Areas where excess credit may be taken and special audit of that area’s: Direction for special audit can be given only if officer is of the opinion that. a) value has not been properly declared or b) the credit availed is not with in normal limits.
Hence if proper officer wants to direct special audit to examine proper claim of credit he has to form opinion that the credit availed is not with in normal limits. The following areas of excessive input tax credit in general, industry specific and transitional credit can be identified triggering the special audit by Chartered Accountant or Cost and Works Accountant.
Areas where excess credit may be taken and special audit of that area’s
1 ITC being claimed for the period prior to application/grant of registration in case of compulsory / voluntary registration (in respect of purchases not being represented by inputs available on the effective date of registration) [[S. 16(1), 18(1) & S. 2(62)]
2 ITC of some other establishment in different state being used against output tax of impugned unit. [S. 16(1) and S. 2(62)]
3 ITC being taken against supplies not for use in course or furtherance of business e.g. personal expenditure. [S. 16(1), 17(1)& 17(5)(g)].
4 ITC of following input supplies taken which are not qualified for ITC u/s 17(5)in normal course i.e.
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- a) Food and Beverages
- b) Outdoor Catering
- c) Beauty Treatment
- d) Health Services
- e) Cosmetic and Plastic surgery
- f) Membership of a club, health and fitness centre
- g) Rent a Cab
- h) Life Insurance
- i) Health Insurance
- j) Works Contract Service supplied for construction of an immovable property
- k) Goods or services covered by composition scheme u/s section 10.
- l) Travel benefits extended to employees on vacation such as leave or home travel concession
- m) Goods or Services received by non-resident taxable person
- n) Goods or Services used for personal consumption
5 Taking credit of tax payable on RCM without making payment of the same.[S. 16(2)(c) & 49(4)]
6 Taking Credit without being in possession of
- a) tax invoice issued by supplier or
- b) self Invoice made u/s 31(3)(f) in case of RCM
- c) debit note or
- d) bill of entry
- e) ISD Invoice
- f) ISD Credit Note [S. 16(2)(a) read with Rule 36(1)]
7 Taking ITC on Invoice without mention of particulars specified in Rule 46 [Rule 36(2)]
8 Taking ITC against amount paid u/s 74, 129 or 130 [S. 17(5)(i)]. Taking credit against demand paid u/s 73 is not prohibited.
9 Taking ITC without evidence of receipt of goods or service [S. 16(2)(b)]. One may be claiming ITC on advance payment against services on account of invoice issued by prospective supplier of service.
10 Taking ITC against goods shipped to impugned person while billed to some other person [Expl. to S. 16(2)(b)]
11 Taking ITC on goods received on lots without receipt of last lot [First proviso to S. 16(2)]
12 ITC not reversed against goods or services for payment not made with in 180 days from date of issue of invoice.[2nd Proviso to S. 16(2)]
13 ITC not reversed for Depreciation claimed on ITC part of capital goods [S. 16(3)]
14 Taking ITC for omissions/commissions of earlier financial years after 20th October following relevant financial year [S. 16(4)]
15 ITC claimed against tax paid on purchase of securities, petroleum products and supplies notified in 2/2017-CTR and 12/2017-CTR [S. 17(2)]
16 ITC against inputs/inputs services being used exclusively for non business purpose/exempt supply/Prohibitive ITC u/s 17(5) not disallowed at Invoice level in GSTR-2 and allowed to be taken in common credit [Rule 42(1)(g) read with Rule 42(1)(b)/(c)/(d)]
17 Not including stamp duty value of land and building and 1% of sale value of securities in exempt supply [Explanation to Rule 45]
18 Non reversal of 5% of Common Credit on account of non business use of inputs/input services [ Rule 42(1)(i)]
19 Non Inclusion of non taxable supplies in total turnover while calculating ITC attributable to exempt supplies [Rule 42(1) (i)]
20 Non Adjustment of final eligible ITC u/R 42(2), where aggregate of D1 and D2 for tax periods is lesser than final calculation of D1 and D2, D1= Ineligible ITC attributable to exempt supplies and D2= Ineligible ITC attributable to supplies for non business purpose
21 Not segregating capital goods being exclusively used in making exempt supplies and allowing ITC to merged for ITC of common capital goods u/R 43(1)(c)
22 Not reducing 5% per quarter or part of quarter out of ITC taken for capital goods earlier being used exclusively for exempt supplies and subsequently used for common purpose [Proviso to Rule 43(1)(c)]
23 Not reducing 5% per quarter or part of quarter out of ITC taken for capital goods in earlier tax periods being used exclusively for taxable supplies and subsequently used for common purpose [Proviso to Rule 43(1)(d)]
24 Taking 100% ITC on common capital goods instead of taking credit on proportionate basis i.e. aggregate of 5% per quarter or part of Total credit on Common Capital Goods
25 Not disallowing 50% of ITC on capital goods in case of banking company, if option given u/s 17(4) has exercised.
26 ITC taken against motor vehicles and other conveyance [not used for transportation of goods and also not used in providing taxable supplies of further supply of such vehicle, and further also not used for transportation of passenger, and imparting training . ]
27 ITC taken against works contract service or goods or services used for construction of immovable property other than plant and machinery except when used for further supply of works contract service or such goods or service [S. 17(5)(c)/ (d)]
28 ITC taken on goods or services received by non-resident taxable person [S. 17(5)(e)]
29 ITC taken against goods or services or both used for personal consumption [S. 17(5)(g)]
30 ITC taken against goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples [S. 17(5)(h)]
31 Taking credit against capital goods against for preregistration date [S. 18(1)(a)]
32 Taking credit against input held in stock on date of application for registration inspite applying for registration after 30 days from the date of liability to get registered [S. 18(1)(a)] Taking ITC for input held in stock on registration date without making declaration in Form GST ITC -01 by providing information of stock [Rule 40(1)(b)] CA/ CWA Certificate also required where aggregate of CGST/ SGST/IGST exceeds Rs. 2 lakhs [Rule 40(1)(d)]
33 Not making Proportionate Reduction on capital goods in case of Switch from Composition Scheme by five percentage points per quarter of a year or part thereof from the date of the invoice [proviso to S. 18(1)(c) read with Rule 40(1)(a) ]
34 Not making Proportionate Reduction on capital goods in case of Switch from exempted supply to taxable supply by five percentage points per quarter of a year or part thereof from the date of the invoice [proviso to S. 18(1)(d) read with Rule 40(1)(b)]
35 Taking credit against inputs or capital goods older than one year from date of registration/switch to normal scheme/ transition to taxable category. [S. 18(2)]
36 Non reversal of ITC on switch to composition scheme / Exemption/Cancellation of registration against inputs on transition date and on capital goods, reduced by 5% for every quarter or part.[S. 18(4)/S. 29(5) and Rule 44]
37 Not making ITC reversal against prevailing market price of goods on switch to composition scheme/Exemption / Cancellation of registration where the tax invoices related to the inputs held in stock are not available, supported by CA/CWA certificate.
38 In case of supply of capital goods including cancellation of registration/discontinuance of business non reversal of ITC reduced by 5% per quarter (or part), where the amount is higher than tax calculated on transaction value.[S. 18(6) read with Rule 44(6) and Rule 40(2)]
39 Taking credit when tax is paid u/R 32(5) Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and the value of supply is the difference between the selling price and the purchase price.
40 Taking ITC where 5% tax is payable for supply of Services by way of house-keeping, such as plumbing, carpentering, etc. where the person supplying such service through electronic commerce operator is not liable for registration under subsection (1) of section 22[ Sl No. 3(ix)of 11/2017-CTR]
41 Taking ITC where 5% tax is payable for supply of Services, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent. [Para 7(i) of 11/2017-CTR]
42 Utilizationof ITC on goods where 5% tax is payable on
- a) Transport of passengers, with or without accompanied belongings, by rail in first class or air conditioned coach. [Sl 8(i) of 11/2017-CTR]
- b) Transport of goods by rail [Sl 9(i) of 11/2017-CTR] Hence taking of credit is not prohibited, only utlilization is prohibited.
43 Taking ITC on goods and services where 5% tax is payable on Transport of passengers, with or without accompanied belongings by air conditioned contract carriage other than motorcab or AC stage carriage or Radio Taxi [Sl. 8(ii) of 11/2017-CTR]
44 Taking ITC on goodswhere 5% tax is payable on
- a) Transport of passengers, with or without accompanied belongings, by air in economy class.or
- b) Transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme Airport, as notified by the Ministry of Civil Aviation.[8(iii) and (iv) of 11/2017-CTR]
- c) Leasing of aircrafts by an operator for operating scheduled air transport service or scheduled air cargo service by way of transaction covered by clause (f) paragraph 5 of Schedule II of the Central Goods and Services Tax Act, 2017 i.e. transfer of right to use [Sl. 15(iv) of 11/2017-CTR]
45 Taking ITC on goods and services taken where 5% tax is payable on Renting of motor vehicle or Transport of passengers by any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, except input tax credit of input service in the same line of business [Sl. 10(i) and 8(vi) of 11/2017- CTR]
46 Taking ITC on goods where 5% tax is payable on Transport of goods in a vessel or Time charter of vessels for transport of goods. [Sl. 9(ii) and 10(ii) of 11/2017-CTR]
47 Taking ITC on goods and services by GTA where 5% tax is payable on Services of goods transport agency (GTA) in relation to transportation of goods (including used household goods for personal use). [Sl. 9(iii) of 11/2017- CTR]
48 Taking ITC on goods and services where 5% tax is payable on Transportation of natural gas, petroleum crude, motor spirit (commonly known as petrol), high speed diesel or aviation turbine fuel] through pipeline [Sl. 9(v) of 11/2017-CTR]
49 Taking ITC on goods where 12% tax is payable on Services provided by a foreman of a chit fund in relation to chit [Sl No. 15(i) of 11/2017-CTR]
50 Taking Credit of input tax charged on goods and services used in supplying the service 2, [other than the input tax credit of input service in the same line of business (i.e. tour operator service procured from another tour operator)] taken where 5% tax is payable on Supply of Tour Operator services
Recommended – Special audit for Areas of Excessive Transitional Credit