Chapter 8 – Input Tax Credit

Introduction
1. Provisions for Input Tax Credit (ITC) are in Sections 16, 17, and 18 of the CGST Act, 2017.
2. Section 16 covers eligibility and conditions for claiming ITC.
3. Section 17 discusses the distribution of credits and blocked credits.
4. Section 18 addresses credits in special circumstances.

Basics – Process of Availment of ITC

1. To claim ITC on GST paid for purchases, consider GSTR-1, GSTR-2A, GSTR-2B, and GSTR-3B.
2. Suppliers file GSTR-1 monthly, detailing past month's supplies.
3. The deadline for GSTR-1 is the 11th of the following month.
4. GSTR-2A receives supplier data when GSTR-1 is filed.
5. GSTR-2B reflects details if GSTR-1 is filed on time.
6. GSTR-2B determines the ITC available to the recipient.
7. Example: If a supplier files GSTR-1 late, ITC claim is delayed.
8. ITC claim depends on what's in GSTR-2B.
9. The GSTR-3B Filing Process
a. Monthly return where output liability minus eligible ITC is paid to the government.
b. GSTR-3B must be filed by the 20th of the next month.
c. Example: ITC reduces output liability.

Basics – Process of Payment of Tax

1. Electronic ledgers include Electronic Cash Ledger, Electronic Credit Ledger, and Electronic
Liability Register.
2. GSTR-2B shows purchase details; identify eligible purchases.
3. ITC reduces output tax liability; the balance is paid from your bank.
4. Payment is first deposited in the Electronic Cash Ledger.
5. In GSTR-3B, mention output liability, ITC, and cash payment.
6. Electronic Credit Ledger is credited with ITC mentioned in GSTR-3B.
7. Electronic Credit Ledger is debited when the actual payment is made.
8. Electronic Liability Register tracks output liability, ITC, and cash payments.

Eligibility for Taking Input Tax Credit [Section 16(1)]

1. Registration Requirement
a. GST registration is mandatory for claiming Input Tax Credit (ITC).
b. Registered individuals are entitled to ITC on goods and services they purchase.
c. Subject to conditions in Section 49 and rules.
2. ITC Usage
a. ITC is available for goods/services used in business.
b. "Intention to use" goods/services for business is also valid.
c. Non-business use doesn't qualify for ITC.
3. Electronic Credit Ledger
a. ITC is credited to the Electronic Credit Ledger.
b. It's maintained for each registered person on the common portal.

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Conditions to be Satisfied for Taking Input Tax Credit [Section 16(2)]
1. There are 6 clauses under this subsection.
2. Clause (a), (aa), (b), (ba), (c), (d)
3. ITC can be availed only if the conditions mentioned in all these six clauses are satisfied.

Possession of Tax Paying Document [Section 16(2)(a) Read With Rule

36]
1. Acceptable Documents: ITC can be claimed using specific documents:
a. Supplier's invoice or revised invoice.
b. Recipient's invoice for reverse charge with tax payment.
c. Supplier's debit note.
d. Bill of entry or similar Customs Act document.
e. Input service distributor's document.
2. Document Requirements: Documents must include key details:
a. Tax amount.
b. Description of goods/services.
c. Total supply value.
d. GSTIN of supplier and recipient.
e. Place of supply for interstate supply.
3. No Fraud or Misstatement: ITC isn't allowed in cases of fraud, misstatement, or facts
suppression.

Details of Supplier and Recipient Should Match [Section 16(2)(aa) Read

With Rule 36(4)]
1. Matching Invoice Details: ITC can be claimed if invoice/debit note details are in:
a. Supplier's GSTR-1 or IFF (invoice furnishing facility).
b. Communicated to the recipient via GSTR-2B.
2. Invoice Not in GSTR-2B
a. ITC can't be claimed if invoice/debit note details aren't in GSTR-2B.
b. ITC can be claimed later when details are furnished by suppliers.

Receipt of Goods/Services [Section 16(2)(b)]

1. As per Section 16(2)(b), a registered person is entitled to the credit of any input tax in respect
of any supply of goods or services or both if he has received the goods and/or services.
2. Bill to Ship to Model: ITC will be available to the registered person, on whose direction the
services are provided to a third person.

Details of ITC in Respect of the Said Supply Communicated to the

Registered Person Under Section 38 Not Restricted [Section 16(2)(ba)]
1. Section 38:
a. This section states that registered suppliers must provide details of their sales
(outward supplies) in a monthly return called GSTR-1 or using a special form called
IFF.
b. Along with these details, an automatically generated statement called GSTR-2B is
made available to the recipients (buyers) of these supplies.

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 2. GSTR-2B:
a. This is a statement generated automatically based on the information provided in
GSTR-1/IFF.
b. It contains details of the purchases (inward supplies) made by the recipient.
c. It shows which purchases are eligible for the recipient to claim ITC and which
purchases are not eligible for ITC, either wholly or partially.
3. Ineligible Inward Supplies:
a. Section 38 specifies that certain conditions can make the purchases ineligible for ITC.
b. This means the recipient cannot claim credit for the taxes paid on these supplies.
c. The conditions include:
i. New Registrants: If the supplier is a newly registered person, there may be a
specific period after registration during which the recipient cannot claim ITC
on their supplies.
ii. Default in Tax Payment: If the supplier has not paid the required taxes for a
specified period, the recipient cannot claim ITC on their supplies.
iii. Output Tax Mismatch: If the tax amount reported by the supplier in GSTR-
1/IFF exceeds the tax amount paid by them in GSTR-3B for a particular tax
period by a certain limit, the recipient cannot claim ITC on their supplies.
iv. Excessive ITC: If the supplier has claimed ITC for an amount that exceeds the
limit set by GSTR-2B during a specified period, the recipient cannot claim ITC
on their supplies.
v. Tax Liability Default: If the supplier has not fulfilled their tax payment
obligations as per the rules in section 49(12) and rule 86B (Refer Note in Point
d), which means they have paid more taxes from their electronic credit
ledger than allowed under rule 86B, the recipient cannot claim ITC on their
supplies.
vi. Other Specified Cases: There may be additional categories of suppliers who
fall under specific conditions where the recipient cannot claim ITC on their
supplies.
d. Please note that Rule 86B states that a registered person cannot use more than 99% of
the amount available in their electronic credit ledger to pay their output tax liability if
the value of taxable supply (excluding exempt supply and zero-rated supply) in a month
exceeds ₹ 50 lakh, with certain exceptions. This rule is further explained in the
subsequent sections of this chapter.

Tax Leviable on Supply Actually Paid to Government [Section 16(2)(c)]

1. Tax Payment by Supplier:
a. The supplier must have actually paid the tax on the goods or services for which the
recipient is claiming ITC.
b. The tax can be paid either in cash or by utilizing ITC from their own credit ledger.
c. This is subject to the provisions of Section 41.
2. Availment of self-assessed ITC [Section 41]:
a. A registered person can claim ITC based on their self-assessment in their return.
b. The eligible ITC amount will be credited to their electronic credit ledger.
3. Reversal and Re-availment of ITC in Case of Non-payment by Supplier [Section 41 read with
rule 37A]:
a. Reversal of ITC:

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 i. If the supplier does not pay the tax corresponding to the ITC availed by the
recipient, the recipient must reverse the ITC along with applicable interest.
ii. However, if the supplier furnishes the return in Form GSTR-3B for the
relevant tax period by September 30th following the end of the financial year
in which the ITC was availed, the recipient can claim the ITC in their GSTR-3B
return.
iii. If the supplier fails to furnish the return within the specified timeline, the
recipient must reverse the ITC while filing their GSTR-3B return by November
30th following the end of the financial year in which the ITC was availed.
iv. If the recipient fails to reverse the ITC, they will be liable to pay the reversed
amount along with interest under Section 50.
b. Re-availment of reversed ITC:
i. If the supplier eventually pays the tax for the supplies, the recipient can re-
avail the previously reversed ITC.
ii. Once the supplier files the return in GSTR-3B for the relevant tax period, the
recipient can re-avail the reversed ITC in their subsequent GSTR-3B return.
4. Example: Nishant, a registered supplier, provided goods worth ₹ 10,000 to Tushar in March
2023, charging CGST and SGST of ₹ 900 each. Nishant included the details of this invoice in his
GSTR-1 for March 2023. Based on this information, Tushar claimed an ITC of ₹ 900 each for
CGST and SGST while filing their GSTR-3B for March 2023 because the ITC was also reflected in
their GSTR-2B. However, Nishant failed to file the corresponding GSTR-3B for March 2023 until
September 2023. As a result, while filing their GSTR-3B for October 2023 on November 20th,
2023, Tushar reversed the previously claimed ITC. Suppose Nishant files their GSTR-3B on
December 20th, 2023, and pays the amount of ₹ 900 each for CGST and SGST. In this case,
Nishant can now re-avail the previously reversed ITC of ₹ 900 each for CGST and SGST.

Filing of Return [Section 16(2)(d)]

1. Claiming ITC requires filing GSTR-3B.
2. GSTR-3B is filed under section 39.

Goods Received in Lots: ITC Available Only on Receipt of Last Lot [First
Proviso to Section 16(2)]
1. Applies when goods arrive in multiple lots.
2. ITC claim allowed only upon receiving the final lot or installment mentioned in the invoice.

Payment for the Invoice to be Made Within 180 days [Second Proviso to
Section 16(2) Read with Rule 37]
1. Payment Timeframe: The registered person must pay the supplier for the goods and/or
services, including the applicable tax, within 180 days from the date when the invoice was
issued. This is stated in the second proviso to Section 16(2).
2. Consequences of Non-payment:
a. If a registered person has claimed Input Tax Credit (ITC) on an inward supply but fails
to pay the supplier within 180 days from the invoice date, they must either repay or
reverse an amount equal to the ITC claimed.
b. This amount should be proportionate to the unpaid portion of the value of the supply
and the tax payable on it.

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 c. The registered person must also pay interest on the reversed amount under Section
50.
d. This should be done while filing the GSTR-3B return for the tax period immediately
following the 180-day period.
3. Exceptions: There are certain situations where the payment within 180 days rule does not
apply:
a. Supplies on which tax is payable under reverse charge.
b. Deemed supplies without consideration, as specified in Schedule I of the Act.
c. Additions made to the value of supplies due to the recipient incurring the supplier’s
liabilities as per Section 15(2)(b).
In situations (b) and (c), the value of the supply is considered to have been paid.

If Depreciation is Claimed on Tax Component, ITC Not Allowed [Section

16(3)]
1. Claiming Depreciation: If depreciation is claimed on the tax component of capital goods and
plant machinery under the Income-tax Act 1961, ITC on the tax component is disallowed.
2. Dual Benefit Not Allowed: Simultaneous claiming of depreciation on tax component under
Income-tax Act and ITC under GST law for the same items is not permitted.
3. Exclusive Benefits: Choose either depreciation on tax component under Income-tax Act or ITC
on tax paid under GST law for these items, not both at the same time.

Time Limit for Availing ITC [Section 16(4)]

1. Financial Year Invoices: ITC can be claimed for invoices of a specific financial year until the
earlier of two dates:
a. November 30th of the succeeding financial year.
b. Date of filing the relevant annual return.
2. Debit Notes:
a. Relevant financial year for debit notes is based on the debit note issuance date, not
the underlying invoice.
b. The same time limit as mentioned for invoices applies to claiming ITC on debit notes.
c. Example 1: Debit note issued on July 7, 2022, for an invoice dated March 16, 2022. ITC
claim: FY 2021-22 for the invoice, FY 2022-23 for the debit note.
d. Example 2: Hercules Machinery's invoice in January 2023, with a debit note in April
2023. XYZ's annual return for FY 2022-23 not filed by November 2023. ITC claim:
Invoice by November 30, 2023; debit note by November 30, 2024.
3. Exception:
a. Section 16(4) time limit doesn't apply when re-claiming credit previously reversed.
b. Example: XYZ Ltd. initially claimed ITC in FY 2021-22 but reversed it due to a dispute.
Later, when the dispute is resolved, XYZ can reclaim the ITC without adhering to Section
16(4) time limits.

Question 1

NK Ltd. purchased goods valuing ₹ 6,00,000 (exclusive of CGST and SGST @ 9% each) under the cover
of invoice dated 25-12-2022. The company made payment to the supplier on the same date. Since
there was a doubt regarding admissibility of tax credit on such inputs, the company did not take the
input tax credit at the time of receipt of input. The company obtained clarification from a legal
consultant who opined that the goods were eligible as inputs under Input tax Credit Rules. The opinion

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was received on 05-05-2023. The company now wants to avail Input tax credit of the tax paid on such
inputs. Can it do so? The company has filed its annual return for the year 2022-23 on 12-08-2023.

Solution

As per Section 16(4), a registered person shall not be entitled to take input tax credit in respect of any
invoice or debit note for supply of goods or services or both after:

1. 30th day of November following the end of the financial year to which such invoice or debit
note pertains, or;
2. Furnishing of the relevant annual return, whichever is earlier.

In this case the inputs were purchased by invoice dated 25-12-2022, hence Input tax credit in respect
of such inputs can be taken on earlier of following dates:

• 30-11-2023; or
• 12-08-2023 being the date of furnishing of annual return.

Since, NK Ltd. can avail credit of input tax paid on inputs till 12-08-2023. Therefore, it can avail credit
of CGST ₹ 54,000 and SGST of ₹ 54,000 on 05-05-2023.

Some Important Definitions

Input tax credit is allowed for capital goods, inputs, and input services.

1. Capital Goods
a. Goods whose value is capitalized in the books of account of the person claiming ITC.
b. Used or intended to be used in the course or furtherance of business.
2. Input: Goods, other than capital goods, used or intended to be used by a supplier in the course
or furtherance of business.
3. Input Service: Any service used or intended to be used by a supplier in the course or
furtherance of business.

Section 17
1. Discusses apportionment of credits and blocked credits.
2. Covers Blocked Credits and other provisions in Section 17.

Section 17(5): Blocked Credits

1. ITC Eligibility
a. Generally, ITC can be claimed on taxes paid for inputs and input services used for
taxable goods or services.
b. Exception: Section 17(5) lists items for which ITC cannot be claimed.
2. Negative List
a. Includes items primarily for personal consumption and inputs contributing to
immovable property (excluding plant and machinery).
b. Also includes items like telecommunication towers, pipelines outside factory premises,
and taxes paid due to tax evasion detection.
c. Contains 11 clauses (a, aa, ab, b, c, d, e, f, g, h, i).

Section 17(5)(a): Motor Vehicles

1. Tax on ineligible motor vehicle purchase cannot be claimed as ITC.

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 2. "Ineligible motor vehicles" have seating capacity ≤ 13 persons (including the driver).
3. Exceptions apply when used for specific eligible purposes:
a. making further taxable supply of such motor vehicles;
b. making taxable supply of transportation of passengers;
c. making taxable supply of imparting training on driving such motor vehicles.

Section 17(5)(aa): Vessels and Aircrafts

1. Tax on vessels and aircraft purchase cannot be claimed as ITC.
2. Exceptions apply when used for specific eligible purposes:
a. making further taxable supply of such vessels or aircraft;
b. making taxable supply of transportation of passengers;
c. making taxable supply of imparting training on navigating such vessels;
d. making taxable supply of imparting training on flying such aircrafts;
e. transportation of goods.

Section 17(5)(ab): General Insurance, Servicing, Repair and

Maintenance Relating to Ineligible Motor Vehicles, Vessels, or Aircrafts
1. ITC on general insurance, servicing, repair, and maintenance for ineligible motor vehicles,
vessels, or aircraft not entitled for ITC is not allowed.
2. Exceptions exist for specific situations.
a. Such services relating to ineligible motor vehicles, vessels or aircraft when used for
eligible purposes
b. Such services when received by:
i. Manufacturer of ineligible motor vehicles, vessels or aircraft; or
ii. Supplier of general insurance services in respect of ineligible motor vehicles,
vessels or aircraft insured by him

Leasing, Renting, or Hiring of Ineligible Motor Vehicles, Vessels, or

Aircrafts
1. ITC is not allowed on leasing, renting, or hiring of ineligible motor vehicles, vessels, or aircrafts.
2. Exceptions apply for specific situations.
a. Such services when used for making an outward taxable supply of the same category
of services or as an element of a taxable composite or mixed supply
b. Such services when provided by an employer to its employees under a statutory
obligation

Section 17(b): Food & Beverages, Outdoor Catering, Health Services and
Other Services
1. Part 1
a. ITC not allowed on:
i. Food and beverages
ii. Outdoor catering
iii. Beauty treatment
iv. Health services (cosmetic and plastic surgery)
v. Life insurance and health insurance

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 b. Exceptions:
i. ITC allowed when used for taxable supply of the same category of goods or
services or as part of a taxable composite or mixed supply.
ii. ITC allowed when provided by an employer to employees under statutory
obligation.
c. ITC allowed in case of sub-contracting within the same line of business.
2. Part 2
a. ITC not allowed on membership of a club, health and fitness center.
b. Exception: ITC allowed when provided by an employer to employees under statutory
obligation.
3. Part 3
a. ITC not allowed on travel benefits for employees on vacation (leave or home travel
concession).
b. Exception: ITC allowed when provided by an employer to employees under statutory
obligation.

Section 17(5)(c): Works Contract Services for Construction of

Immovable Property
1. Works contract defined as a contract involving the transfer of property in goods during
construction or related activities for immovable property.
2. ITC blocked on input services related to constructing office buildings, factory buildings, etc.
3. ITC allowed for routine construction services like repairs, maintenance, renovation of office
and factory buildings.
4. ITC for works contract services available in three situations:
a. When used by a works contractor for providing works contract services.
b. For constructing plant and machinery, available to all recipients.
c. When the value of works contract service is not capitalized, available to all recipients.

Definition of Plant and Machinery

1. Plant and machinery includes fixed apparatus, equipment, and machinery for making outward
supplies, with exceptions.
2. Excludes land, buildings, civil structures, telecommunication towers, and pipelines outside
factory premises.
3. Credit on pipelines available if laid within factory premises.

Section 17(5)(d): Goods/Services Used for Self-Construction of

Immovable Property
1. ITC not allowed on goods/services used by a taxable person for self-construction of immovable
property (except plant and machinery), even if used for business.
2. ITC for goods/services used in construction available only when:
a. Used for constructing plant and machinery.
b. Value of goods/services not capitalized.
c. Construction is not on the taxpayer's own account.

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Section 17(5)(e): Inward Supplies Charged to Tax Under Composition
Levy
1. Composition suppliers can't issue invoices or collect tax, so no ITC.
2. Section 17(5)(e) explicitly disallows ITC.

Section 17(5)(f): Inward Supplies Received by a Non-Resident Taxable

Person
1. Non-resident taxable person has no fixed place of business in India.
2. Tax paid on goods/services they receive isn't available as ITC.
3. Tax paid on imported goods is allowed as ITC.

Section 17(5)(g): Inward Supplies Used for Personal Consumption

1. ITC available only on goods/services used for business.
2. Personal consumption of goods/services blocks ITC.
3. Partially business and partially personal use only allows ITC for the business portion.

Section 17(5)(h): Free Samples, Gifts, Goods Lost/Stolen etc.

1. ITC not available on inputs, input services, and capital goods used for distributing free gifts or
samples.
2. Exception: If distribution qualifies as a taxable supply under Schedule I, ITC is allowed.

Section 17(5)(i): Evasion, Confiscation, etc.

Tax paid under sections 74, 129, and 130 (evasion, detention, confiscation) not available as ITC.

Question 2

A Ltd. procured the following goods in the month of December, 2022:

Inward Supplies GST (₹ )

1. Goods used in constructing an additional floor of office building 18,450
2. Goods given as free sample to prospective customers 15,000
3. Trucks used for transportation of inputs in the factory 11,000
4. Inputs used in trail runs 9,850
5. Confectionary items for consumption of employees working in the factory 3,250
6. Cement used for making foundation and structural support to plant and 8,050
machinery
Compute the amount of ITC available with A Ltd. for the month of December 2022 by giving necessary
explanations. Assume, that all the other conditions necessary for availing ITC have been fulfilled.

Solution

Computation of Admissible ITC to A Ltd.

Particulars ₹
Goods used in constructing an additional floor of office building (Note 1) -
Goods given as free sample to prospective customers (Note 2) -
Trucks used for transportation of inputs in the factory (Note 3) 11,000
Inputs used in trail runs (Note 4) 9,850
Confectionary items for consumption of employees working in the factory (Note 5) -

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 Cement used for making foundation and structural support to plant and machinery (Note
6) 8,050
Total input tax credit available 28,900
Notes:

1. ITC on goods received by a taxable person for construction of an immovable property on his
own account is blocked even if the same is used in the course or furtherance of business. It has
been assumed that cost of construction of additional floor has been capitalized.
2. ITC on goods disposed of by way of free samples is blocked.
3. ITC on motor vehicles used for transportation of goods is not blocked.
4. Being used in trial runs, inputs are used in the course or furtherance of business and hence ITC
thereon is allowed.
5. ITC on food or beverages is blocked unless the same is used in same line of business or as an
element of the taxable composite or mixed supply. Further, ITC on goods and/or service used
for personal consumption is blocked.
6. ITC on goods used for construction of plant and machinery is not blocked. Plant and machinery
includes foundation and structural supports through which the same is fixed to earth.

Section 17(1): Goods/Services Used Partly for Business Partly for

Personal Purposes
ITC allowed only for goods/services used for business, not personal use.

Section 17(2): Goods/Services Used Partly for Taxable Partly for Exempt
Supplies
1. ITC allowed for goods/services used for taxable (including zero-rated) supplies.
2. Zero-rated supplies qualify for ITC despite zero tax.
3. Exempt supplies: NIL tax, exempt by notification, non-taxable.

Section 17(3): Value of Exempt Supply in Section 17(2)

1. "Value of Exempt Supply" includes RCM supplies and securities transactions.
2. Excludes activities in Schedule III.
3. Land and building sales are treated as exempt supply.

Section 17(4): Optional Method for Banks, etc.

1. Banks have exempt and taxable services.
2. They can choose:
a. To comply with Section 17(2).
b. To avail 50% of eligible ITC monthly, rest reversed in GSTR-3B.
3. 100% credit from intra-entity supplies.
4. Non-business use and blocked credits not eligible.
5. Choice once made cannot be changed in the same financial year.

Question 3

Yes or No Bank, having a branch in Jaipur engaged in supply of services by way of accepting deposits
and extending loans opted for the option to avail credit of 50% of input tax of the month to which input

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tax relates u/s 17(4). Its head office is in Mumbai and branch in Ahmedabad. Input tax credit (CGST &
SGST) available for the month August, 2022 is ₹ 90,000 which includes:

Total Input tax credit includes credit relating to:

Particulars Input Tax [CGST &

SGST]
1. Services availed from its distinct establishment i.e., from Mumbai 18,000
Head office
2. Outdoor catering services received for its employees (not under 14,400
statutory obligation)
3. Goods that have obsolete and whose value has been written off in 2,500
books
4. Auditing Services 22,500
5. Goods which are used for personal use of employees 6,500
Determine the amount of input tax credit of August, 2022 that can be availed by Yes bank.

Solution

As per Section 17(4), every banking company or a financial institution, including a non-banking financial
company, engaged in supply of services by way of accepting deposits or extending loans or advances
which is not opting for provisions of Section 17(2), has the option to avail of, every month, an amount
equal to 50% of the eligible ITC on inputs, capital goods and input services in that month and the
balance amount of input tax credit shall be reversed in FORM GSTR-3B.

Since, Yes bank has availed an option to avail every month, an amount equal to 50% of the eligible input
tax credit on inputs, capital goods and input services in that month and the balance amount of input
tax credit shall be reversed in FORM GSTR-3B.

Therefore, in given case:

Computation of Total Eligible Input Tax Credit to be Availed and Lapsed

Particulars ₹
Input Tax Credit Available (excluding ITC from Mumbai Head Office) (₹ 90,000 72,000
– ₹ 18,000)
Less: Outdoor catering services received for its employees (not under statutory 14,400
obligation) (Blocked u/s 17(5))
Less: Goods that have obsolete and whose value has been written off in books 2,500
(Blocked u/s 17(5))
Less: Auditing Services -
Less: Goods which are used for personal use of employees 6,500 23,400
Total Eligible Input Credit Available 48,600
.
50% of Eligible Input Credit (to be availed by Yes Bank) 24,300
Input Tax on supply of services from its distinct establishments, i.e., from 18,000
Mumbai Branch (50% restriction not applicable hence full input tax credit can
be availed)
Total Eligible Input Tax Credit that can be availed 42,300
Eligible Input Tax Credit to be reversed in FORM GSTR-3B (50% × ₹ 48,600) 24,300

Section 17(6): Government Has the Powers

The government can determine how credits mentioned in subsections (1) and (2) are attributed.

CA NISHANT KUMAR 11
Utilisation of Input Tax Credit
1. Availment of self-assessed ITC [Section 41]:
a. A registered person can claim ITC based on their self-assessment in their return.
b. The eligible ITC amount will be credited to their electronic credit ledger (discussed
subsequently).
2. Reversal and Re-availment of ITC in Case of Non-payment by Supplier [Section 41 read with
rule 37A]:
a. Reversal of ITC:
i. If the supplier does not pay the tax corresponding to the ITC availed by the
recipient, the recipient must reverse the ITC along with applicable interest.
ii. However, if the supplier furnishes the return in Form GSTR-3B for the
relevant tax period by September 30th following the end of the financial year
in which the ITC was availed, the recipient can claim the ITC in their GSTR-3B
return.
iii. If the supplier fails to furnish the return within the specified timeline, the
recipient must reverse the ITC while filing their GSTR-3B return by November
30th following the end of the financial year in which the ITC was availed.
iv. If the recipient fails to reverse the ITC, they will be liable to pay the reversed
amount along with interest under Section 50.
b. Re-availment of reversed ITC:
i. If the supplier eventually pays the tax for the supplies, the recipient can re-
avail the previously reversed ITC.
ii. Once the supplier files the return in GSTR-3B for the relevant tax period, the
recipient can re-avail the reversed ITC in their subsequent GSTR-3B return.
3. Every registered person gets three electronic ledgers:
a. Electronic Cash Ledger: This shows the details of amount of GST deposited in cash to
the Government.
b. Electronic Credit Ledger: This shows the balance of Input Tax Credit available.
c. Electronic Liability Register: The ledger contains the total GST liability and the manner
in which it has been paid – in cash or through credit.
4. ITC is credited to a registered person’s Electronic Credit Ledger.
5. The person may use this to pay his output tax liability.

Summary of Sequence of ITC Utilisation

Input Tax First to be Utilised Then to be Utilised Remarks
Credit for the Payment for the Payment of
of
IGST IGST CGST or SGST/UTGST CGST or SGST/ UTGST credit can be
at the option of utilised only after credit of IGST is fully
taxable person utilised
CGST CGST IGST CGST credit can be utilised only after
all credit of IGST is utilised
SGST/UTGST SGST/UTGST IGST SGST/ UTGST credit can be utilised
only after all credit of IGST is utilised.
Besides this SGST/UTGST credit can be
utilised for payment of IGST only after
the ITC of CGST has been utilized fully.

CA NISHANT KUMAR 12
Question 4

From the following information, compute the Net GST payable for the month of March 2023:

Particulars Amount in ₹
Output GST Opening ITC as per Credit Ledger
CGST 2,000 NIL
SGST 15,000 1,000
IGST 24,000 37,000
Solution

Computation of Net GST Payable

Particulars CGST SGST IGST
Output Tax Liability 2,000 15,000 24,000
Less: Input Tax Credit [IGST credit to be used for payment of IGST and 2,000 11,000 24,000
balance for CGST and SGST in any order]
Remaining Liability - 4,000 -
Less: ITC of SGST to be utilised against remaining SGST liability - 1,000 -
Net Amount of CGST/SGST/IGST Payable - 3,000 -

Rule 86A: Restrictions on Utilisation of ITC

1. Fraudulent or Ineligible ITC Restriction: If the Assistant Commissioner/Commissioner or a
higher-ranking officer suspects fraudulent or ineligible availing of Input Tax Credit (ITC), they
can restrict its utilization.
2. Utilization Restriction: If ITC has already been availed, the officer can limit its use against tax
liabilities.
3. Time Limit: The restriction can last for up to one year from the date of imposition.
4. Withdrawal of Restriction: The Commissioner or an authorized officer can remove the
restriction if they are satisfied that the conditions for imposing it no longer apply.
5. Circumstances for Restriction: Restrictions can be imposed in the following situations:
a. a. ITC is claimed based on tax invoices or valid documents:
i. Issued by a non-existent supplier or someone not operating a registered
business location.
ii. Without actual receipt of goods or services.
iii. When the tax on those supplies hasn't been paid to the government.
b. The registered person claiming ITC is found to be non-existent or not conducting
business at their registered location.
c. The registered person claiming ITC doesn't possess tax invoices or valid documents.

Rule 86B: Restrictions on the Use of Amount Available in Electronic

Credit Ledger
1. Applicability:
a. Rule 86B applies to registered persons with taxable supply (excluding exempt and zero-
rated supply) exceeding ₹50 lakh in a month.
b. Doesn't apply if monthly taxable supply is up to ₹50 lakh.
2. Nature of Restriction:
a. In cases where Rule 86B applies, a registered person can't use Input Tax Credit (ITC) to
pay more than 99% of their total tax liability.

CA NISHANT KUMAR 13
 b. Only 99% of tax can be paid using the credit ledger; the remaining 1% must be paid via
the electronic cash ledger.
c. Example: If tax liability is ₹18 lakh, a taxpayer with ₹20 lakh in the credit ledger can
only use ₹17.82 lakh from the ledger, and ₹18,000 must be paid in cash.
3. Exceptions to Rule 86B:
a. Exceptions are provided to balance ITC misuse prevention and ease compliance for
taxpayers.
b. Exceptions consider income tax payment, ITC refund, cash payment history, and
specified registered persons.
i. Income Tax Payment of Over ₹1 Lakh:
1. Rule 86B doesn't apply if certain individuals/entities paid over ₹1 lakh
as income tax in the last two financial years and filed their income tax
return under section 139(1) of the Income-tax Act, 1961.
2. Exempts them from Rule 86B restrictions.
ii. Refund of ITC Over ₹1 Lakh:
1. Rule 86B doesn't apply if a registered person received an ITC refund
exceeding ₹1 lakh in the previous financial year.
2. Refund should be related to zero-rated supplies without tax payment
or an inverted duty structure.
iii. Cash Payment Exceeding 1% of Output Tax Liability:
1. Rule 86B doesn't apply if a registered person paid more than 1% of
their total output tax liability in the current financial year through the
electronic cash ledger.
2. Cumulative cash payments for all months in the financial year are
considered.
3. GST liability under the reverse charge mechanism is excluded.
iv. Specified Registered Persons:
1. Rule 86B doesn't apply to government departments, public sector
undertakings, local authorities, and statutory bodies.
2. Commissioner or an authorized officer may remove this restriction
after necessary verifications and safeguards.

Section 18: Availability of Credit in Special Circumstances

1. Section 18 contains 6 subsections.
2. Each subsection talks about the rules for availability of credit in certain special situations.

Section 18(1)/(2) read with Rule 40: ITC Availment for Newly Registered
Persons and Time Limit
1. Introduction:
a. Section 18 contains 6 subsections.
b. Each subsection outlines rules for the availability of credit in specific special situations.
2. Section 18(1)/(2) with Rule 40: ITC for Newly Registered Persons and Time Limit
a. Section 18(1) addresses ITC availment for newly registered persons, and Section 18(2)
specifies the time limit for availing ITC.
b. Rule 40 adds further conditions.
c. Here are the key conclusions from Sections 18(1), 18(2), and Rule 40:

CA NISHANT KUMAR 14
 S. Eligible Person Goods As on Date Restrictions/
No. Entitled to Conditions
ITC
1. Applicant for Inputs held in Day preceding ITC must be claimed
registration stock, Inputs tax liability within 1 year from the
within 30 days of in semi- date tax invoice date by the
becoming liable, finished supplier.
and granted goods, Inputs
registration in finished
goods in
stock
2. Person not Same as Day preceding Same as above
required to above registration
register but date
obtains voluntary
registration
3. Registered Same as Day preceding
ITC on capital goods
person switches above, tax liability
reduced by 5% per
from composition Capital goods under regular
quarter, ITC claimed
tax to regular scheme verified with supplier
scheme details, ITC to be availed
within 1 year from
supplier's tax invoice
date.
4. Registered Same as Day before Same as above
person's exempt above supply turns
supplies become taxable
taxable
3. Declaration Requirement:
a. In all situations, a registered person must submit an electronic declaration (FORM GST
ITC-01) on the common portal.
b. The declaration should detail inputs in stock, inputs in semi-finished or finished goods
in stock, and capital goods as of the specified dates in the table above.
4. Timeframe: The declaration submission period is 30 days, extendable by relevant authorities,
starting from the date when the registered person becomes eligible for ITC.
5. Certification for Large Claims: If the total ITC claim for CGST, SGST/UTGST, and IGST combined
exceeds ₹2,00,000, the declaration must be certified by a practicing Chartered Accountant or
Cost Accountant.

Question 5

NISHANT Traders paying tax under composition scheme crosses the threshold and becomes liable to
pay tax under regular scheme on 01-04-2023. Can it avail Input tax credit and if so, calculate the amount
of ITC available?

Break-up of credit available with NISHANT Traders as on 31-03-2023:

Particulars CGST SGST

Inputs lying in stock (invoice dated 12-03-2023) 3,600 3,600
Capital goods procured on 25-09-2022 invoice dated 25-09-2022 7,200 7,200
Inputs lying in semi-finished goods in stock (Invoice dated 12-12-2022) 2,400 2,400

CA NISHANT KUMAR 15
Solution

As per Section 18(1)(c), where any registered person ceases to pay tax under Section 10, he shall be
entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished
or finished goods held in stock and on capital goods on the day immediately preceding the date from
which he becomes liable to pay tax u/s 9. Therefore, in given case, NISHANT traders shall be entitled
from 01-04-2023 to avail credit available as on 31-03-2023. As per Rule 40 of the CGST Rules, 2017, the
capital goods credit is to be claimed after reducing the tax paid on such capital goods by 5% points per
quarter of a year or part thereof from the date of invoice or such other documents on which the capital
goods were received by the taxable person.

Input tax credit available to NISHANT Traders in respect of inputs:

Input Tax (CGST + Eligible

Particulars
SGST) Credit
Inputs lying in stock 7,200 7,200
Inputs lying in semi-finished goods in stock (Invoice dated 12- 4,800 4,800
12-2022)
Total Input Tax Credit Available 12,000 12,000

Input tax credit available to NISHANT Traders in respect of capital goods:

Particulars
Date of invoice of capital goods 25-09-2022
Date from which NISHANT traders are liable to pay tax u/s 9 01-04-2023
No. of quarters from date of invoice 3
CGST and SGST paid on capital goods procured on 25-09-2022 14,400
ITC to be reduced by ₹ 14,400 × 5% × 3 quarters 2,160
Credit (CGST and SGST) available on capital goods 12,240
Note: As per Section 2(92), “quarter” shall mean a period comprising three consecutive calendar
months, ending on the last day of March, June, September and December of a calendar year.

Section 18(4) Read with Rule 44: Switching from Normal Scheme to
Composition Scheme or Exiting from GST
1. Exiting from GST:
a. Section 18(4) mandates the reversal of input tax credit (ITC) in specific scenarios.
b. ITC reversal occurs when a registered person transitions from the normal scheme to
the composition levy or when their supplies become entirely exempt from tax.
2. Reversal of ITC on Inputs:
a. ITC on inputs should be reversed proportionately based on the invoices on which credit
was initially claimed.
b. If invoices are unavailable, ITC reversal can be based on the prevailing market price of
goods on the switch-over or exemption date.
c. Certification by a practicing Chartered Accountant or Cost Accountant is required for
market value determination.
3. Reversal of ITC on Capital Goods:
a. The ITC related to the remaining useful life of capital goods should be reversed
proportionately.
b. A 5-year useful life is considered for this calculation.

CA NISHANT KUMAR 16
 c. Example: If capital goods have been in use for 4 years, 6 months, and 15 days, ITC
attributed to the remaining useful life = (ITC taken × 5/60).
4. Debiting of Electronic Credit or Cash Ledger: The registered person must debit the electronic
credit or cash ledger with the reversal amount for inputs in stock, inputs in semi-finished or
finished goods in stock, and capital goods on the day immediately before the switch-over or
exemption date.
5. Lapsing of ITC: Any remaining balance of ITC in the electronic credit ledger will lapse.
6. Reversal of ITC on Cancellation of Registration:
a. Cancellation of registration also requires ITC reversal on inputs in stock, inputs in semi-
finished or finished goods in stock, capital goods, or plant and machinery on the day
immediately before the cancellation date.
b. Reversal is computed similarly to the earlier discussion.
7. Comparison with Output Tax Payable:
a. The reversed ITC amount on inputs and capital goods is then compared with the output
tax payable on those goods.
b. The higher of the two amounts is paid by the registered person.
8. Separation of ITC Reversal: ITC reversal on inputs and capital goods is calculated separately for
CGST, SGST/UTGST, and IGST.
9. Addition to Output Tax Liability: The reversal amount is added to the output tax liability of the
registered person.

Section 18(6) read with Rule 40(2) and Rule 44(6): Amount Payable on
Supply of Capital Goods or Plant and Machinery on Which ITC Has Been
Taken
1. Payment on Supply of Capital Goods or Plant and Machinery: When a registered person
supplies capital goods or plant and machinery on which input tax credit (ITC) has been claimed,
they must pay the higher of the following:
a. ITC claimed on those goods, reduced by 5% per quarter of a year (or part thereof) from
the date of the goods' invoice (i.e., ITC related to the remaining useful life).
b. The tax calculated on the transaction value of the goods.
2. Separation of ITC: The remaining ITC related to the useful life of capital goods should be
calculated separately for CGST, SGST/UTGST, and IGST.
3. Comparison with Tax Payable: If the amount determined in step 1 is greater than the tax
payable on the transaction value of the capital goods, the registered person must pay that
higher amount. This amount is then added to their output tax liability.
4. Supply of Specific Items: If specific items like refractory bricks, moulds and dies, jigs and fixtures
are supplied as scrap, the taxable person may pay tax based on the transaction value.
5. Note on Rule 44(6): Rule 44(6) specifies that the ITC attributed to the remaining useful life of
the capital goods (in months) should be reversed on a pro-rata basis, assuming a useful life of
5 years.

Question 6

Nishant Textiles Ltd. purchased a detecting machine on 8th July, 2022 from Tushar Engineering Works
Ltd. for ₹ 10,00,000 (excluding GST) paying GST @ 18% on the same. It availed the ITC of the GST paid
on the machine and started using it for manufacture of goods. The machine was sold on 22nd October,
2023 for ₹ 7,50,000 (excluding GST), as second hand machine to Charu Pvt. Ltd. The GST rate on supply
of machine is 18%.

CA NISHANT KUMAR 17
State the action which Nishant Textiles Ltd. is required to take, if any, in accordance with the statutory
GST provisions on the sale of the second-hand machine.

Solution

Section 18 of the CGST Act, 2017 read with the CGST Rules, 2017 provides that if capital goods or plant
and machinery on which input tax credit has been taken are supplied outward by the registered person,
he must pay an amount that is the higher of the following:

• input tax credit 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., input tax credit pertaining to remaining useful
life of the capital goods), or
• tax on transaction value.

Accordingly, the amount payable on supply of needle detecting machine shall be computed as follows:

Particulars ₹
Input tax credit taken on the machine (₹ 10,00,000 × 18%) 1,80,000
Less: Input tax credit to be reversed @ 5% per quarter for the period of use of
machine
Less: For the year 2022-23 (5% × ₹ 1,80,000) × 3 Quarters 27,000
Less: For the year 2023-24 (5% × ₹ 1,80,000) × 3 Quarters 27,000 54,000
Amount required to be paid (A) 1,26,000
Duty leviable on transaction value (18% × ₹ 7,50,000) (B) 1,35,000
Amount payable towards disposal of machine [Higher of (A) and (B)] 1,35,000

Section 18(3) read with Rule 41: Transfer of ITC on Account of Change
in Constitution of Registered Person
1. Transfer of Unutilized ITC:
a. When certain changes occur in a business, such as sale, merger, demerger,
amalgamation, transfer, or change in ownership, the unutilized Input Tax Credit (ITC)
in the electronic credit ledger of the registered person can be transferred to the new
entity.
b. This transfer is contingent upon the provision for the transfer of liabilities in the specific
change of constitution.
2. Change in Ownership: The concept of change in ownership also includes cases where a sole
proprietorship changes ownership due to the death of the sole proprietor.
3. Demerger Specifics: In the case of demerger, the unutilized ITC will be divided proportionately
based on the value of assets of the new units as specified in the demerger scheme.
4. Value of Assets: "Value of assets" refers to the total value of all the assets of the business,
regardless of whether ITC has been claimed on them or not.
5. Filing Requirements: The registered person should provide details of the change in constitution
on the common portal by submitting FORM GST ITC-02. Additionally, they should furnish a
certificate from a practicing Chartered Accountant or Cost Accountant, certifying that the
change in constitution includes a specific provision for the transfer of liabilities.
6. Confirmation and Crediting: Once the transferee accepts the details on the common portal, the
unutilized ITC will be credited to their electronic credit ledger.
7. Record Keeping: The transferee is responsible for recording the inputs and capital goods
transferred to them in their own books of account.

CA NISHANT KUMAR 18
Rule 41A: Transfer of ITC on Obtaining Separate Registrations for
Multiple Places of Business Within a State/Union Territory
1. Introduction to Separate Registrations: Under Section 25, businesses with multiple locations
within the same state or union territory can opt to register each location separately.
2. Transfer of Unused ITC: When a business chooses to register its locations separately, it has the
option to transfer any unused Input Tax Credit (ITC) from its main account to these newly
registered locations.
3. Criteria for ITC Transfer: The amount of ITC transferred to each location is determined based
on the value of assets held by that particular location at the time of registration.
4. Inclusion of All Assets: The term "assets" encompasses all assets owned by the business,
regardless of whether they have claimed ITC on those assets or not.
5. Submission of Information: To facilitate the transfer of ITC, the business is required to provide
the necessary information through the government's online portal. This must be done within
30 days of obtaining the separate registrations.
6. Crediting ITC to New Locations: Once the information is successfully submitted and accepted
on the portal, the unused ITC is credited to the electronic credit ledger of the newly registered
locations. This enables these locations to utilize the transferred ITC for making tax payments.

Question 7

Mr. Ekaant, a supplier registered in Delhi, is engaged in the business of sale and purchase of plastic
raincoats. He furnishes the following information pertaining to inward/outward supply made by him
for the month of July, 2022:

Particulars ₹
Value of inter-State outward supply to registered persons 30,00,000
Value of intra-State outward supply to registered persons 50,00,000
Value of intra-State outward supply to unregistered persons 15,00,000
Value of intra-State inward supply from registered persons 10,00,000
Value of inter-State inward supply from registered persons 5,00,000
Value of intra-State inward supply from unregistered persons 2,00,000
Following additional information is also provided by Mr. Ekaant:

Particulars ₹
IGST credit on capital goods purchased in the month of July 1,50,000
CGST/SGST credit on other inward supplies [including credit of ₹ 5,000 (CGST and SGST 50,000
each) on account of membership of a club]
Availed consultancy services from Mr. Sujit, advocate located in Delhi [Intra-State 1,00,000
services]
The amount of ITC brought forward in the month of July, 2022 is as under:

CGST : ₹ 2,00,000
SGST : ₹ 2,00,000
IGST : ₹ 5,00,000
Calculate the net GST liability (CGST and SGST or IGST, as the case may be) to be paid in cash for the
month of July, 2022 by assuming the rates of GST as under:

CGST 9% SGST 9% IGST 18%

Note:

1. All the amounts given above are exclusive of taxes.

CA NISHANT KUMAR 19
 2. All the conditions necessary for availing the ITC have been fulfilled.

Solution

Computation of Net GST Payable in Cash by Mr. Ekant

Particulars Value (₹ ) CGST (₹ ) SGST (₹ ) IGST (₹ )
Value of Intra-state legal consultancy services, i.e., 1,00,000 9,000 9,000
inward supplies liable to reverse charge mechanism
(to be paid in cash) (A) (Note 1)
Value of Inter-State outward supplies (B1) 30,00,000 5,40,000
Value of Intra-State outward supplies to registered 65,00,000 5,85,000 5,85,000
persons as well as to unregistered persons (B2)
(₹ 50,00,000 + ₹ 15,00,000)
Total (B) = (B1) + (B2) 5,85,000 5,85,000 5,40,000
Less: Input Tax Credit (Note 2)
Less: IGST Credit utilised (Note 6) 2,00,000 5,40,000
3,85,000 5,85,000 -
Less: CGST Credit utilised 3,44,000 -
41,000 5,85,000 -
Less: SGST Credit utilised 3,44,000 -
Liability after Set-Off 41,000 2,41,000 -
Add: GST on Reverse Charge to be paid in cash 9,000 9,000 -
Net GST Payable in Cash 50,000 2,50,000 -
Notes:

1. Services supplied by an individual advocate to any business entity located in the taxable
territory by way of legal services, directly or indirectly are taxable under reverse charge
mechanism. Thus, tax is payable by the recipient (Mr. Ekaant) on said services to the
Government. Further, as per section 49(4) of the CGST Act, 2017, amount available in the
electronic credit ledger [ITC amount] may be used for making payment towards output tax.
However, tax payable under reverse charge is not an output tax in terms of section 2(82) of the
CGST Act, 2017. Therefore, tax payable under reverse charge cannot be set off against the input
tax credit and thus, will have to be paid in cash.
2. Computation of Input Tax Credit Available

Particulars Value (₹ ) CGST (₹ ) SGST (₹ ) IGST (₹ )

Opening Balance 2,00,000 2,00,000 5,00,000
Value of Intra-State inward supplies from a 10,00,000 90,000 90,000
registered person (Note 3)
Value of Inter-State inward supplies from a 5,00,000 90,000
registered person (Note 3)
Value of Intra-State inward supplies from an 2,00,000
unregistered person (Note 4)
IGST Credit for Capital Goods (Note 3) 1,50,000
Credit on other inward supplies purchased in 45,000 45,000
the month of July less credit on membership
of club (Notes 3 and 5)
Credit of legal consultancy services (Note 3) 9,000 9,000
Total ITC Available 3,44,000 3,44,000 7,40,000
3. Every registered person is entitled to take credit of input tax charged on any inward supply of
goods and/or services which are used or intended to be used in the course or furtherance of
his business in terms of section 16 of CGST Act, 2017. Further “input tax” in relation to a

CA NISHANT KUMAR 20
 registered person includes the tax payable under reverse charge mechanism in terms of section
2(62) of the CGST Act, 2017.
4. Notified intra-State supplies received by a notified registered person from any unregistered
supplier, are liable to GST under RCM. Since such supplies have not been notified u/s 9(4) GST
is not payable on same. Since no tax has been paid, so no credit is available.
5. Input tax credit is not allowed in respect of membership of a club in terms of section 17(5) of
CGST Act, 2017.
6. Once the IGST credit is utilised towards IGST liability, the balance can be utilised for either CGST
liability or SGST liability in any order. After utilising the IGST credit against the IGST liability, the
balance IGST has been utilised towards CGST. Alternate answers are also possible.

CA NISHANT KUMAR 21