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Taxman may get to block doubtful input tax credit

Taxman may get to block doubtful input tax credit

The government is set to amend Section 49 of the Goods and Services Tax (GST) law that would allow tax officers to block input tax credit of companies if they suspect fraud, an agenda note for the GST council meeting circulated to all state finance ministers and senior tax officials indicated.

“Fraudulent ITC (input tax credit) availment based on fake invoices has become quite rampant. As investigations get initiated, if the utilisation of such suspected credit continues, the investigation efforts get frustrated,” the government document reads.

“The commissioner or an officer authorised by him on this behalf, may restrict utilisation of full or part amount from the credit available in the electronic credit ledger for making any payment towards output tax or claiming input tax credit refund,” part of the amended section reads.

Industry trackers said giving additional powers to the tax officers may create problems in the coming days. Senior tax officers would be able to partially or fully block input tax credit of companies henceforth. This comes at a time when indirect tax officers have been arresting promoters if they suspect “circular trading” with an aim to avail input tax credit.

“Giving arbitrary and unfettered powers to commissioners to reject or withhold input credit claims based on whims and fancies will lead to harassment and eventually impact the already traumatised economy. There is a problem in the law which needs to be changed, but to propose to amend a section without actually coming out with regulations on how to determine whether the input tax credit is actually fake, will only add to the existing problems,” said Sujay Kantawala, high court advocate who also represents several promoters arrested by indirect tax officials.

Tax experts also question what would happen in cases where a company challenges taxman’s stand and wins a case in the court. “It is important to understand whether in cases where credit has been wrongly blocked, the taxpayer will get the interest for the delayed period of non-utilisation as the tax payer should be appropriately compensated for delay in utilisation of credit,” said Abhishek A Rastogi, partner at Khaitan & Co.

Several promoters have challenged in different forums indirect tax officials’ right to arrest them. ET on December 11 reported that several promoters had filed a joint writ petition in the high court, challenging the validity of the GST statutory provisions related to arrest and freezing of bank accounts.

Source: Economic-Times

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No input tax credit if GST returns not filed, says HC

No input tax credit if GST returns not filed, says HC

The Telangana high court has ruled that no input tax credit (ITC) is available unless GST returns are filed and a taxpayer is liable to pay penalty on the entire liability. The ruling is expected to have a significant impact on all businesses that use tax credits available on inputs and raw materials to reduce payment in cash.

“…until a return is filed as self-assessed, no entitlement to credit and no actual entry in the electronic credit ledger takes place. As a consequence, no payment can be made from out of such a credit entry,” Justices V Ramasubramanian and P Keshava Rao said in a case involving Megha Engineering & Infrastructures and GST Authorities.

The company had delayed filing the GST returns from July 2017 to May 2018 when its tax liability added up to Rs 1,014 crore. It had ITC of Rs 968 crore and it claimed that the shortfall was to the tune of Rs 45 crore. While the tax authorities demanded 18% interest on the entire amount, Megha Engineering argued that interest should only be calculated on the net tax liability, after deducting ITC from the total liability. The court upheld the department’s view.

“The ruling has very wide implication as almost all taxpayers, who delayed filing returns and have paid interest only on cash payment of tax and not on the GST amount set off by them through ITC. The issue will open a floodgate of litigation and demands of interest by GST officials are imminent. Even CAs while auditing Annual GST Returns, which have to be filed by June 30, may be required to point out short payment of interest due to delayed set-off,” said tax lawyer RS Sharma.

Tax experts said that companies were relying on VAT rulings and clearing cash dues to employees and suppliers before paying GST and the ruling will change this practice. “Businesses should be very cautious in understanding the distinction between the VAT position and the GST position as the consequences could be very severe. This decision states this aspect very clearly,” said M S Mani, partner at Deloitte India.
Sharma said some respite may come in the future.

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Source: Times of India.
What is Input Tax Credit under GST? And how to claim it?

What is Input Tax Credit under GST? And how to claim it?

What is Input Tax Credit under GST?

The significance of ITC can be effortlessly comprehended when we take the words “information” and ‘expense credit’. Information sources are materials or administrations that a producer buy keeping in mind the end goal to make his item or administrations which is his yield.

Assessment credit implies the duty a maker could decrease while paying his expense on yield.

Information charge credit implies that when a producer pays the assessment on his yield, he can deduct the duty he already paid for the info he acquired. Here, while paying the duty on his yield, he can deduct or assume praise for the expense he paid while obtaining inputs.


A case will make things much clearer. Assume that a ready made piece of clothing firm purchases polyester (contribution) from a provider (of contribution) at Rs 100 and a CGST of Rs 10 is additionally must be paid (CGST rate of 10%). The cost of polyester info will be Rs 110.

Presently the article of clothing maker offers the item at Rs 200 or more assessment (implies his esteem expansion is Rs 100). Envision that the GST rate of ready-made shirt is 12%. Here, the maker must pay an expense of Rs 24. Be that as it may, he has beforehand paid an expense of Rs 10 while buying the contribution of polyester. Consequently, he can guarantee this Rs 10 and needs to pay just the rest of the Rs 14 (of the aggregate Rs 24). The Rs 10 that the producer asserted is the info charge credit.

Conditions for Claiming it :

Just a registered individual will be qualified to assert the info charge credit under the accompanying conditions:

  1. Receipt of goods or services.
  1. Outfitting of an arrival.
  1. Ownership imposes receipt or charge note or record proving installment.
  1. Products conveyed by providing to other individuals against a record of exchange of title of merchandise.
  1. Where the products are getting in gigantic number or amount or portions contribution to credit will be permitted to be benefited when the last parcel or portion is gotten.
  1. No information impose credit will be permitted if devaluation have been asserted on assess part of a capital decent.
  1. In the event that receipt or charge note is gotten later
    • The due of documenting the return for September off next money related year.
    • Or documenting yearly return, whichever is later.
  1. In ability of the provider towards supply of merchandise and ventures in 180 days from the date of receipt input charge credit asserted that it will be added to yield obligation and enthusiasm to and enthusiasm to such assessment included. On the installment to provider include impose credit will again be permitted to be asserted.
  1. Basic credit of info imposes credit utilized usually for
    • Effecting excluded and assessable supplies
    • Business and non-business movement

Documents required for Claiming ITC

  1. A receipt issued by the provider for the supply of products and ventures or both according to the GST law.
  1. The charge notes issued by the provider to the beneficiary if there should be an occurrence of assessable esteem or expense payable specified in the receipt is not as much as the assessable esteem or duty payable on such supply of merchandise and ventures or both.
  1. Bill of passage.
  1. A receipt issued in specific situations like the bill of supply issued rather than impose receipt if the sum is not as much as Rs 200 or in circumstances where the turn around charge is appropriate according to GST law.
  1. A receipt or credit note to be issued by the Input Service Distributor (ISD) according to the receipt governs under the GST.
  1. A Bill of supply issued by the provider of merchandise and enterprises or both according to the receipt manages under the GST.

All the above relevant reports arranged according to the receipt governs under GST are to outfitted at the season of documenting structure GSTR-2.

ITC can’t be guaranteed on the assessment paid on merchandise and ventures or both because of a request for the request raised because of any misrepresentation, stubborn error or concealment of actualities.

Steps for claiming ITC in special circumstances

In the accompanying conditions, certain diverse strides are to be taken after for claiming the ITC:-

  1. An candidate changing from the composition scheme to a normal taxpayer under GST can assert ITC on the info held in stock, capital products, semi-completed and completed merchandise in stock as on the day going before the day on which he ends up noticeably at risk to pay impose as an ordinary citizen.
  1. When an exempt goods or service becomes a taxable supply then the applicant can claim ITC on the input in stock, capital goods, semi-finished or finished goods used for such supply.

When we cannot claim ITC?

  1. You cannot claim an ITC for goods & services used for personal purposes.
  1. If you have acquired goods & services under a contract which results in contraction of immovable property other than plant & machinery.
  1. If you have paid tax on goods & services under the GST composition scheme.
  1. If goods & services have been used to build immovable property other than plant & machinery & such property is not transferred.
  1. Such goods & services which have been used by employees for their personal consumption.
  1. If depreciation has been claimed on the cost of capital goods, then they are not eligible for Input Tax credit.

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Mechanism of ITC : 

Suppose a manufacturer intends to purchase uncooked fabric of his product whose fee is Rs 100. For the sake of comfort, expect tax price of 10 per cent for each present and GST regime. So, the brand would purchase the uncooked substances at Rs 110

The manufacturer would system the raw material, known as value added. If the value added (including profit) is Rs 50. Then the foe turns into Rs 160 and at 10 per cent tax, the new price becomes Rs 176.

The retailer buys the product at Rs 176. The retailer, now, adds the price to the product like tagging, labeling, etc. Suppose the value added through retailer is Rs 20. The rate turns into Rs 215.6 (Rs 196 (170 + 20) + Rs 19.6 @10 percent tax).

So, the client could be paying Rs 215.6 to buy this product. His tax burden could be Rs 45.6 (Rs 10 + Rs 16 + Rs 19.6).

How will GST change this?

Now, below GST which allows claiming input tax credit, the brand buys the raw material on the same Rs 110. However, when he fixes the selling price for his product, he isn’t required to move the legal responsibility of Rs 10 as the VAT to his purchaser. He is not required to pay that quantity once more. He can declare the input tax credit for Rs 10 that he already has paid to the raw material seller.

The company underneath GST would pay Rs 5 as tax at 10 per cent for price addition of Rs 50 at his stage. This reduces the purchase rate of the retailer, who will purchase the product at Rs 165. (Rs 100 + Rs 10 + Rs 50 + Rs 5). Prior, he purchased the identical product at Rs 176.

The worth addition of Rs 20 by means of retailer would not entice a tax of Rs 2. This means that the retailer would repair, the price at Rs 187 (Rs 165 + Rs 20 + Rs 2 at 10 per cent tax) for the final patron, who previously bought the identical product at Rs 215.6.

The tax burden on the customer is Rs 17 underneath the GST as in opposition to Rs 45.6 beneath the present taxation process. The same input tax credit method by way of advantage of being priceless for a business character would be a certain expansion of tax base.

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