About the Author
CA. (Dr.) K.M. Bansal is Professor in the Department of Commerce, Dr. B.R. Ambedkar College, University of Delhi. He is a Gold Medalist from Shri Ram College of Commerce and University Rank Holder in M. Com. He has done M. Phil. (Accounting and Finance) from Delhi School of Economics, University of Delhi. He has been a Guide for students of M. Phil. He is also a member of the Institute of Chartered Accountants of India and the Institute of Cost Accountants of India. Dr. Bansal is holding a vast professional teaching experience of more than two decades. He is also associated with ICAI and ICSI as a visiting faculty. He has been a speaker at various conferences, seminars and workshops organized by ICAI. He keeps himself abreast of latest changes in the field of accounting and law. He is very particular in adopting the uniform approach while analyzing the practical problems on a given topic. On the occasion of Diamond Jubilee year of NIRC of ICAI in 2011, Dr. Bansal has been felicitated with a certificate of appreciation to acknowledge and appreciate the valuable and incredible services provided by him. On 24th February 2016, he was given the same certificate once again to appreciate and acknowledge his services as Faculty Member during 2015-2016. On the occasion of Annual Prize Distribution Function of ICAI held on 20th February 2016, Dr. Bansal has been awarded for Commendable Contribution in Activities of the profession of NIRC of ICAI. Dr. Bansal has been felicitated with a certificate of appreciation to acknowledge and appreciate the valuable and incredible services provided by him. Dr. Bansal has been key speaker at faculty Development Programmes organised by various MBA Institutes and the Colleges of University of Delhi.
I-5
Preface to Eleventh Edition
It gives me immense pleasure to place before esteemed readers, the Eleventh Edition of my book “GST & Customs Law”. The book is designed as per the B.Com. (Hons.) Syllabus of Delhi University and equivalent courses of other universities. After the rollout of GST in India with effect from 1st July 2017, there have been many changes in the GST laws. July 1, 2022, marked the completion of five years of India’s ambitious law. To date, the GST Council held 52 meetings to discuss the anomalies, approval of amendments, budget proposals and other practical issues in the implementation of GST laws. The latest GST Council’s 52nd meeting was held on 7th October 2023 at Sushma Swaraj Bhawan, New Delhi under the chairmanship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman. The Finance Act, 2023 has amended and substituted many sections of the CGST Act. The CBIC vide Notification No. 28/2023-CT, dated 31-7-2023, appointed 1-8-2023 (for Sections 149 to 154) and 1-10-2023 for remaining sections from Sections 137 to 162. Moreover, there are a few amendments that were made through the CGST (Amendment) Act, 2023 twice in 2023. All those amendments which are covered in the syllabus have been incorporated in the present edition at relevant places. The amendment in the IGST Act, 2017 relating to place of supply has also been incorporated in Chapter 7. I am thankful to dear students who have shared their problems with me through E-Mail, which helped me towards making the book more student-friendly. My thanks are due to the publishers and the editorial team of Taxmann Publications with special thanks to Mr. Mitra Pal Yadav and Mr. Sumit Dwivedi. I am grateful to CA Raj Chawla, Member-Central Council (ICAI) for disseminating the practical aspects of the law. I am also thankful to my wife. My apologies are due to my lovely kids “Vatsla and Varad” as I have spent their ‘precious time of togetherness’ writing this book, which cannot be compensated. I am thankful for the comments and suggestions made by my colleagues from Delhi University and other professional institutes for the improvement of the book. Further comments and suggestions for improving the quality of the book are welcome and will be gratefully acknowledged. In case of any query, I may be reached through the e-mail given below.
Dated:
CA. (Dr.) K.M. Bansal
1st January, 2024
kmbansaldu@gmail.com I-7
Syllabus B.COM. (HONS.) : SEMESTER VI PAPER BCH 6.2 : GOODS & SERVICES TAX (GST) AND CUSTOMS LAW COURSE OBJECTIVE To impart knowledge of principles and provisions of GST and Customs Law, the important legislation dealing with indirect tax system in India; and to enable the students to apply the same practically. Course Learning Outcomes After completing the course, the student shall be able to: CO1
:
CO2
:
CO3
:
CO4
:
CO5
:
connect with the genesis of goods and services tax (GST), decipher the constitutional amendment carried out to install GST in India and comprehend the composition and working of GST council. understand the meaning of supply under GST law, differentiate between intra-state and inter-state supply, comprehend rules related to the place of supply and compute the value of supply. comprehend the utilization of input tax credit, and the reverse charge mechanism of paying GST and to know the procedure for claiming refund under GST law. understand the provisions for registration under GST along with special provisions such as those related to anti-profiteering; avoidance of dual control; e-way bills and penalties. know the basic concepts of Customs Act and to compute the assessable value for charging customs duty.
COURSE CONTENTS Unit 1: Introduction Constitutional framework of indirect taxes before GST (taxation powers of Union & State Government); Concept of VAT: Meaning, variants and methods; Major defects in the structure of indirect taxes prior to GST; Rationale for GST; Structure of GST (SGST, CGST, UTGST & IGST); GST Council; GST Network; State compensation mechanism. Unit 2: Levy and collection of GST Taxable event - “Supply” of goods and services; Place of supply: intra-state, inter-state, import and export; Time of supply; Valuation for GST-valuation rules; Taxation of reimbursement I-9
3 5 " ! , , 9 3
I-10
of expenses; Exemption from GST: Small supplies and Composition scheme; Classification of goods and services: Composite and Mixed supplies. Unit 3: Input Tax Credit Eligible and ineligible input tax credit; Apportionments of credit and blocked credits; Tax credit in respect of capital goods; Recovery of excess tax credit; Availability of tax credit in special circumstances; Transfer of input credit (Input Service Distribution); Payment of taxes; Refund; Doctrine of unjust enrichment; TDS; TCS; Reverse Charge Mechanism; Job work. Unit 4: Procedures and Special Provisions under GST Registration; Tax Invoice; Credit and debit notes; Returns; Audit in GST; Assessment: Self-assessment; Summary and scrutiny; Taxability of e-Commerce; Anti-profiteering; Avoidance of dual control; e-way bills; Zero-rated supply; Offences and penalties; Appeals. Unit 5: Customs Law Basic concepts; Territorial waters; High seas; Types of custom duties; Valuation; Baggage rules & exemptions. Note: In case of any subsequent notifications/amendments regarding GST or Customs Law by the Government, the syllabus would be updated accordingly.
B. COM. : SEMESTER V PAPER BC 5.2 (B): GOODS & SERVICES TAX (GST) AND CUSTOMS LAW COURSE CONTENTS Unit I: Introduction Constitutional framework of indirect taxes before GST (taxation powers of Union & State Government); Concept of VAT: meaning, variants and methods; Major defects in the structure of indirect taxes prior to GST; Rationale for GST; Structure of GST (SGST, CGST, UTGST & IGST); GST Council; GST Network; State compensation mechanism. Unit II: Levy and collection of GST Taxable event - “Supply” of goods and services; Place of supply: intra-State, inter-State, import and export; Time of supply; Valuation for GST- valuation rules; Taxation of reimbursement of expenses; Exemption from GST: Small supplies and Composition scheme; Classification of goods and services: Composite and Mixed supplies. Unit III: Input Tax Credit Eligible and ineligible input tax credit; Apportionment of credit and blocked credits; Tax credit in respect of capital goods; Recovery of excess tax credit; Availability of tax credit in special circumstances; Transfer of input credit (Input Service Distribution); Payment of taxes; Refund; Doctrine of unjust enrichment; TDS; TCS; Reverse Charge Mechanism; Job work. Unit IV: Procedures and Special Provisions under GST Registration; Tax invoice; Credit and debit notes; Returns; Audit in GST; Assessment: Self-assessment; Summary and scrutiny; Taxability of e-Commerce; Anti-profiteering; Avoidance of dual control.
3 5 " ! , , 9 3
I-11 Unit V: Customs Law
Basic concepts; Territorial waters; High seas; Types of custom duties; Valuation; Baggage rules & exemptions. Note: In case of any subsequent notifications/amendments regarding GST or customs law by the government, the syllabus would be updated accordingly.
Contents
PAGE
About the Author
I-5
Preface to Eleventh Edition
I-7
Syllabus
I-9
Abbreviations used in the book
I-15
Chapter 1
1.1
INDIRECT TAXES IN INDIA: PRE-GST ERA
Chapter 2
2.1
GST IN INDIA: AN INTRODUCTION
Chapter 3
3.1
REGISTRATION
Chapter 4
4.1
SUPPLY UNDER GST
Chapter 5
5.1
LEVY AND COLLECTION OF GST
Chapter 6
6.1
EXEMPTIONS FROM GST
Chapter 7
7.1
PLACE OF SUPPLY
Chapter 8
8.1
TIME OF SUPPLY
Chapter 9
9.1
VALUE OF SUPPLY
I-13
3 4 . % 4 . / #
I-14 PAGE
Chapter 10
INPUT TAX CREDIT
10.1
Chapter 11
PAYMENT OF TAXES
11.1
Chapter 12
JOB WORK
12.1
Chapter 13
REVERSE CHARGE MECHANISM
13.1
Chapter 14
TAX INVOICE, CREDIT AND DEBIT NOTES & E-WAY BILL
14.1
Chapter 15
RETURNS UNDER GST
15.1
Chapter 16
ACCOUNTS, RECORDS & AUDIT
16.1
Chapter 17
ASSESSMENT
17.1
Chapter 18
OFFENCES, PENALTIES & APPEALS
18.1
Chapter 19
MISCELLANEOUS PROVISIONS
19.1
Chapter 20
BASIC CONCEPTS OF CUSTOMS LAW
20.1
Chapter 21
TYPES OF CUSTOMS DUTY
21.1
Chapter 22
VALUATION UNDER CUSTOMS
22.1
Chapter 23
CUSTOMS PROCEDURE
23.1
Chapter 24
BAGGAGE AND EXEMPTIONS
CHAPTER-WISE PREVIOUS EXAM PAPERS AT A GLANCE (UP TO DECEMBER 2023)
24.1 P.1
10 C H A P T E R
INPUT TAX CREDIT LEARNING OBJECTIVES
After studying this chapter, you shall be able to understand the following: Definitions of related terms
Conditions for Claiming ITC
Procedure for Claiming ITC z
On inputs
z
On Capital Goods
Blocked Credits
Special Provisions
When a registered person purchases goods or avails services, GST is paid on such inward supplies. These supplies are used for furtherance of business and the outward supplies are made. On such outward taxable supplies, GST is collected from the recipient. The total GST collected on outward supplies will not be payable to the Government in entirety, but it will get reduced on account of adjustment of tax paid on inward supplies, subject to certain conditions. This mechanism in which tax paid on inward supply is adjusted towards tax paid on outward supply is known as Input Tax Credit (ITC). The GST laws provide the benefit of ITC not only on input goods/services but also on capital goods. This ITC available reflects in the electronic credit ledger of the taxpayer maintained at the GST common portal. In this chapter, we will discuss the various aspects of ITC like conditions, circumstances, manner of computation, reversal etc.
10.2 MEANING OF INPUT TAX CREDIT As per section 2(63) of the CGST Act, 2017 “input tax credit” means the credit of input tax. Input-tax is defined under section 2(62) of the CGST Act as follows:— It means the Central tax, State tax, Integrated tax or Union territory tax charged on any supply of goods or services or both made to a registered person but does not include the tax paid under the composition levy. 10.1
TAXMANN®
10.1 INTRODUCTION
Para 10.4
10.2
INPUT TAX CREDIT
It shall also include:— (a) The integrated goods and services tax which is charged on import of goods (b) The tax payable as per section 9(3) and (4) of the CGST Act (c) The tax payable as per section 5(3) and (4) of the IGST Act (d) The tax payable as per section 9(3) and (4) of the respective SGST Act (e) The tax payable as per section 7(3) and (4) of the UTGST Act. Example 10.1 Suppose Mr. A is a registered wholesaler in Mumbai. He purchased goods worth ` 5,00,000 from Mumbai and paid GST @ 12%. After value addition and profit margin, Mr. A sold these goods to Mr. B (a registered dealer in Maharashtra state) for ` 9,00,000 and charged GST @ 12% on it. Now, GST paid on Inward Supply
GST collected on Outward Supply
CGST
6% of ` 5,00,000 = ` 30,000
6% of ` 9,00,000 = ` 54,000
SGST
6% of ` 5,00,000 = ` 30,000
6% of ` 9,00,000 = ` 54,000
TAXMANN®
It is clear that Mr. A has input tax credit of CGST and SGST for ` 30,000 each. Now, Mr. A will pay ` 24,000 each as net GST. This amount has been arrived at after deducting ` 30,000 already paid at the time of purchase of goods. This benefit or system of adjustment of “GST paid on inward supplies” towards “GST on outward supplies” is called as Input Tax Credit (ITC).
10.3 RATIONALE BEHIND ITC UNDER GST The credit mechanism under the indirect tax aims to mitigate the cascading effect of duty on duties. It provides for credit of duties paid on goods or services which are used as inputs in production of output goods or provision of output services. This aim was not achieved to the fullest as various duties, taxes and cess were levied at the central and state levels and all were not adjusted against each other. With the introduction of GST, credit on goods and services is available across the entire supply chain barring a few exceptions. It may be noted that it is an auto populated feature. Burden of Proof for claiming ITC As per section 155 of CGST Act, 2017, where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.
10.4 LEGAL FRAMEWORK OF ITC The various provisions related to Input Tax Credit (ITC) are given under Chapter V (Sections 16-21) of the CGST Act, and CGST Rules. These provisions of ITC under CGST are also applicable to the IGST Act. Section 20 of the IGST Act has made the provisions applicable. The aspects covered under various sections are:— Section 16:
Eligibility and Conditions for taking Input tax credit
Section 17:
Apportionment of credit and blocked credits
Section 18:
Availability of Credits in Special Circumstances
Section 19: work.
Taking input tax credit in respect of inputs and capital goods sent for job
10.3
ELIGIBILITY FOR AVAILING ITC
Section 41:
Utilization of ITC
Section 42:
Matching, Reversal and Reclaim of ITC.
Para 10.5
CGST RULES, 2017 RELATING TO ITC The Chapter V of CGST Rules, 2017 contains the following rules in relation to ITC: Documentary requirements & conditions for claiming ITC
Rule 37:
Reversal of ITC in the case of Non-Payment of consideration
Rule 38:
Claim of credit by a Banking Company or a Financial Institution
Rule 39:
Procedure for distribution of ITC by Input Service Distributer (ISD)
Rule 40:
Manner of claiming credit in special circumstances
Rule 41:
Transfer of credit on sale, merger, etc.
Rule 42: reversal
Manner of determination of ITC in respect of inputs or input services &
Rule 43:
Manner of determination of ITC in respect of Capital goods & reversal thereof
Rule 44:
Manner of reversal of credit under special circumstances
Rule 44A:
Manner of reversal of credit of Additional Duties of Customs
Rule 45: worker
Conditions and restrictions in respect of inputs and Capital Goods to the job
Utilisation of ITC The provisions related with utilisation of ITC have been discussed in next Chapter (Payment of Taxes).
10.5 ELIGIBILITY FOR AVAILING ITC [SECTION 16(1)] As per section 16(1), “Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, 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 business and the said amount shall be credited to the electronic credit ledger of such person.” The analysis of above statutory provision reveals the following: 1. Registered Person: As per section 16(1), Input tax credit is available only to a registered person. When a registered person is supplied with goods or services or both, on which tax has been charged, he is allowed to take credit of the input tax paid. This is subject to the provisions relating to use of ITC under section 49 and the conditions & restrictions in the rules. This means, if a person is unregistered he will not be eligible to claim Input tax credit. Exception: There is one exception wherein ITC is not available although the person is registered. This exception applies to a person who pays tax under section 10 of the CGST Act, under the compounded levy scheme. Such person cannot claim ITC in respect of inward supplies made by him. In-fact, the tax paid under Composition levy does not fall within the definition of Input tax.
TAXMANN®
Rule 36:
Para 10.6
INPUT TAX CREDIT
10.4
2. In the course of or in furtherance of business: The goods/services must be used or intended to be used in the course of or in furtherance of his business. However, no such credit is available in respect of inputs used for outward supply of exempted goods or services. Explanation: The relation of inputs and input services with business can be direct or indirect. ‘Intention to use’ implies that ITC can be availed as soon as inputs or input services are received, though the same may be utilised later. However, if finally, the input goods or services are not utilised for intended purpose, ITC is disallowed, as provided in section 17(5) of CGST Act. [Provisions of section 17(5) are discussed in the ensuing pages of this Chapter in Para 10.10.] In fact, the tax paid on goods and/or services which are used or intended to be used for non-business purposes cannot be availed as credit. 3. Credit Ledger: The amount of ITC shall be credited to the Electronic Credit Ledger of the person entitled.
TAXMANN®
4. Manner of Utilisation: The ITC shall be utilised in the manner specified in section 49. (Please refer Para 11.11 for detail) 5. Rules under CGST Rules, 2017: The conditions and restrictions have been specified in Chapter V of CGST Rules, 2017 (Rule 36 to Rule 45). These rules have been mentioned under the appropriate heading throughout this chapter.
10.6 CONDITIONS TO BE SATISFIED FOR AVAILING ITC [SECTION 16(2)] The registered person is entitled to credit of any ITC on a supply if all the following conditions are satisfied: (a) Possession of a Tax Invoice or Debit Note (b) Furnishing and communication of details (c) The ITC is not restricted (d) Receipt of goods and/or services (e) Payment of tax to the Government (f) Furnishing the valid return under section 39 NOTE: The above conditions are given in section 16(2), which starts with “Notwithstanding anything contained in this section …..”. It implies that it is an overriding section. Moreover, these conditions are cumulative, therefore, they all must be satisfied in order to be eligible for availing tax credit. (a) Possession of Invoice: As per section 16(2)(a), no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or documents as prescribed in rule 36.
10.5
CONDITIONS FOR AVAILING ITC
Para 10.6
Rule 36: Documentary requirements and conditions for claiming input tax credit 36(1)
Any of the following documents suffice the condition of possession of invoice. (a) an invoice issued by the supplier of goods or services or both (as per section 31) (b) an invoice raised by the recipient in case of inward supply from unregistered. (c) a debit note issued by the supplier of goods or services or both (as per section 34) (d) a bill of entry or any similar document prescribed under the Customs Act, 1962 (e) an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor for distribution of credit. (Rule 54).
36(2)
The ITC shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the document mentioned in rule 36(1): Provided that if the said document does not contain all the specified particulars but contains the details of the amount of tax charged, description of goods or services, total value of supply of goods or services or both, GSTIN of the supplier and recipient and place of supply in case of inter-State supply, input tax credit may be availed by such registered person.
(b) Furnishing and communication of details: As per section 16(2)(aa), the details of the invoice or debit note has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37. 36(4)
No ITC shall be availed by a registered person in respect of invoices or debit notes the details of which are required to be furnished under sub-section (1) of section 37 unless,(a) the details of such invoices or debit notes have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1 or using the invoice furnishing facility; and (b) the details of ITC in respect of such invoices or debit notes have been communicated to the registered person in FORM GSTR-2B under rule 60(7). Author’s Comment: After insertion of section 16(2)(aa) and substituted rule 36(4), w.e.f. 1-1-2022, the ITC claims will be allowed only when the details of such invoice/debit note have been furnished by the supplier in his GSTR-1 and subsequently it appears in GSTR-2A. Thus, now the recipient can no longer claim provisional ITC. In other words, the ITC claimed should be reflected in GSTR-2A.
(c) The ITC is not restricted: The details of input tax credit in respect of the supply communicated to the registered person under section 38 has NOT been restricted.
TAXMANN®
The section 16(2) does not specify which copy of invoice will be the basis of taking ITC. However, Rule 48 does clarify that original copy should be kept by the recipient for the purposes of record.
Para 10.6
INPUT TAX CREDIT
10.6
(d) Receipt of Goods or Services or both: As per section 16(2)(b), the registered person should have received the goods or services or both. This means the ITC will not be available unless the goods are received by the registered person. Example 10.2 ABC Limited has purchased goods from XYZ Limited and PQR Limited for ` 90,000 and ` 2,00,000 respectively. In respect of both the supplies, the invoice has been received. The goods were received in April 2018 (from XYZ Limited) and in May (from PQR Limited). Now, in this example the ITC is admissible on ` 90,000 only for the month of April 2018. The ITC as regards supplies from PQR for ` 2,00,000 shall not be available in April. Since the goods are received in the month of May, the ITC shall be available in May, 2018.
When goods/Services are deemed to have been received: Statutory Provisions:
TAXMANN®
As amended by the Central GST (Amendment) Act, 2018, the Explanation to section 16(2)(b) clarifies, for the purpose 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. Analysis of the Provisions: The above provision is related with “Bill to ship to” model. Bill to Ship to Model: Under this model, the goods are delivered to a third party on the direction of the customer (registered person) who purchases the goods from the supplier.
Bill to Ship to Model The ‘Bill to Ship to’ Model supplies include two supplies:
10.7
CONDITIONS FOR AVAILING ITC
Para 10.6
(a) From Supplier to Customer (i.e. from Mr. A to Mr. B) (b) From Customer to third party (i.e. From Mr. B to Mr. C) It is clear that goods/services may be provided to a third party by the supplier on the direction of the registered person. In this case, though the registered person does not receive the goods or services, but by virtue of Explanation to section 16(2)(b) it is deemed that the registered person has received the goods/services. Accordingly, ITC will be available to the registered person, on whose direction the goods/services are provided to a third party. Example 10.3 [Deemed Receipt of goods] X of Delhi agreed to supply goods to Mr. Y of Bombay. As a part of agreement, these goods are to be delivered to Z at Ahmedabad. This is “Bill to Ship to Model” and Y shall be treated as deemed recipient and shall be eligible for the ITC. In other words, Mr. Z who is actually receiving the goods will not be eligible for ITC on such transactions. Example 10.4 [Deemed Receipt of services]
(e) Payment of Tax to the Government: As per section 16(2)(c), the third essential condition is that the tax should have actually been paid to the government on the goods or services for which ITC is being taken. This payment can be done by the supplier either by:— (a) Making the payment through cash or (b) through utilization of ITC. However, when the recipient claims ITC, it is provisionally allowed to be utilized for making the payment of self-assessed tax on outward supply, before matching in the common portal. It is later on verified after filing of GSTR 3. (f) Filing of valid Return: As per section 16(2)(d), the fourth essential condition is that the registered person should have furnished the return under section 39. The return has to be filed before 20th of the month succeeding the month in which the supplies were received. This return must be furnished in Form GSTR-3 and must contain all the details of inward supplies. Example 10.5 [Based on section 16(1) & (2)] Nishant Limited is a manufacturer of Surat, Gujarat. It provides the following information in respect of various inputs purchased during the month of July 2018: SN
Particulars of Inward Supplies
GST (`)
(1)
Goods purchased with valid tax paying invoice
18,000
(2)
Goods purchased without invoice
20,000
(3)
Goods purchased but not used for business purposes
7,000
TAXMANN®
KM Ltd. (registered person) has head office in Mumbai and registered branch offices in Delhi and Faridabad. KM Ltd. enters into a contract with ABC Ltd. for repair and maintenance of machineries installed at its branches. The invoice for the same is issued by ABC Ltd. on KM Ltd. for the repair services provided by it. In this example, although the actual services are received by the branch office and not by the head office, but by virtue of Explanation to section 16(2)(b), ITC will be available to head office i.e. KM Ltd.
Para 10.6
10.8
INPUT TAX CREDIT
(4)
Goods purchased and used for supplying exempted goods and services
6,000
(5)
Goods purchased from Vimal against which full payment is made by Nishant Limited to Vimal but tax has not been deposited by Vimal.
31,000
(6)
Purchase of goods from PQR Limited (Invoice of PQR Limited is received in July 2018 but goods were received in the month of August, 2018.
11,000
(7)
Goods imported from China in respect of which Bill of Entry is available with Nishant Limited.
6,000
(8)
Goods purchased against valid invoice in respect of which tax has been deposited.
10,000
You are required to determine the amount of ITC admissible to Nishant Limited for the month of July, 2018. Solution:
TAXMANN®
Computation of admissible ITC to Nishant Limited for the month of July, 2018 SN
Particulars of Inward Supplies
WN
ITC (`)
(1)
Goods purchased with valid tax paying invoice
(1)
18,000
(2)
Goods purchased without invoice
(1)
NA
(3)
Goods purchased but not used for business purposes
(2)
NA
(4)
Goods purchased and used for supplying exempted goods and services
(3)
NA
(5)
Goods purchased from Vimal against which full payment is made by Nishant Limited to Vimal but tax has not been deposited by Vimal.
(4)
NA
(6)
Purchase of goods from PQR Limited (Invoice of PQR Limited is received in July 2018 but goods were received in the month of August, 2018.
(5)
NA
(7)
Goods imported from China in respect of which Bill of Entry is available with Nishant Limited.
(6)
6,000
(8)
Goods purchased against valid invoice in respect of which tax has been deposited.
(7)
10,000
Total admissible ITC for the month of July 2018
34,000
Working Notes: (1) ITC is available if and only if Nishant Limited is in possession of valid tax paying document. Therefore, ` 18,000 is available whereas ` 20,000 is not available as ITC. (2) The ITC is not available as Nishant Limited has purchased the goods for Non-Business purpose. (3) The goods have been used for exempted supplies; therefore, no ITC can be claimed. (4) Since, tax has not been deposited to the credit of Government, ITC cannot be claimed. (5) The goods are received in the month of August 2018. ITC cannot be taken in the month of July 2018.
10.9
Para 10.6
CONDITIONS FOR AVAILING ITC
(6) As per rule 36(1), a bill of entry suffices the conditions of possession of invoice. (7) ITC shall be admissible in the month of July 2018. When Goods are received in instalments Sometimes, the goods covered under an invoice are not received in a single consignment but are received in lots/instalments. In this case, as per the first Proviso to section 16(2), the registered person shall be entitled to take credit upon the receipt of the last lot or instalment. Example 10.6 A received 500 tons of sugar from B against a tax invoice, to be delivered in instalments. The first lot of 300 tons was received on 20.1.2018 and second lot of 200 tons was received on 18th February 2018. Here, “A” can avail Input tax credit only after receipt of the final lot on 18th February. Example 10.7 KRVV Limited, a registered manufacturer of Delhi entered into a contract with Varad Limited for supply of 5,000 units of a product @ ` 80 each (plus 18% GST) in March 2020. The product is to be delivered in lots over a period of 3 months as per the following details: First Lot on 21-3-2020
1,000 Units
Second Lot on 16-4-2020
2,000 Units
Third Lot on 26-5-2020
2,000 Units
Example 10.8 [Based on section 16(2)(aa) and rule 36(4)] Mr. Rohit, a registered supplier, receives 100 invoices (for inward supply of goods/services) involving GST of Rs. 10 lakh from various suppliers during the month of January 2022. Out of 100 invoices, 80 invoices involving GST of Rs. 6 lakh have been uploaded by the suppliers in their respective GSTR-1 filed on the prescribed due date therefor: (i) Compute the ITC that can be claimed by Mr. Rohit in his GSTR-3B for the month of January 2022 to be filed by 20th February 2022 assuming that GST of Rs. 10 lakh is otherwise eligible for ITC. (ii) Give any three cases which are outside the ambit of section 37(1). Solution: (i) ITC to be claimed by Mr. Rohit in his GSTR-3B for the month of January 2022 to be filed by 20th February 2022 will be computed as underIn respect of
Amount of ITC involved in the invoices (Rs.)
Amount of ITC that can be availed (Rs.)
Remarks
80 invoices uploaded in GSTR-1
6 Lakh
6 Lakh
In respect of invoices uploaded by the suppliers in their GSTR-1, full ITC can be availed.
20 invoices not uploaded in GSTR-1
4 Lakh
Nil
As per section 16(2)(aa) read with rule 32(4), w.e.f. 1-1-2022, the ITC claims will be allowed only when the
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Varad Limited raises the invoice for the entire amount (i.e. ` 4,72,000) on 20-3-2020 and KRVV Limited makes the payment on 24-3-2020 but the supply is completed in May 2020. Now, in this case, though invoice has been raised and payment also made in March 2020, but recipient can take the ITC of the same only on receipt of last instalment of the product in the month of May 2020.
Para 10.6
10.10
INPUT TAX CREDIT
details of such invoice/debit note have been furnished by the supplier in his GSTR-1 and subsequently it appears in GSTR-2A/2B. Thus, in respect of 20 invoices not uploaded in GSTR-1, the ITC will not be available in January, 2022. Total
10 lakhs
6 lakhs
ITC available as per rule 36(4)
(ii) In the following cases, FULL ITC can be availed in respect of following, as these are outside the ambit of section 37(1):
IGST paid on imports
Documents issued under Reverse Charge
Credit received from Input Service Distributor (ISD)
Example 10.9 [Based on section 16(2)(aa) and rule 36(4)] Mr. Sumit, a registered supplier, receives 50 invoices (for inward supply of goods/services) involving GST of Rs. 6 lakh, from various suppliers during the month of February 2022. Consider the following independent cases: TAXMANN®
Uploading of invoices by suppliers in their GSTR-1 Case
Yes Corresponding ITC
No. of Invoices
50
Rs. 8,00,000
II
30
III
Nil
I
No. of Invoices
No Corresponding ITC
Total
Nil
Nil
8,00,000
Rs. 4,00,000
20
Rs. 2,00,000
6,00,000
Nil
50
Rs. 5,00,000
5,00,000
(Rs.)
Compute the ITC that can be claimed by Mr. Sumit in his GSTR-3B for the month of February 2022 to be filed by 20th March 2022 in all the above cases. Solution: Particulars
Case I
Case II
Case III
Eligible ITC as per books
(A)
8,00,000
6,00,000
Eligible ITC regarding uploaded invoices
(B)
8,00,000
4,00,000
Nil
ITC regarding invoices not uploaded
(C)
NA
2,00,000
5,00,000
Eligible ITC for invoices not uploaded as per section 16(2)(aa) read with rule 36(4) as inserted and amended w.e.f. 1-1-2022
(D)
NA
Nil
Nil
Total Eligible ITC [(B) only]
(E)
8,00,000
4,00,000
Nil
5,00,000
Note: W.e.f. 1-1-2021, a new rule 86B has been inserted in the CGST Rules to restrict the amount available in electronic credit ledger which a registered person can use to discharge his output tax liability to 99% of such tax liability in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds Rs. 50 lakh. It has been discussed in detail in Chapter 11 under Para 11.10.
10.11
REVERSAL OF ITC IN CASE OF NON-PAYMENT OF CONSIDERATION
Para 10.7
10.7 REVERSAL OF ITC IN CASE OF NON-PAYMENT OF CONSIDERATION The following are the relevant provisions given under CGST Act, 2017 and CGST Rules, 2017: (1) ITC availed to be paid along with Interest [Second Proviso to section 16(2)]: Where a recipient fails to pay to the supplier of goods or services or both, the amount towards the value of supply along with tax payable thereon, within 180 days from the date of issue of invoice by the supplier, an amount equal to ITC availed by the recipient shall be paid by him along with interest payable under section 50, in the manner as may be prescribed. Related provisions as prescribed under rule 37 of CGST Rules, 2017 As per rule 37(1), A registered person, who has availed of input tax credit on any inward supply of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, but fails to pay to the supplier thereof, the amount towards the value of such supply, whether wholly or partly, along with the tax payable thereon, within the time limit specified in the second proviso to section 16(2), shall pay or reverse an amount equal to the input tax credit availed in respect of such supply, proportionate to the amount not paid to the supplier, along with interest payable thereon under section 50, while furnishing the return in FORM GSTR-3B for the tax period immediately following the period of 180 days from the date of the issue of the invoice.
As per rule 37(2), Where the said registered person subsequently makes the payment of the amount towards the value of such supply along with tax payable thereon to the supplier thereof, he shall be entitled to re-avail the input tax credit referred to in rule 37(1). Example 10.10 [Proportionate reversal of ITC] Mr. Sanskar received a tax invoice on 12.08.2017 of ` 4,00,000 on which IGST of ` 72,000 was payable, and he availed Input tax credit in the return for the month of August 2017 (filed in the month of September 2017). The part payment of ` 3,54,000 was made on 28th December, 2017 and a balance of ` 1,18,000 inclusive of tax was pending. As per second proviso to section 16(2), the payment should be made within 180 days from the date of invoice. This period of 180 days expires on 8th of February, 2018. Since the recipient has not made the payment, he will have to furnish the details in GSTR 2 for the month of February (to be filed in the month of March, 2018) and pay the amount of proportionate ITC availed. Thus, one fourth of ` 72,000 (i.e. ` 18,000) along with interest @ 18% will be added to the outward tax liability. [Please refer example 10.7 for computation of interest in case of reversal of ITC.]
(2) Re-Entitlement when payment is made subsequently: The recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. In case part payment has been made, proportionate credit would be allowed. Related provisions as prescribed under rule 37(4) of CGST Rules, 2017 The time limit of availing credit as specified in section 16(4) shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter that had been reversed earlier.
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When supply is made without consideration: The value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to section 16(2).
Para 10.9
INPUT TAX CREDIT
10.12
(3) As per third proviso to section 16(2), the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon. (4) Exceptions to the Limitation Period of 180 days: The condition of payment of value of supply plus tax within 180 days does not apply in the following cases: (a) The supplies on which tax is payable under Reverse Charge. (b) Deemed supplies without consideration. (c) Additions made to the value of supplies on account of suppliers liability, in relation to such supplies, being incurred by the recipient of the supply. The value of supply is deemed to have been paid, in situations given in (b) and (c) above.
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10.8 NO ITC IF DEPRECIATION IS CLAIMED ON TAX COMPONENT [SECTION 16(3)] Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed. It is clear that in respect of tax paid on such items, double benefit cannot be claimed under GST laws and Income-tax Act, 1961 simultaneously. Therefore, the assessee has the option to either claim depreciation on tax component of capital goods by capitalizing the capital goods inclusive of tax in the books of account or to claim ITC. A person is not allowed to take the dual benefit under two different laws simultaneously. Example 10.11 [No ITC if Depreciation is claimed on tax component] Z limited purchased a machine for ` 15,00,000 plus GST @ 18%. The machine has been capitalized in the books at ` 17,70,000 (i.e. inclusive of GST paid). Accordingly, the depreciation was claimed for ` 2,65,500 (i.e. 15% of ` 17,70,000) under the Income-tax Act. Since depreciation is claimed on tax (GST) component of cost of machinery, the ITC shall not be allowed.
10.9 TIME LIMIT FOR AVAILING THE INPUT TAX CREDIT [SECTION 16(4)] The Finance Act, 2022 has amended section 16(4), w.e.f. 1-1-2022, to extend the period to take ITC. Pursuant to this amendment, a taxable person shall not be entitled to take ITC in respect of any invoice or debit note or supply of goods or services or both, after the 30th November 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. In view of this, it can be concluded that the ITC on invoices which pertains to a particular financial year must be availed as per the following: Earlier of
30th November of the next financial year Date of filing Annual Return in FORM GSTR-9 under section 44
Example 10.12 The date of invoice for supply of goods is 24-10-2022 for which ITC is available. Determine the time limit for availing ITC if the annual return has been furnished:
10.13
Para 10.10
APPORTIONMENT OF INPUT TAX CREDIT
(a) On the last date (31-12-2023) (b) On 5-9-2023 Solution: The time limit for taking ITC in respect of invoice dated 24-10-2022 shall be the earlier of the following: Particulars
CASE I
CASE II
31-12-2023
5-9-2023
30th Nov. of Next FY
30-11-2023
30-11-2023
Last date by which ITC can be claimed (Earlier of the above two dates)
30-11-2023
5-9-2023
Date of filing of return
Additional points as regards the time limits for claiming ITC The following additional points may be noted as regards the time limit for claiming ITC: 1. Relevant Date for Debit Note: After the amendment made by Finance Act, 2020 w.e.f. 1-1-2021, the date of issue of invoice relating to debit note is of no relevance for determining time limit to take ITC of GST charged on Debit Note. 2. No time limit for reclaiming ITC reversed due to non-payment within 180 days:
3. One Year from the date of Invoice in special cases: The Section 18(2) provides that in special circumstances, like new registration or voluntary registration, the registered person shall not be entitled to take input tax credit under sub-section (1) in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply. For Example: Subhash enterprises obtained voluntary registration on 31-8-2018. He had purchased inputs for furtherance of business invoice dated 14-8-2017. The input tax on the same was ` 30,000. Although section 16(4) allows to claim ITC by 20th October 2018 (assuming annual return for the financial year 2017-18 is not yet filed), but if it is read together with section 18(2), the ITC cannot be claimed beyond 14-8-2018 i.e. one year from the date of invoice.
10.10 APPORTIONMENT OF INPUT TAX CREDIT As regards the apportionment of ITC, the provisions are contained in section 17 of CGST Act, 2017, which are as follows: (1) Where goods or services are used partly for business purposes and partly for other purposes [Section 17(1)] (2) Where goods or services are used partly for effecting taxable supply including zero rated supply and partly for exempted supply [Section 17(2)]
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As per rule 37 the time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit, which has been reversed earlier, in accordance with the provisions of the Act. Therefore, the amount so added to the output tax liability can again be re-claimed as ITC, once the payment is made. If part payment is made after the expiry of 180 days and after the ITC availed has been added to output liability, the proportionate ITC can be reclaimed without any limitation of time.
Para 10.10
INPUT TAX CREDIT
10.14
(3) Items included in exempted supplies [Section 17(3) (4) Optional method for Banks for taking ITC [Section 17(4)] (5) Blocked Credits [Section 17(5)] The following rules under CGST Rules, 2017 prescribe the procedure for claiming ITC. (1) ITC by a banking company or a financial institution [Rule 38] (2) Manner of determination of ITC in respect of Inputs or input services and reversal [Rule 42] (3) Manner of determination of ITC in respect of Capital Goods and Reversal [Rule 43] The provisions have been discussed as under:—
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10.10.1 Where goods or services are used partly for business purposes and partly for other purposes [Section 17(1)] The registered person may use the input supplies either for business or non-business purposes. As per section 17(1), “Where the goods and/or services are used by the registered person partly for the purposes of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.” This means that no ITC will be available in respect of those inputs which are used for non-business purposes. For Example: Suman owns a Business entity and deals in textiles. She has purchased goods for the business, in respect of which ITC admissible is ` 42,500. If 15% of such goods have been used by her for personal purposes, then ITC will not be available in relation to such goods which are used for non-business purposes. Therefore, as per section 17(1), Suman shall be entitled to take credit of ` 36,125 (calculated as 85% of ` 42,500).
10.10.2 Where goods or services are used partly for effecting taxable supply including zero rated supply and partly for exempted supply [Section 17(2)] When the goods are used for business purposes, they may either be used in effecting the following supplies: (1) Taxable supplies, which includes zero-rated supplies or (2) Exempted supplies (either under this Act or under IGST Act) or (3) Partly taxable and partly exempted supplies. As per section 17(2), “Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.” In other words, the ITC shall be available only for that portion of Input tax which is attributable to the purposes of business of providing taxable supplies including zero-rated supplies. Example 10.13 Shyam Limited is a manufacturer of textile products. The company received order from Government to supply goods to defence (exempted supply). The turnover of the other taxable goods and exempted goods are ` 7,00,000 and ` 3,00,000 respectively. The common inputs on which GST paid is ` 60,000.
GST & CUSTOMS LAW TEXTBOOK AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE
: : : : : : :
K.M. BANSAL TAXMANN JANUARY 2024 11th Edition 9789357784818 708 PAPERBACK
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DESCRIPTION Taxmann's flagship publication on GST & Customs Law aims to fulfil the requirement of students of undergraduate courses in commerce and management, particularly the following: • Choice-Based Credit System o B.Com. (Hons.) Semester VI: Paper BCH 6.2: Goods and Services Tax (GST) and Customs Law o B.Com. Semester V: Paper BC 5.2(b): Goods & Services Tax (GST) and Customs Law • Non-Collegiate Women's Education Board • School of Open Learning of the University of Delhi • Various Central Universities throughout India. This book aims to minimize the need to consult multiple books while preparing for the exam and give the students a step-by-step guide for learning the subject. This book is written in simple language, explaining the provision of the law in a step-by-step manner with the help of suitable illustrations, without resorting to paraphrasing of sections and legal jargons. This book helps bridge the gap between theory and application of the subject matter. This book is an authentic, up-to-date & amended textbook on GST & Customs Law. The Present Publication is the 11th Edition & amended till 31st December 2023. It is authored by CA (Dr) K.M. Bansal, with the following noteworthy features: • [Most Updated & Amended] This book incorporates all the updates & amendments under GST vide the Finance Act 2023 & notifications issued by CBIC till 31st December 2023 • [Self-Learning/Practice Book] Features teach yourself technique enabling students to learn faster • [Systematic & Sequential Approach] is followed in all the topics • [Each Paragraph Starts with an Introduction] which aims to set the objective and focus of students regarding the content that will follow • [Each Chapter Contains a Complete Explanation] of the topic with suitable examples followed by graded illustrations and questions for practice • [Question of Recent Delhi University Examinations; Chapter-wise] have been incorporated in the book: • [Student-Oriented Book] This book has been developed keeping in mind the following factors: o Interaction of the author/teacher with their students in the classroom o Shaped by the author/teacher's experience of teaching the subject matter at different levels o Reactions and responses of students have also been incorporated at different places in the book • [Follows Six-Sigma Approach] to achieve the benchmark of 'Zero-Error'
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