READING DOWN MODEL IGST ACT (PART-3) - (Input Tax / Output Tax)

[Dr. Sanjiv Agarwal]

Input Tax [Section 2(1)(d)]

Input Tax has been defined as under-

'Input tax' in relation to a taxable person, means the Integrated Goods and Services Tax, Central Goods and Services Tax or State Goods and Services Tax, as the case may be, charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 4.

Presently, Cenvat Credit Rules, 2004 also deal with input and input services for the purpose of Cenvat credit of input taxes.

Model GST law in section 2(57) defines 'input tax' on similar lines with the difference that instead of  all forms of GST, there 'IGST and CGST' or 'IGST and SGST' is used and it also includes tax paid under section 7(3), i.e., taxes payable under reverse charge basis.

To understand the scope of input tax in relation to IGST, following points are important –

• input tax is in relation to a taxable person.
• input tax means IGST, CGST or SGST
• input tax should have been charged on any supply of goods and /or services to such taxable person.
• such goods and /or services should be used or intended to be used by him
• such use should be in the course of or furtherance of his business.
• input tax would also include tax paid under section 4(3), i.e., paid under reverse charge method.

Input Tax Credit [Section 2 (1)(e)]

'Input Tax Credit' means credit of input tax as defined in section 2 (1)(d).

Model GST law also defines input tax credit u/s 2(1) (58) on similar lines.

When one takes credit of input tax in the course of business, it shall be called input tax credit. Presently, it is referred to as Cenvat Credit which is governed by Cenvat Credit Rules, 2004 .

Output Tax [Section 2(1)(g)]

Output tax is defined as under-

'Output tax' in relation to a taxable person, means the IGST chargeable under the Act on taxable supply of goods and/or services by him or his agent and excludes tax payable by him on reverse charge basis.

Model GST Law defines output tax u/s 2(1)(72) on similar lines except with the difference that there IGST gets replaced by CGST / SGST.

Output tax is not defined in the present law but Cenvat Credit Rules, 2004 define output and output service. The relevance of this definition would be for taking input tax credit and its utilization.

Accordingly, output tax-

• is in relation to a taxable person
• means IGST chargeable under the law on taxable supply of goods or services
• taxable supplies could be made by him or his agent.
• excludes tax payable by him under reverse charge basis.

Assessees need to understand the meaning of input tax, output tax and input tax credit in order to avail tax credit correctly.

(To be continued……)