“Practical FAQs on Input Tax Credit”: ICAI
This year ICAI have brought out a useful publication titled “Practical FAQs on Input Tax Credit” which is a compilation of practical questions on input tax credit and their answers. The questions included in the publication were solicited from the stakeholders. Further, the questions raised by the audience in various programmes organized by the Committee on the topic of input tax credit were also collated and included in this publication. The answers to such questions have been drafted by the best of minds in the field and then reviewed by eminent subject experts.
Now we discuss the most important FAQ here :
FAQ 1: A taxpayer’s main business is dealing in electronic goods. He purchases gold bars (as an investment) with the intention to resell when the price goes up. Can he claim ITC on such gold bars purchased as the invoice is in the name of the firm? Will the answer change if he has purchased such gold bars with the intention of trading in them for a short period?
ANS: As per section 16(1), a registered person is eligible to take ITC on goods or services used in the course or furtherance of business.” intention to use”.
Investment in gold bars is with the commercial motive as per the question it is the part of the business under section 2(17) GST ACT 2017.
At the time of re-sale of such investment, the said taxpayer is liable to pay GST because the activity of sale constitutes supply as per section 7 and the said activity falls within the term “business”
In view of all the above aspects, whether an investment is made for long term or short-term purposes, ITC is allowed as long as the conditions mentioned in section 16 are complied with.
FAQ2: IRP portal shows supplier’s GSTIN has been enabled for e-invoicing. However, supplier does not provide e-invoice/ tax invoice with IRN. Whether non-furnishing of e-invoice by supplier leads to disallowance of ITC in the hands of recipient?
ANS: The IRP portal decides the applicability of e-invoicing of a supplier based on the turnover as per the GST network in any preceding financial year from 2017-18 onwards. It may so happen that the particular supplier would have crossed the threshold exemption limit for e-invoicing in the current year and hence, the invoicing portal would have enabled the e-invoicing for the supplier. However, if the supplier has already crossed the threshold and has become a qualified person to issue the e-invoice, it becomes mandatory for him to issue the e-invoice. If e-invoice is not issued, then as per rule 48(5), the said invoice shall be an invalid invoice. Therefore, if the recipient wants to claim ITC, he should have a valid invoice which is e-invoice with a valid IRN [as per section 16(2)(a)].
FAQ 3: A registered person is into crusher business. By mistake, he paid GST under reverse charge on purchases made from unregistered persons and claimed ITC although reverse provisions were withdrawn at that time as he was not aware of the same. Whether such ITC is allowable as the same was paid by mistake and there was no fraud or misappropriation by the registered person?
ANS: Section 16(1) provides that every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. Further, no registered person shall be allowed the credit unless he in possession of the tax invoice and has received the goods &/or services. In the given case, the goods/services on which tax has been paid under reverse charge inadvertently are intended to be used for furtherance of business. Further, since purchases have been made from unregistered persons, a self-invoice needs to be issued and the goods/services on which tax is paid should be received. If all such conditions are fulfilled, there is no restriction on availing ITC on tax mistakenly paid under reverse charge. Also, one may state that payment of tax under reverse charge and availment of ITC on the same is entirely a revenue neutral exercise to the extent it concerns the Governments exchequer
FAQ4: Whether GST paid voluntarily in TR-6 challan in relation to import bill of entry is available as ITC?
ANS: Section 16(2)(a) mandates that to avail ITC, one must have possession of tax invoice/debit note issued by supplier or any other document as may be prescribed. Further, rule 36 talks about “Documentary requirements and conditions for claiming input tax credit”. Clause (d) of sub-rule (1) of rule 36 states: “a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports”. Therefore, if IGST is paid voluntarily in TR-6 challan in relation to imports, then credit will be available as per clause (a) of section 16(2)
FAQ5: A taxpayer is having multiple registrations in different States. He places order for some goods on a seller in Maharashtra from his head office in Rajasthan. The goods are delivered at his Delhi office which is also registered under GST. The vendor issues the bill on Rajasthan office and mentions GSTIN of Rajasthan. Whether the taxpayer can claim the ITC on such goods under Delhi GSTIN or an invoice for cross charge needs to be issued?
ANS: In the instant case, an order is placed with a seller in Maharashtra by a buyer in Rajasthan for the goods to be delivered at Delhi. By virtue of the Explanation to section 16 (extracted below), the Rajasthan office will be deemed to receive the goods when it is supplied to any other person on his direction, thereby satisfying the condition stipulated in section 16(2)(a). “Explanation. —For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––
(i) 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.
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.
” Further, the invoice is having the GSTIN of head office in Rajasthan. Assuming all other conditions of section 16(2) are satisfied, the head office is eligible to claim the same and not the Delhi branch. Furthermore, the head office in Rajasthan will raise invoice on Delhi branch in order to make the Delhi branch eligible to claim ITC.
FAQ6: Whether in the absence of an e-way bill for any inputs, the credit of the same can be denied in case of refund or GST Audit?
ANS: Section 16(2)(b) of the CGST Act, 2017 provides every registered person who has received the goods &/ or services shall be allowed to claim credit of input tax provided he has complied with the other conditions of section 16. On an analysis of clause (b) of sub-section (2) of section16 read with the Explanation appended thereto, it is evident that section 16 provides for actual as well as constructive possession in cases when the goods have been delivered to a third person on the instruction of the buyer. Constructive possession is when the title in goods is transferred (through tax invoice or delivery challan) but the person is not in physical possession of the goods. In all such transactions, the buyer is considered to have received the goods as provided by the above provision even though he has not received the physical possession of such goods.
While examining the eligibility of ITC to a registered person, one may check whether the taxpayer has actually received the goods to be eligible for the credit as per the condition laid down in section 16(2)(b). The easiest way to verify the receipt is to check the e-way bill against the invoices issued as the e-way bill is generated for the movement for the goods from the premises of the supplier to the premises of the recipient. It may be contended that ITC is restricted in cases where the taxpayer is unable to provide the officer with the physical copy of the e-way bill including in cases such as “bill-to-ship-to” transactions.
However, the deeming provision has been created in the Act by way of insertion of an explanation to section 16(2)(b) wherein the receipt of goods by ship-to party will also be considered as receipt of goods by bill-to party thus making them eligible for credit.
At this juncture, it is also pertinent to note that section 16(2)(a) read with rule 36 specifies the documents to be possessed by a taxpayer for availment of credit. The said provisions do not include an e-way bill as a document on the basis of which ITC can be availed. Thus, eligibility to avail ITC is not dependent on e-way bill (which is only a document to track movement of goods). Therefore, there cannot be a denial of ITC to a taxpayer who does not have physical possession of the e-way bill if he is otherwise able to prove the receipt of goods.
FAQ7: Mr. A in Delhi supplied goods to Mr. B in Mumbai. Though Mr. A made an inter-State supply, he showed GST liability as CGST and SGST instead of IGST in Form GSTR-1. What should we do in this situation?
ANS: The claim of ITC will not depend on the fact whether the same is payable as CGST / SGST or IGST.
Section 2(62) defines “input tax” in relation to a registered person, means the Central tax, State tax, Integrated tax or Union Territory tax charged on any supply of goods or services, or both made to him and includes …….”
Rule 36(4) also restricts credit in respect of invoices or debit notes, the details of which have not been furnished in Form GSTR-1 by the supplier. It does not restrict the credit if, IGST is shown instead of SGST / CGST.
The supplier can amend the error if any, in the subsequent Form GSTR-1 and accordingly the claimant can also add / reduce the ITC claimed in his Form GSTR-3B return.
However, where the SGST/CGST relates to the other State where the claimant is not registered, ITC will be required to be reversed by the recipient, since he is not eligible to claim the ITC.
FAQ8: A vendor has paid GST on tax invoice issued to the registered person. However, while filing Form GSTR-1, he mistakenly enters wrong GSTIN of the registered taxable person. Due to limitations of the portal, he cannot rectify this error subsequently.
This results in ITC not getting reflected in the registered person’s Form GSTR-2B. Whether such registered taxable person can claim ITC in the given case?
ANS:: (I).The GST law does not have any mechanism to revise the returns submitted by the taxpayer. Further, the GST portal also does not prescribe any mechanism to revise the returns once submitted. However, the supplier has an option to amend the invoice submitted in Form GSTR-1 of a tax period in the subsequent tax period. Pursuant to proviso to section 37, the facility to amend Form GSTR-1 of a particular tax period is available upto September of the next financial year or upto the date of furnishing of the relevant annual return, whichever is earlier.
(ii) Section 16(2)(c) prescribes a condition that “subject to the provisions of section 41 or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply”. Such taxes would be remitted through Form GSTR-3B by the supplier.
(iii) In the present scenario, the tax was paid by the supplier to the Government and only an error on account of wrong GSTIN occurred. Since the condition prescribed in section 16(2)(c) is satisfied, the registered person can avail the credit. The credit cannot be denied on the grounds of limitations in the GST portal.
(iv) The registered person should maintain appropriate record of tax invoice and payments made to the supplier and adhere with the other conditions of section 16
FAQ9: If the vendor has mentioned wrong HSN on the invoice and the recipient has availed ITC on that invoice, can ITC be denied to the recipient?
ANS: As per section 16(1), in order to avail ITC, a registered person has to satisfy the conditions prescribed in section 16(2) read with rule 36. Specifically, rule 36(2) provides that ITC shall be availed by the recipient only if all applicable particulars as specified in the provisions of Chapter VI of the CGST Rules, 2017 are contained in tax invoice.
However, the proviso to rule 36(2) gives a relaxation stating that ITC may be availed by the recipient even if the tax invoice does not contain all applicable particulars, but contains the following details:
- Amount of tax charged.
- Description of goods or services
- Total value of supply of goods or services or both
- GSTIN of the supplier or recipient
- Place of supply in case of inter-State supply
FAQ10:Till what time after the end of a financial year, can the ITC be claimed on invoices pertaining to that financial year?
ANS: As per section 16(4), due date to avail ITC is the due date of furnishing the return under section 39 for the month of September following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier
FAQ11: My GST registration was cancelled due to non-filing of returns. After 8 months, cancellation of my registration was revoked from back date (from the date of cancellation). Can I claim ITC on inward supplies received during the cancellation period?
ANS: As per section 16(4), a registered person shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. Thus, in the given case ITC can be availed by the taxpayer for the inward supplies received during the cancellation period subject to the time limit as stated above.
source: THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
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