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Weekend MCQ Self Challenge #12 – INPUT TAX CREDIT under GST Act

 

INPUT TAX CREDIT under GST Act

 

Dear Professional Seniors & Friends,
Welcome to this wonderful weekend MCQ self challenge!

This weekend challenge is on #Input_Tax_Credit_under_GST_Act having 5 MCQs to be self answered by participants to take self challenge. The objective of this post is to discuss the various ITC provisions to be kept in mind while utilizing the same. The detailed answer of these MCQs shall be posted on Monday for the self assessment of the participants. This post shall be of immense use of the participant.

Weekend MCQ 12.1: A Company has Branch-A which is a registered taxable person in Andhra Pradesh conducts conference in a hotel in Lonavla (Maharashtra) where CGST and SGST is charged by the hotel. This Company also has Branch-M which is a registered taxable person in Mumbai? What is the possible scenario among the following options?

(A) The company can take bill in the name of branch A and the input tax credit will be available to branch A.
(B) The company can take bill in the name of branch M and the input tax credit will be available to branch M.
(C) The company can take bill in the name of branch M and the input tax credit will be available to branch A by way of ISD if nexus exists.
(D) None of the above.

Weekend MCQ 12.2: Among the following events, when a person can take credit of input tax credit paid on purchase of goods?
 Date of booking order – 25/04/2017
 Date of payment/receipt of advance/date of invoice – 27/04/2017
 Date of dispatch of goods – 29/04/2017
 Date of receipt of goods – 01/06/2017
(A) 25/04/2017
(B) 27/04/2017
(C) 29/04/2017
(D) 01/06/2017

Weekend MCQ 12.3: Among the following events, what amount of net input tax credit will be eligible to be allowed to a person?

 Total input tax on inputs and input services for the tax period May 2018 – Rs 1,00,000
 Input tax used exclusively for non-business purposes – Rs 10,000
 Input tax used exclusively for effecting exempt supplies – Rs 5,000
 Input tax used exclusively for effecting supplies on which recipient is liable to pay tax on reverse charge basis – Rs 5,000
 Input Tax ineligible u/s 17(5) – Rs 5,000
 Input tax credit used exclusively for taxable supplies – Rs 50,000
 Aggregate value of exempt supplies(May 2018) – Rs 25,00,000
 Total Turnover(May 2018) – Rs 10,00,000

(A) Rs 67,500
(B) Rs 72,500
(C) Rs 62,500
(D) Rs 68,750

Weekend MCQ 12.4: What amount of input tax credit paid on purchase of capital goods will be allowed after the exempt supply has become taxable from a date?

 Date of invoice of capital goods – 22-Jan-2018
 Date from which exempt goods becomes taxable – 01-Apr-2018
 IGST Paid on the capital goods used exclusively in relation – 360000
To goods exempted upto 31-Mar-2018

(A) Rs 1,80,000
(B) Rs 3,60,000
(C) Rs 3,42,000
(D) Rs 3,24,000

Weekend MCQ 12.5: Mr.X becomes liable to pay tax on 5th Aug 2017 and has applied for registration on 22nd Aug 2017 and granted registration certificate on 10th Sep 2017. Which among the following is possible scenario?

(A) He can take credit of input tax in respect of goods held in stock as on 31st July 2017.
(B) He can take credit of input tax in respect of goods held in stock as on 04th Aug 2017.
(C) He can take credit of input tax in respect of goods held in stock as on 21st Aug 2017.
(D) He cannot take credit.

Sincere Regards!

CA Sanjay Kumar Agrawal
Mobile: 9810116321

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—Answer MCQ Self Challenge #12 – Weekend Dhamaka—

 

Dear Professional Seniors & Friends,

Warm Greetings!

 

This post of MCQ is on the input tax credit provisions under GST since it is an essential tool to determine the net tax payable.

 

Answer to MCQ 12.1 : C)

Answer to MCQ 12.2 : D)

Answer to MCQ 12.3 : A)

Answer to MCQ 12.4 : C)

Answer to MCQ 12.5 : D)

 

 

Practical Analysis for MCQ 12.1

  • Every registered person subject to Section 49, shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business.
  • It is important to observe the words ‘used by him’ and ‘in his business’ appearing in section 16(1). These words refer to the registered taxable person in question and not the legal entity as a whole. So, input tax credit paid in a State must not be in relation to the business of a taxable person in another State albeit belonging to the same taxable person.
  • CGST-SGST charged by the hotel in Lonavla (Maharashtra) is ‘used in the business of Branch-A’ in Andhra Pradesh and not in the business of Branch-M in Mumbai.
  • Hotel would not be aware about the above fact and would not resist to issue the bill in the name of Branch-M because both are branches of the same Company
  • Since, CGST-SGST has been charged by the hotel, input tax credit would not be available to Branch-A as tax paid in Maharashtra is not a creditable tax in Andhra Pradesh
  • The Company need to obtain ISD registration in Maharashtra and distribute this credit entirely to Andhra Pradesh.
  • But, Branch-M in Mumbai cannot justify this input tax credit as it is not ‘used by him’ in ‘his business’ but it is ‘used by another’ in ‘that others business’
  • If nexus is established between the services of the hotel and the ‘business’ of Branch-M, input tax credit may be availed by Branch-M. Nexus emerges if inter branch supply of services occurs between Branch-M and Branch-A
  • Based on the above analysis, correct answer to MCQ 12.1 : C) The company can take bill in the name of branch M and the input tax credit will be available to branch A by way of ISD if nexus exists.

 

 

Practical Analysis for MCQ 12.2

 

  • Section 16 of the CGST act list out the requirements in order to claim input tax credit.
  • One of the condition prescribed is that goods/services should have been received.
  • In case of goods received in lots/instalments, credit will be available upon receipt of last lot/instalments.
  • In our question, although liability to pay tax arises in April 2017, but credit will be eligible in June 2017 upon receipt of goods which will result into credit mismatch.
  • Based on the above analysis, correct answer to MCQ 12.2 : D) 01/06/2017.

 

 

Practical Analysis for MCQ 12.3

 

Rule 42 of CGST Rules prescribed the procedure for determination of input tax credit in respect of inputs or input services and reversal thereof which is presented below –

 

ParticularsReferenceGST
Total input tax on inputs and input services for the tax period May 2018T1,00,000
Input tax used exclusively for non-business purposesT110,000
Input tax used exclusively for effecting exempt suppliesT210,000
Input tax ineligible under Section 17(5)T35,000
ITC credited to Electronic Credit LedgerC1 = T -(T1 + T2 +T3)75,000
Input tax credit used exclusively for taxable supplies (including zero rated supplies)T450,000
Common creditC2 = C1 – T425,000
Aggregate value of exempt supplies for the tax period May 2018E25,00,000
Total Turnover of the registered person for the tax period May 2018F1,00,00,000
Credit attributable to exempt suppliesD1 = (E/F) *C26,250
Credit attributable to non business PurposesD2 = C2 * 5%1,250
Net eligible common CreditC3 = C2 – (D1 + D2)17,5000
Total credit eligible (Exclusive + Common)G = T4 + C367,500

 

  • Based on the above analysis, correct answer to MCQ 12.3 : A) Rs 67,500

 

 

Practical Analysis for MCQ 12.4

 

  • Rule 40(1)(a) of the Input Tax Credit Rules provides that input tax credit on capital goods can be claimed after reducing 5% per quarter of a year or part thereof, from the date of invoice in respect of which capital goods are received. Therefore, the number of quarters is 1, being the first quarter of the year 2018.The reversal of credit would therefore be as follows
Date of invoice of capital goods22-Jan- 2018
Date from which the exempt goods become taxable01-Apr-2018
No. of quarters from date of invoice1
Percentage points to be reduced (5% per quarter)5%
IGST paid on the capital goods used exclusively in relation to goods exempted

up to 31-Mar-2018

3,60,000
ITC to be reduced by 5%(18,000)
Credit (IGST) available on capital goods 3,42,000

 

  • Based on the above analysis, correct answer to MCQ 12.4 : (C) Rs 3,42,000

 

Practical Analysis for MCQ 12.5

 

  • Sec 18 of CGST Act provides the provisions related to input tax credit of goods lying in stock.
  • Sec 18(1)(a) deals with the situation where person becomes liable to pay tax and want to claim input tax credit in respect of goods lying in stock.
  • As per that rule, a person who has applied for registration under this Act within thirty days from the date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of goods lying in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act.
  • Point here to note is that act requires both applying and granting of registration certificate within 30 days, then only person will be eligible to take credit.
  • Based on the above analysis, correct answer to MCQ 12.5 : D) He will not entitled for credit since he has not been granted registration certificate within 30 days.

 

 

(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by change of facts, the answer may be different. Please do not treat this as professional opinion; you can definitely have your own opinion.)

 

Sincere Regards!

 

CA Sanjay Kumar Agrawal

Mobile: 9810116321

 

To access MCQ posts regularly, please Join Telegram Channel:
https://t.me/caSanjayKumarAgrawal

 

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Linkedin: https://www.linkedin.com/in/ca-sanjay-kumar-agrawal/

 

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