Comparative insight into the amended CGST and IGST Acts - Part II
SEPTEMBER 11, 2018
By Bimal Jain, FCA, FCS, LLB & Isha Bansal, ACS, LLB
 AFTER having discussed the amendments brought in various definitions, concept of taxable event 'supply' along with various schedules, composition scheme and reverse charge provisions in Part I of the article, Part II of the Table discusses the amendments in various provisions pertaining to availability and utilization of Input Tax Credit in GST in section-wise tabular presentation of amended CGST Act, 2017 in comparison with the present Acts.
Trust you will find the same useful.
Synopsis of the CGST Amendment Act, 2018
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Provision as per present CGST Act, 2017
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Provision of CGST Act, 2017 as per the CGST Amendment Act, 2018
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Effect of amendment along with analysis as to comparison
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Section 16(2)(b) - Conditions for availing Input Tax Credit
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16(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, --
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
Explanation. - For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
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16(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, -
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
"Explanation. - For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.";
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To satisfy the requirement of receiving services for availing ITC, it is stated that where the services are provided by the supplier to any person on the direction of and on account of registered person it shall be deemed that such registered person has received the services.
Presently this deeming fiction is applicable only in case of "bill-to-ship-to" supply of goods. The same has been extended to services as well.
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Section 16(2)(c) - Conditions for availing Input Tax Credit
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16(2) ………………………………….
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
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16(2) ……………………………………
(c) Subject to the provisions of section 41 or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
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This amendment seeks to include the provisions relating to the new return format as specified in the proposed new Section 43A, for availment of ITC.
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Section 17(3) - Apportionment of credit
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(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
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17(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
'Explanation.-For the purposes of this sub-section, the expression "value of exempt supply'' shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.
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It is clarified by way of explanation that no reversal of common ITC shall be required on activities or transactions specified in Schedule III (other than sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building) by excluding it from the ambit of 'exempt supply' for the purpose of reversal.
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Section 17(5)(a) - Blocked credit on motor vehicles
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(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely: -
(a) motor vehicles and other conveyances except when they are used--
(i) for making the following taxable supplies, namely: -
(A) further supply of such vehicles or conveyances; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) for transportation of goods;
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(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely: -
(a) motor vehicles and other conveyances for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely: -
(A) further supply of such motor vehicles or
(B) transportation of passengers; or
(C) imparting training on driving, such motor vehicle;
(aa) vessels and aircraft except when they are used --
(i) for making the following taxable supplies, namely: -
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa): Provided that the input tax credit in respect of such services shall be available -
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged- (I) in the manufacture of such motor vehicles, vessels or aircraft; or
(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
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- Now, ITC is restricted only to the extent of motor vehicles for transportation of persons having approved capacity of not more than 13 persons (including the driver) unless used for specified purposes;
- Reference of 'other conveyances' while disallowing credit on motor vehicles has been omitted. This amendment makes it clear that ITC would now be available in respect of dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles;
- Separate entry is created for vessel and aircrafts in clause (aa) - No credit shall be available on vessels and aircrafts except when used for specified purposes under clause (aa);
- It is clarified that no ITC shall be available for services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels and aircraft for which the credit is not available;
- But, ITC on services of general insurance, servicing, repair and maintenance on motor vehicles, vessels or aircraft is allowed to manufacturer of such motor vehicles, vessels or aircraft and to those engaged in supply of general insurance services in respect of such motor vehicles, vessels or aircraft.
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Section 17(5)(b) - Other blocked credits
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(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre;
(iii) rent-a-cab, life insurance and health insurance except where--
(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or
(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and
(iv) travel benefits extended to employees on vacation such as leave or home travel concession;
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(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre; and
(iii) rent-a-cab, life insurance and health insurance except where--
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.
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ITC in respect of food and beverages, health services, renting or hiring of motor vehicles, vessels and aircraft, travel benefits to employees etc., can be availed where the provision of such goods or services is obligatory for an employer to provide to its employees under any law for time being in force.
Further ITC on renting or hiring of motor vehicles, vessels or aircraft is allowed when they are used for purposes specified in clause (a) or (aa).
What additionally could have been done:
- Section 17(5) of the CGST Act must be pruned down further.
- ITC in respect of construction of factory, offices must be allowed as the same are foundation of any business for making outward supply of goods or services and always required in the course or furtherance of business;
- Word 'free samples' must be deleted from clause (h) of Section 17(5) as distributing free samples is an inevitable practice of the trade to induce clients to judge quality and buy the product of the company;
- It may be clarified that supply of promotional items along with supply of goods as a combo supply (undertaken as a part of business promotional activity), shall not be covered under the ambit of 'gift' for reversal of ITC;
- Allow ITC on 'gifts' when tax is paid on outward supply;
- No denial of ITC on goods confiscated or detained.
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Section 20(c) - Manner of distribution of credit by ISD
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(c) the term "turnover'', in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.
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(c) the term "turnover'', in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entry entries 84 and 92A of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.
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This amendment excludes the amount of tax levied under entry 92A of List I from the value of turnover for the purposes of distribution of credit by ISD. The same was inadvertently left out from clause (c) of Explanation to Section 20.
Entry 92A of List I covers taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.
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Sec 49 (2) - Payment of Tax
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49 (2) The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41, to be maintained in such manner as may be prescribed.
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49 (2) The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41 section 41 or section 43A , to be maintained in such manner as may be prescribed.
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This amendment seeks to include the provisions relating to the new return format as specified in the proposed new Section 43A, for availment of ITC.
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Sec 49 (5)(c) & (d) - Payment of Tax
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49 (5) The amount of input tax credit available in the electronic credit ledger of the registered person on account of-
(a)….
(b)….
(c) the State tax shall first be utilised towards payment of State tax and the amount remaining, if any, may be utilised towards payment of integrated tax;
(d) the Union territory tax shall first be utilised towards payment of Union territory tax and the amount remaining, if any, may be utilised towards payment of integrated tax.
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49 (5) The amount of input tax credit available in the electronic credit ledger of the registered person on account of -
(a)….
(b)….
(c) the State tax shall first be utilized towards payment of State tax and the amount remaining, if any, may be utilized towards payment of integrated tax;
Provided that the input tax credit on account of State tax shall be utilised towards payment of integrated tax only where the balance of the input tax credit on account of central tax is not available for payment of integrated tax;";
(d) the Union territory tax shall first be utilized towards payment of Union territory tax and the amount remaining, if any, may be utilized towards payment of integrated tax;
Provided that the input tax credit on account of Union territory tax shall be utilised towards payment of integrated tax only where the balance of the input tax credit on account of central tax is not available for payment of integrated tax.
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Clauses (c) and (d) to Section 49(5) are amended to provide that the credit of SGST/ UTGST can be utilized for payment of IGST only when the balance of the input tax credit on account of CGST is not available for payment of IGST.
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Section 49A - Utilisation of input tax credit subject to certain conditions
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49A - Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully towards such payment.
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A taxpayer would be able to utilise credit on account of CGST, SGST/UTGST, only after exhausting all the credit on account of IGST available to him. This is being done to minimise fund settlement on account of IGST.
Therefore, the manner of utilisation of GST credits is as follows:
Credit of IGST to be utilised first for liability of: IGST - CGST - SGST
Then,
- Credit of CGST to be utilised for liability of: CGST/ IGST (If any)
- Credit of SGST to be utilised for liability of: SGST/ IGST (if any)
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Section 49B - Order of utilisation of input tax credit
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49B. Notwithstanding anything contained in this Chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the Government may, on the recommendations of the Council, prescribe the order and manner of utilisation of the input tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the case may be, towards payment of any such tax.
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This Section provides an enabling power for the Government to prescribe any specific order of utilization of ITC for payment of taxes.
This provision is subject to clause (e) and (f) of Section 49(5) i.e. CGST and SGST/UTGST cannot be cross utilized.
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Section 140(1) - Transitional arrangement of Input Tax Credit
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(1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed…."
"……Explanation 1.- For the purposes of sub-sections (3), (4) and (6), the expression "eligible duties" means-
(i)…….
(ii)……
(iii)….
(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978.
"…. Explanation 2.-For the purposes of sub-section (5), the expression "eligible duties and taxes" means-
(i)……
(ii)….
(iii)….
(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978.
(v)…."
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(1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed……"
"…. Explanation 1.-For the purposes of sub-sections (1), (3), (4) and (6), the expression "eligible duties" means-
(i)…
(ii) …
(iii)…
(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;"
(v)…"
"…. Explanation 2.-For the purposes of sub-sections (1) and (5), the expression "eligible duties and taxes" means-
(i)…
(ii) …
(iii)…
(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;"
(v) … "
Explanation 3.-For removal of doubts, it is hereby clarified that the expression "eligible duties and taxes" excludes any cess which has not been specified in Explanation 1 or Explanation 2 and any cess which is collected as additional duty of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975.
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Retrospective application w.e.f. 01.07.2017
This clarifies that only transitional credit of eligible duties can be carried forward in the return and not all credits. Further, eligible duties do not include the additional duty of excise leviable under Section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978.
Furthermore, explanation is inserted to clarify that the expression "eligible duties and taxes" excludes any cess which has not been specified in Explanation 1 or Explanation 2 above and any cess which is collected as additional duty of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975.
What additionally could have been done:
Companies which have availed credit of the cesses (as law was not clear) should be allowed time to reverse the credit within 30 days from the date of the enactment without interest or penalty implication.
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Part III of the article will cover the amendments in various provisions pertaining to GST Registration, Returns and Refunds along with time of supply and credit/debit notes .
…to be continued
(Bimal Jain is Executive Director, A2Z Taxcorp LLP & Isha Bansal is Partner, A2Z Taxcorp LLP, Delhi and the views expressed are strictly personal.)
See: Comparative insight into the amended CGST and IGST Acts: Part I
| (DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site) |
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