Query :

How input tax credit ( ITC) shall be claimed in the cases of reverse charge ?

Reply :

  • It is quite evident that following transactions may be executed in the normal cases of supplies :
    1. A registered person executes taxable supplies to registered person.
    2. A registered person executes supplies to unregistered person .
    3. A registered person receives supplies from an unregistered person .
    4. There are supplies which have been notified by the Government to attract reverse charge under section 9(3) of the CGST / SGST Act , 2017 .
  • In the first two cases where the supplies have been executed by the registered person to the registered or unregistered person , such supplier shall issue tax invoice and charge the due tax on such invoice and deposit the requisite tax ( after adjusting the admissible ITC ) .

The registered recipient of such supplies shall claim the ITC on entire amount of tax charged on such tax invoice subject to the fact that the goods or services or both involved in such supplies have been further used or utilized in the taxable supplies or zero rated supplies by such recipient .

If the aforesaid recipient uses or utilizes aforesaid goods or services or both , in the exempted as well as taxable supplies and zero rated supplies then ITC shall be allowed to the extent such goods or services or both as received by such recipient have been used for taxable or zero rated supplies 

It is pertinent to note that no ITC is admissible when inputs are used or utilized for executing exempted supplies .

  • The cases mentioned at serial no. (iii) and (iv) relate to the liability of “reverse charge” . In the “reverse charge” the  liability to issue invoice and pay tax accordingly is of the recipient instead of the supplier . Thus where any taxable registered person receives supplies from any unregistered person , such recipient registered person shall-
    1. issue tax invoice to such unregistered person when such supplies are received and claim ITC only after the payment of entire tax that has been charged on such tax invoice [section 31(3)(f)].
    2. issue payment voucher at the time of making payment to such unregistered person and mention the tax payable in such payment voucher [section 31(3)(g) ].

It is pertinent to note that the same procedure shall be followed by the recipient  in the case of supplies notified under section 9(3) by the Government in respect of which the liability of reverse charge shall apply.

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