Input Tax Credit under GST-Amendments

CA Madhukar N.Hiregange

& CA Roopa Nayak

Background

In GST regime, input tax credit is available to registered person on goods and services used in course or furtherance of business of making taxable supplies, subject to conditions and restrictions as prescribed. { Sec 16] Input tax credit is not available in respect of blocked credit items. [ Sec 17(5)] The credit attributed to supply of exempted goods/services cannot be availed.[ 17(2/3)] However credit related to export of exempted goods/services can be availed.

A taxable person may pay the output tax payable, either in cash or through the input tax credit account. This is paid by way of reducing the output tax payable, by the amount of input tax credit available with him.

The credit pertaining to tax invoices/debit notes pertaining to a financial year has to be availed by earliest of due date of filing return for the month of Sept following end of financial year to which such invoice or invoice relating to debit note pertains or date of filing annual return.

We highlight in this context that the last chance to avail missed out eligible credit pertaining to 2017-18 maybe before filing the GST return for month of March 2019. The assessee would do well to get a review done with special focus on the maximization of credit on the list of expenses/procurements. This could ensure all eligible credit of 2017-18 is availed.

In this backdrop in this article, the paper writer has examined the list of restricted credit-post amendment, and recent advance rulings on the eligibility of input tax credits herein below.

Blocked credit

Impact of changes done wef 1st Feb 2019:

1.   Credit on motor vehicles:  Post Feb 2019:

(a) Motor Vehicle for transport of persons with approved seating capacity upto 13 passengers [including driver] – only for specified purpose

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles

(aa)  Vessel / aircraft-further supply/passenger transport/impart training in navigating vessel or flying aircraft

 Input tax credit on vehicle – allowed for motor vehicle with approved seating capacity of more than 13 persons.

2.   Goods transport vehicle: Eligible credit. There is no change. Further Credit continues to be available when tax is paid by recipient at 5% under reverse charge on GTA [transport of goods by road service where the transporter issues LR/consignment note].

3.   General insurance, servicing, repair and maintenance- Motor Vehicle for transport of persons with approved seating capacity upto 13

·        Allowed when used for specified purposes given above -in(a)/(aa)

·        Allowed for manufacturer of Motor Vehicle/vessel/aircraft + to supplier of general insurance services-of Motor Vehicle/vessel/aircraft insured by him

For motor vehicle with approved seating capacity of more than 13 persons, no restrictions on availing vehicle related credit.

4.   Food and beverages etc:

Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery:

·        Eligible when used for making further outward supply or composite or mixed supply or

·        Where obligatory to provide to employee under any Law

5.   Leasing, renting or hiring of motor vehicles, etc:

Leasing, renting or hiring of motor vehicles vessels or aircraft given in (a)/(aa)above [eligible when used for specified purposes]. Further eligible where

?      when used for making further outward supply or composite or mixed supply or;

?      obligatory to provide under any Law in force by employer to employee

6.   Life insurance and health insurance

Eligible where

?      when used for making further outward supply or composite or mixed supply or;

?      obligatory to provide under any Law by employer to employee

Comments:

The credit on fire insurance/stock insurance, keyman insurance is not restricted and maybe availed. The group accident /medical insurance can also be claimed with intimation to revenue.

Insurance facility recovery done from employee: Services by employee to employer are covered in Third Schedule to GST law and excluded from tax levy. The services by employer to employer are not covered in any exemption.

Further employee is a related person of the employer. When the recovery is done by employer towards the insurance facility given to employees, this maybe covered in Schedule 1- entry 2- services between related persons, which is deemed as supply, even when done without consideration. GST could be applicable on same.

Input tax credit of GST paid on such expense should be available when output GST is paid on such recoveries made. However dept may deny the credit alleging that the employer is not engaged in outward supply of insurance services, consequently credit pertaining to same cannot be availed. 

7.   Membership of club/health fitness centre:

·        Membership of a club, health and fitness centre; and

·        Travel benefits extended to employees on vacation such as leave or home travel concession

 except where obligatory to provide to employee under any Law

Comments

The restriction of credit on club membership seems unfair, and should have been removed from the restricted list- as the business promotion/networking happens at such places. However till amended not available.

Recent advance rulings under GST on input tax credit

1.   In a recent ruling in case of YKK India Private Ltd (2019-TIOL-48-AAR-GST), GST was charged by the Contractor for hiring of buses for transportation of employees. GST charged by the Contractor for hiring of cars for transportation of employees.

Held the phrase “rent-a-cab” has not been defined in the CGST/HGST Act, 2017.  Where any commercial vehicle is hired for transportation of passengers, it would be squarely covered by the phrase “rent-a-cab” In other words, any person who provides motor vehicle designed to carry ‘passengers’, on rent, would be included. This also implies that it includes renting of motor cars, motor cabs, maxi cabs, mini buses, buses and all other motor vehicles which are designed to carry passengers, irrespective of their capacity to carry passengers. The contentions of the applicant that hiring of buses which can carry large number of passengers would not qualify under “rent-a-cab” is found to be untenable and the activity of the contractor in the instant case, providing buses or cars on hire to the applicant, is specifically covered under the meaning of “rent-a-cab”, which makes the impugned supply as ineligible for ITC in terms of Section 17(5) of the CGST/HGST Act, 2017. 

Paper writer comments:

The credit on renting of buses is eligible. This ruling appears to be given without proper application of mind. This is for the simple reason that in common parlance, the buses are not considered as cab. This clearly indicates the revenue bias in this regard.

The law restricted ITC only in respect of ‘rent-a-cab’. The term ‘rent-a-cab’ is not defined in the GST law and in commercial or trade understanding, ‘leasing of cabs, buses, mini-buses’ could not be construed as rent a cab.

2.   In MRF Ltd [2019-TIOL-87-AAR-GST] the issue is whether the applicant can avail the Input Tax Credit of the full GST charged in the invoice or a Proportionate reversal of the same is required in case of post purchase discount given by the supplier of the goods or services

Held that under section 16 of the CGST Act, 2017 applicant can avail ITC only to the extent of invoice value raised by the suppliers less the discounts as per C2FO software, which is paid by him to the suppliers. If the applicant has availed ITC on the full amount, he should reverse the difference amount equal to the discount to avoid adding to his output liability: AAR

Comments

The view expressed in this ruling is not correct. As long as the discounted amount due towards the value of supply + tax is paid within 180 days, the credit cannot be denied. Full Credit may be claimed on the basis of invoice, to extent used to make taxable/export supplies.

In ruling of Posco India Pune Processing Center Pvt Ltd (2019-TIOL-25-AAR-GST) held that the hotel is used as a residential accommodation by the MD/GM which implies that the same is used for their personal consumption. Providing residential accommodation in a hotel is not in furtherance of the applicant's business. Since the accommodation is being used for their personal comfort, in view of the provisions of s.17(5)(g) of the CGST Act, applicant is not eligible to claim the ITC for the same: AAR.

Comment: This ruling seems to be against the intention of the input tax credit provisions. When the expense is incurred by employee, while discharging official functions, in course of business, the related credit should not be denied by citing personal use.

The said ruling has also held that where there was recovery of Parents Health Insurance expenses from employee in respect of the insurance provided by the applicant. Since applicant is not rendering any service of health insurance to their employees, there is no supply of service u/s 7 of the CGST Act, 2017.

This view has not considered the Schedule I-entry 2 of GST Law, which deems supply of service between related persons [employer to employee] as supply even without consideration and infirmed to that extent.

Note: Section 103 of the CGST Act, 2017 restricts the applicability of the advance ruling only to the applicant who had sought it and to the concerned jurisdictional officer of the applicant. Therefore, an advance ruling is not applicable to the other assessees.

Conclusion

In this article the paper writer, has looked to examine the eligibility of input tax credit after recent changes. This could be useful to ensure a) eligible credit is taken and b) that there are no unnecessary disputes by reversing / not availing credit when it is admissible. Contact: [email protected] or [email protected]. Article also submitted to VIPCAA Newsletter, Kolkatta.