Recent Amendments in Input Tax Credits Provisions under GST
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This Act contains certain amendments in various provisions of Principal Act i.e. Central Goods and Service Tax Act, 2017. The purpose of bringing this Act is to provide relief & clarity to businesses on various aspects of law e.g. supply, input tax credits, returns, cancellation appeals etc. among other things and to ensure stability & consistency in implementation of GST Laws.
One of the major amendments brought through this Act is relating to input tax credits provisions. This article tries to explain these amendments along with its impact on businesses once these amendments are get notified.
Section 16 to 21 of the principal Act enumerates the input tax credit provisions in general. Following are the changes which are done through the amendment Act:-
1. Deemed receipt of goods & services (Explanation to Section 16(2))
Under the exiting provision contained in explanation to sub section (2) of section 16, it is provided that if the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise, it shall be deemed that the registered person has received the goods. This existing explanation does not cover the situation where a supplier supplies services to another person on behalf of a registered recipient.
Therefore, this existing explanation has been substituted to include that in case of services also, where the services are provided by the supplier to any person on the direction of and on account of such registered person, it shall be deemed that the registered person has received the services. This amendment will help businesses to claim Input tax credit on services received by another person on their behalf.
2. Exclusion of Non GST Items from value of exempt supplies u/s 17(3)
Currently, section 17(3) of the principal Act provides for the manner in computing the value of exempted supplies of goods or services or both for the purpose of reversal of input tax credit on such supplies. This amendment tends to provide more clarity in computing the value of such exempted supplies and accordingly an explanation is added to subsection (3) of Section 17 which says that the ‘‘value of exempt supply’’ shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.
With the exclusion of Non GST Items from value of exempt supplies u/s 17(3), reversal of ITC amount for exempted supplies will get reduced.
3. Restriction on taking ITC on certain supplies (Section 17(5))
Section 17(5) of the principal Act prescribes certain supplies of goods or services or both on which input tax credit shall not be available even if the supplier fulfils all conditions prescribed for claiming ITC on supplies. The amendment Act has substituted clause (a) & (b) of Section 17(5) with new clauses. A comparison of existing clauses (a) & (b) with new ones are as follow:-
| Existing Provisions | Amended Provisions | Changes & Impact |
| (a) motor vehicles and other conveyances except when they are used–– |
“(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:— | a) Now, only motor vehicles having seating capacity <= 13 comes into the preview of blocked credits. b) Following will not fall in ambit of blocked credits. (i) Motor vehicles having seating capacity > 13 (ii) Motor vehicles for transportation of goods |
| (i) for making the following taxable supplies, namely:— |
- | - |
| (A) further supply of such vehicles or conveyances ; or | (A) further supply of such motor vehicles; or | Now applicable for motor vehicles having seating capacity <= 13 |
| (B) transportation of passengers; or | (B) transportation of passengers; or | DO |
| (C) imparting training on driving, flying, navigating such vehicles or conveyances; | (C) imparting training on driving such motor vehicles | DO |
| (ii) for transportation of goods; | - | Indirectly excluded from these restrictions. |
| - | (aa) vessels and aircraft except when they are used– | Now Other conveyances are covered under these clauses |
| - | (i) for making the following taxable supplies, namely:— | |
| - | (A) further supply of such vessels or aircraft; or (B) transportation of passengers; or (C) imparting training on navigating such vessels; or (D) imparting training on flying such aircraft; |
|
| - | (ii) for transportation of goods; | |
| - | (ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa): | New insertions so as to specifically disallow ITC on motor vehicles, vessels and aircrafts covered in clause (a) or clause (aa) |
| - | Provided that the input tax credit in respect of such services shall be available— | |
| - | (i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein; | Allowing credits of services mentioned in clause (ab) upon fulfilment of certain conditions |
| - | (ii) where received by a taxable person engaged— (I) in the manufacture of such motor vehicles, vessels or aircraft; or (II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him; |
Allowing credits of services mentioned in clause (ab) to:- i) Manufactures of such Motor Vehicles, vessels or aircrafts ii) General Insurance Service Providers |
| (b) the following supply of goods or services or both— | (b) the following supply of goods or services or both— | |
| (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; |
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; |
Specifically disallow ITC on leasing, renting or hiring of motor vehicles, vessels and aircrafts covered in clause (a) or clause (aa) |
| (ii) membership of a club, health and fitness centre; | (ii) membership of a club, health and fitness centre; and | |
| (iii) rent-a-cab, life insurance and health insurance except where–– (A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or (B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and |
Merged in sub clauses (i) | |
| (iv) travel benefits extended to employees on vacation such as leave or home travel concession; | (iii) travel benefits extended to employees on vacation such as leave or home travel concession: Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”. |
Thus, with these amendments in the input tax credits provisions, the Government has liberalised as well as tighten the availment of input tax credits by businesses. The author has the view that these amendments in the provisions of input tax credits will help create and strengthen positive business environment.
CA Sanjay Jain
(sanjay@jskca.in)
Disclaimer:-
This article is authored for general awareness purpose only and do not represent any financial, legal or professional opinion or advise in any manner for any purpose whatsoever.
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