1. 1
KNOWLEDGE PARTNER OF:
“INPUT TAX CREDIT & INPUT SERVICE
DISTRIBUTOR”
20th June, 2018
PAWAN ARORA
Joint Partner, ALA LEGAL

2. 2
CONTENTS
 Meaning of Input Tax Credit and Input Tax
 Eligibility and Conditions for taking ITC
 Apportionment of credit and blocked credits
 Availability of credit in special circumstances
 Utilisation of ITC
 Concept of Input Service Distributor (ISD) and manner of distribution
of ITC
 Conditions for distributing ITC by ISD
 Manner of recovery of credit distributed in excess
 Case studies and Illustrations

3. 3
INPUT TAX CREDIT UNDER GST
(SECTIONS 16-21, RULES 36-45)

4. 4
INPUT TAX & INPUT TAX CREDIT
“Input tax credit” means credit of ‘input tax’ as
defined in section 2(62)
Inputtax
(Section2(62)
CGST, SGST,
IGST,
UTGST
Charged on
ANY supply of
goods and/ or
services to a
Registered Person.
Includes
IGST on import of
goods
Tax payable under RCM
(under CGST, IGST,
UTGST and resp. SGST)
Does NOT
include
Tax Paid under
Section 10
(Composition Levy)

5. 5
INPUT AND INPUT SERVICE
Input
Section 2(59)
ANY GOODS other than
capital goods
used or intended to be
used
by a supplier
in the course or
furtherance of business
Input Service
Section 2 (60)
ANY SERVICE
used or intended to be
used
by a supplier
in the course or
furtherance of business

6. 6
INPUT TAX CREDIT (ITC) TO REGISTERED
TAXABLE PERSON – SECTION 16
Subject to
conditions/
restrictions
•He should be in
possession of the tax
invoice/ debit note/ tax
paying document
•He has received the
goods and/or services
•Tax charged has been
actually paid to the
govt.
•Furnished the return
under S. 39
Used/
intended to
be used in
course or
furtherance
of business
Input tax
charged on
any supply
Be entitled
to take credit
of input tax
EVERY
REGISTERED
PERSON
ITC Reversal on Non-Payment to Supplier (Vendor)
• The payment along with tax shall be required to be made within 180
days. In case the recipient fails to pay to the supplier, credit shall be
required to be reversed along with interest.
• The credit can be re-availed once, payment is made at a later date.
• This condition shall not apply where tax is paid under reverse charge.

7. 7
IMPORTANT POINTS
• Credit of Air tickets booked in advance?
• Bill-to – Ship-to: receipt of goods shall be deemed when ship-to party
receives the goods.
• Where Recipient not raising invoice under R. 31(3)(f) for supplies from
unregistered person, then the person shall be ineligible to claim that credit.
• In the proposed return procedure: the Govt. has plans to issue notice to
recipient of g/s for reversal of credit in cases where supplier doesn’t pay the
tax, subject to preventive safeguards over the supplier.
• Condition of payment to supplier within 180 days:
– Fails to pay
– Interest payable from date of availing credit.
– Retention money?
– Supplier agrees to extend credit period?

8. 8
DOCUMENTS REQUIRED & CONDITIONS FOR
CLAIMING ITC – RULE 36
• ITC can be claimed on the basis of ANY OF THE FOLLOWING
DOCUMENTS:
– Invoice
• Raised by Supplier under S. 31
• Invoice raised by recipient under S. 31(3)(f)
– Debit Note
– Bill of entry
– ISD Invoice/ ISD Credit Note/ any document issued by ISD for the purpose of
transferring credit.
• ITC can be availed only after furnishing the relevant information in the return.

9. 9
CONTD…
If Deprecation Claimed of Tax Amount – No Credit
• Cases where the registered person has claimed depreciation on the tax
component of the cost of capital goods and plant and machinery under the
provisions of the Income Tax Act:
– the ITC shall not be allowed on the said tax component
Time Limit to avail Credit
• Taxable person shall not be entitled to take input tax credit in respect of invoice
or debit note for supply of goods or services or both:
– after the due date of furnishing of the return under section 39 for the month of
September following the end of financial year to which such invoice or
invoice relating to such debit note pertains or
– furnishing of the relevant annual return,
whichever is earlier.

10. 10
NEGATIVE LIST – SECTION 17(5)
INPUT TAX CREDIT NOT AVAILABLE
Input tax credit shall not be available in respect of the following, namely:—
a) motor vehicles and other conveyances except when they are used––
i. for making the following taxable supplies, namely:—
A. further supply of such vehicles or conveyances ; or
B. transportation of passengers; or
C. imparting training on driving, flying, navigating such vehicles or
conveyances;
ii. for transportation of goods;
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;
ii. membership of a club, health and fitness centre;
iii. rent-a-cab, life insurance and health insurance except where ––

11. 11
CONTD…
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
iv. travel benefits extended to employees on vacation such as leave or home travel
concession;
c) works contract services when supplied for construction of an immovable property
(other than plant and machinery) except where it is an input service for further
supply of works contract service;
d) goods or services or both received by a taxable person for construction of an
immovable property (other than plant or machinery) on his own account including
when such goods or services or both are used in the course or furtherance of business.
Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes
re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to
the said immovable property;

12. 12
CONTD…
e) goods or services or both on which tax has been paid under section 10;
f) goods or services or both received by a non-resident taxable person except on goods
imported by him;
g) goods or services or both used for personal consumption;
h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free
samples; and
i) any tax paid in accordance with the provisions of sections 74, 129 and 130.
"plant and machinery" means apparatus, equipment, and machinery fixed to earth by
foundation or structural support that are used for making outward supply of goods or
services or both and includes such foundation and structural supports but excludes-
– land, building or any other civil structures;
– telecommunication towers; and
– pipelines laid outside the factory premises

13. 13
IMPORTANT POINTS
• Motor vehicles:
– Credit of repair & maintenance,
– Credit of insurance
• Meals to employee (Levy of GST & ITC):
– With Recovery
– Without Recovery
• Works contract service/ Goods of Services for construction of an immovable
property
– Contract of reconstruction/ renovation (with interiors & furniture) – separate contracts for tax
optimization.
• Goods lost stolen destroyed written off
– Credit of scrap or obsolete products?
• Goods disposed of by way of gift
– Buy two get one free?
– What about supplies taxed under Schedule I, for e.g. gift to employee?
• Tax paid in case of fraud/ suppression by supplier?

14. 14
ORDER OF PREFERENCE FOR USING ITC RELATING TO
DIFFERENT TAXES I.E. IGST/ CGST/ SGST – SECTION 49(5)
• The taxable person may have ITC on account of various taxes such as IGST/
CGST/ SGST – following is the table that summaries the order of preference
for using the credit available on account of different taxes
Type of
credit
First
preference
Second
preference
Third
preference
Comments
IGST IGST CGST SGST
Credit of IGST can be used for
payment of IGST/ CGST/ SGST
CGST CGST IGST -
Credit pertaining to CGST cannot
be used for payment of SGST
SGST SGST IGST -
Credit pertaining to SGST cannot
be used for payment of CGST

15. 15
APPORTIONMENT OF CREDIT & BLOCKED CREDIT –
SECTION 17
Situation Restriction on availment on credit
Supply has been made partly for business purpose and partly
for other purposes
Amount of credit restricted to the
input tax as is attributable to the
purposes of its business.
Supply is partially taxable (including zero-rated supply) and
partially exempt
NOTE: Value of Exempt supply to include:
 Supplies on which recipient liable to pay on reverse charge
basis;
 Transactions in securities
 Sale of land
 Sale of building, subject to clause (b) of Para 5 of Schedule II
Amount of credit restricted to the
input tax as is attributable to the
said taxable supply including zero-
rated supply
Banking company, financial institution (including NBFC) –
engaged in supplying services by way of accepting deposits,
extending loans or advances
Either comply with the above
(partially taxable & exempt) or
avail 50% of the eligible ITC every
month. The rest shall lapse.

16. 16
EXEMPT SUPPLY
“exempt supply” means supply of any goods or services or both which attracts nil rate
of tax or which may be wholly exempt from tax under section 11, or under section 6 of
the Integrated Goods and Services Tax Act, and includes non-taxable supply;
Explanation to Rule 43 clarifies that for the purpose of Rule 42, 43, the aggregate value
of exempt supplies shall exclude: -
• the value of supply of services specified in the notification No. 42/2017-Integrated
Tax (Rate), which seeks to exempt IGST on inter-state supply of services to Nepal
and Bhutan against payment in INR.;
• 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 a place outside India.

17. 17
OTHER PROVISIONS REGARDING ITC – SECTION 18
Fresh registration
under the act –
when becomes
liable to registration
Entitled to ITC w.r.t. inputs held in stock & inputs held in
finished/ semi-finished goods in stock held in stock on the day
immediately preceding when he becomes liable to payment of
tax under GST.
Voluntary
registration under
the act
Entitled to ITC w.r.t. inputs held in stock & inputs held in
finished/ semi-finished goods in stock held in stock on the day
immediately preceding date of grant of registration.
RP ceases to pay
tax under
Composition Levy
Entitled to ITC w.r.t. inputs held in stock & inputs held in
finished/ semi-finished goods in stock held in stock and on
capital goods on the day immediately preceding when he
becomes liable to payment of tax under Section 9.
When exempt
supply becomes
taxable supply
Entitled to ITC w.r.t. inputs held in stock & inputs held in finished/
semi-finished goods in stock held in stock relatable to the exempt
supply and on capital goods exclusively for the exempt supply on the
day immediately preceding when the supply becomes taxable.

18. 18
CONTD…
Such 4 categories of registered persons, as mentioned on the previous slide SHALL NOT BE
ENTITLED TO ITC AFTER THE EXPIRY OF ONE YEAR FROM THE DATE OF INVOICE RELATING
TO SUCH SUPPLY. (S. 18(2))
In case of sale/ merger/ demerger/ amalgamation/ lease/ transfer of business –
allowed to transfer unutilized ITC to such resultant business. (S. 18(3), R. 41)
Registered
Person availed
ITC (S. 18(4))
Opts to pay tax under
Composition Levy
OR
His outward supply
becomes wholly exempt
He shall pay an amount = ITC w.r.t. inputs
held in stock & inputs held in finished/
semi-finished goods in stock held in stock
and on capital goods, reduced by
percentage points, on the day immediately
preceding when the supply becomes
taxable. Balance ITC shall lapse.

19. 19
CONTD…
• Fixed Asset was purchased for 40,000. ITC cliamed= 40,000*12%= 4,800
• Consideration = 15,000
• 15,000 shall be the transaction value as per (2)
• Tax payable in (1)= 4,800*3.5/5 = 3,360 [Assuming FA has been sold after
1.5 years]
• Tax payable in (2)= 15,000*12% = 1,800 [Assuming GST Rate to be 12%]
• Higher of (1) and (2) shall be payable.
Supply of Capital
goods/ Plant &
machinery on
which ITC availed
Tax
liability
Proportionate ITC
OR
Tax on transaction value
(whichever is higher)

20. 20
ITC IN CASE OF JOB-WORK – SECTION 19
• Principal entitled to ITC on inputs and capital goods sent to job-worker for
job-work (even if directly sent to job-worker without first bringing to
principal’s place of business).
• If the inputs are not received back by the principal within 1 year – deemed
to be supply to job-worker – on the day they were sent out to the job-
worker.
• If the capital goods are not received back by the principal within 3 years –
deemed to be supply to job-worker – on the day they were sent out to the
job-worker.

21. 21
INPUT SERVICE DISTRIBUTOR
(SECTIONS 20-21, RULE 39)

22. 22
INPUT SERVICE DISTRIBUTOR
(SECTION 20, RULE 39)
• An office of the supplier of goods and/ or services which
• Receives tax invoices towards receipt of input services and
• Issues a prescribed document for the purposes of distributing the credit of Central tax
(CGST), State tax (SGST), Union territory tax (UTGST) or Integrated tax (IGST) paid
on the said services to a supplier of taxable goods or services or both
• Having same PAN as that of the ISD.
ISD mechanism is meant only for distributing the credit on common invoices pertaining to
input services only and not goods (inputs or capital goods).
The ITC available for distribution in a month shall be distributed in the same month.
Details to be furnished in FORM GSTR-6 – by the 13th of the month.
An ISD cannot accept any invoices on which tax is to be discharged under reverse charge mechanism.
This is because the ISD mechanism is only to facilitate distribution of credit of taxes paid. The ISD itself
cannot discharge any tax liability (as person liable to pay tax) and remit tax to government account. If
ISD wants to take reverse charge supplies, then in that case ISD has to separately register as Normal
taxpayer

23. 23
CONTD…
• A registered person, having the same PAN and State code as an Input
Service Distributor, may issue an invoice or, as the case may be, a credit
or debit note to transfer the credit of common input services to the Input
Service Distributor.
• Such Document shall contain details as prescribed under Rule 54(1A).

24. 24
50% of the
total
turnover
EXAMPLE OF ISD
Delhi
Head
Office
Mumbai
Turnover
25 Cr
H.O. procures a service
common for utilization of the
different offices of value of
Rs. 10Lakhs. Billed to H.O.
H.O. Turnover = Zero
Total Turnover = 50 Cr
20% of the
total
turnover
Bangalore
Turnover
10 Cr 30% of the
total
turnover
Kolkata
Turnover
15 Cr
50% x 10L = 5L
20% x 10L = 2L
30% x 10L = 3L

25. 25
COMMON SERVICES
• Cross-charge can be done only where Head Office provides a service to
another office/branches.
• On the other hand, Credit is to be distributed through ISD where the Head
Office procures certain services which are for common utilization of all/
some of its branches across the country. The bills for such expenses would be
raised on the Head Office.
• The credit on such invoices is to be distributed amongst the respective offices
through an ISD.

26. 26
CONDITIONS OF DISTRIBUTION
• Credit can be distributed only against a document (ISD invoice/ ISD debit
note/ any other doc. As may be prescribed) containing the prescribed details
(in accordance with Rule 54(1)).
• The amount of credit distributed should not exceed the ITC available.
• BOTH eligible as well as ineligible credit is to be distributed.
• The credit has to be distributed only to the unit to which the supply is
directly attributable to.
• If input services are attributable to more than one recipient of credit, the
distribution shall be on pro-rata basis, on the basis of the turnover in the
State/Union Territory in the preceding financial year or the last quarter as the
case may be.
• Excess distributed credit shall be recovered from the units, with interest, and
the provisions of penalty apply mutatis mutandis. (Section 21)

27. 27
MANNER OF DISTRIBUTION OF ITC IN CASE OF ISD
CREDIT ON ACCOUNT OF CREDIT DISTRIBUTED AS
IGST
IGST (As per rules)
IGST/ CGST (As per Act and the return
GSTR-6)
CGST/ SGST/ UTGST – Unit in same state as
ISD
CGST/ SGST/ UTGST RESPECTIVELY
CGST/ SGST/ UTGST – Unit NOT in same
state as ISD
IGST
Amount distributed = aggregate of
available CGST + SGST + UTGST

28. 28
CREDIT DISTRIBUTED IN EXCESS
• ISD shall issue an “Input Service Distributor credit note”, with the details
prescribed in Rule 54(1), for reduction of credit in case the input tax credit
already distributed gets reduced for any reason: like wrong recipient,
incorrect amount of distribution, etc.
• ITC required to be reduced on account of issuance of a credit note to the ISD
by the supplier shall be apportioned to each recipient in the same ratio in
which the input tax credit contained in the original invoice was distributed,
and the amount so apportioned shall be-
– reduced from the amount to be distributed in the month in which the
credit note is included in the return in FORM GSTR-6; or
– added to the output tax liability of the recipient where the amount so
apportioned is in the negative by virtue of the amount of credit under
distribution being less than the amount to be adjusted.

29. 29
THANK YOU
CONTACT US:
PAWAN ARORA
ADVOCATE
+91-8800091636
PAWAN@ALALEGAL.IN
WEBSITE: ALALEGAL.IN
BLOG: WWW.GSTLAWINDIA.COM