A Critical Analysis of Unjustified Provisions of ITC Under GST Law

A Critical Analysis of Unjustified Provisions of ITC Under GST Law

VAT v/s GST

Maharashtra VAT Act Section 48(1): The State Government may, by rules, provide that —– a set-off or refund of the whole or any part of the tax paid on purchases —–, be granted to the dealer.

Maharashtra VAT Rule 52: In assessing the amount of tax payable in respect of any period, the Commissioner shall —- grant a set-off.

Under GST there is no obligation on the Commissioner to grant ITC unless claimed/availed by a taxable person.

Section 16(1)

• Every registered person shall subject to such conditions and restrictions as may be prescribed,
• in the manner specified in Section 49,
• be entitled to take credit of input tax charged on any supply —— to him
• which are used or intended to be used in the course or furtherance of his business and
• the said amount shall be credited to the electronic credit ledger of such person.

Input Shall Be A Part of Output For Availing ITC?

• As per Section 2(59) “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
• As per Section 2(60) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business.
• Thus, the input may not be a part of the output. The only condition is that it is used or intended to be used for business. Therefore ITC on Stationary, Office equipment, etc. and even on Capital Assets are being granted.
• In the case of VKC FOOTSTEPS INDIA PVT. LTD.[ Special Civil Application No.2792 of 2019 dated 24/07/2020 Gujarat HC] it is held “the Net ITC should mean “input tax credit” availed on “inputs” and input services” as defined under the Act.” Relevant Paragraphs are reproduced below for ready reference.
• Para 26. In view of the above, Explanation (a) to Rule 89(5) is read down to the extent that Explanation (a) which defines “Net Input Tax Credit’ means “input tax credit” only. The said explanation (a) of Rule 89(5) of the CGST Rules is held to be contrary to the provisions of Section 54(3) of the CGST Act. In fact, the Net ITC should mean “input tax credit” availed on “inputs” and input services” as defined under the Act.
• Para 27. The respondents are, therefore, directed to allow the claim of the refund made by the petitioners considering the unutilized input tax credit of “input services” as part of the “net input tax credit”(Net ITC) for the purpose of calculation of the refund of the claim as per Rule 89(5) of the CGST Rules,2017 for claiming refund under Sub-section 3 of Section 54 CGST Act,2017.
• Even after citing this judgment, the Proper Officer at Mumbai in my case, proposed to vide email, to reject the refund claim pertaining to tax paid on services stating “that there is no Notification issued from the department till date, related to the Gujarat HC judgment and whether we require Personal Hearing for the same.”
• Moreover, the Officer, over the telephone requested my client to agree with the said rejection.
• In reply, we submitted that “we are not in agreement with your decision of rejecting the refund of Rs.12820/-. However, we do not require a Personal Hearing and request you to grant the refund by deducting the aforesaid amount from the amount claimed by us. After we receive the refund of the amount which is appropriate according to you, we may exercise our statutory right of filing appeal against the order of said reduction.”

Credit To ITC Ledger

• By filing Form TRAN-1 & Form 3B
• Section 41.The claim of ITC and provisional acceptance thereof:
• (1) Every registered person shall —be entitled to take credit of eligible ITC, as self-assessed, in his return, and such amount shall be credited on a provisional basis to his electronic credit ledger.
• (2) Said credit shall be utilized only for payment of self-assessed output tax as per return.

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