Legality of Blocking of Input Tax Credit in GST Without Examination—Divya Rathi

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The Tax Publishers GST--Blocking of Input Tax Credit Legality of Blocking of Input Tax Credit in GST Without Examination Divya Rathi The learned author seeks to examine the issue as to whether blocking of input tax credit without examination is valid in law. 1. Introduction With the introduction of the Goods and Services Tax ("GST") regime from 1-7-2017, a significant reform in the indirect taxation system has been made. One of the important components of GST is Input Tax Credit (ITC) which allows a taxable person to claim the benefit of GST paid by him on any purchase of goods and/or services that are used or will be used for business against the output tax liability. ITC has emerged to be the cornerstone of the GST regime as it enables the supplier of a final product to significantly reduce its GST burden by setting-off the input tax paid from the total output tax liability. However, there are instances of blocking ITC without proper examination which have raised concerns about the legality and fairness of such actions. 2. Meaning of Input Tax Credit (ITC) Under the Central GST Act, 2017, section 2(62) defines "Input Tax" which states "input tax" in relation to a registered person, means the central tax, state tax, integrated tax or union territory tax charged on any supply of goods or services or both made to receipt him and includes (a) The integrated goods and services tax charged on import of goods; (b) The tax payable under the provisions of sub-sections (3) and (4) of section 9; (c) The tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act (hereinafter referred as "IGST"); (d) The tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or (e) The tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy. 3. Conditions for claiming input tax credit As per section 16 of the CGST Act, 2017, which deals with the eligibility for ITC states that a registered person is eligible to claim ITC on the goods or services received by them, which are used or intended to be used for business purposes and the said amount shall be credited to the electronic credit ledger of such person. No registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless: (a) The registered person is in possessions a valid tax invoice or debit note issued by the registered supplier. (b) The details of the invoice or debit note has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

GST--Blocking of Input Tax Credit

Legality of Blocking of Input Tax Credit in GST Without Examination

Divya Rathi

The learned author seeks to examine the issue as to whether blocking of input tax credit without examination is valid in law.

1. Introduction

With the introduction of the Goods and Services Tax ("GST") regime from 1-7-2017, a significant reform in the indirect taxation system has been made. One of the important components of GST is Input Tax Credit (ITC) which allows a taxable person to claim the benefit of GST paid by him on any purchase of goods and/or services that are used or will be used for business against the output tax liability. ITC has emerged to be the cornerstone of the GST regime as it enables the supplier of a final product to significantly reduce its GST burden by setting-off the input tax paid from the total output tax liability. However, there are instances of blocking ITC without proper examination which have raised concerns about the legality and fairness of such actions.

2. Meaning of Input Tax Credit (ITC)

Under the Central GST Act, 2017, section 2(62) defines "Input Tax" which states "input tax" in relation to a registered person, means the central tax, state tax, integrated tax or union territory tax charged on any supply of goods or services or both made to receipt him and includes

(a) The integrated goods and services tax charged on import of goods;

(b) The tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) The tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act (hereinafter referred as "IGST");

(d) The tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

(e) The tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy.

3. Conditions for claiming input tax credit

As per section 16 of the CGST Act, 2017, which deals with the eligibility for ITC states that a registered person is eligible to claim ITC on the goods or services received by them, which are used or intended to be used for business purposes and the said amount shall be credited to the electronic credit ledger of such person.

No registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless:

(a) The registered person is in possessions a valid tax invoice or debit note issued by the registered supplier.

(b) The details of the invoice or debit note has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note