Budget Proposals -2023 Series: Asking Questions and Finding Answers [Part I]
ITC: Eligibility
This blog is one of a series of topic-specific FAQs concerning Budget 2023 proposals. It addresses the practical issues raised due to proposed changes.
Vivek Laddha, Manish Gupta, Pooja Patwari
FAQ 1. What types of change are there in the eligibility of the ITC?
Law Brothers’ View: Though, lawmakers have put restrictions and conditions in availing of ITC time to time. But this time, there is no amendment for the purpose of availment of ITC. But yes, there are the changes for
- reversal of ITC
- reclaiming the ITC
- proportionate ITC
- block ITC
FAQ 2. What is the background of proposed amendment in ITC reversal provision incase of delayed payment under section 16?
Law Brothers’ View: Present reading:
Where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon.
The wording ‘added to his output tax liability’ was written in the line of the original thought process of GSTR 1 à GSTR 2 à GSTR 3. With shifting to GSTR 3B and omission of section 41 and 42, there does not remain the relevance of adding the amount equal to the input tax credit availed to the output tax liability. Therefore, the government has already amended rule 37 using the wording ‘shall payor reverse an amount equal to the input tax credit availed’.
This is the beauty that the Act has been aligned with the Rule!! The viewpoint is correct but the reverse process is followed where the Act should be amended first then the Rule. Amazing, isn’t it?
FAQ 3. What is the new proposition in reclaiming of ITC?
Law Brothers’ View: In our view nothing. The words ‘to the supplier’ are added.
Proviso states that
“Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon.”
In fact, the second proviso also reads as ‘Where a recipient fails to pay to the supplier’. On a similar line, the words ‘to the supplier’ is added in the reclaiming of ITC related provision.
In our view, Indian Contract Act and Natural Laws will still prevail in a situation where the recipient makes the payment to third person on the instruction of supplier or as per the requirement of law, it shall be treated as if the payment is made to the supplier.