Admissibility of Input Tax Credit (ITC) Under GST
The admissibility of Input Tax Credit (ITC) on GST paid on inward supplies, as well as GST paid under the Reverse Charge Mechanism (RCM), is one of the key features of the GST legislation. The availability of ITC helps eliminate the cascading effect of taxes and ultimately contributes to reducing the cost of supplies.
The admissibility of ITC is subject to the conditions and restrictions specified under Section 16(2) of the CGST Act. While taxpayers may generally be able to fulfil the prescribed conditions, one condition that has been a matter of concern is Section 16(2)(c) of the CGST Act.
Section 16(2)(c) of the CGST Act
Section 16(2)(c) provides that:
“The tax charged in respect of the supply has been actually paid to the Government, either in cash or through utilisation of input tax credit.”
The issue arises when, for any reason, a supplier of goods or services fails to pay the GST collected from the recipient to the Government. In such cases, GST authorities have been denying the recipient’s Input Tax Credit (ITC) on the grounds of non-fulfilment of the condition prescribed under Section 16(2)(c) of the CGST Act.
Taxpayers have been contesting such demands and advocating that the fulfilment of the condition requiring the tax charged on the supply to be actually paid to the Government is beyond the control of the buyer, as the responsibility for discharging the tax liability rests with the supplier.
