Additional Concepts Of ITC :
In order to fully comprehend the concept of ITC, some other concepts like supply, inward supply, outward supply, output tax, place of business, reverse charge, valid return, etc. as provided in the MGL are discussed in subsequent paras.
In terms of section 2 (92) of MGL, “supply’’ shall have the meaning as assigned to it in section 3. Section 3 defines supply as:
“(1) Supply includes
(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,
(b) importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and
(c) a supply specified in Schedule I, made or agreed to be made without a consideration.
(2) Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.
(2A) Where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.
(3) Subject to sub-section (2), the Central or a State Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as—
(i) a supply of goods and not as a supply of services; or
(ii) a supply of services and not as a supply of goods; or
(iii) neither a supply of goods nor a supply of services.
(4) Notwithstanding anything contained in sub-section (1), the supply of any branded service by an aggregator, as defined in section 43B, under a brand name or trade name owned by him shall be deemed to be a supply of the said service by the said aggregator.”
Thus, the definition and scope of supply in MGL is quite expansive and comprehensive. Supply includes all forms of supply whether or not for a consideration as long as it is in the course or furtherance of business.
Inward supply in relation to a person, in terms of section 2 (61) of MGL,shall mean receipt of goods and/or services whether by purchase, acquisition or any other means and whether or not for any consideration. Thus, it covers receipt of goods or services by any means with or without consideration.
Outward supply in relation to a person, in terms of section 2 (73) of MGL, shall mean supply of goods and/or services, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made by such person in the course or furtherance of business except in case of such supplies where the tax is payable on reverse charge basis. Thus, it covers all forms of supply excluding supplies where GST is payable by the recipient under reverse charge mechansim. It is important to note that the supply is not to be treated as outward supply in the hands of the recipient although he is liable to discharge the GST liability. In view of this, he cannot discharge this tax liability by utilizing the ITC available with him and he would be required to discharge this tax liability in cash only i.e. through electronic cash ledger only.
Output tax in relation to a taxable person, in terms of section 2 (72) of MGL, means the CGST/SGST chargeable under this Act on taxable supply of goods and/or services made by him or by his agent and excludes tax payable by him on reverse charge basis. Section 2(1)(g) of the IGST Act defines output tax as “output tax” in relation to a taxable person, means the IGST chargeable under the Act on taxable supply of goods and/or services by him or his agent and excludes tax payable by him on reverse charge basis. It can be inferred from this definition that tax payable by a recipient on reverse charge basis is not an output tax although he is liable to discharge the GST liability. In view of this, he cannot discharge this tax liability by utilizing the ITC available with him and he would be required to discharge this tax liability in cash only i.e. through electronic cash ledger only.
Place of business, in terms of section 2 (75) of MGL, includes
“(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, provides or receives goods and/or services; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called.”
It may be seen from the definition of capital goods, as contained in para 2.6 above, that the place of business plays an important role with respect to availability of ITC on capital goods. The ITC on capital goods is admissible if used:
(i) at the place of business for supply of goods;
(ii) outside the place of business for generation of electricity for captive use at the place of business;
(iii) for supply of services.
Thus capital goods have to be used at the place of business by the supplier of goods whereas they can be used anywhere by supplier of services.
Reverse charge, in terms of section 2 (85)of MGL,means the liability to pay tax by the person receiving goods and/or services instead of the person supplying the goods and/or services in respect of such categories of supplies as the Central or a State Government may, on the recommendation of the Council, by notification, specify. Provision for Reverse charge liability has been created under section 7 (3) of MGL which provides that “notwithstanding anything contained in sub-section (2), the Central or a State Government may, on the recommendation of the Council, by notification, specify categories of supply of goods and/or services the tax on which is payable on reverse charge basis and the tax thereon shall be paid by the person receiving such goods and/or services and all the provisions of this Act shall apply to such person as if he is the person liable for paying the tax in relation to such goods and/or services”.
Thus, section 2 (85) read with section 7 (3) of the MGL puts onus of payment of tax in certain supplies on the recipient of goods and / or services. It may be noted that this arrangement has precedence in the present service tax law. The objective of this special provision is to cover those sectors which are difficult to tax because of their unorganized and scattered nature.
As per the provisions contained in section 2(106) of the MGL, Valid return means the return as per section 27 of the MGL. Section 27(3) of the MGL provides that the return furnished by a taxable person shall not be treated as valid return unless the full tax due as per the said return has been paid. It is only the valid return that would be used for allowing ITC to the recipient. In other words, unless the supplier has not paid the entire self-assessed tax and filed his return and the recipient has filed his return, the ITC of the recipient would not be confirmed.