We all, daily come a cross word ITC (Input Tax Credit), This is a buzz word in GST. We all need to understand the concept of ITC.
Input Tax Credit (ITC) in GST refers to
- the credit that a taxpayer can claim on the tax paid on business-related purchases or expenses,
- which can then be used to offset the tax payable on the sale of goods or services.
- This mechanism helps avoid the cascading effect of tax (tax on tax)
- and ensures that tax is levied only on the value added at each stage of the supply chain.
Section 16 of the Central Goods and Services Tax (CGST) Act, 2017 deals with the eligibility and conditions for claiming Input Tax Credit (ITC). This section outlines the requirements for businesses to avail themselves of ITC on the taxes paid on purchases or inputs used in the course of business.
Section_16(1)_Eligibility to claim ITC: A person is entitled to claim ITC if he satisfy the following criteria as stipulated under section16(1) of the CGST Act,2017
- He is a taxable person, i.e. a person who is registered;
- Input tax has been incurred;
- He should satisfy the conditions and restrictions may be prescribed and in manner specified in section49;
- Goods or services acquired should be used or intended to be be used in the course or furtherance of business; and
- Input Tax incurred shall be credited to Electronic Credit Ledger of such registered person.
Section16(2): Conditions for availing input tax credit
- 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;
Insertion of new condition(aa) to section16(2) of CGST Act,2017 vide clause100 of Finance Bill,2021 updated as section109 of Finance Act,2021.
1[(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;]
(b) he has received the goods or services or both.
2[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;]
3[(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;]
(c) subject to the provisions of 4[section 41 5[***]], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Section16(3) of CGST Act: Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed.
Section16(4)Time limit to claim ITC: Section 16(4) of the CGST Act specifies that no registered person can take Input Tax Credit (ITC) for any invoice or debit note issued against the supply of goods or services after the due date for filing the return for November of the next financial year, or the actual date of filing the annual return for that year.
53rd GST Council Meeting, recommendation on 16(4) of CGST Act,2017: The GST Council recommended that the time limit to avail input tax credit in respect of any invoice or debit note under Section 16(4) of CGST Act, through any return in FORM GSTR 3B filed upto 30.11. 2021 for the financial years 2017-18, 2018-19, 2019-20 and 2020-21, may be deemed to be 30.11. 2021.
Judgements with regard to section 16(4):
In Gobinda Construction, Patna High Court wherein [CWJC No. 9108 of 2021 dated September 8, 2023] a similar challenge was made to Section 16(4) of the Bihar GST Act, 2017 wherein the Court held as follows:
- that in the language of Section 16 does not suffer from any ambiguity and clearly stipulates grants of ITC subject to the condition and restriction put therein.
- It was held that the right of registered person to take ITC under Section 16(1) becomes a vested right only if the conditions to take it are fulfilled, free of restriction prescribe under Sub Section (2) thereof.
- The court held that the provision under Sub Section (4) of Section 16 is one of the conditions which makes a registered person entitled to ITC and by no means Sub Section (4) can be said to be violative of Article 300A of the Constitution of India.
- The court noted the decision in ALD Automotive Private Limited[(2019) 13 SCC 225], Godrej and Boyce Manufacturing Private Limited vs Commr of Sales Tax (1992) 87 STC 186 (SC) and Jayam and Company (2016) 96 VST 1 (SC) and ultimately upheld the Constitutional validity of Section 16(4) of the Act.
- Note-In ALD supra Section 19(11) of Tamilnadu VAT Act, 2006 which imposes time limit for claiming input tax credit was challenged on the ground that it was arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution of India. In that context SC upheld the time prescription U/s 19(11) of the said Act.
- In Godrej and Boyce supra, in context of set off of purchase tax, the Court held that the rule-making authority can provide curtailment while extending the concession.”
- In Jayam & Co. Vrs. Assistant Commissioner, supra the Hon’ble Supreme Court observed that input tax credit is a form of concession provided by the Legislature which can be hedged with conditions.