Case: Knowlarity Communications (P.) Ltd., In re  110 taxmann.com 354 (AAR – KARNATAKA)
Applicant in order to save itself from losing amount of input tax credit of intra state Karnataka GST, which is charged by telecom operators on Company in the state of Karnataka, got itself registered under the GST Law in State of Karnataka. The effective date of registration was 01.04.2018. The Company received certain input invoices of goods or services procured by its office located in the State of Karnataka. These invoices were issued during July 1st, 2017 to March 31st, 2018.
Applicants intended to seek clarification, whether its registered office in state of Karnataka will be eligible to claim input tax credit of GST charged on such invoices of supply procured by it on a date prior to 01.04.208 (i.e. effective date of registration in the state of Karnataka)
It was observed by AAR that a person who is registered under section 25 of the CGST Act, can only be termed as a registered person. Sub-section (11) of section 25 of CGST Act, 2017 was referred wherein it is stated that certificate of registration shall be issued in such form and with effect from such date as maybe prescribed and from the facts of the case it was observed that effective date of registration of applicant was 01.04.2018. Hence as per AAR, earlier to this period, i.e. from 01.07.2017 to 31.03.2018, applicant was not a registered person. Further, Rule 10 also deals with the effective date of registration. Section 18(1) of the CGST Act, 2017, was referred to provide that it deals with special circumstances wherein credit would be available and same read as under:-
“(1) Subject to such conditions and restrictions as maybe prescribed:
(a) 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 inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act;
(b) a person who takes registration under sub-section (3) of section 25 shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of grant of registration.”
Further, the “input” has been defined in clause (59) of section 2 of the CGST Act and the same reads as under:
‘(59) “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;’
AAR concluded from the conjoint reading of the above two sections that a person who has been granted registration, where person has applied for registration within 30 days from date on which he became liable for registration, would be allowed to take credit of input tax in respect of goods held in stock which are intended to be used by that person in the course or furtherance of business.
Therefore, there is no question of allowing credit on input tax credit charged on invoices dated prior to the effective date of registration relating to services and even in respect of goods, they must be available in stock as on the day prior to the effective date of registration.
The applicant is not eligible to claim input tax credit of tax paid on invoices of services availed by him before its effective date of registration under GST. Further, in case of inputs being goods, applicant is only eligible to claim input tax credit of the tax paid on such goods (inputs) lying in stock on the day previous to the effective date of registration, which are intended to be used in the course or furtherance of business, subject to other conditions and restrictions prescribed in the GST Act and in Rule 40 of the CGST Rules, in case the application for registration has been filed within thirty days from the date on which the applicant became liable for registration under the Act.
The provision is a harsh one in cases wherein mandatory registration is required and registration is applied beyond statutory period of 30 days and taxpayers right is withdrawn for claiming Input Tax credit on goods lying in stock as on the date of registration. One can penalize for late registration but right of claiming input tax credit should not be withdrawn. The jury is still not out whether ITC is a vested right or not but penalizing a tax payer for late registration bot by levying penalty and denying the right to claim Input Tax Credit is very Harsh.
Further, denying Input Tax Credit of Capital Goods lying on the date of registration in all cases is unfair to taxpayer. Government seeks to tax capital goods if they are supplied after registration but denies input tax credit even if they are in possession of the assessee on the date of registration. A bit if equity in taxation can go a long way to create sense of trust in the mind of tax payers.