Discover Insights Into Input Tax Credit Under GST Act

WEEKEND MCQ SELF CHALLENGE #12 - INPUT TAX CREDIT UNDER GST ACT

INPUT TAX CREDIT under the GST Act

Dear Professional Seniors & Friends.

Welcome to this wonderful weekend MCQ self-challenge!

This weekend's challenge is on #Input Tax Credit under the GST Act having 5 MCQs to be self-answered by participants to take a challenge. The objective of this post is to discuss the various ITC provisions to be kept in mind while utilizing the same. The detailed answers to these MCQs shall be posted on Monday for the self-assessment of the participants. This post by the best tax consultant in Gurgaon shall be of immense use to the participant.

Weekend MCQ 12.1: A Company has Branch-A which is a registered taxable person in Andhra Pradesh conducts a conference in a hotel in Loriavia (Maharashtra) where CGST and SGST are charged by the hotel. This Company also has Branch-M which is a registered taxable person in Mumbai. What is the possible scenario among the following options?

(A) The company can take bills in the name of branch A and the input tax credit will be available to branch A.

(8) The company can take bills in the name of branch M and the input tax credit will be available to branch M.

(C) The company can take a bill in the name of branch M and the input tax credit will be available to branch A by way of 150 if nexus exists.

(D) None of the above.

Weekend MCQ 12.2: Among the following events, when a person can take credit of input tax credit paid on the purchase of goods?

Date of booking order - 25/04/2017

Date of payment/receipt of advance/date of invoice-27/04/2017

Date of dispatch of goods - 29/04/2017

Date of receipt of goods - 01/06/2017

(A) 25/04/2017

(B) 27/04/2017

(C) 29/04/2017

(D) 01/06/2017

Weekend MCQ 12.3: Among the following events, what amount of net input tax credit will be eligible to be allowed to a person?

Total input tax on inputs and input services for the tax period May 2018 - Rs 1,00,000

Input tax used exclusively for non-business purposes - Rs 10,000

Input tax used exclusively for effecting exempt supplies - Rs 5,000

Input tax used exclusively for effecting supplies on which recipient is liable to pay tax on reverse charge basis - Rs 5,000

Input Tax ineligible u/s 17(5)-Rs 5.000

Input tax credit used exclusively for taxable supplies - Rs 50,000

Aggregate value of exempt supplies(May 2018) - Rs 25,00,000

Total Turnover(May 2018) - Rs 10,00,000

(A) Rs 67.500

(B) Rs 72.500

(C) Rs 62,500

(D) Rs 68.750

Weekend MCQ 12.4: What amount of input tax credit paid on the purchase of capital goods will be allowed after the exempt supply has become taxable from a date?

Date of Invoice of capital goods-22-Jan-2018

Date from which exempt goods become taxable - 01-Apr-2018

IGST Paid on the capital goods used exclusively in relation - 360000

To goods exempted up to 31-Mar-2018

(A) Rs 1,80,000

(8) Rs 3,60,000

(C) Rs 3,42,000

(D) Rs 3.24,000

Weekend MCQ 12.5: Mr.X became liable to pay tax on 5th Aug 2017 and has applied for registration on 22nd Aug 2017 and was granted a registration certificate on 10th Sep 2017. Which among the following is the possible scenario?

(A) He can take credit of input tax in respect of goods held in stock as of 31st July 2017.

(B) He can take credit of input tax in respect of goods held in stock as of 04th Aug 2017.

(C) He can take credit of input tax in respect of goods held in stock as of 21st Aug 2017.

(D) He cannot take credit.

Answer MCQ Self Challenge #12 - Weekend Dhamaka

This post of MCQ is on the input tax credit provisions under GST since it is an essential tool to determine the net tax payable.

Answer to MCQ 12.1:C)

Practical Analysis for MCQ 12.1

• Every registered person subject to Section 49, shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business
• It is important to observe the words "used by him' and in his business appearing in section 16(1) These words refer to the registered taxable person in question and not the legal entity as a whole. So, input tax credit paid in a State must not be about the business of a taxable person in another State albeit belonging to the same taxable person
• CGST-SGST charged by the hotel in Lonavala (Maharashtra) is used in the business of Branch-A in Andhra Pradesh and not in the business of Branch-M in Mumbai
• The hotel would not be aware of the above fact and would not resist issuing the bill in the name of Branch M because both are branches of the same Company
• Since CGST-SGST has been charged by the hotel, the input tax credit would not be available to Branch-A as tax paid in Maharashtra is not a creditable tax in Andhra Pradesh
• The Company needs to obtain ISD registration in Maharashtra and distribute this credit entirely to Andhra Pradesh
• But, Branch-M in Mumbai cannot justify this input tax credit as it is not used by him in his business but is used by another in that other business
• If a nexus is established between the services of the hotel and the business of Branch-M, input tax credit may be availed by Branch-M Nexus emerges inter branch supply of services occurs between Branch-M and Branch-A
• Based on the above analysis. the correct answer to MCQ 12.1: C) The company can take a bill in the name of branch M and the input tax credit will be available to branch A by way of ISD if nexus exists.

Answer to MCQ 12.2:D)

Practical Analysis for MCQ 12.2

• Section 16 of the CGST act lists out the requirements to claim input tax credit
• One of the conditions prescribed is that goods/services should have been received
• In case of goods received in lots/installments, credit will be available upon receipt of the last lot/installments
• In our question, although the liability to pay tax arises in April 2017, credit will be eligible in June 2017 upon receipt of goods which will result in a credit mismatch.
• Based on the above analysis, the correct answer to MCQ 122: D) 01/06/2017

Answer to MCQ 12.3: A)

Practical Analysis for MCQ 12.3

Rule 42 of CGST Rules prescribed the procedure for determination of input tax credit in respect of inputs or input services and reversal thereof which is presented below-

Particulars Reference GST

Total input tax on inputs and input services for the tax period May 2018 T 1,00,000

Input tax used exclusively for non-business purposes T1 10,000

Input tax used exclusively for effecting exempt supplies T2 10,000

Input tax ineligible under Section 17(5) T3 5,000

ITC credited to Electronic Credit Ledger C1= T-(T1 + T2 =T3) 75,000

Input tax credit used exclusively for taxable supplies (including zero-rated supplies) T4 50,000

Common Credit C2 = C1 - T4 25,000

The aggregate value of exempt supplies for the tax period May 2018 E 25,00,000

Total Turnover of the registered person for the tax period May 2018 F 1,00,00,000

Credit attributable to exempt supplies D1 = (E/F) * C2 6,250

Credit attributable to non business Purposes D2 = C2 * 5% 1,250

Net eligible common credit C3 = C2 - (D1 + D2) 17,5000

Total credit eligible (Exclusive + Common) G = T4 + C3 67,500

• Based on the above analysis, the correct answer to MCQ 12.3: A) Rs 67,500

Answer to MCQ 12,4:C)

Practical Analysis for MCQ 12.4

• Rule 40(1)(a) of the Input Tax Credit Rules provides that input tax credit on capital goods can be claimed after reducing 5% per quarter of a year or part thereof, from the date of invoice in respect of which capital goods are received. Therefore, the number of quarters is 1,
  being the first quarter of the year 2018 The reversal of credit would therefore be as follows

Date of invoice of capital goods 22-Jan-2018

Date from which the exempt goods become taxable 01-Apr-2018

No. of quarters from the date of invoice 1

Percentage points to be reduced (5% per quarter) 5%

IGST paid on the capital goods used exclusively concerning goods exempted

up to 31-Mar-2018 3,60,000

ITC to be reduced by 5% (18,000)

Credit (IGST) available on capital goods 3,42,000

• Based on the above analysis, the correct answer to MCQ 124: (C) Rs 3.42,000

Answer to MCQ 12.5:D)

Practical Analysis for MCQ 12.5

• Sec 18 of the CGST Act provides the provisions related to an input tax credit for goods lying in stock.
• Sec 18(1)(a) deals with the situation where a person becomes liable to pay tax and wants to claim input tax credit in respect of goods lying in stock.
• As per that rule, a person who has applied for registration under this Act within thirty days from the date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of goods lying in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act.
• The point here to note is that the act requires both application and granting of registration certificate within 30 days, then only one person will be eligible to take credit.
• Based on the above analysis, the correct answer to MCQ 12.5: D) He will not entitled to credit since he has not been granted a registration certificate within 30 days.

(Disclaimer: The objective of the MCQ post is just to discuss the concept. It may happen, by change of facts, the answer may be different. Please do not treat this as a professional opinion: you can definitely have your own opinion.)

Sincere Regards!

CA Sanjay Kumar Agrawal

Mobile: 9810116321