IDT Saar CA Final CH 8 Input Tax Credit by CA Mahesh Gour Handwritten Notes

CHAPTER 8.
INPUT TAX CREDIT
 GLIMPSES:
Section16: Eligibility and Conditions for taking Input tax credit
Section 17: Apportionment of credit and blocked credits
Section 18: Availability of Credits in Special Circumstances
Section 19: Taking input tax credit in respect of inputs and capital goods sent for job
work.
Section 20: Input Service Distributor
 INTRODUCTION:
When a registered person purchases goods or avails services, GST is paid on such
inward supplies. These supplies are used for furtherance of business and the outward supplies
are made. On such outward taxable supplies, GST is collected from the recipient. The total GST
collected on outward supplies will not be payable to the Government in entirety, but it will get
reduced on account of adjustment of tax paid on inward supplies, subject to certain conditions.
This mechanism in which tax paid on inward supply is adjusted towards tax paid on
outward supply is known as Input Tax Credit (ITC).
 DEFINATION:
1. Input, Capital Goods, Input Services:
GOODS U/S SERVICES
Capital Goods u/s 2(19) Inputs u/s 2(59) Input Services u/s 2(60)
It means goods, value of It means goods

which is capitalized in other than It means services
capital goods
the Books of account of
person claiming ITC
Used/intended to be used in the course or furtherance of business
CA Mahesh Gour +91 8459256756 | cacselectures.com P a g e | 8.1

2. Exempt supply:
Exempt supply means: -
 Attracting NIL rate of tax

 Supply wholly exempt from CGST and IGST
 It includes Non-Taxable Supply (only sale of Land & Building) &

 Any Outward supply covered under RCM
3. Zero Rated supply:

Zero rated supply means:-
Export of Goods and/or Services Supply of goods and/ or services

to SEZ Developer/ SEZ unit
 ELIGIBILITY AND CONDITIONS FOR TAKING ITC:

Basic Conditions:
1. Registered person is entitled to take credit of tax paid on inward supplies of goods
and/or services
2. Such Inward supply used/intended to be used in the course or furtherance of
business
Conditions U/S 16 of CGST Act, 2017:
1. He (Recipient) has received goods and/or services.
[Goods delivered/services provided to third person on the direction of the registered

person, deemed to be received by the registered person. ITC available to registered
Person(Bill to Ship to Mode)]
2. He has furnished GSTR 3B.
3. Tax on such supply has been paid by supplier to government either in cash or by
utilization of ITC.
4. He has valid tax invoice/debit note/prescribed taxpaying document.
Do You Know…?
1. Goods received in lots → ITC allowed upon receipt of last lot.

2. If depreciation claimed as per IT Act, 1961 on tax component  ITC not allowed.
3. Time limit for availing ITC → ITC pertaining to a particular FY can be availed
by 20th October of next FY or filing of annual return, whichever is earlier.
Exception: Re-availment of ITC reversed earlier.

4. Payment for the Invoice to be made within 180 days.
a) ITC to be reversed with interest @18% if value + tax of goods/or services if not
paid within 180 days of the issuance of invoice.
b) Such supplies will be specified in GSTR-3B of the month immediately
following 180 days and ITC added in the output tax liability of the said month.
(ITC will be reversed)
c) If part payment is made within 180 days, then proportionate ITC can be availed.
d) However, once the payment is made, the recipient will be entitled to avail the credit
again without any time limit.
Note: 10% ITC Allowed on Provisional Basis

A tax payer filing GSTR-3B can claim provisional ITC (in respect of invoice or debit note,
the details of which have not been uploaded by the supplier) only to the extent of 10% of the
eligible credit available and reflect in GSTR 2A
Sr. No. Particualrs After Amendment
A Eligible ITC available in the Purchase register 2,00,000

B Eligible ITC available in the GSTR-2A 1,20,000
C ITC that can be claimed as provisional credit 24,000
D Total ITC that can be claimed in the GSTR-3B 1,44,000
E ITC not allowed in the GSTR-3B of November 2019 56,000
 Clarification issued by CBIC

ITC on Moulds & Dies provided by the Original Equipment Manufacturer
[OEM] to Component Manufacturer [CM] on Free Of Cost [FOC] basis
Contract Between
OEM & CM for Supply of Components made by using Moulds/ Dies
belonging to the CM
NO YES
Impact on ITC: Impact on ITC:
1. No Supply Because No Consideration Tax paid on such Mould/ Dies etc. will
2. No Requirement of reversal of ITC by be reversed by the OEM because it will
OEM because it is in course or not be considered as supply in course or
furtherance of business furtherance of business.

Impact on Valuation: Impact on Valuation:
While calculating the value of Supply While calculating the value of Supply
made by CM made by CM
Value of Moulds/ Dies shall not be Amortised cost of the moulds/ dies shall
added to the value of such Supply. be added to the value of component.
 PROVISIONS RELATING TO APPORTIONMENT OF CREDIT AND BLOCKED CREDIT

[SECTION 17]
 I] APPORTIONMENT OF CREDIT [Section 17]
Goods and/or Services
Used partly for business and partly Used partly for making taxable
for Non-business purposes [Sec 17(1)] (including Zero rated supplies)
supplies & partly for business and
partly for exempt supplies [Sec 17(2)]
ITC available only as
Attributable to business purposes Attributable to taxable supplies

including zero rated Supplies
 Section 17(3): Exempt supplies include supplies charged to tax under reverse charge, transactions
in securities, sale of land sale of building when entire consideration is received post completion
certificate.(All other items of Schedule III, ITC will not be required to be reversed, but in case of Sale
of Land & Sale of Building ITC will be required to be reversed)
Note: - The Value of Exempted Supply in respect of:
 Land & Building  Value adopted for paying stamp duty
 Security  1% of Sale Value of security

Special provision for banking companies and NBFC’s [Section 17(4)]
OPTION 1 OPTION 2
Avail Proportionate As per Section 17(2) Every Month Avail 50% of eligible ITC in that month
 Remaining 50% ITC will lapse.
 The restriction of 50% shall not apply to tax paid on supplies made by one registered
person to another registered person having same pan.
 Option once exercised cannot be withdrawn during remaining part of the financial year.
 MANNER OF DETERMINATION OF ITC WHERE INPUTS/INPUT SERVICES ARE

USED FOR TAXABLE AS WELL AS EXEMPT SUPPLIES [RULE 42 (1)]
 Step 1 - Calculation of ITC amount credited to Electronic Credit Ledger [C1]:
Total Input tax involved on inputs & input services in a tax period (T) XXX
Less: Input tax on inputs & input services that are intended to be used
exclusively for non-business purposes (Personal) (T1) (XXX)

Less: Input tax on inputs & input services that are intended to be used
exclusively for exempt supplier. (T2) (XXX)

Less: Input tax on inputs & input services which are ineligible for credit
[i.e. Blocked credits u/s 17(5)] (T3) (XXX)
ITC credited to Electronic Credit Ledger (C1) XXXX
 Step 2 - determination of common credit input/ input services used for providing supply of
services
ITC credited to Electronic Credit Ledger (as per Step 1)a (C1) XXX
Less: ITC on inputs & input services exclusively used for effecting taxable services
including zero rated supplies (T4) (XXX)
Common ITC available for apportionment (C2) XXXX
 Step 3 - To Compute credit attributable to exempt supplies (ineligible credit) by apportionment
of common credit [D1]:
Aggregate value of exempt supplies for the tax period (E) XXX
Total turnover of registered person for same tax period (F) XXX

The amount of ITC attributable towards exempt supplies [D1 = (E/F)*C2] XXXX
𝑇ℎ𝑒 𝑎𝑔𝑔𝑟𝑒𝑔𝑎𝑡𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑥𝑒𝑚𝑝𝑡 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑡𝑎𝑥 𝑝𝑒𝑟𝑖𝑜𝑑 [𝐸]
𝐷1 = × 𝐶𝑜𝑚𝑚𝑜𝑛 𝐶𝑟𝑒𝑑𝑖𝑡 (𝐶2)
𝑇ℎ𝑒 𝑇𝑜𝑡𝑎𝑙 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑡𝑎𝑡𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑟𝑒𝑔𝑖𝑠𝑡𝑒𝑟𝑒𝑑 𝑝𝑒𝑟𝑠𝑜𝑛 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑡𝑎𝑥 𝑝𝑒𝑟𝑖𝑜𝑑 [𝐹]
 Step 4 - Calculation of total inadmissible Common Credit as per Rule 42(1) [D1 + D2]:
ITC attributable towards exempt supplies (as per Step 3) (D1) XXX
Plus: Credit attributable to Non-Business Purposes (5% of C2) (D2) XXX
Inadmissible Credit [D1 + D2] XXXX
The amount equal to aggregate f ‘D1’ and ‘D2’ shall be reversed by registered person in FORM
GSTR-3B
 Step 5 - Calculation of Net Eligible Common Credit [C3]:
Common ITC available for apportionment i.e. (C2) XXX

Less: Inadmissible Credit [D1 + D2] (As per step 4) XXX
Net Eligible Common Credit [C3] XXXX
 Step 6 – Calculation of Net Eligible Common Credit [C3]:
Credit on input services exclusives used for supplying taxable services (Including
zero rated supplies) i.e. (T4) XXX

Plus: Net Eligible Common Credit (As per step 5) [C3] XXX
Total Credit Eligible XXXX
Space of Students Notes: -

 APPORTIONMENT OF COMMON CREDIT IN CASE OF CAPITAL GOODS [RULE 43]
Total ITC on Capital Goods (CG)
A B C
IT on CG used exclusively IT on CG used exclusively for IT on CG not covered under

for non business/ exempt taxable supplies including A & B. Useful life of CG 
supplies zero rated supply (ZRS) 5 years from date of invoice
Not to be credited to Electronic Credited to ECrL Tc Credited to ECrL

Credit Ledger (ECrL)
Common credit on CG=>Tc = £ (A)

Tm If CG under A/B subsequently get covered under C, then C =
Full ITC A/B will be credited in ECrL *Refer Amendment
Common credit of CG for a tax period

Tr
during their useful life i.e. Tc / Useful life
Tm = Tc/ 60 Common credit at the beginning of a

Te
tax period for all CG having useful
Common credit towards exempted supplies life in that tax period
Te = E/F x Tr Tr = Tm of such CG
E  Aggregate value of exempt supplied during the tax period;
F  Total turnover during the tax period. If no turnover during Tm = Tc/ 60
the tax period/values not available, values for last tax period Added to output tax liability
may be used. along with interest
NOTES:
1. Te will be computed separately for ITC of CGST, SGST/ UTGST and IGST.
2. Aggregate value of exempt supplies and total turnover excludes the central excise duty, State
excise duty & VAT, CST
3. For RULES 42 & 43, Exempt Supplies shall excludes-
 Entry 27 of CGST Exemptions: The value of services by way of accepting deposits,
extending loans or advances in so far as the consideration is represented by way of
interest or discount, except in case of a banking company or a financial institution
including a non-banking financial company, engaged in supplying services by way of
accepting deposits, extending loans or advances; and
 The value of supply of services by way of transportation of goods by a vessel from the
customs station of clearance in India to place outside India.

 Useful life of any Capital Goods Under GST Shall not exceed 5 Years From the date of
Invoice [W.e.f. 01.04.2020]
E.g.: Mr. ‘X’ Purchased a Capital Goods on 01.04.2020 Value Rs. 10L & GST paid @12% [Rs.
1,20,000]
Such CG used for ES Such CG used for TS
ITC of Rs. After one month such ITC of Rs. After one month such
1,20,000 Capital Goods put to 1,20,000 CG put to common
common use [ES + TS] use
Not
Allowed Rs. 1,20,000
Allowed
Book Full ITC will be reversed 60m
ITC of Rs. [Added in Output

1,20,000 Tax Liability]
For 59 Months
Apportionment = Tm 5% per quarter or

Rs. 1,20,000 part there of
60m (1,20,000 x 5% x 1
Quarter)
For 59 Months Rs. 6,000
Example: ‘X’ Ltd. Purchased following Capital Goods in the month of April 2020
DOI Capital Goods GST Paid @12% Used
01.04.2020 A 2,00,000 Exclusively for making Exempted Supply.
05.04.2020 B 1,20,000 For making Taxable as well as

Exempted Supply
10.04.2020 C 3,00,000 Exclusively for Taxable Supply
During April 2020  Total Turnover was 2Cr. Out of which Taxable Supply was 1.5 Cr.

In the Month of May 2020
I] Amount Credited to Electronic Credit Ledger
B  (Full ITC)  Rs. 1,20,000 [Common Credit]

C  (Full ITC)  Rs. 3,00,000
Rs. 4,20,000
II]
 Common ITC = Rs. 1,20,000
 Common ITC for a month [Tm] = Rs. 1,20,000 = Rs. 2,000

60m
 Common ITC for current Tax Period [Tr] = Rs. 2,000
III] Common ITC Attributed to Exempted Supply

= Rs. 2,000 x 0.5 Cr. = Rs. 500  Added to Tax Liability
2 Cr.
Suppose xxxxxxxx
Capital Goods ‘A’  Now utilised for making Taxable as well as Exempt Supplies from May20
Capital Goods ‘C’  Now Utilised for making Taxable as well as Exempt Supplies from May20
During May 2020, the Turnover of,
Exempted Supply = Rs. 1 Cr.
Taxable Supply == Rs. 4 Cr.
Treatment of ITC of Capital Goods ‘A’ [In Month of June 2020]
Full ITC to be availed Rs. 2,00,000 Amount added to output tax

liability or Reversal of ITC
Credited to Electronic
Credit Ledger
Rs. 10,000
(5% x 2,00,000 x 1 Quarter)
Treatment of ITC of Capital Goods ‘C’
Not credited to Electronic Credit Ledger

(As already Credited Rs. 3,00,000)

After Amendment Before Amendment
Total A = 2,00,000 A = 2,00,000 – (5% of 2L x 1 Quarter) = 1,90,000
Common ITC C = 3,00,000 C = 3,00,000 – (5% of 3L x 1 Quarter) = 2,85,000
for May20 5,00,000 4,75,000
Common ITC = 5,00,000 = 4,75,000
for a Month 60 month 60 month
(Tm) = Rs. 8,333.33 (Approx.) = Rs. 7,916.67
Common ITC Current Period (Tm) = 8,333.33 Current Period (Tm) = 7,916.67
apportionment Earlier Period (Tm) = 2,000.00 Earlier Period (Tm) = 2,000.00
in Current 10,333.33 9,916.67
Tax Period (Tr) = 10,333.33 Exempted Supply = 9,916.67 X 1 Cr. = Rs. 1,983.334
X of Current Taxable
Common ITC Total Turnover
Period
5 Cr.
of Current
attributable to Taxable Period
Exempt Supply ITC Reverse

= 10,333.33 X 1 Cr. = Rs. 2066.67 [Added to output tax liability]
ITC will be reversed
[Added to output tax liability of May20]
 II] BLOCKED CREDIT [Section 17 (5)]

Clauses (a), (b): - Purchase of Motor Vehicles/ Conveyance/ Vessels/ Aircrafts
Purchase of Motor Vehicles / Conveyance / Vessels / Aircrafts (M/V/A)
For Transportation of Goods For Transportation of Person
ITC✔
Motor vehicles used A/V when used
M/V/A when used for for business purpose for other purpose
 Making further taxable supply of M/V/A (E.g.
Dealer of M/V/A)
Seating Seating ITC✘
 Making taxable supply of Transportation of Capacity Capacity
passengers (E.g. Taxi/ Tours & Travels) ≤ 13 > 13
 Making taxable supply of Imparting training
ITC✔
on driving /Flying/ navigation of such M/V/A ITC✘ ITC✔
✘
Clauses (c): - General Insurance/ Servicing/ Repair & Maintenance of motor vehicles/
vessels/ Aircraft
Clause (c)
General Insurance / Servicing / Repair & Maintenance, Relating to
M/V/A on which ITC is not M/V/A on which ITC is

allowed in Clause (a), (b) allowed in Clause (a), (b)
If recipient of such ITC✔

services are engaged
In manufacturing of In the supply of general In any other business

such M/V/A insurance services in respect of
such M/V/A insured by him ITC✘
ITC✔
ITC✔
Clause (d): - Health Service, Cosmetic & plastic surgery, Food & Beverage, etc.
Clause (d)
 Health Service, Cosmetic & plastic surgery, Beauty Treatment
 Food & Beverage, Outdoor Catering
 Leasing, Renting, Hiring of M/V/A on which ITC is not allowed
 Life Insurance & Health Insurance
Of such G/S/B* used for supply of same When such G/S/B are provided by
category services / G / B (Sub contracting) the employer to its employee
OR
As an element of a taxable composite or With statutory With no statutory
mixed supply obligation obligation
*G  Goods
ITC✔ ITC✔ ITC✘
S  Services
B  Both

Clauses (e), (f): - Membership of Club , Fitness Centre & Travel benefits
Clause (e), (f)

(e) Membership of Club, health & Fitness Centre
(f) Travel benefits extended to employees on vacation such as leave or home
travel concession
Such services are provided by an Employer to its Employee
Under Statutory Obligation Without Statutory Obligation
ITC✔ ITC✘
Clause (g): - Works contract
Inward supply of Works

Contract Services for
Construction of Construction of plant Construction of For further

immovable property, and machinery movable property supply of works
contract service
other than plant and movable or immovable
machinery property
ITC ITC ITC ITC
NOT ALLOWED ALLOWED ALLOWED ALLOWED
Note: -
“plant and machinery” mean apparatus, equipment’s, and machinery fixed to earth by
foundation or structural supports but excludes land, building or other civil structure,
Telecommunication towers and pipelines laid outside the factory premises.
Clause (h): - Construction service

Inward supplies received by a taxable person for construction of an
immovable property (other than plant and machinery) on his own account
even when such supplies are used in the course or furtherance of business.

Note: -
1. ITC on expenses incurred on re-construction, renovation, additions or alterations and repairs
would be allowed in case such expenses are charged to revenue and not capitalized.
2. Foundation and structural support required for any plant and machinery will be eligible for
ITC .However, ITC in relation to any land, building, or civil construction, telecommunication
towers and pipelines will not be eligible for ITC.
Clause (i): - Composition scheme
Inward supplies on which tax has been paid under the composition scheme.
Clause (j): - Inward supplies received by a non-resident taxable person
Inward supplies received by a non-resident taxable person except on Goods
imported by him
Clause (k): - Personal consumption.
Goods and / or services used for personal consumption.
Clause (l): - Goods that are lost, stolen, destroyed
Goods that are lost, stolen, destroyed, written off or disposed of by way of gift
or free samples.
Clause (m): - Tax paid under sections 74, 129 and 130.
These sections prescribe the provisions relating to tax paid as a result of
evasion of taxes, or upon detention of goods or conveyances in transit, or
Conveyance in transit, or towards redemption of confiscated
goods/ conveyances.
Space of Students Notes: -

 Do You Know..?
RETURN OF TIME EXPIRED MEDICINES/DRUGS

Return of Time Expired to be treated as Fresh Supply
Where the time expired medicines/drugs (goods) returned by the
retailer/wholesaler as a fresh supply, are destroyed by the manufacturer, he/she is

required to reverse the ITC availed on the return supply in terms of section 17(5)(h) of the
CGST Act.
The ITC which is required to be reversed in such scenario is the ITC availed on the
return supply and not the ITC that is attributable to the manufacture of such time
expired goods.
01.01.2018
11.01.2018
3
12.10.2018
On 23.11.2018  Drugs Manufacturer destroyed such drugs.
IMPACT ON ITC
Drugs Manufacturer will reverse ITC of Rs. 3,600 not Rs. 1,800

Impact on Tax Invoice, Credit Note & Bill of Supply:
CASE I - Return of time Capital Goods to be treated as Fresh Supply
In case the person returning the time, expired goods is:

(i) A registered person (other than a composition taxpayer): he may, at his option,
return the said goods by treating it is as a fresh supply and thereby issuing
an invoice for the same (hereinafter referred to as the, “return supply”). The
value of the said goods as shown in the invoice on the basis of which the
goods were supplied earlier may be taken as the value of such return supply.
The wholesaler/manufacturer, who is the recipient of such return supply, shall
be eligible to avail ITC of the tax levied on the said return supply subject to
the fulfilment of conditions specified in section 16 of the CGST Act.
(ii) A composition supplier: he may return the said goods by issuing a bill of
supply and pay tax at the rate applicable to a composition taxpayer. No ITC
will be available to recipient of return supply.
(iii) An unregistered person: he may return the said goods by issuing any
commercial document without charging any tax on the same.
CASE II - Return of Time Expired Goods by Issuing Credit Note

The manufacturer/wholesaler who has supplied the goods to the
wholesaler/retailer has the option to issue a credit note in relation to the time expired
goods returned.
If the credit note is issued within the specified time limit –
(i) September following the end of the financial year in which such supply was
made, or
(ii) The date of furnishing of the relevant annual return, whichever is earlier.
The tax liability may be adjusted by the supplier, subject to the

condition that the person returning the time expired goods has either not availed the
ITC or if availed has reversed the ITC so availed against the goods being returned.
However, if said time limit has lapsed, a credit note may still be issued by the supplier
for such return of goods but the tax liability cannot be adjusted by him in his hands.
Where such returned time expired goods are destroyed by the manufacturer,
he/she is required to reverse the ITC attributable to the manufacture of such goods, in
terms of section 17(5)(h) of the CGST Act.

 SPECIAL CIRCUMSTANCE LEADING TO REVERSAL OF CREDIT/
PAYMENT OF AMOUNT [SECTION 18 OF CGST ACT, 2017]
Special circumstances enabling availing of credit u/s 18(1)
Registered person Registered person's Person applying for Person obtaining
switching from exempt supplies registration within voluntary
composition levy to becoming taxable 30 days of becoming registration
regular scheme of liable for registration

payment of taxes
Section 18(4) Credit entitled on: Credit entitled on

 Inputs as such held in stock  Inputs as such held in stock
 Inputs contained in semi-finished goods held in  Inputs contained in semi-
stock finished goods held in stock
 Inputs contained in finished goods held in stock  Inputs contained in
 Capital goods [Input Tax Credit] reduced by 5% finished goods held in stock
per quarter or part thereof from the date of invoice
Note: ITC claimed shall be verified with the
corresponding details furnished by the corresponding
supplier
On the day On the day On the day On the day
immediately preceding immediately immediately immediately
the date from which, preceding the date preceding the date preceding the date
he becomes liable to from which such from which he of registration
pay tax under regular supply becomes becomes liable to

Scheme taxable pay tax
ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice
by the supplier [Section 18(2)]

 Do You Know…?
Rule 40(b): The Registered person shall make a declaration (Electronically, in form GST
ITC - 01) within 30 days (on extended period) from the date of becoming eligible
to avail the ITC
Transfer Of Unutilised ITC
[Section 18(3) & Read with Rule 41] [Section 18(3) & Read with Rule 41A]
Transfer of unutilised ITC on account of Transfer of unutilised ITC on obtaining
change in constitution of registered separate registrations for multiple places
person. of business within a State/ UT
1. In case of sale, merger, amalgamation, 1. Registered person having separate
lease or transfer of business, unutilised registrations for multiple places of
ITC can be transferred to the new entity. business can transfer the unutilised ITC
The inputs and capital goods so to any or all of the newly registered
transferred should be duly accounted for place(s) of business in the ratio of the
by the transferee in his books of accounts. value of assets held by them at the time
2. In case of demerger, ITC is apportioned of registration.
in the ratio of value of entire assets

2. Value of assets means the value of the
(including assets on which ITC has not
entire assets of the business irrespective of
been taken) of the new units as per the
whether ITC has been availed thereon or
demerger scheme.
not.
3. Details of change in constitution are to
be furnished on common portal along 3. The registered person should furnish the
with request to transfer unutilised ITC. prescribed details on the common portal
4. CA/ Cost Accountant certificate is to be within a period of 30 days from
submitted certifying that change in obtaining such separate registrations.
constitution has been done with specific 4. Upon acceptance of such details by the
provision for transfer of liabilities. newly registered person (transferee) on the
5. Upon acceptance of such details by the common portal, the unutilised ITC is
transferee on the common portal, the credited to his electronic credit ledger.
unutilized ITC is credited to his
Electronic Credit Ledger.

 SECTION 18: SPECIAL CIRCUMSTANCES LEADING TO REVERSAL OF CREDIT/
PAYMENT OF AMOUNT
Specially circumstances leading to reversal of credit/payment of amount

Section 18(4) Read with Rule 44
Registered person (who Supplies of Cancellation Supply of capital goods (CG)/
has availed ITC) registered person of registration plant and machinery (P&M)
switching from getting wholly on which ITC has been taken
regular scheme of exempted from tax Rule 40(2) & 44(6) of CGST
payment of tax to Rules.
composition levy
Amount to be paid is equivalent to higher of the following:
Amount to be reversed is equivalent to ITC on: (i) ITC on CG or P&M less 5% per quarter or part
 Inputs held in stock/ inputs contained in thereof from the date of invoice
semi-finished or finished goods held in (ii) Tax on transaction value of such CG or P & M
stock • If amount at (i) exceeds (ii), then reversal amount
 Capital goods will be added to output tax liability.
On the day immediately preceding the date of • Separate ITC reversal is to be done for CGST,
switch over/ date of exemption/date of SGST/UTGST and IGST
cancellation of registration
Note: Tax to be paid on transaction value when refractory
bricks, molds, dies, jigs & fixtures are supplied as scrap.
Manner of reversal of credit on inputs and capital goods & other conditions
(i) Inputs ⇒ Proportionate reversal based on corresponding invoices. If such invoices not available,
prevailing market price on the effective date of switch over/ exemption/cancellation of
registration should be used with due certification by a practicing CA/ Cost Accountant
(ii) Capital goods ⇒ Reversal on pro rata basis pertaining to remaining useful life (in months),
taking useful life as 5 years.
EXAMPLE: Capital goods have been in use for 4 years, 3 month and 20 days. The useful
remaining life in months = 8 months ignoring a part of the month.
ITC attributable to remaining useful life = ITC Taken x 8/60
(iii) ITC to be reversed will be calculated separately for ITC of CGST, SGST/UTGST and IGST.
(iv) Reversal amount will be added to output tax liability of the registered person.
(v) Electronic credit/cash ledger will be debited with such amount. Balance ITC if any will lapse.

 SECTION 19: ITC ON GOODS SENT FOR JOB WORK
Input Tax Credit on INPUTS
 Principal can take credit on goods (Inputs & Capital Goods) sent for Job Work.
 Credit can be taken even, if the said goods are sent directly to Job Worker (without being
first brought to the principal place of business)
 Points to be Noted
1. Time Limit: Time Limit for return of goods sent for Job work
Input  1 Year
Capital Goods  3 Year
From the date of sending the same for Job Work
Note 1: - If Input/ Capital Goods are sent directly to a Job Worker, the time limit
(1 Year/ 3 Year) shall be counted from the date of receipt of Inputs by the
Job Worker.
Note 2: - ITC on Moulds & Dies, Jigs & Fixtures or Tool:
The principal shall be allowed ITC on these items also, However the
time limit of 1 Year/ 3 Year is not applicable.
Note 3: - The period of 1 year & 3 year may, on sufficient cause being shown, be
extended by the commissioner (But cannot extend further more than

1 year/ 2 year respectively)
2. Deemed Supply: In case of delay over one year, it shall be deemed that such Inputs/
Capital Goods had been Supplied to the Job Worker on the day when
the said Goods were sent out.
3. Interest @18% p.a.: On failing to comply with the time limits, principal is liable to pay
tax along with interest @18% on such supply.

 SECTION 20 INPUT SERVICE DISTRIBUTOR
Meaning
ISD is basically an office meant to receive tax invoices towards receipt of input services
and Distribute the credit of taxes paid on such input services to supplier units (having
the same PAN) proportionately
Registration
An ISD is required to obtain a separate registration even though it may be separately
Registered. The threshold limit of registration is not applicable to ISD.
Attribute ITC
 ITC of input services is distributed only amongst those recipient to whom the input
Services are attributable
 ITC is distributed amongst the operational units only and in the ratio of turnover
ITC attributable = Credit to be distributed/ aggregate T/O

relevant period *T/O of the Recipient during relevant period.
 Relevant period is previous FY or last quarter prior to the month of distribution for
which of all recipients is available.

 Distributed ITC should not exceed the credit available for distribution.
Section 21 Recovery of excess credit distributed to a recipient
If the ITC has distributed excess credit to any recipient, the excess will be recovered
from the recipient with interest as if it was tax not paid
 RULE 88A: MECHANISM FOR UTILISATION OF IT

 ITC of IGST should first be utilized towards payment of IGST.
 Remaining ITC of IGST, if any, can be utilized towards the payment of CGST and
SGST/UTGST in any order, i.e. ITC of IGST can be first utilized either against
CGST or SGST.
 ITC of CGST, will be utilized towards payment of IGST & CGST,
 ITC of SGST/ UTGST will be utilised for payment of IGST & SGST/ UTGST
NOTE: - SGST/ UTGST TO BE USED FOR PAYMENT OF IGST ONLY WHEN CREDIT
OF CGST IS NOT AVAILABLE [SECTION 49 OF THE CGST ACT]

IDT Saar CA Final CH 8 Input Tax Credit by CA Mahesh Gour Handwritten Notes

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CHAPTER 8.

INPUT TAX CREDIT

Section 17: Apportionment of credit and blocked credits

Section 18: Availability of Credits in Special Circumstances

Section 20: Input Service Distributor

outward supply is known as Input Tax Credit (ITC).

1. Input, Capital Goods, Input Services:

GOODS U/S SERVICES

It means goods, value of It means goods

person claiming ITC

Used/intended to be used in the course or furtherance of business

CA Mahesh Gour +91 8459256756 | cacselectures.com P a g e | 8.1

 Attracting NIL rate of tax

 It includes Non-Taxable Supply (only sale of Land & Building) &

3. Zero Rated supply:

Export of Goods and/or Services Supply of goods and/ or services

 ELIGIBILITY AND CONDITIONS FOR TAKING ITC:

2. Such Inward supply used/intended to be used in the course or furtherance of

[Goods delivered/services provided to third person on the direction of the registered

Person(Bill to Ship to Mode)]

2. He has furnished GSTR 3B.

4. He has valid tax invoice/debit note/prescribed taxpaying document.

1. Goods received in lots → ITC allowed upon receipt of last lot.

by 20th October of next FY or filing of annual return, whichever is earlier.

Exception: Re-availment of ITC reversed earlier.

b) Such supplies will be specified in GSTR-3B of the month immediately

again without any time limit.

Note: 10% ITC Allowed on Provisional Basis

eligible credit available and reflect in GSTR 2A

Sr. No. Particualrs After Amendment

A Eligible ITC available in the Purchase register 2,00,000

C ITC that can be claimed as provisional credit 24,000

D Total ITC that can be claimed in the GSTR-3B 1,44,000

E ITC not allowed in the GSTR-3B of November 2019 56,000

 Clarification issued by CBIC

Impact on ITC: Impact on ITC:

2. No Requirement of reversal of ITC by be reversed by the OEM because it will

OEM because it is in course or not be considered as supply in course or

furtherance of business furtherance of business.

CA Mahesh Gour +91 8459256756 | cacselectures.com P a g e | 8.3

added to the value of such Supply. be added to the value of component.

 PROVISIONS RELATING TO APPORTIONMENT OF CREDIT AND BLOCKED CREDIT

 I] APPORTIONMENT OF CREDIT [Section 17]

Goods and/or Services

ITC available only as

Attributable to business purposes Attributable to taxable supplies

of Land & Sale of Building ITC will be required to be reversed)

Note: - The Value of Exempted Supply in respect of:

 Land & Building  Value adopted for paying stamp duty

 Security  1% of Sale Value of security

CA Mahesh Gour +91 8459256756 | cacselectures.com P a g e | 8.4

 Remaining 50% ITC will lapse.

person to another registered person having same pan.

 MANNER OF DETERMINATION OF ITC WHERE INPUTS/INPUT SERVICES ARE

 Step 1 - Calculation of ITC amount credited to Electronic Credit Ledger [C1]:

exclusively for non-business purposes (Personal) (T1) (XXX)

exclusively for exempt supplier. (T2) (XXX)

[i.e. Blocked credits u/s 17(5)] (T3) (XXX)

ITC credited to Electronic Credit Ledger (C1) XXXX

including zero rated supplies (T4) (XXX)

Common ITC available for apportionment (C2) XXXX

 Step 3 - To Compute credit attributable to exempt supplies (ineligible credit) by apportionment