Let us see some scenario where Input tax credit claim need critical thinking –
Short quantity / damaged quantity
Sometime the goods are received in short quantity due to loss in transit. Or sometime some unit of goods get damaged while unloading of the goods from the vehicle. So, the quantity as mentioned in the invoice is not equal to the quantity actually received by the buyer. In this case, there are two methods of accounting the receipt of the goods. First one is accounting of the net quantity received . Second , account the full quantity mentioned on the invoice and then raise credit note for the short or damaged quantity.
The second method seems helpful in performing reconciliation of the purchases with GSTR-2B. As in 2B the invoice and credit note details are captured separately. Thus, the total quantity in books matches with the total quantity on invoice and the credit note in books will match with credit note sheet in GSTR-2B .
A question may arise as to why would a buyer account full quantity when he had received a lesser quantity and then account for the short quantity with a credit note? He would simply account the net quantity received.
But the method of accounting invoice and credit note separately would certainly give a clarity to the buyer and also to the department officer. It is easier to explain the match of the ITC in books with ITC in invoice sheet in 2B and credit note in books with the Credit note sheet in 2B.
Retention money
This concept is common in construction sector where the service receiver holds some part of the amount in every RA bill till the entire civil project gets completed. Once the project is completed may be in 6 months or 1 year or may be 1.5 years’ time the money on hold may be released thereafter.
A civil work may include construction of new factory building or admin building or major expansion to the existing building. RA – Running Account means the tracking of a project milestone and raising invoice according to the completion of the project.
There is a condition u/s 16(2) of CGST Act, 2017 to claim ITC. The section requires the buyer to make full payment (basic value + GST) to the vendor. Since the payment is on hold the proportionate credit to the extend on hold payment the ITC need to be reversed.
There exist different view that payment of agreed value should be considered for payment instead of considering the invoice value. The quantum of payment is agreed by both the parties and statutory law should not insist on making payment of invoice value.
Free samples
Some quantity of goods are generally given to the distributor free of cost to boost sales. This is required to create market for new product. The free quantity eligibility depends upon the turnover of the distributor. For instance, if you buy 10 quantity you will get 2 quantity free. Similarly, on 100 quantity purchase, 20 quantity would be given as free. This is not a “buy one get one free concept” but it is a commitment of selling a targeted quantity of goods to the buyer and free goods are reward for that.
The movement of goods are taken place through a Delivery Challan mentioning value of goods and GST. The value of goods is generally MRP or market value of similar product. Such nominal value also required for e-way bill purpose.
Buy one get one free
‘Buy one and get another one free’ is one of the marketing techniques. The free product is given through invoice. It is shown on the face of the invoice.
It appears that one quantity is given free when another quantity is purchased. But the recent Circular clarifies that even though one quantity appears to be free but in practice the cost of another product is embedded in the cost of the first product purchased by paying cost. Accordingly, there is no need for reversal of ITC on goods given as free on face of invoice.
Annual Maintenance Contract (AMC) Service
The classic example of AMC contract is Air conditioner (AC) service. The service provider charges AMC for services to be given in next 12 months at the beginning of the year itself and raise tax invoice with GST. But since the service receipt is scattered over a period of 12 months , the question arises whether full GST credit is eligible at first month itself or wait till 12 months to become eligible to claim credit?
The invoice copy is received, the invoice appears in 2B , tax is paid by supplier, etc. and it is recorded in books by the recipient also. In practice the ITC is taken on receiving the invoice and matching the details with 2B.
GSTIN cancellation
It may happen that GSTIN of the supplier was active at the time of issuing invoice but later-on their GSTIN got cancelled. The ITC may be rejected by the officer because of cancelled GSTIN of the supplier. If the ITC is negligible then reversal the ITC. Otherwise, wait for the auditor to point it out and then justify with the case law that ‘Lex Non Cogit ad Impossibilia’ and other valid justifications.
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