amount to be reversed [ 3,00,000 / 5,00,000 X 20,000] [D1] Rs. 12,000 Amount of C2 attributable to non-business purpose shall be 5% of C2 = Rs. 1,000 [D2] Eligible ITC [C3]= C2 D1 D2 Rs. 7,000 = 20,000 12,000 1,000 CA Shraddha Mehta 28

29 Manner of determination of ITC and reversal of Inputs and Input services - Rule 7 of ITC Rules Final reversal for a financial year to be done before due date for furnishing return for month of September following the end of financial year to which such credit relates If final amount of D1 and D2 exceeds amount of D1 and D2 determined earlier it shall be added to output tax liability in the month of September following the end of FY to which such credit relates. Also liable to pay interest on such amount If final amount of D1 and D2 is lesser than amount of D1 and D2 determined earlier, it shall be claimed as credit in the month of September following the end of FY to which such credit relates CA Shraddha Mehta 29

30 Manner of determination of ITC and reversal of Capital Goods - Rule 8 of ITC Rules Useful life of common capital goods to be taken as 5 years Year 1 Year 2 Year 3 Year 4 Month of April in Year 5 6,00,000 3,00,000 1,80,000 4,80,000 72,000 Calculation for month of April in Year 5: Total credit 72,000 Exclusively for non-business purposes and exempt supplies shall not to be credited to electronic credit ledger and be indicated in Form GSTR-2 Exclusively for taxable supplies and zero rated supplies shall be credited to electronic credit ledger and indicated in Form GSTR-2 6,000 12,000 Balance Common credit to be first credited to electronic credit ledger [Tc] 54,000 Amount of ITC attributable to tax period [month of April] [Tm = Tc / 60] 900 Amount of Common ITC on all common capital goods whose useful life remains during a tax period [month of April] [10, , , ,000] Total common credit 26,000 [Tr] 26,900 CA Shraddha Mehta 30

31 Manner of determination of ITC and reversal of Capital Goods - Rule 8 of ITC Rules Amount of common credit attributable to exempted supplies [Tr X E/F]: Aggregate value of exempt supplies made during tax period 30,000 Total turnover during tax period 50,000 Amount attributable to exempted supplies [26,900 X 30,000 / 50,000] [Te] 16,140 Amount of Te [Rs. 16,140] along with applicable interest will be added to output tax liability CA Shraddha Mehta 31

32 ITC Banking company, Financial institution and NBFC [Section 17(4)] Banking company or a financial institution including a non banking financial company engaged in supplying services by way of accepting deposits, extending loans or advance shall have the following options : Avail ITC in accordance with provisions of Section 17(2) i.e. under normal provisions; or Avail an amount equal to 50% of the eligible input tax credit in that month relating to : Inputs; Capital goods; and Input services Once option is exercised, it cannot be withdrawn during the remaining part of financial year [1 st proviso to section 17(4)] Restriction of 50% shall not apply to the tax paid on supplies made by a registered person to another registered person having same PAN [2 nd proviso to section 17(4)] CA Shraddha Mehta 32

33 ITC Banking company, Financial institution and NBFC Banking company or a financial institution opting to follow the option of 50% reversal has to follow following procedure (Rule 3 of ITC Rules): (a) (b) It shall not avail the credit of tax paid on inputs and input services that are used for non-business purposes and the credit attributable to supplies specified in section 17(5) in Form GSTR-2 It shall avail full credit of tax paid on inputs and input services in respect of its transactions between different branches having same PAN and which are not for non-business purposes or not covered u/s 17(5) (c ) 50% of the remaining input tax shall be the input tax credit admissible to the company/institution and shall be furnished in Form GSTR-2 The amount referred to in clauses (b) and (c ) shall be credited to electronic credit ledger CA Shraddha Mehta 33

34 ITC availability - Summary Nature of Supply made by taxable person Credit Admissible Wholly taxable supplies Wholly zero-rated supplies Both taxable and zero-rated supplies Wholly non-taxable or exempt supply Wholly for non-business purpose Both business and non-business purpose Both taxable and non-taxable supply Yes Yes Yes No No Proportionate credit Proportionate credit CA Shraddha Mehta 34

35 Job Work - ITC availment CA Shraddha Mehta 35

36 Job work Registered person (Principal) Send inputs/ capital goods* without payment of tax Job worker 1 Send inputs/ capital goods* without payment of tax Job worker 2 Bring back inputs (within 1 year) or capital goods* (within 3 years) without payment of tax and charging GST on job-work charges Bring back inputs (within 1 year) or capital goods* (within 3 years) without payment of tax and charging GST on jobwork charges Customer Export No Tax Other than export Payment of Tax by Principal in 1 year/ 3 years Export No Tax/with tax by principal Other than export Payment of Tax by principal in 1 year/ 3 years * Capital goods other than moulds, dies, jigs and fixtures CA Shraddha Mehta Customer 36

37 Job work Principal can avail ITC on inputs/ capital goods to the job worker on receipt of inputs/ capital goods by him or directly by job worker Where the inputs/capital goods (other than mould, dies, jigs, fixtures or tools) are not received by principal within stipulated time period from job worker or are not supplied from the place of business of job worker within stipulated time period : Particulars Time Period Consequences Inputs 1 year from the date when it is sent out It shall be considered to be deemed supply Capital goods 3 years from the date when it is sent out by principal to job worker CA Shraddha Mehta 37

38 Job work Any waste or scrap generated during job-work may be supplied on payment of tax: by job-worker if he is registered By principal if job-worker is not registered CA Shraddha Mehta 38

39 Job work Principal can directly supply inputs and capital goods (other than mould, dies, jigs and fixtures) from the place of business of a job worker on payment of tax within India or without payment of tax for exports where : Premises of job worker is declared as his additional place of business Premises of job worker is not declared as his additional place of business where : Job worker is registered u/s 25 of the Act; or Principal is engaged in the supply of goods as may be notified by the commissioner in this behalf Principal is responsible for accountability of inputs / capital goods CA Shraddha Mehta 39

40 Input Service Distributor CA Shraddha Mehta 40

41 Meaning of Input Service Distributor [Section 20] Office of the supplier of goods and/or services Receives invoice u/s 31 for receipt of input services & Paid Central state, central tax, integrated tax and union territory tax indicated on the invoice Issues document for distributing credit of Central state, central tax, integrated tax and union territory tax Other offices/units of supplier of goods and / or services in different states Different business verticals in same state Having same PAN CA Shraddha Mehta 41

42 Manner of distribution of credit by ISD Section 20 (1) Nature of Input tax Central tax or Integrated tax or State tax or Union territory tax Central tax Credit may be distributed as under Integrated tax Central tax Situation Where the distributor and the recipient are located in different states State tax Union territory tax or State tax Union territory tax Where the distributor and recipient of credit, being a business vertical, are located in the same state CA Shraddha Mehta 42

43 Conditions/Restrictions For Distribution of ITC Section 20(2) Credit should be distributed through prescribed document containing prescribed details Amount of credit distributed<= Amount of credit available Credit of input services attributable to a recipient to be distributed only to that recipient Credit of input services attributable to more than one recipient/ all recipients to be distributed on Pro rata basis i.e. T/O of individual unit Aggregate T/O of all units During the Relevant Period Recipient of credit means the supplier of goods and/or services having the same PAN no. Recovery of credit distributed in excess [Section 21] Same can be recovered from such recipient along with interest u/s 73 or 74 of the Act CA Shraddha Mehta 43

44 Meaning of Relevant Period If the recipients of the credit have turnover in their states or union territory Then the relevant period is the Preceding Financial year in the Preceding Financial Year If some or all recipients of the credit do not have any Turnover in their states in the Preceding Financial Year Then the Relevant Period is the last Quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed CA Shraddha Mehta 44

45 ITC- Utilization CA Shraddha Mehta 45

46 ITC Availment and utilisation basic Input tax credit (as self assessed in the return of taxable person) shall be credited to its electronic credit ledger [Section 49(2)] Amount available in the electronic credit ledger can be utilised for making payment towards output tax : [Section 49(4)]: In such manner; and subject to conditions; and Within such time as may be prescribed (Is it an intention to provide time limit for utilization of ITC?) Electronic credit ledger balance cannot be utilised for payment of: Interest Penalty Fees Liability under Reverse charge Any other amount payable under Act or Rules made thereunder Whether payment for pre-deposit u/s 107(6) and 112(8) can be made from electronic credit ledger? Balance in electronic credit ledger after permitted payments can be can be refunded under provisions of section 54 [section 49(6)] CA Shraddha Mehta 46

47 Manner of Utilization ITC Integrated tax Central tax State tax/ Union territory tax GST Credit can be utilised for payment of Integrated tax Central tax State tax/ Union territory tax tax on Supply GST cannot be utilised for payment of: Central tax Integrated tax Integrated tax interest penalty State tax / Union territory tax State tax/ Union territory tax Central tax fees tax under RCM GST balance in one state/ union territory cannot be utilised against output liability of GST in other states/ union territories 47 CA Shraddha Mehta

48 ITC availment in special cases CA Shraddha Mehta 48

49 New Registrant ITC availment [Sections 18 (1) (a) & (b)] Person who has applied for registration within 30 days from the date he become liable to registration and has been granted such registration Person who has taken Voluntary Registration u/s. 25 (3) of GST Act Amount of credit to be calculated in the manner to be prescribed [Sec 18(5)] Entitled to take credit of input tax in respect of: input held in stock, semifinished or finished goods on the day immediately preceding the date from which he becomes liable to pay tax Entitled to take credit of input tax in respect of: input held in stock semifinished or finished goods on the day immediately preceding the date of grant of registration Taxable person is not entitled to take ITC in respect of any supply of goods/ services made to him after expiry of 1 year of date of issue of invoice [Sec 18(2)] CA Shraddha Mehta 49

50 New Registrant ITC availment [Sections 18 (1)(c)] Registered person ceases to pay tax u/s. 10 i.e. Composition Levy Taxable person is not entitled to take ITC in respect of any supply of goods/ services made to him after expiry of 1 year of date of issue of invoice [Sec 18(2)] Entitled to take ITC in respect of input held in stock semi- finished or finished goods; and capital goods (after reducing the tax paid on capital goods by 5% points per quarter of a year or a part thereof from the date of invoice on which capital goods were received by taxable person) on the day immediately preceding the date from which he becomes liable to pay tax u/s 9 (Normal levy) Amount of credit to be calculated in the manner to be prescribed [Sec 18(5)] CA Shraddha Mehta 50

51 New Registrant ITC availment [Sections 18 (1) (d)] Supplier of exempt goods/services becomes a taxable supply Entitled to take ITC in respect of input held in stock semi- finished or finished goods; and capital goods (after reducing the tax paid on capital goods by 5% points per quarter of a year or a part thereof from the date of invoice on which capital goods were received by taxable person) Taxable person is not entitled to take ITC in respect of any supply of goods/ services made to him after expiry of 1 year of date of issue of invoice [Sec 18(2)] Amount of credit to be calculated in the manner to be prescribed [Sec 18(5)] CA Shraddha Mehta 51

52 ITC Change in constitution of taxable person [Section 18(3)] Where there is change in constitution of registered taxable person On account of : Sale; Merger; Demerger; Amalgamation Lease; or Transfer of Business With specific provision of transfer of liabilities Said registered taxable person shall be allowed to transfer unutilised input tax credit in his electronic credit ledger account to such sold, merged, demerged, amalgamated, leased, or transferred business CA Shraddha Mehta 52

53 Reversal/ payment of ITC under special circumstances [Section 18(4)] Registered person who has availed ITC opts to pay tax u/s 10 Where goods or services or both supplied by him become wholly exempt Pay an amount equal to Input tax credit on inputs lying in stock and inputs contained in semi / finished goods in stock and on capital goods (subject to reduction prescribed percentage) On the day immediately preceding to the date of exercising such option/ date of exemption By debit in electronic cash / credit ledger Balance of ITC lying in credit ledger shall lapse CA Shraddha Mehta 53

54 Reversal/ payment of ITC under special circumstances- Rule 9 of ITC Rules Calculation of amount of payment of ITC relating to inputs lying in stock, semi-finished and finished goods and capital goods lying in stock to be determined in the following manner: (a) For inputs, ITC shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input (b) For capital goods lying in stock the input tax credit involved in the remaining residual life in months shall be computed on pro-rata basis, taking the residual life as five years Illustration: Capital goods have been in use for 4 years, 6 month and 15 days. The residual remaining life in months= 5 months ignoring a part of the month Input tax credit taken on such capital goods=c Input tax credit attributable to remaining residual life=c X 5/60 CA Shraddha Mehta 54

55 Reversal/ payment of ITC under special circumstances- Rule 9 of ITC Rules The amount shall be determined separately for ITC of IGST, CGST & SGST Where the tax invoices related to the inputs lying in stock are not available, the registered person shall estimate the amount based on the prevailing market price of goods on the effective date of occurrence of any of the events Amount shall be included in the output tax liability and the details of the amount shall be furnished in FORM GST ITC-03 CA Shraddha Mehta 55

56 ITC Other provision Supply of capital goods or plant and machinery on which ITC has been taken [Section 18(6)] : Registered taxable person shall pay an amount equal to ; - ITC availed as reduced by Specified % points; or - Tax on transaction value u/s 15 Whichever is higher In case of refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on transaction value u/s 15 CA Shraddha Mehta 56

57 Transitional Provisions - ITC CA Shraddha Mehta 57

58 Carry forward of input [Section 140(1)] tax credit under existing law Registered person, other than person paying tax under composition, is entitled to credit of (in such manner as prescribed in Rule 1(1) of Transitional Provisions Rules) : Cenvat credit balance that is carried forwarded in return relating to period immediately preceding appointed day u/s 140(1) of CGST Act VAT and Entry tax credit that is carried forwarded in return relating to period immediately preceding appointed day, furnished not later then 90 days from the appointed day u/s 18(1) of UTGST Act No credit in following circumstances: Credit not admissible as ITC under GST Act; or Returns not furnished under existing law for period of 6 months immediately preceding appointed day; or Credit relates to goods manufactured and cleared or goods sold under exemption notifications as notified by Central Government CA Shraddha Mehta 58

59 Unavailed Cenvat credit on capital goods [section 140(2)] Registered person, other than person paying tax under composition, is entitled to credit of: unavailed credit in respect of capital goods not carried forward in the return furnished under earlier law Immediately preceding the appointed day Registered taxable person shall not be allowed to take such credit unless: Said credit was admissible under earlier law; and It is also admissible as input tax credit under GST Unavailed credit Aggregate amount of credit entitled under existing law Amount of credit already availed under existing law CA Shraddha Mehta 59

60 Unavailed Cenvat credit on capital goods [section 140(2)] As per Rule 1(2)(a), claim u/s 140(2) shall separately specify following particulars in respect of capital goods as on appointed day: Amount of tax or duty availed or utilized, and Amount of tax or duty yet to be availed or utilized by way of input tax credit under each of the existing laws till the appointed day CA Shraddha Mehta 60

61 Credit in respect of inputs held in stock [section 140(3) & (6)] Following registered persons are entitled to take credit of eligible duties / VAT and Entry tax: u/s 140(3) of CGST Act: not liable to be registered under existing law; or manufacturing exempted goods or providing exempted services; or providing works contact service and availing the benefit of Notification No. 26/2012- ST- dated ; or first stage or second stage dealer or registered importer or depot of manufacture u/s 18(3) of UTGST Act: not liable to be registered under existing law; or sale of exempted goods or tax free goods; or goods which suffered tax at first point of sale and subsequent sale were not taxable but are liable to tax under GST; or where person was liable to ITC at time of sale of goods u/s 140(6) of CGST Act and u/s 18(6) of UTGST Act: Either paying tax at fixed rate or paying fixed amount in lieu of tax payable CA Shraddha Mehta 61

62 Credit in respect of inputs held in stock [section 140(3) & (6)] Registered person is entitled to take credit of eligible duties / VAT and Entry tax in respect of: Inputs held in stock on appointed day; Inputs contained semi-finished goods on appointed day; Inputs contained in finished goods on appointed day eligible duties for the purpose of section 140(3), 140(4) and 140(6): Duty of excise in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 Additional duty of excise u/s 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 Additional duty of excise u/s 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 NCCD u/s 136 of Finance Act, 2001 Additional duty u/s 3(1) and u/s 3(5) of Customs Tariff Act, 1975 CA Shraddha Mehta 62

63 Credit in respect of inputs held in stock [section 140(3) & (6)] Proviso to section 140(3) of CGST Act & 18(3) of UTGST Act: Where a registered taxable person, other than a manufacturer or supplier of service Does not possess invoice / any document evidencing payment of duty in respect of inputs He shall be allowed to take credit at the rate and in the manner prescribed and he shall pass on the benefit of such credit by way of reduced prices to the recipient Rule 1(3) condition and manner for availing credit under proviso to section 140(3) & 18(3): Credit 40% of central tax / state tax applicable on supply of such goods after appointed day and only after payment of respective tax on such supply Scheme available for 6 tax period from appointed day CA Shraddha Mehta 63

64 Credit in respect of inputs or input services during transit [Section 140(5)] Registered taxable person entitled to take input credit of Excise duty, other eligible duty, Service tax, VAT, Entry tax paid before appointed day On input and input services received on or after appointed day Conditions for claiming ITC in respect goods and services in transit: Invoice / duty paying document is recorded in books of account within 30 days from appointed day On sufficient cause being shown, aforesaid period of 30 days may be extended by Commissioner for a further period not exceeding 30 days Claimant should furnish statement of credit in the manner prescribed in Rule 1(2)(c) of Transitional Provision Rules CA Shraddha Mehta 64

65 Credit distribution of Service tax by ISD [Section 140(7)] ISD is eligible to distribute credit of service tax where: Services are received prior to appointed day Invoices relating to such services are received on or after appointed day CA Shraddha Mehta 65

66 Centralised registration Credit carry forward [Section 140(8)] Amount of unutilised ITC credit under existing law should be carried forward in the return relating to period ending with day immediately preceding the appointed day Unutilised Cenvat credit balance as on the day immediately preceding the appointed day can be transferred to any other registered person (branch or units) having the same PAN for which centralised registration was obtained in existing law If taxable person files above return within 3 months from appointed day, amount of credit allowed will be lower of unutilised credit balance as per; Original return ; or Revised return Credit allowed provided it is admissible as ITC under GST CA Shraddha Mehta 66

67 Reclaim of Service tax due to non-payment [Section 140(9)] Registered person is entitled to reclaim credit in respect of: Service tax on input services provided under existing law which has been reversed due to non payment for service consideration within a period of 3 months Payment for consideration for such supply of services is made within a period of 3 months from appointed day CA Shraddha Mehta 67

68 Refund CA Shraddha Mehta 68

69 Refund under GST Refund of: Tax paid on export of goods / services or supply to SEZ unit or developer Balance in electronic cash ledger Balance in electronic credit ledger Any other amount CA Shraddha Mehta 69

70 Refund Procedure Refund application to be made before expiry of 2 years from relevant date in Form GST RFD-01 along with documentary evidence as prescribed Where refund claim is below Rs. 2 Lakhs no documentary evidence to be submitted provided that incidence of tax is not passed on to any other person Application of refund to be forwarded to proper officer who shall within 15 days scrutinise the application for its completeness If application found complete an acknowledgement in Form GST RFD-02 to be made available to applicant and Refund order to be made within 60 days of such acknowledgement If proper officer is satisfied that refund is not admissible, a notice shall be issued to applicant requiring him to furnish the reply within 15 days of receipt of such notice After considering the reply, he may sanction the refund or reject the refund CA Shraddha Mehta 70

71 Refund Procedure Refund to be sanctioned after adjusting following amounts: Outstanding demand under GST Act Outstanding demand under existing law Refund to be credited to bank account of applicant No refund to be granted if amount is less than Rs CA Shraddha Mehta 71

72 Refund of unutilised ITC [section 54(3) r.w. Refund Rule 1(5) Refund to be allowed ONLY in following cases: Zero rated supplies made without payment of tax Credit accumulated on account of inverted duty rate structure No refund to be allowed in following cases Goods are exported on payment of export duty Drawback of GST is claimed Refund amount = A + B X C D A B Turnover of zero rated supply of goods Turnover of zero rated supply of service Means value of zero-rated supply of goods made during relevant period* without payment under bond / letter of undertaking Means value of zero-rated supply of services made during relevant period* without payment under bond / letter of undertaking C Net ITC Means ITC availed on inputs and input services during relevant period D Adjusted total turnover Aggregate of: All taxable supplies Export of goods / service Inter state supplies of goods / service * Relevant period means period for which the claim is filed CA Shraddha Mehta 72

73 Provisional Refund [section 54(6) r.w. Refund Rule 3] Provisional refund of 90% of refund claimed to be granted in case of zero rated supply of goods or services or both made by registered person Such refund amount to exclude the amount of ITC provisionally accepted Provisional refund to be granted by proper officer subject to following conditions: GST compliance rating is not less than 5 on a scale of 10 Person claiming refund is not prosecuted under CGST Act or existing law during any period of 5 years preceding appointed day No pendency of any appeal / review / revision on any of the issues which form basis for refund claim Provisional refund to be granted within 7 days from the date of acknowledgement under Rule 2(1) or 2(2) of Refund Rules 73 CA Shraddha Mehta

74 Relevant date Relevant date differ case to case basis: Particular Goods are exported by sea or air Goods are exported by land goods are exported by post Supply of goods regarded as deemed exports Services exported out of India where a refund of tax paid is available in respect of services themselves or the case maybe the inputs or input services used in such services Relevant date Date on which the ship or the aircraft in which such goods are loaded, leaves India Date on which such goods pass the frontier Date of despatch of goods by Post Office concerned to a place outside India Date on which the return relating to such deemed exports is filed Date of: receipt of payment in convertible foreign exchange, where the supply of service had been completed prior to the receipt of such payment issue of invoice, where payment for the service had been received in advance prior to the date of issue of the invoice CA Shraddha Mehta 74

75 Relevant date Particular Tax becomes refundable as a consequence of judgment, decree, order or direction of Appellate Authority, Appellate Tribunal or any Court Refund of unutilized input tax credit under sub-section (3) Where tax is paid provisionally under this Act In the case of a person other than the supplier In any other case Relevant date Date of communication of such judgment, decree, order or direction End of the financial year in which such claim for refund arises Date of adjustment of tax after the final assessment Date of receipt of goods or services by such persons Date of payment of tax CA Shraddha Mehta 75

76 Documentary evidence for filing refund Particulars Where refund is on account of export of goods Where refund is on account of export of services Supply to SEZ unit or SEZ developer Documents required a statement containing the number and date of shipping bills or bills of export Number and date of relevant export invoices a statement containing the number and date of invoices Bank realization certificate or Foreign Inward Remittance Certificate A statement containing number and date of invoices as prescribed in Rule 1 of Invoice Rules Evidence regarding supply of goods or receipt of services by for authorized operations as endorsed by specified officer of the zone In case supply of services, details of payment along with proof thereof made by recipient to supplier of services for authorized operations CA Shraddha Mehta 76

77 Documentary evidence for filing refund Particulars Documents required Deemed exports A statement containing number and date of invoices along with other evidence as may be prescribed Refund on account of inverted duty rate structure Refund on account of finalisation of provisional assessment A statement in Annex 1 of Form GSTRFD-01 containing the number and date of invoices received and issued during tax period Reference number of final assessment order and a copy of the said order CA Shraddha Mehta 77

78 Words of Caution ` Views expressed are the personal views of faculties based on his interpretation of GST Act. Presentation is based on CGST Act, IGST Act and UTGST Act This educational meeting is arranged with a clear understanding that neither the Faculty nor study circle will be responsible for any error, omission, commission and result of any action taken by a member or anyone on the basis of this presentation. CA Shraddha Mehta 78

79 THANK YOU CA Shraddha Mehta 79