GST | Chapter-8 | ITC | Part-1 | Input Tax Credit | Sec. 16 | Lecture-28 | CA Pradeep Kalra |

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The GST regime promises seamless credit on goods and services across the entire supply chain with some exceptions like supplies charged to tax under composition scheme and supply of exempted goods and/or services. ITC is considered to be the lifeline of the GST regime. In fact, it is the provisions of ITC, which essentially make GST a value added tax i.e., collection of tax at all points of supply chain after allowing credit of tax paid at earlier points.

Scheme of ITC - At a Glance
Given below are the salient features of the scheme of ITC as contained in the provisions of sections 16, 17 and 18 read with the relevant rules. The scheme has been discussed in detail later in this Chapter.
 The scheme is designed to avoid cascading effect of taxes and make GST a destination-based tax.
 Broadly, ITC is available on all inputs, input services and capital goods used for purposes of business of a taxable person. The exception is ‘blocked credit’, where ITC is not available even when these goods or services are used for purposes of business.
 ITC is used for payment of tax on taxable output supply to avoid cascading effect of taxes.
 GST law does not require ‘one to one’ co-relation between inputs/input services and final products/services. Any eligible ITC can be used for payment of tax on any taxable output supply.
 IGST is another core aspect of GST. It is a transitory tax to enable transfer of ITC when goods or services move from one State to another. This is a unique feature of Indian GST.
 Since ITC can be availed for payment of tax on taxable output supply, as a natural corollary, ITC is not available when tax is not payable on output supply, i.e. on exempt supply.
 The exception to the above principle is ‘zero rated supply’, i.e. exports or supplies to a special economic zone (SEZ) developer/unit, where ITC is available even if no tax is payable on output supply. Such ITC can be used either for payment of tax on supplies made with tax or refund of the same can be obtained. This simple mechanism is used to make exports and supplies to SEZ completely tax free.
 If a taxable person is making both taxable and exempt supply, he is entitled to full credit of ITC in respect of inputs, input services and capital goods exclusively used for taxable supply and no credit at all for inputs, input services and capital goods exclusively used for exempt supply.
 If common inputs, input services and capital goods are used for taxable as well as exempt supply, only proportionate ITC attributable to the taxable supply is available. The common ITC is apportioned in the ratio of value of taxable supply and exempt supply. Elaborate provisions have been made in the GST law to prescribe the manner of calculation of proportionate ITC.
Before proceeding to understand the provisions of section 16, 17, 18 and the relevant rules let us first go through few relevant definitions.

LEGAL FRAMEWORK OF ITC: CHAPTER V OF CGST ACT, 2017 AND CGST RULES, 2017
CGST ACT, 2017
SECTION 16 Eligibility and conditions for taking ITC
SECTION 17 Apportionment of credit and block credit
SECTION 18 Availability of credit in special circumstances
CGST RULES, 2017
RULE 36 Documentary requirements and conditions for claiming ITC
RULE 37 Reversal of ITC in case of non-payment of consideration
RULE 38 Claim of credit by banking company or financial institutions
RULE 39 Procedure for the distribution of ITC by input service distributor
RULE 40 Manner of claiming credit in special circumstances
RULE 41 Transfer of credit on sale, merger etc.
RULE 42 Manner of determination of ITC in respect of inputs or input services and reversal
RULE 43 Manner of determination of ITC in respect of capital goods and reversal
RULE 44 Manner of reversal of credit in special circumstances

ELIGIBILITY AND CONDITIONS FOR TAKING ITC: SECTION 16, RULE 36 AND 37 Eligibility for availing ITC: Section 16(1)
 Every registered person
 shall be entitled to take ITC of GST
 charged on any inward supply of goods or services
 which are used or intended to be used in the course of business and
 the said amount shall be credited to electronic credit ledger
Notes
(1) No ITC is allowed to unregistered dealer.
(2) No ITC is allowed to a registered dealer who is following composition scheme.
(3) No ITC is allowed when inputs are used for outward supply of exempted goods or services.
CONDITIONS FOR AVAILING ITC: SECTION 16(2)
There are 4 conditions for availing ITC and ITC is allowed when all 4 conditions are satisfied
Condition 1: Registered person is in possession of any of the following: (Rule 36(1)]
(1) tax invoice issued by the supplier as per section 31 or
(2) bill of entry in case of import or
(3) debit note or

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