UTILISATION OF INPUT TAX CREDIT SUBJECT TO CERTAIN CONDITIONS

Eligibility under GST Act, 2017:

Section 16of the Act lays down the eligibility criteria for availing ITC.
You can claim ITC only on the tax paid on inward supplies of goods or services used or intended to be used for business purposes.
You must possess a tax invoice/debit note or other specified document as proof of purchase.
The tax has to be actually paid by the supplier.
You must have filed your GST return.
There are specific timeframes for claiming ITC based on the receipt of goods/services and payment to the supplier.

Utilization under GST Act, 2017:

Section 41 under GST Act, 2017deals with the utilization of ITC.
ITC can be used to offset your output tax liability(GST payable on outward supplies).
There’s a specific order of utilization:
- First, utilize IGST credit towards payment of IGST, CGST, SGST, or UTGST.
- Then, utilize CGST credit towards payment of CGST or IGST.
- Finally, utilize SGST/UTGST credit towards payment of SGST/UTGST or IGST.
You cannot use ITC for personal expenses or payment of late fees/penalties.

Conditions and Restrictions under GST Act, 2017:

ITC on certain goods/services may be restricted or blocked.
You might need to reverse ITC in specific situations, like non-payment to the supplier or change in business use of goods/services.
The burden of proof for claiming ITC lies on the taxpayer (Section 155).

EXAMPLE

Scenario under GST Act, 2017:

You are a registered business owner in Tamil Nadu manufacturing furniture.
You purchase raw materials (wood, glue, etc.) worth ₹10,000with 18% GST (₹1,800).
You receive a proper tax invoice for the purchase.
You use these materials exclusively for your furniture production.
You sell finished furniture worth ₹20,000with 18% GST (₹3,600).

Conditions under GST Act, 2017:

Eligible Goods and Services: The purchased materials must be used for making taxable supplies of goods or services.
Proper Invoice: You must possess a valid tax invoice with all required details.
Time Limit: You can claim ITC within 36 months from the invoice date.

ITC Calculation under GST Act, 2017:

ITC Utilization under GST Act, 2017:

Full Utilization: Since your output tax liability is higher than the input tax paid, you can utilize the entire ₹1,800 to reduce your GST payable.
Partial Utilization: If your output tax liability was lower (e.g., ₹1,500), you could only utilize ₹1,500 of the ITC. The remaining ₹300 would be carried forward for utilization in future tax periods.

Important points to remember under GST Act, 2017:

You can only claim ITC on eligible goods and services.
You must have a valid tax invoice to support your claim.
ITC utilization follows a specific order(IGST, CGST, SGST).
There are restrictions and conditions for claiming ITC on certain goods and services (e.g., food, travel, insurance).

FAQ QUESTIONS

Who is eligible to claim ITC under GST Act, 2017?
- Only registered taxpayers under GST can claim ITC.
- ITC can be claimed on goods and services used for business purposes.
What are the basic conditions to claim ITC under GST Act, 2017?
- The purchased goods or services must be documented with a valid tax invoice or debit note.
- The GST paid on the purchase must be reflected in your supplier’s GSTR-2B.
- You must have paid the GST to your supplier within 180 days of the invoice date.
- You must file your GST returns regularly (GSTR-3B).
What are the restrictions on ITC utilization under GST Act, 2017?
- You cannot claim ITC on goods or services listed in the negative list(Section 17(5) of CGST Act).
- From January 1, 2021, taxpayers with monthly taxable supplies exceeding Rs. 50 lakh cannot use ITC to discharge more than 99% of their tax liability(except for specific exemptions).

Specific Conditions under GST Act, 2017:

ITC on goods used for both taxable and exempt supplies under GST Act, 2017:
- You can claim proportionate ITC based on the ratio of taxable and exempt supplies.
- You need to maintain separate records for taxable and exempt purchases.
ITC on imports under GST Act, 2017:
- You can claim ITC only if the import duty and IGST are paid and documented properly.
- Specific conditions apply for imports under schemes like SEZs or Duty Drawback.
ITC on capital goods under GST Act, 2017:
- ITC on capital goods can be claimed in equal installments over their useful life.
- You need to maintain proper records of depreciation and ITC claimed.
Reversal of ITC under GST Act, 2017:
- You need to reverse ITC if the goods or services are returned, used for personal consumption, or become ineligible for ITC.

CASE LAWS

Eligibility for ITC under GST Act, 2017:

ALD Automotive Pvt. Ltd. v. CTO [2018]:ITC is not a right but a concession, and eligibility is determined by the Act.
TVS Motor Co. v. State of Tamil Nadu [2018]:ITC is available only on inputs used or intended to be used for business purposes.
State of Karnataka v. M.K. Agro Tech. (P) Ltd. [2017]:ITC cannot be claimed on exempted supplies or those specifically excluded by the Act.

Conditions for ITC claim under GST Act, 2017:

Section 16 of CGST Act: defines the conditions for claiming ITC, including possession of tax invoice, payment of tax, and filing of returns.
ITC on promotional expenses: Several cases have allowed ITC on promotional expenses like gifts or free samples if they are directly linked to business activities. (e.g., Dairy Food Pvt. Ltd. v. The Commissioner – GST [2022])
ITC on blocked credits: Section 17(5) lists situations where ITC is blocked, like goods lost, stolen, or gifted.

Order of ITC Utilization under GST Act, 2017:

Section 49 of CGST Act: ITC must be used in a specific order: first Integrated Tax (IGST), then Central Tax (CGST), and lastly State Tax (SGST).

Additional points under GST Act, 2017:

Rule 42/43 of CGST Rules: Deals with reversal of ITC in case of non-payment of tax or misuse of credit.
Circulars and Notifications: Issued by authorities to clarify specific aspects of ITC utilization.