SECTION-18: MANNER OF TAKING INPUT TAX CREDIT AND UTILISATION THEREOF- PART-I:-

GST Update 17.02.2016

GST DAILY DOSE OF UPDATION:-

SECTION-18: MANNER OF TAKING INPUT TAX CREDIT AND UTILISATION THEREOF- PART-I:-

Every taxable person shall subject to conditions and restrictions as may be prescribed shall be entitled to avail credit of tax and utilise it for payment of tax to appropriate government within such time as may be prescribed. For the purpose of this section, appropriate government means the Central Government in case of IGST and CGST and the State Government in case of SGST. Furthermore, if goods/services are used by the taxable person partly for the purpose of any business and partly for any other purpose, the amount of credit shall be restricted to tax attributable to use in business.

Furthermore, where goods other than capital goods, or services are used by the taxable person partly for effecting taxable supplies and partly for effecting non-taxable supplies, including exempt supplies but excluding zero rated supplies, the amount of credit shall be restricted to so much of the input tax credit as is attributable to taxable supplies including zero rated supplies. This has the effect that cenvat credit would be available on inputs/input services used in taxable supplies and supplies on which zero rate of duty is specified. This is a significant departure from the present credit availment provisions wherein cenvat credit is not admissible on manufacture of exempted goods or provision of exempted services. It is pertinent to note that presently, the defination of exempted goods under Cenvat Credit Rules, 2004 means excisable goods which are exempted from whole of duty of excise leviable thereon and includes goods which are chargeable to nil rate of duty thereby meaning that no cenvat credit is available on zero rated goods.

On the contrary, section 2(28) defines “exempt supply” means supply of any goods and/or services which are not taxable under this Act and includes supply of goods/services exempt from tax under section 10. It is pertinent to note that the proposed GST regime treats zero rated supplies as eligible for credit availment but practically the rate of tax for particular good/service may be zero by way of exemption notification. In this context, the wordings of Apex Court in the case of COLLECTOR OF C. EX., VADODARA VERSUS DHIREN CHEMICAL INDUSTRIES [2002 (139) E.L.T. 3 (S.C.)] may be recalled wherein it was held that nil rate of duty cannot be treated as appropriate duty for the purpose of availing exemption benefit. However, in the proposed GST regime, allowing credit on zero rated supplies will definitely please assessees.

The manner of utilisation of input tax credit is specified as follows:-

1.     The order of utilising credit on IGST is that first it will be used for paying IGST, then for CGST and thereafter for SGST.

2.     The input tax credit of CGST should be first utilised for payment of CGST and thereafter for payment of IGST.

3.     The input tax credit of SGST should be first utilised for payment of SGST and thereafter for payment of IGST.

4.     No input tax credit of CGST shall be utilised towards payment of SGST and vice versa.

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GST Update 17.02.2016

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