Eligibility and Conditions to Avail ITC Sec .16 of CGST ACT

Eligibility and Conditions to Avail ITC Sec .16 of CGST ACT

Introduction:

  • GST is a comprehensive value added tax system that allows uninterrupted flow of credit among different sectors.
  • Tax is levied at each stage of value addition. The tax charged at previous stage is passed on to next stage in form of Input tax credit.
  • A registered person can take the credit of input tax subject to conditions and restrictions as prescribed and elaborated in next section of the presentation.

Section to be discussed with relevant Rules under Chapter VI Input Tax Credit of CGST Act, 2017

SectionsSection HeadingRules
16Eligibility and conditions for taking input tax credit36 & 37

As per Section 16(1) Goods or services or both, whose credit is to be availed are used or intended to be used in the course or furtherance of business by every registered person, subject to conditions and restrictions as specified under section 49 (Payment of tax, interest, penalty and other amounts) of CGST Act.

As per Section 16(2) registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both as mention above have to fulfill below mention conditions:

  • Such registered person have in possession of a tax invoice or debit note issued by a supplier or such other tax paying documents as may be prescribed.

Explanation:

Rule 36(1) issued for Documentary Requirements for claiming ITC says.

  • Such registered person has received the goods or services or both.

Explanation: It shall be deemed that the registered person has received the goods or Services in below cases. (Or called exceptions)

  1. Goods are delivered by the supplier to a recipient or “any other person” on the direction of such registered person- (Bill to – Shipped to concept) as agent or otherwise.
  2. Services are provided by the supplier to any person on the direction of and on account of such registered person.
  • Tax charged on goods and services or both have been actually paid to the government, either through cash or input tax credit, subject to condition of section 41 (Tax charged on goods and services have been actually paid to the government)
  • Such registered person furnished the return under section 39.

Key Points from Proviso:

  1. In the case of goods which are “Sold in lots or in Installments”, starting lots are send to the receiver under the cover of delivery challan. Invoice is being sent along with the last lot or installment. Therefore, ITC on such goods can be availed only when last lot or installment has been received
  2. In the case the Invoice has been issued by the vendor and ITC has been claimed correspondingly for such invoice but the “Material is still in transit” then such claimed credit need to be reversed until the delivery not completed. Interest Liability on such credit depends upon the utilization of the Credit.
  3. If the recipient “Fails to pay the amount” towards the value and tax thereon to the supplier of goods or services within 180 days, the amount of credit availed to the non-payment by the recipient will be added to its output tax liability along with interest thereon in the manner as prescribed. The said period of 180 days is to be calculated from the date of invoice.

The credit reversed earlier can be re- claimed once the payment has been made to the supplier. No time limit has been prescribed to re-claim the credit.

As per Section 16(3) if the registered person (Recipient) has claimed depreciation on the tax component of the cost of capital goods and plant and machinery, then input tax credit on the said tax component shall not be allowed.

As per Section 16(4) Time limit to avail Input tax credit.

Explanation Rule 36(4):

ITC to be availed by a registered person in respect of Invoices or Debit Notes, the details of which have not been uploaded by the supplier under GSTR-1, shall not exceed 5% of the eligible credit available in respect of Invoices or Debit Notes the details of which have been uploaded by the supplier in GSTR-1

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