CLAIM ON INPUT TAX CREDIT UNDER MARGINAL SCHEME OF RENT, ADVERTISEMENT EXPENSES, COMMISSION ETC

[Mr. M. GOVINDARAJAN]

Marginal Scheme

Rule 32(5) provides that where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.  The purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.

Issue

The issue to be discussed in this article is whether input tax credit can be claimed under marginal scheme of rent, advertisement, professional charges and other expenses under Section 16 of the Goods and Services Act, 2017 with reference to decided case law.

For this purpose we may see the provisions of Section 16 of the Act for the eligibility to claim input tax credit.

Section 16(1) of the Act provides that every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, (payment of tax through input tax credit) 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 and the said amount shall be credited to the electronic credit ledger of such person.

The Authority for Advance Ruling, Karnataka, in re IN RE: M/S. ATTICA GOLD PRIVATE LIMITED - 2022 (11) TMI 260 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA gave ruling that the input tax credit can be claimed under Marginal Scheme of rent, advertisement, professional charges etc.

In the above said case, the applicant is in the business of selling second hand goods i.e., used gold jewellery.  Such goods are bought by the applicant from individuals who are unregistered persons under the GST Act.  Therefore the applicant follows the ‘marginal scheme’ to discharge its GST liabilities.

The applicant filed an application before the Authority for Advance Ruling seeking ruling on the following questions-

• Whether the applicant who is under Marginal Scheme can claim input tax credit on the expenses like rent, advertisement expenses, commission, professional expenses and other expenses?
• Whether the input tax credit is allowed to be claimed on capital goods for the applicant under Marginal Scheme?

The applicant submitted the following before the Authority for Advance Ruling-

• A person dealing with the second hand goods is allowed to pay the tax on margin i.e., the difference between the value at which the goods are supplied and the price at which the goods are purchased.
• If there is no margin no GST is charged on such supply.
• The purpose of the margin scheme is to avoid double taxation as the goods, having borne once incidence of tax, re-enter the economic supply chain.
• The input tax on various expenses like advertisement, rent, professional charges and other expenses are claimable under section 16 of the Act where all the conditions are satisfied without which business cannot be run.

The Authority for Advance Ruling considered the submissions made by the applicant.  The Authority for Advance Ruling analyzed the provisions of Section 16 of the Act, Rule 32 (5).

The Authority for Advance Ruling observed that Rule 32(5) clearly bars availment of input tax credit on the purchase of the second hand goods which he is supplying, however, there is no restriction on the input tax credit in respect of input services or capital goods.  The Authority for Advance Ruling further observed that Section 16 of the Act which provides eligibility and conditions for taking input tax credit, there is no bar on the registered person to claim the input tax credit on input services relating to the expenses like rent, advertisement expenses, professional charges, commission etc., and capital goods under Marginal Scheme.

The Authority for Advance Ruling ruled that-

• The applicant who is under Marginal Scheme can claim input tax credit on the expenses like rent, advertisement expenses, commission, professional expenses and other expenses.
• Input tax credit can be claimed on the capital goods by the applicant under Marginal Scheme

subject to section 16 to 21 and Rules 36 to 45-

• Section 16 – Eligibility and conditions for taking input tax credit;
• Section 17 – Apportionment of credit and blocked credits;
• Section 18 – Availability of credit in special circumstances;
• Section 19 – Taking input tax credit in respect of inputs and capital goods sent for job work;
• Section 20 – Manner of distribution of credit by Input Service Distributor;
• Section 21 – Manner of recovery of credit distributed in excess.
• Rule 36 - Documentary requirements and conditions for claiming input tax credit;
• Rule 37 - Reversal of input tax credit 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 input tax credit by Input Service Distributor;
• Rule 40 -  Manner of claiming credit in special circumstances;
• Rule 41 - Transfer of credit on sale, merger, amalgamation, lease or transfer of a business;
• Rule 41A - Transfer of credit on obtaining separate registration for multiple places of business within a State or Union territory;
• Rule 42 - Manner of determination of input tax credit in respect of inputs or input services and reversal thereof;
• Rule 43 - Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases;
• Rule 44 - Manner of reversal of credit under special circumstances;
• Rule 44A - Manner of reversal of credit of Additional duty of Customs in respect of Gold dore bar;
• Rule 45 - Conditions and restrictions in respect of inputs and capital goods sent to the job worker.