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Input Tax under GST and Credit Mechanism

G.Viswanathan, A.C.A., A.C.S, Chennai

Associate Consultant – STVAT Consulting

“ In this article CA Viswanathan outlines in an easy-to-understand language, the basic principles of input tax and the credit mechanism as proposed in Model GST Law”

The core of GST and the business is its availability to avail credit of input tax paid on all inputs and input services used in the business. An attempt has been in this note to to analyze the provisions contained in the Model GST laws relating to input tax and credit thereof.

We shall first try to look at the definition of input as contained in the Model GST laws.

Sec 2 (52) “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;

Sec 2 (53) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business;

The definition is much more wider in import and meaning and allows the availment of credit on all inputs and input services which are used or intended to be used in the course or furtherance of business . This in itself is a major departure from the current scheme of indirect taxes relating to inputs and input services.

The definition of Input tax is contained in Sec 2 Sec (55) and it defines "input tax" in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes the tax payable under sub-section (3) of section 8, but does not include the tax paid under section 9;

Input Tax credit under Sec 2(56) has been defined as “input tax credit” means credit of ‘input tax’ as defined in sub-section (55);

Conditions to avail Input Tax Credit

To avail the Input Tax Credit the following conditions have been prescribed

1. He should be registered taxable person

2. He is in possession of a tax invoice or debit note issued by a supplier registered under this Act , or such other tax paying documents as may be prescribed.

3. He should have received the goods and/or services

4. The tax charged in respect of such supply has been actually paid to the account of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply

5. The Supplier has furnished a return.

The provisions to take input tax credit should be read along with the provisions contained in Section 37 of the Model GST laws and the scheme of return which have been prescribed in the draft rules .

The person effecting the supply is required to file his return of outward supplies by the 10th of every month succeeding the month to which the outward supply relates .

A return so filed will be available by means of auto population to the Buyer in his inward return on the 10th and the buyer will have to check his return of inward supply and either add, accept , modify or reject the credit which he shall do by the 15th of the following month.

Only those credits which have been electronically matched and after eliminating duplicate credits if any will be available to the Buyer as credit for Availment.

The list of illustrations have been detailed below to understand the mechanism of matching and availing of credit.

Situation 1 : Supplier is filing valid returns as per the due dates and paying the tax

Return for the Month of October 2017

Supplier	Amount of Credit (Only IGST)	Buyer	Action taken by Buyer	Extent of Credit permitted in the return	Remarks
ABC	1000	XYZ	Accept credit of 1000	1000	NA
ABC	1000	XYZ	Accepts but states the credit is 1200	1000	Rs 200/- excess availed will be intimated as a discrepancy and if the Supplier does not accept the same then the credit will not be available.
ABC	1000	XYZ	Accepts but states the credit is 800	800	Balance credit is still available subject to the time restrictions as per the Act and the Supplier does not revise the details in the subsequent months.

Situation 2 : Supplier files only his Outward Supply return but fails to file his returns

Return for the month of October 2017

Supplier	Amount of Credit (only IGST)	Buyer	Action Taken by Buyer	Extent of Credit permitted in the return	Remarks
ABC	1500	XYZ	Accepts credit of 1500	1500	As the Supplier has not filed the return and paid the tax the same will be added back to the Buyers return in the subsequent month and the same has to be paid by the Buyer with interest. Credit can be reclaimed only after the Supplier files his return and pays the tax.

Situation 3: Supplier files his returns and he omits one invoice which is entered by the Buyer

Return for the month of October 2017

Supplier	Amount of Credit (IGST only)	Buyer	Action taken by Buyer	Extent of Credit permitted in the return	Remarks
ABC (Invoice 1)	2500	2500	Accepts credit of 2500	2500
ABC (Invoice 2)	Not disclosed	XYZ	Enters the Invoice and the credit of 1500	NIL	Will be available only after the Supplier has accepted the same and files a valid return and pays the tax thereon

Situation 4 : Supplier files his return and he mentions a wrong Customer Code and wrong Customer GSTIN No

Return for the month of October 2017

Supplier	Amount of Credit (IGST only)	Buyer	Action taken by the Buyer	Extent of credit permitted in the return	Remarks
ABC	3500	Wrongly mentioned as PQR , Actual Buyer is XYZ	XYZ indicates in his inward supply return the details of invoice no / date and the amount of credit	Nil	Credit to XYZ will only be available if the Supplier makes a revision and files a return and pays the tax.

The old adage “BUYERS BEWARE” will definitely be the mantra for availing Input tax credit going forward in the GST regime.

Published : March 6, 2017

The article is based on inputs available on the date noted and is to be read in that context. The articles are usually not updated for later development.