SECTION 16 MANNER OF TAKING INPUT TAX CREDIT-PART-I

GST Update 28.06.2016

GST DAILY DOSE OF UPDATION:-

SECTION 16 MANNER OF TAKING INPUT TAX CREDIT-PART-I:-

1.     Every registered taxable person shall be entitled to take credit of input tax admissible to him subject to the conditions/restrictions prescribed and the said amount shall be credited to the electronic ledger of such person.
2.     Every person is entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of registration.
3.     Similarly, taxable person who ceases to pay tax under composition levy shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which tax is paid under normal scheme.
4.     A taxable person shall not be entitled to take credit after expiry of one year from the date of issue of tax invoice.
5.     Where the goods/services are used by registered taxable person partly for business purpose and partly for other purpose, the amount of credit shall be restricted to credit attributable for business purposes only.
6.     Where goods/services are used by registered taxable person partly for effecting taxable supplies and partly for non-taxable supplies including exempt supplies but excluding zero rated supplies, the amount of credit shall be restricted to those pertaining to taxable supplies including zero rated supplies.

It is observed that the restriction as regards availment of credit within a period of one year from the date of issue of tax invoice as prevalent presently is being carried in the proposed GST regime also. However, this restriction will act as barrier for taking legitimate credit merely for the reason of time boundation. At times, the tax is not paid as the assessee is under bonafide belief that no tax is payable but if it subsequently concluded that tax is payable by the assessee, the consequent benefit of cenvat credit should also be extended to assessee. However, the time limit of availing credit as one year from the date of issue of invoice will debar assessees from taking credit. Moreover, the assessees find difficulty in taking decision as regards credit availment when there is some ambiguity as regards taking of credit.

Furthermore, the admissibility of credit for inputs/services used for business purposes is reasonable restriction that is prevalent even today. The provision regarding denial of credit for inputs/goods used in exempted services is also effective and presently, the provisions of Rule 6 of the Cenvat Credit Rules prescribe mechanism for accounting the credit used in exempted goods/services. It is hoped that a mechanism similar to Rule 6 is being designed in the proposed GST regime too to give treatment of common credit.

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GST Update 28.06.2016

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