Chap 8 - Input Tax credit

Question 1

General - When can ITC be availed and when it cannot be availed and what is the exception to it?

Answer 1

Since ITC can be availed for payment of tax on taxable output supply, as a natural corollary, ITC is not available when tax is not payable on output supply, i.e. on exempt supply.
Exception - The exception to the above principle is ‘zero rated supply’, i.e. exports or supplies to a special economic zone (SEZ) developer/unit, where ITC is available even if no tax is payable on output supply

Question 2

What is the definition of exempt supply as per section 2(47) of the act?

Answer 2

• means supply of any goods or services or both which attracts nil rate of tax
• or which may be wholly exempt from tax under section 11, or under section 6 of the IGST Act
• and includes non-taxable supply

Question 3

What is the definition of Non resident taxable person as per section 2(77)?

Answer 3

means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India

Question 4

What is the definition of turnover in state or union territory as per section 2(112)?

Answer 4

• means the aggregate value of all taxable supplies (excluding the value of inward supplies on which
• *tax is payable by a person on reverse charge basis**)
• and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union

Question 5

What are the conditions for eligibility of ITC in relation to goods or services to be used for business purposes?

Answer 5

• ITC of GST will be available on goods and/or services which are used in the course or furtherance of the business.
• The “intention to use” the goods and/or services in the course or furtherance of business would also suffice for availing ITC on such goods and/or services.
• Thus, tax paid on goods and or/services which are used or intended to be used for non-business purposes cannot be availed as credit. ITC will
  be credited in electronic credit ledger.

Question 6

What is the condition for availability of ITC in relation to Moulds and dies provided by the original equipment manufacturer (OEM) to component manufacturer on FOC basis – when not considered as being in the course or furtherance of business?

Answer 6

• Moulds and dies owned by the original equipment manufacturer (OEM) which are provided to a component manufacturer (the two not being related persons or distinct persons) on free on cost (FOC) basis does not constitute a supply as there is no consideration involved
• However, where the contract between OEM and component manufacturer is for supply of components made by using the moulds/dies belonging to the component manufacturer but the same have been supplied by the OEM to the component manufacturer on FOC basis, the OEM will be required to reverse the credit availed on such moulds/ dies.

Question 7

What are the conditions for taking of ITC, especially in relation to possession of tax paying documents under [Section 16(2)(a) read with rule 36 of the CGST Rules

Answer 7

ITC can be availed on the basis of any of the following documents:

i) Invoice issued by the supplier of goods and/or services
ii) Invoice issued by the recipient receiving goods and/or services from unregistered supplier along with proof of payment of tax, in case of reverse charge
iii) Debit note issued by the supplier
iv) Bill of entry or similar document prescribed under the Customs Act, 1962
v) Revised invoice
vi) Document issued by the input service distributor

See image for documents basis which ITC is being taken should at least contain these details.

Question 8

How the ITC will be restricted on invoices/debit notes not uploaded by supplier in his GSTR-15 [Rule 36(4) read with Circular No. 123/42/2019 GST, dated 11.11.2019]:

Answer 8

• ITC on all invoices/debit notes which are uploaded by the suppliers in their GSTR-1s can be availed in full. The recipient gets details of tax invoices and debit notes uploaded by the suppliers in their GSTR-1s, in his (recipient’s) GSTR-2A and GSTR-2B(GSTR-2B is an auto-drafted ITC statement generated for every registered person based on GSTR-1 filed by supplier.)
• For those Invoice/ debit notes which are not uploaded by the suppliers in their GSTR-1s, ITC can be availed only Upto 10% of the eligible credit available in respect of invoices/debit notes the details of which have been uploaded by the suppliers in their GSTR-1s under section 37(1).
• In other words, the ITC claimed should not exceed 110% of ITC reflecting in GSTR-2A on the due date of filing of GSTR-1 of the suppliers for the said tax period. The taxpayer has to avail the ITC on self-assessment basis as the restriction is not imposed through the common portal.
• Point 1 - in the Image is very important

Question 9

Who is the person eligible to take the input tax credit with respect to receipt of goods or services in relation to bill to ship to model in accordance with section Section 16(2)(b)?

Answer 9

• Even though goods or services are not actually received by the registered person under the bill to ship to model, by virtue of explanation to section 16(2)(b), it is deemed that the registered person (customer) has received the goods or services accordingly.
• So, ITC will be available to the registered person, on whose order the goods or of services are delivered to a third person.

Question 10

What are the provisions relating to availment of ITC by the recipient only when the tax leviable on such supply is actually paid to the government as per section 16(2)(c)?

Answer 10

• Basic rule - even if the recipient has paid the tax to the supplier his claim for ITC gets confirmed only when the supplier deposits the tax so collected by him to the Government. That is to say that ITC by the recipient can be claimed in GSTR 3B only when the tax is actually paid by the supplier to the government.
• Presently, suppliers are required to file GSTR-1 (Statement of details of outward supplies), the details of which get auto-populated in GSTR-2A of the recipient for viewing.
• Further, GSTR-2B, an auto-drafted ITC statement, is also generated for the taxpayer based on GSTR-1 filed by the supplier. Basis the details available in GSTR-2A and GSTR-2B, the taxpayer takes provisional ITC on self-assessment basis in GSTR-3B for discharging the tax liability.
• At present, there is no mechanism by which the recipient would know whether the supplier of goods and services has actually paid the tax on goods and services supplied by him.

Question 11

When will the ITC be available to the recipient where Invoice and payment of tax in relation to it is made in full, but the supply for the same is to be made over a period of 3 months?

Answer 11

In case the goods covered under an invoice are not received in a single consignment but are received in lots / instalments, ITC can be taken only upon receipt of the last lot / instalment.

Question 12

Is there any time limit to make payment towards value of the invoice and tax payable under Second proviso to section 16(2) read with rule 37 of the CGST Rules?

Answer 12

• The registered person must pay to the supplier, the value of the goods and/or services along with the tax within 180 days from the date of issue of invoice. In the event of failure to do so, the corresponding credits availed by the registered person would be added to his output tax liability.
• Interest will be paid @ 18% from the date of availing credit till the date when the amount added to the output tax liability is paid.
• Exceptions

This condition of payment of value of supply plus tax within 180 days does not apply in the following situations:

(a) Supplies on which tax is payable under reverse charge
(b) Deemed supplies without consideration - Schedule 1
(c) Additions made to the value of supplies on account of supplier’s liability, in relation to such supplies, being incurred by the recipient of the supply

Question 13

Where on the Tax component pertaining to acquisition of capital goods and plant and machinery is used for the purpose of claiming depreciation, can ITC on the same be claimed under section 16? - Section 16(3)

Answer 13

No, the ITC on the said tax component shall not be allowed. Thus, in respect of the tax paid on such items, dual benefit cannot be claimed under Income-tax Act, 1961 and GST laws simultaneously.

Question 14

What is the maximum time limit for availing of ITC for the transaction undertaken during the preceding financial year under Section 16(4)?

Answer 14

• ITC on invoices pertaining to a financial year or debit notes relating to invoices pertaining to a financial year can be availed any time till the due date of filing of the return for the month of September of the succeeding financial year or the date of filing of the relevant annual return, whichever is earlier.
• It may be noted that annual return of a financial year is to be filed by 31st December of the succeeding financial year in terms of section 45.

Question 15

What are the situations that require apportionment of Input tax credit as per Sub-sections (1) and (2) of section 17 read with rule 42 and rule 43 of the CGST Rules?

Answer 15

The situations requiring apportionment are as follows:

(a) when the goods and / or services are used by the registered person partly for the purpose of business [See the definition of business] and partly for other purposes [Section 17(1)]; and
(b) when the goods and / or services are used by the registered person partly for making taxable supplies including zero-rated supplies and partly for making exempt supplies [See the definition of exempt supplies] [Section 17(2)].

Question 16

What are the steps for apportionment of credit on input and input services and reversal thereof [Rule 42 of the CGST Rules]?

Step 1 - Compute common credit?

Answer 16

• T1, T2, T3 and T4 will be determined and declared by the registered person at the invoice level in GSTR 2 and summary level in GSTR-3B.
• Where ITC on inputs and input services used partly for non-business purposes and exempt supplies can be segregated at invoice level
• The portion identified as pertaining to taxable supplies in C2 will be allowed as ITC.

Question 17

What are the steps for apportionment of credit on input and input services and reversal thereof [Rule 42 of the CGST Rules]?

Step 2 - Compute credit attributable to exempt supplies (ineligible credit) by apportionment of common credit?

Answer 17

Apportion C2 into credit attributable to exempt supplies D1 as under:

D1 = (E/F) x C2

Where E = Aggregate value of exempt supplies during the tax period
F = Total turnover in the State during the tax period

Compute credit attributable to non-business purposes D2 as under

D2 = 5% of C2 (common credit)

Note: See the meaning of exempt supply and it’s exclusions in 8.39 and 8.40.

Question 18

What are the steps for apportionment of credit on input and input services and reversal thereof [Rule 42 of the CGST Rules]?

Step 3 and Step 4 - Computation of eligible credits and restriction of Ineligible credits?

Answer 18

• Step 3 - Compute C3 attributable to business purposes and taxable supplies including zero rated supplies as under:
• *C3 = C2 - (D1 + D2)**
• Step 4 – Restrict ineligible credits - Reverse D1 + D2.

Question 19

What are the steps for apportionment of credit of capital goods and reversal thereof(Rule 43 of CGST Rules)?

Step 1 - Determine common credit ‘Tc’ on capital goods as under:

Answer 19

• It is important to note when there is a change from exclusive use for Non-business purpose or exempt supplies to common use: Please note the points relating to the same as important.
• Where capital goods which were initially covered under (i) above get subsequently covered under (iii), credit input tax in respect of the same, denoted as ‘A’, in the ECrL.(that is it becomes from ineligible to eligible)
• Simultaneously, compute the ineligible credit attributable to the period during which such capital goods were used for non-business purpose/making exempt supplies @ 5% per quarter or part thereof and denote the same as ‘Tie’. Add such ‘Tie’ to the output tax liability of the tax period in which credit on such capital goods is claimed.
• Add together the amounts of ‘A’ credited to ECrL in respect of common capital goods whose useful life remains during the tax period to arrive at common credit ‘Tc’.

Question 20

What are the steps for apportionment of credit of capital goods and reversal thereof(Rule 43 of CGST Rules)?

Step 2 - Determine common credit during the useful life of capital goods for a tax period as under and denote the same as ‘Tm’:

Step 3 - Apportion common credit attributable to exempt supplies as under:

Answer 20

• Tm = Tc ÷ 60
• Here we assume the useful life to be a period of 5 years for the capital goods, including plant and machinery.
• Step 3 - Te = (E ÷ F) x Tr
• E&F has the same meanings as seen in the previous sections.
• Tm is to be computed during the useful life of capital goods which is five years from the date of invoice.

Question 21

What is the option given to the banks for availing of Input tax credit as per section 17(4) read with rule 38 of the CGST Rules?

Answer 21

• a banking company or a financial institution including a NBFC, which accepts deposits, or extends loans or advances, has the option to limit its availment of ITC to 50% of the eligible ITC on inputs, capital goods and input services each month and the remaining ITC shall lapse.
• The restriction of availing 50% ITC shall not apply to the tax paid on supplies procured from another registration within the same entity, i.e. 100% credit of such tax can be availed.
• The option once exercised cannot be changed during the remaining part of the financial year.

Question 22

What are the categories of blocked credits under section 17(5)?

Category 1 - Motor vehicles and other conveyances and related services (insurance, servicing and repair and maintenance)

Answer 22

Motor vehicles and conveyances have been defined in the CGST Act [See definition under the heading Relevant Definitions]. Motor vehicles exclude –

• vehicle running upon fixed rails
• special purpose vehicles for being used in a factory or any enclosed premises
• vehicle with less than 4 wheels fitted with engine capacity of upto 25cc – (Thus, railways, two/three wheelers with engine capacity of upto 25cc, bicycle etc. do not fall in the definition of motor vehicle.)
• Further, ITC is also blocked on certain services relating to motor vehicles, vessels and aircrafts namely, insurance, servicing and repair and maintenance.
• See Detailed table with exceptions to the above rules in Page 8.46/8.47/8.48/8.49.

Question 23

What are the categories of blocked credits under section 17(5)?

Category 2 - Food & beverages, outdoor catering, health services and other services

Answer 23

• There are broadly 2 exceptions to this category which is
• by a registered person for making an outward taxable supply of the same category of goods and/or services or as an element of a taxable composite or mixed supply.
• Such goods and/or services when provided by an employer to its employees under a statutory obligation.
• If the above conditions are satisfied, then the ITC will not be blocked.
• See few other conditions in Page 8.50 and 8.51

Question 24

What are the categories of blocked credits under section 17(5)?

Category 3 - Works contract services for construction of immovable property [Clause (c) of section 17(5)]

Answer 24

• One major input service ITC on which is blocked is input service relating to construction activity(That is capitalized) like office building, factory building etc. (except in case of persons like builders, developers and contractors who are undertaking construction for others).
• However, ITC is available for routine construction related services(since these are expensed and not capitalized) like repairs, maintenance, renovation etc. of office and factory building.
• ITC on works contract services for construction of an immovable property is blocked EXCEPT WHEN
   It is an input service for further supply of works contract service (sub-contracting);
  [ITC on works contract services can be availed only by that taxpayer who is in the same line of business, i.e. only a works contractor can avail ITC on works contract services received by him.]
   Immovable property is plant and machinery
  [Plant and machinery affixed permanently to the earth constitutes an immovable property. However, ITC on works contract services used for construction of such plant and machinery is allowed as an exception.]
• Plant and machinery excludes(That is to say these ineligible plant and machinery will not get the benefit of the above exception) - land, building or other civil structures, telecommunication towers, and pipelines laid outside the factory premises.

Question 25

What are the categories of blocked credits under section 17(5)?

Category 4 - Self construction of Immovable property - Clause (d) of section 17(5)

Answer 25

So now we know that ITC on works contract services availed by a taxpayer, other than a works contractor, for construction of immovable property (other than plant and machinery) is not available(Means to say that If the company itself are to procure the materials and construct the immovable property on it’s own account even in the course or furtherance of business, ITC on such goods/services will be blocked.

Question 26

What are the categories of blocked credits under section 17(5)?

Category 5 and 6 - Inward supplies charged to tax under composition levy [Clause (e) of section 17(5)]

Inward supplies received by a non-resident taxable person [Clause (f) of section 17(5)]

Answer 26

• Category 6 - Generally, Tax paid on goods and/or services received by such non-resident taxable person, is not available as ITC.
• tax paid by him on imported goods is allowed as ITC(Except where services are imported by the non taxable person, then in that case the credit will be blocked.

Question 27

What are the categories of blocked credits under section 17(5)?

Category 7 - Inward supplies used for personal consumption [Clause (g) of section 17(5)] - Self Explanatory

Category 8 - Free samples, gifts, goods lost/stolen etc. [Clause (h) of section 17(5)] - See Answer Below for ITC in the hands of the supplier for different sales promotion schemes.

Category 9 - Tax paid in fraud cases, detention, confiscation etc. [Clause (i) of section 17(5)] - Self Explanatory.

Answer 27

• ITC in the hands of the supplier in respect of sales promotional schemes
• Samples and Free gifts - Since tax on this will not be payable on the outgoing supply, supplier will not be eligible to get ITC on the same, except where the supply contained in Schedule I of the said Act, the supplier would be eligible to avail the ITC.
• Buy one get one offer - Composite or mixed supply principles to be applied here, ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.
• Discounts including ‘Buy more, save more’ offers - For recipient - Excluded from the value of supply while paying the tax on the same, However, the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts.
• Secondary discounts - Recipient not to exclude from the value of supply, since this was not agreed or known at the time when the supply was made. There is no impact on availability or otherwise of ITC in the hands of supplier in this case.

Question 28

What the provisions in relation to ITC reversal, when return of time expired medicines/drugs are treated as fresh supply? also the treatment when the same is settled by the usage of credit note by the supplier?

Answer 28

• The return could either be treated as a fresh supply or can be done using credit notes.
• If the same is treated as fresh supply by the retailer to the wholesaler and issue an invoice called as return supply with the similar value of supply as before, The wholesaler or manufacturer, as the case may be, who is the recipient of such return supply, shall be eligible to avail ITC of the tax levied on the said return supply subject to the fulfillment of the conditions specified in section 16.(Except in case where the retailer is a composition supplier or when the supplier is unregistered supplier)
• Where the goods returned by the retailer/wholesaler as a fresh supply, are destroyed by the manufacturer, he/she is required to reverse the ITC availed on the return supply in terms of section 17(5)(h).
• If the credit note is issued within the time limit specified in Point
  (iii) (I.) - )This is not later than september following the end of FY in which supply was made or date of furnishing of relevant annual return)above, thetax liability may be adjusted by the supplier, subject to the condition that the person returning the time expired goods haseither not availed the ITC or if availed has reversed the ITC so availed against the goods being returned.
• Further, if time expired goods are returned beyond the time period specified in Point (iii)(I.) and a credit note is issued consequently, there is no requirement to declare such credit note on the common portal by the supplier (i.e. by the person who has issued the credit note) as tax liability cannot be adjusted in this case.

Question 29

What will the entitlement to ITC when at the time of registration/voluntary registration or switching to regular tax paying status or coming into tax-paying status(All of the situations are separate and the treatments are different)?Sub-sections (1) and (2) of section 18 read with rule 40 of the CGST Rules

1. Person who has applied for registration within 30 days from the date on which he becomes liable to registration and has been granted such registration
2. Person who is not required to register, but obtains voluntary Registration
3. Registered person who ceases to pay composition tax and switches to regular scheme
4. Registered person whose exempt supplies become taxable supplies

Answer 29

1. Inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on the day immediately preceding the date from which he becomes liable to pay tax
2. Inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on the day immediately preceding the date from the day immediately preceding the date of registration.
3. Inputs held in stock and inputs contained in semi-finished or finished goods held in stock and capital goods as on from which he becomes liable to pay tax under regular scheme.
4. Inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and capital goods exclusively used for such exempt supply as on The day immediately preceding the date from which such supply becomes taxable.

Note: ITC to be availed within 1 year from the date of the issue of the tax invoice by the supplier

ITC on capital goods will be reduced by 5% per quarter of a year or part of the year from the date of invoice, respectively will be applicable for situation 3 and 4.

Question 30

What is the declaration that needs to be furnished as per Sub-sections (1) and (2) of section 18 read with rule 40 of the CGST Rules and what is the time limit and is there any threshold for filing the aforesaid declaration?

Answer 30

• electronic declaration in the prescribed form on the common portal, clearly specifying the details relating to the inputs held in stock, inputs contained in semi-finished or finished goods held in stock and capital goods on the days mentioned
• The declaration is to be filed within 30 days (extendable by Commissioner/Commissioner of State GST/Commissioner of UTGST) from the date when the registered person becomes eligible to avail ITC.
• If the claim of ITC pertaining to CGST, SGST/UTGST, IGST put together exceeds ` 2,00,000, the declaration needs to be certified by a practicing Chartered Accountant/Cost Accountant.

Question 31

What are the rules for Reversal of ITC on switching to composition levy or exit from tax-paying status [Section 18(4) read with rule 44 of the CGST Rules]

Answer 31

• ITC on inputs should be reversed proportionately on the basis of corresponding invoices on which credit had been availed on such inputs.
• If invoices are not available, ITC can be reversed on the basis of the prevailing market price of such goods on the date of switch over/exemption.
• The details furnished on the basis of prevailing market value need to be duly certified by a practicing Chartered Accountant/ Cost Accountant.
• The registered person has to debit the electronic credit or cash ledger by the reversal amount in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and capital goods on the day immediately preceding the date of switch over/ date of exemption.(ITC involved in the remaining useful life (in months) of the capital goods should be reversed on pro-rata basis, taking the useful life as 5 years.)
  *

Question 32

What are the rules for ITC where Amount payable on supply of capital goods or plant and machinery on which ITC has been taken [Section 18(6) read with rule 40(2) & rule 44(6) of the CGST Rules]

Answer 32

• If capital goods or plant and machinery on which ITC has been taken are supplied outward by the registered person, he must pay an amount that is the higher of the following
• ITC taken on such goods reduced by 5% per quarter of a year or part thereof from the date of issue of invoice for such goods [i.e., ITC pertaining to remaining useful life of the capital goods (in quarters)]*, or
• *tax on transaction value**
• Where the amount so determined exceeds the tax payable on the transaction value of the capital goods, such amount need to be paid and thus, should be added to the output tax liability.
• If refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value.

Question 33

What are the important point relating to the provisions of Transfer of ITC on account of change in constitution of registered person [Section 18(3) read with rule 41 of the CGST Rules]?

Answer 33

• The registered person should furnish the details of change in constitution in the prescribed form (ITC - 02) on the common portal and submit a certificate from practicing Chartered Account/Cost Accountant certifying that the change in constitution has been done with a specific provision for transfer of liabilities.
• Upon acceptance of such details by the transferee on the common portal, the unutilized ITC gets credited to his electronic credit ledger. The transferee should record the inputs and capital goods so transferred in his books of account.
• In the case of demerger, ITC will be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.(“value of assets” means the value of the entire assets of the business irrespective of whether ITC has been availed thereon or not.)

Question 34

What are certain other important points to be noted as per the Circular in relation to Transfer of ITC on account of change in constitution of registered person [Section 18(3) read with rule 41 of the CGST Rules]?

Hint: These points become very important when it comes to solving of problems in relation to this topic.

Answer 34

• For the purpose of apportionment of ITC pursuant to a demerger, the value of assets of the new units is to be taken at the State level (at the level of distinct person) and not at the all-India level.
• The transferor would be required to file Form GST ITC-02 only in those States where both transferor and transferee are registered.
• The ratio of value of assets shall be applied to the total amount of unutilized ITC of the transferor, i.e. sum of CGST, SGST/ UTGST and IGST credit. The said formula need not be applied separately in respect of each heads of ITC (CGST/ SGST/ IGST).
• the transferor shall be at liberty to determine the amount to be transferred under each tax head (IGST, CGST, SGST/ UTGST) within this total amount, subject to the ITC balance available with the transferor under the concerned tax head.(This will be based on the percentage of the assets that were transferred).
• For the purpose of apportionment of ITC, the ratio of the value of assets should be taken as on the “appointed date of demerger” as specified in the respective scheme for demerger.

Question 35

What is the primary role of Input service distributor?

Answer 35

• ISD is an office of a business which receives tax invoices for input services and distributes available ITC to other branch offices of the same business.
• It is important to note that the ISD mechanism is meant
  only for distributing the credit on common invoices pertaining to INPUT SERVICES and not goods (inputs or capital goods).

Question 36

Where ISD does already have GST registration, will he be mandatorily required to obtain registration as an ISD? what about multiple ISD registrations? are those permissible?

Answer 36

• An ISD is compulsorily required to obtain a separate registration as an ISD even though it may be separately registered.
• Multiple ISD registration: Yes, different offices of a company like marketing division, security division etc. may apply for separate ISD registration.

Question 37

What is the manner of distribution of credit by an ISD? Section 20 read with rule 39 of the CGST Rules

Answer 37

• Formula for distribution of credit is C1 = (t1÷T) × C
• “C” is the credit to be distributed , “t1” is the turnover of the recipient during the relevant period, and T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable.
• The credit attributable to a recipient is distributed even if such recipient is unregistered or is making exempt supplies.

Question 38

How the distribution of taxes has to be made in accordance with Manner of distribution of credit by an ISD [Section 20 read with rule 39 of the CGST Rules]?

Answer 38

See the illustration 1 in page 8.88 which clearly identifies this point for gaining more clarity on the table above.

Question 39

What are certain procedural aspects to be kept in mind in relation to distribution of credit by the ISD?

Answer 39

• The ISD has to issue an ISD invoice, as prescribed in rule 54(1) of the CGST Rules, for distributing ITC. It should be clearly indicated in such invoice that it is issued only for distribution of ITC.
• The ISD needs to issue a ISD credit note, as prescribed in rule 54(1) of the CGST Rules, for reduction in credit if the distributed credit gets reduced for any reason.
• If the ISD is a banking company/ financial institution including NBFC, the document for distributing credit need not be serially numbered.
• Details of distribution of credit and all ISD invoices issued should be furnished by ISD in monthly GSTR-6 within 13 days after the end of the month(An ISD is not required to file annual return)
• An ISD cannot accept any invoices on which tax is to be discharged under reverse charge mechanism. This is because the ISD mechanism is only to facilitate distribution of credit of taxes paid

Question 40

What are the recovery provisions in relation to section 21, where we need to recover the excess credit distributed to the recipient?

Answer 40

• If the ISD has distributed excess credit to any recipient, the excess will be recovered from the recipient with interest as if it was tax not paid by initiating action under section 73 or 74.
• Penalties may be applicable depending on the circumstances. Circular No. 71/45/2018 GST dated 26.10.2018 has clarified that the ISD would also be liable to a general penalty under section 122(1)(ix).

Question 41

What is the order of utilization of Input tax credit in relation to discharge of output tax liability in relation to CGST, SGST and UTGST in accordance with section 49 read with rule 49A and 49B?

Answer 41

Important rules:

• Cross utilisation between Cgst , sgst and utgst is not allowed to be made.
• ITC of IGST can be used in any order to discharge the tax liability.
• But, before proceeding to use the credit of CGST or SGST, we need to exhaust the ITC of IGST completely. Else it will be invalid.

Question 42

What are certain restrictions which could be imposed on utilisation of ITC under rule 86A?

Answer 42

The Commissioner/ an officer (not below the rank of an Assistant Commissioner) authorised by him is empowered to impose restrictions on utilization of ITC available in the electronic credit ledger if he has reasons to believe that such ITC has been fraudulently availed or is ineligible.

1. ITC has been availed on the basis of tax invoices/valid documents -
   ● issued by a non-existent supplier or by a person not conducting any business from the registered place of business; or
   ● without receipt of goods or services or both; or
   ● the tax in relation to which has not been paid to the Government
2. the registered person availing ITC has been found non-existent or not to be conducting any business from the registered place of business; or
3. the registered person availing ITC is not in possession of tax invoice/valid document
4. Such restrictions can be imposed for a period up to 1 year from the date of imposing such restrictions.