Are there any restrictions on claiming ITC?

Input Tax Credit (ITC) is governed by the Goods and Services Tax (GST) laws in India, specifically under the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) and relevant rules. Here is a breakdown of the provisions, restrictions, and landmark cases related to ITC:

Provisions for ITC under the CGST Act, 2017

1. Section 16 (Eligibility and conditions for taking input tax credit):
   • A registered person is entitled to take credit of input tax charged on any supply of goods or services used or intended to be used in the course or furtherance of business.
   • Conditions for availing ITC include:
     • Possession of a tax invoice or debit note.
     • Receipt of goods or services.
     • Tax must have been paid to the government by the supplier.
     • Filing of the GST return (Form GSTR-3B).
2. Section 17 (Apportionment of credit and blocked credits):
   • ITC can only be claimed for business purposes; if used for non-business or personal purposes or exempt supplies, it must be proportionally reduced.
   • Blocked credits are mentioned, which include:
     • Motor vehicles and conveyances (with exceptions).
     • Goods and services used for personal consumption.
     • Membership of clubs, health and fitness centers.
     • Works contracts when supplied for the construction of an immovable property (except for plant and machinery).
3. Section 18 (Availability of credit in special circumstances):
   • Specifies circumstances under which ITC can be claimed for new registration, voluntary registration, change in the constitution of a business, and more.
4. Section 49 (Payment of tax, interest, penalty, and other amounts):
   • Specifies the manner of utilising the input tax credit against output tax liability.

Restrictions on Claiming ITC

• Time Limit: ITC must be claimed within the due date of furnishing the return for September of the following financial year or the date of filing of the annual return, whichever is earlier.
• Matching of Invoices: The credit can only be claimed if the supplier has uploaded the relevant invoice in their GST return (Form GSTR-1), which matches the details in the recipient’s GSTR-2A/2B.
• Blocked Credits: Certain inputs, such as goods and services used for personal consumption, construction (unless for specific purposes), and motor vehicles (with exceptions), are restricted.
• Reversal of ITC: ITC must be reversed if the payment to the supplier is not made within 180 days from the date of the invoice.

Landmark Cases on ITC

1. Commissioner of CGST vs. M/s. Quest Merchandising India Pvt. Ltd. (2019):
   • The Supreme Court held that ITC cannot be denied merely on the ground that the supplier failed to deposit the tax. The recipient can claim ITC as long as they have fulfilled their part of the obligations.
2. M/s. Safari Retreats Private Limited vs. Chief Commissioner of Central Goods & Service Tax (Orissa High Court, 2019):
   • This case highlighted the debate over ITC on goods and services used for the construction of immovable property. The High Court opined that the ITC of GST paid on goods and services for building construction (to be rented out) should be allowed but left it to the legislature for amendments.
3. Arise India Limited vs. Commissioner of Trade and Taxes, Delhi (2017):
   • Addressed the issue of denial of ITC due to the supplier’s non-compliance. The Delhi High Court ruled that a buyer could not be denied ITC if they had fulfilled all their obligations.

Constitutional Basis

The Constitution of India does not specifically cover ITC but provides the legislative framework for the GST regime:

• Article 246A: Grants concurrent powers to both Parliament and State Legislatures to make laws with respect to GST.
• 101st Constitutional Amendment Act, 2016: Introduced GST and subsumed multiple indirect taxes.

These legislative provisions and judicial precedents shape how ITC is claimed and restricted in India.