Concept of ITC in Model GST Law (MGL) :
Section 2 (58) of MGL defines ITC as credit of input tax as defined in section 2 (56) [actually it is section 2 (57)]. “Input tax” has been defined in section 2 (57) as
“input tax” in relation to a taxable person, means the {IGST and CGST}/{IGST and SGST} charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7.
It implies that input tax consist of IGST & CGST in CGST Act and IGST & SGST in SGST Act. It also provides that the underlying supply of goods and/or services should be used or intended to be used by the taxable person in the course or furtherance of his business. Further, credit of tax paid on reverse charge basis can also be taken by the taxable person. It may be noted that since CGST Act also recognizes credit of IGST, the credit of IGST is allowed to be used for discharging CGST liability. Similarly, SGST Act also recognizes credit of IGST, so the credit of IGST is allowed to be used for discharging SGST liability.
Under section 2 (1) (d) of the IGST Act, input tax is defined as IGST, CGST or SGST charged on any supply of goods and / or services. So, in the IGST Act, input tax consists of all three taxes, IGST, CGST and SGST. It implies that credit of all three can be used for discharging IGST liability.
As ITC is credit of tax paid on inward supplies of goods or services, it is essential to understand three terms, namely inputs, capital goods and input services.
As per section 2 (54) of the MGL,“input” means any goods other than capital goods, subject to exceptions as may be provided under this Act (i.e. MGL) or the rules made thereunder, used or intended to be used by a supplier for making an outwardsupply in the course or furtherance of business.
As per section 2 (55) of the MGL, “input service” means any service, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outwardsupply in the course or furtherance of business.
As per section 2 (20) of MGL“capital goods” means: –
(A) the following goods, namely:-
(i) all goods falling within Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the Schedule to this Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof;
(vii) storage tank; and
(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis but including dumpers and tippers
used-
(1) at the place of business for supply of goods; or
(2) outside the place of business for generation of electricity for captive use at the place of business; or
(3) for supply of services,
(B) motor vehicle designed for transportation of goods including their chassis registered in the name of the supplier of service, when used for
(i) supplying the service of renting of such motor vehicle; or
(ii) transportation of inputs and capital goods used for supply of service; or
(iii) supply of courier agency service;
(C) motor vehicle designed to carry passengers including their chassis, registered in the name of the supplier of service, when used for supplying the service of-
(i) transportation of passengers; or
(ii) renting of such motor vehicle; or
(iii) imparting motor driving skills;
(D) Components, spares and accessories of motor vehicles which are capital goods for the taxable person.
It may be seen that the definition of capital goods is borrowed from the CENVAT Credit Rules. There is however a distinguishing feature in GST. Under the GST regime, ITC in respect of capital goods is allowed to be taken in one go unlike staggered availment presently permitted in Central Excise and Service Tax and in some VAT laws. It is also important to note that although ITC on inputs and capital goods is permitted in one go yet inputs and capital goods have been defined separately. The necessity of separate definitions of inputs and capital goods is required because some provisions of MGL differentiate capital goods from inputs. For example, when capital goods, on which ITC had been taken, are supplied, the reversal of ITC or payment of ITC is calculated in a specific manner in terms of the provisions contained in section 16 (14) of MGL. Similarly, capital goods and inputs have been treated differently, in section 16A, when these are sent for job work.