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Input Tax Credit - An Overview in GST

Goods and Services Tax - GST - By: - CS SANJAY MALHOTRA - Dated:- 23-9-2016 Last Replied Date:- 30-12-2016 - Input Tax Credit - An analysis in Goods & Service Tax Goods and Service Tax - One Nation, One Tax would benefit all the stakeholders i.e. Industry, Consumers, Government, Professional, Society, etc on account of Reduction in cost of various commodities as the Input Tax credit is available in the complete chain, which breaks in the present Indirect Tax (Excise/VAT) chain. For e.g. In c .....

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x structure is linked to MANUFACTURE , which will shift to SUPPLY in the GST Regime, hence would result in Input Tax Credit available across the Value Chain to all stakeholders except the end consumer / self consumed goods. First, we need to understand the definition of Input and Capital Goods before proceeding ahead with the Input Tax Credit . CENTRAL EXCISE ACT (CENVAT CREDIT RULES 2004) GOODS AND SERVICE TAX MODEL LAW-2016 Rule 2(k) INPUT means- (i) all goods used in the factory by the manufa .....

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ight diesel oil, high speed diesel oil or motor spirit, commonly known as petrol; [(B) any goods used for - (a) construction or execution of works contract of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;] [(C) capital goods, except when,- (i) used as pa .....

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e purpose of this clause, free warranty means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer;] Section 2(54) defines INPUT as means any goods other than capital goods, subject to exceptions as may be provided under this Act or Rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course of furtherance of business. Rule 2(L) INPUT SERVICE : [(l) .....

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otion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; [but excludes],- [(A) service portion in the execution of a works contract and construction services including service listed u .....

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is not a capital goods; or [(BA) service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by - (a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or (b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or] (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cos .....

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s may be provided under this Act or the Rules made thereunder, used or intended to be used by supplier for making an outward supply in the course of furtherance of business. Rule 2(a) of CCR defines capital goods means:- (A) the following goods, namely:- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under 35[heading 6804 and wagons of sub-heading 860692] of the First Schedule to the Excise Tariff .....

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the factory of the manufacturer of the final products for generation of electricity [or for pumping of water] for captive use within the factory; or] (2) for providing output service; [(B) motor vehicle designed for transportation of goods including their chassis registered in the name of the service provider, when used for- (i) providing an output service of renting of such motor vehicle; or (ii) transportation of inputs and capital goods used for providing an output service; or (iii) providin .....

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falling within Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the Schedule to this Act; (ii) pollution control equipment; (iii) components, spares and accessories of the goods specified at (i) and (ii); (iv) moulds and dies, jigs and fixtures; (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; (vii) storage tank; and (viii) motor vehicles other than those falling under .....

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ransportation of inputs and capital goods used for supply of service; or (iii) supply of courier agency service; (C) motor vehicle designed to carry passengers including their chassis, registered in the name of the supplier of service, when used for supplying the service of- (i) transportation of passengers; or (ii) renting of such motor vehicle; or (iii) imparting motor driving skills; (D) Components, spares and accessories of motor vehicles which are capital goods for the taxable person. Sec 2 .....

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016 is self explanatory and also depicts the fact the Input Tax Credit in Model GST Law is linked to Supply as against Manufacture in the present Excise / VAT Act. ELIGIBILITY OF INPUT TAX CREDIT Any person who has taken Registration within 30 days from the date when he becomes liable for registration and has been granted same is eligible to avail the Input Tax Credit of Input lying in stock, WIP & Inputs contained in finished goods on the day when he becomes liable to pay tax. Credit of Inp .....

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1 year from the date of Issue of Tax Invoice relating to supply of goods / services. INPUT TAX CREDIT OF SUPPLY OF TAXABLE AND NON TAXABLE GOODS / SERVICES & EXPORT OF GOODS Amount of Input Tax Credit shall be restricted to so much as is attributable to the business. Calculation formulae would be specified once the GST Rules is notified by the GST Council. (Sec 16(5)] Amount of Input Tax Credit shall be restricted to so much as is attributable to the business and towards Taxable supplies inc .....

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in the present Excise / VAT Laws, CENVAT Credit is not admissible on some of the items as covered under the definition part as listed in table produced above. Similarly, Input Tax Credit is not admissible in respect of goods and supplies as listed out below: Sec 16(9) : Notwithstanding anything contained in sub-section (1), (2), (2A) or (3) input tax credit shall not be available in respect of the following: (a) motor vehicles, except when they are supplied in the usual course of business or ar .....

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ion, when such goods and/or services are used primarily for personal use or consumption of any employee; (c) goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery; (d) goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than pla .....

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n the present Tax Regime i.e. Input Tax Credit shall not be admissible on Capital Goods if the Depreciation has been availed in respect of the Tax component under Income Tax Act 1961. Important aspects to be noted while availing Input Tax Credit - Sec 16(11)] Registered Taxable Person availing Credit of Input Tax shall ensure following: Tax Invoice / Debit Note / Supplementary Invoice or any document as may be prescribed by the Government issued under CGST/SGST/IGST Act shall be available in his .....

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he return has been submitted under Section 27. Where the goods are received in lot or instalments, Input Tax credit is available on receipt of last lot / consignment. In case registered taxable person switches from Composition scheme or goods /services becomes absolutely exempt, then he has to pay Input tax by way of debit in his electronic Tax ledger the Input Tax equivalent to tax on inputs held in stock, contained in semi finished goods or finished goods on the day immediately preceding the d .....

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Tax in respects of Input sent on Job Work (Sec 16A) Input Tax credit is admissible to registered Taxable person if the inputs are sent to job worker for job work and are received back within a period of 180 Days. Credit of Input Tax is even admissible if the inputs are sent directly by job worker from supplier premises to Job worker premises, wherein period of 180 days would count from receipt of material by job worker. Period of 2 years shall be considered for bringing back Capital Goods after .....

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