GST will strive to make India a
One Tax Nation and will prove to be biggest reform to check misreporting or non
- reporting of the transactions in the books of account. The right administration
of the GST technology can make the manipulation of financial statements a very
difficult exercise in the new tax regime.
GST would be a critical step to
redefine the policy mechanism. Under the GST setup differentiated tax policy
would be removed and the basic exemption threshold would be reduced to an
annual turnover of INR 20 Lakhs (INR 10 Lakhs for businesses in the
North-Eastern states). Further, intensive use of technology in administering
GST would raise the levels of enforcement and would block the concealed methods
of tax evasion in the new regime.
Background
The current framework for tax
structure permits restricted inter levy credits between excise and service tax.
Further, no cross credits are available across the sales tax paid and these
central taxes. It can be observed that the proposed GST regime shall facilitate
seamless credit across the entire supply chain under a common tax base. The
basic idea behind the enormous exercise of introduction of GST is to provide
for multi stage tax with tax credit at various stages of supply chain. Input
Tax Credit (ITC) in form of CENVAT credit and VAT credit can be separately
availed in the present tax structure. In the pre-GST set up, ITC of VAT is only
available to the dealers. Manufacturers and service providers cannot claim VAT
credit. ITC of Central Excise duty, Service Tax & CVD, on the other hand
can be availed only by manufacturers and service providers and it is not
admissible to dealers in goods. Input tax credit of CST, Entry Tax, Luxury Tax
is not available in the present ITC regime. GST will try to remove that void.
It is going to provide an uninterrupted and continuous chain of input tax
credit.
About Input Tax Credit under GST Law
- Scheme
of input tax credit in the Model GST Law (MGL) can be broadly divided into
substantive provisions and procedures, where procedures are equally
important because these are inter-twined into timing of taking input
credit and quantum of input credit.
- The
proposed GST comprise of following taxes-
- Central
Goods & Service Tax (CGST) levied by Centre
- State
Goods & Service Tax (SGST) levied by State
- Integrated
Goods & Service Tax (IGST) – This tax will be attracted on inter-state
supply of goods & services and will be levied and collected by the
Central Government.
Accordingly,
the term input tax has been defined under GST model law as the IGST, CGST, and
SGST charged for any supply of goods or services used or intended to be used in
the course of furtherance of business and also include tax paid under reverse
charge mechanism. The ‘input tax credit’ means credit of input tax so defined.
This definition of ‘input tax’ is to be read with the detailed scheme of input
tax credit narrating the components on which credit would be available,
exclusions, documents required for taking credit and various conditions of
credit.
The basic
scheme of input tax credit as provided under Model GST law is that every
registered taxable person is entitled to take credit of input tax admissible to
him and the said amount shall be credited to the electronic credit ledger of
such person to be maintained in the manner as may be prescribed. The amount
available in the electronic credit ledger may be used for making any payment
towards tax payable by him subject to such conditions and within such time as
may be prescribed. This amount cannot be used for payment of interest, fee or
penalty.
It is seen in
the Model GST law, the components of input tax credit are the same as in the
existing law, that is, inputs, input service and capital goods. The definition
of input as provided under Section 2 (57) of the Model GST law defines input
tax to mean the (IGST/CGST) / (IGST and SGST) charged on supply of goods and/or
services to a registered taxable person which are used or intended to be used in
the course or furtherance of his business and includes the tax payable under
the reverse charge mechanism as per Section 7(3) of the MGL. Further MGL provides that “input” 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 or furtherance of business. The definition of
“input service” is almost on the similar lines as definition of “inputs”. In this
context, Section 2(55) of the Model GST Law says that “input service” means any
service, subject to exceptions as may be provided under this Act or the rules
made thereunder, used or intended to be used by a supplier for making an
outward supply in the course or furtherance of business. Section 16 of the MGL
describes the manner under which input tax credit can be availed under GST.
Input Tax
Credit Is Available Only If The Following Conditions Are Fulfilled
- The input tax credit should be taken within one year
from the date of issue of tax invoice
- The buyer must have received the goods/services
- The buyer is in possession of the tax invoice,
supplementary invoice, credit note or debit note or any other tax paying
document as specified.
- In case the goods are received in installments, the
input credit is allowed only on receipt of the last lot or installment.
Input tax
credit is available when the seller pays the taxes, the electronic credit
ledger for the buyer will be credited. If a registered tax payer uses input of
goods or services for taxable and non taxable purposes, the amount of input tax
is allowed only on the portion of the input used supply of taxable goods or
services including zero rated supplies. Further, if there is change in the
constitution of the taxable person on account of merger, sale, demerger,
amalgamation, lease or transfer of business, the input tax credit is allowed to
be transferred.
Section 16A of
MGL describes the manner under which input tax credit can be availed when goods
are sent out for job work. Job work or sub-contracting is allowed under GST
also. Section 43A of the MGL prescribes the provisions for job work. Special
permission has to be taken from the commissioner. Goods can be sent directly to
sub contractor and also allows back to back sub-contracting.
Input Tax
Credit In Case Of Job Work
Inputs
- In case of inputs, the credit is allowed/eligible
only if the goods are received back from the job worker within 180 days
for those goods which are shipped to job workers place directly. For
computing 180 days, from the date on which the inputs have been received
at the job workers place will be considered.
- Credit can be availed only if the supplier pays the
tax
Capital Goods
- The input credit for capital goods can be taken if
the goods capital goods is used by the job worker and the same is returned
within 2 years from the date on which it is sent out to job worker.
- In case if the goods are not received within 180
days, the amount of input tax credit availed on inputs or capital goods
should be paid.
Cross Utilization Of Input
Tax Credit
► CGST
– CGST then with IGST
► SGST
– SGST then with IGST
► IGST
– IGST then CGST and then SGST
Conclusion
It can be
observed that, a liberal and elaborate scheme for allowing Input Tax Credit has
been provided in the MGL. An effort has been made to permit Input Tax Credit in
respect of all taxes paid in respect of business expenditure except some of the
small list of items on which Input Tax Credit shall not be permitted. The Input
Tax Credit would be initially allowed on provisional basis for a period of two
months. The said Input Tax Credit would be reversed in the hands of the
recipient in case of mismatch between the outward supply details submitted by
the supplier and inward supply details submitted by the recipient whether on
account of non-payment of self-assessed tax by the supplier or due to non filing
of returns by the supplier. The recipient can avail the Input Tax Credit by
filing a return but he cannot utilize the same unless he has filed the valid
return. The recipient can re-claim the reversed Input Tax Credit after the
supplier has paid the taxes due from him.
In other words,
filing of valid return both by the supplier and recipient is an absolute must
before the Input Tax Credit chain (from eligibility, availment on confirmed
basis and utilization thereof) can be said to be complete.It is hoped that the proposed GST regime would simplify the
provisions regarding availability of input tax credit.
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