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GST Input Credit Tutorial items in the Negative List Understanding with the reason of Items covered under the negative list on which input tax credit is not available such as personal consumption, Non-existent goods, Motor Vehicles, Works contract, Immovable property etc.
it’s now time to check out what are the
items in the negative list the Act
prescribes eight broad categories that
fall into the negative list and within
these eight categories there are
exceptions specific exceptions we’ll
identify those we’ll discuss further on
the provisions related to Motor Vehicles
and works contract and also dive into
the proportionate credit mechanism let’s
start off with the negative list a quick
refresher we’ve already discussed the
two types of supplies that are their
value addition and overhead this is the
concept that we’ve been following to
understand negative list overheads are
this incentivized and that’s why they
fall into the negative list so the
government has listed out supplies in
the negative list for which input tax
credit is not available now remember the
Act does not call it the negative list
it only lays down that for such and such
items input Tax Credit is not available
but it is definitely in the form of a
negative list except these for
everything else input a credit is
available and that’s why we are using
the word negative list what are the
items which come into this list one
supplies will go into personal
consumption supplies which are no longer
in existence a specific list this is a
list within the negative list which
points out two very specific types of
supply inputbox credit is not available
on taxes paid due to fraud or error
supplies relating to Motor Vehicles
works contract immobile property and
Composition scheme it could become
unnecessarily complicated and difficult
to remember all the items that fall into
the negative list if we don’t understand
the logic behind why each of these
occurs in the negative list why there is
no input tax credit for each of these
well we’ve taken a stab at identifying a
logic a logical sequence why these are
in the negative list
we have identified three broad reasons
one that these items do not add any
value this goes with our basic principle
value addition is incentivized and
overheads is decentralized so no value
addition no input as credit taken reason
no double tax benefits on supplies where
there’s already depreciation benefits
even though it’s in the direct tax there
is already a tax benefit they should not
get double tax benefit through input tax
credit as well and so where items have
already claimed depreciation no input
tax credit third very obvious reason
analogy you cannot get into tax credit
for wrong or fraudulent acts so these
are the broad three categories that
we’ve identified as reasons for items
being in the negative list let’s
categorize our eight main things under
these three reasons for no value
addition personal consumption a specific
list of items we’ll get to this list
later and non-existent boots under the
second reason no double tax benefit we
have items related to Motor Vehicles
works contract immobile property and
Composition scheme the third category
penalty where you obviously there’s just
one more negative list remaining fraud
and error let’s look at each of these
individually the first category no value
addition personal consumption specific
lists and non-existent goods well
supplies related to personal consumption
simply means that supplies used by the
businessman for his own consumption and
not for furtherance of business say
George who runs a garment store bought
the garment for his children and not to
be sold further in his business that is
personal consumption the garments that
he bought for his children he cannot
claim input tax credit on those the
second item in the list are IP well
these are nothing but non-existent goods
goods that are lost stolen this
written off or even disposed of as free
samples these cannot obviously be used
to further business in any way when the
goods don’t exist how are they supposed
to further your business simple logic
they do not add any value and that’s why
no input tax credit can be claimed on
such Goods third category is the
specific list it’s a list of very
specific goods and services we’ll get to
that in a short while because it’s again
a list of lot of items let’s quickly
first focus on our eight broad
categories before we move in with this
specific list the second reason no
double tax benefit we have four items on
it the first one Motor Vehicles it’s a
general negative list on supplies of
Motor Vehicles and any other conveyances
no input tax credit is allowed except
for for specific cases we’ll get to
these cases later when we talk about
exceptions to the negative list well a
reason why Motor Vehicles is not
included in input tax credit is because
it is not really directly contribute to
furtherance of business it’s not
directly going into output creation but
it’s an indirect tool and there’s
already depreciation benefit claimed on
it well there are a lot of arguments
against this specific item appearing in
the negative list because for supplies
to move channels fro to move from
wholesaler to retailer to customer
metals are definitely required and so
there’s a lot of argument but this could
be a reason behind motivator is
appearing in the negative list any works
contract supplies any works contract
services of end for immovable property
other than plant and machinery and if
there’s tax paid on such works contract
then input tax credit cannot be claimed
on this the third item on the list is
immobile prop itself now remember this
is immovable property
on own account for your own use not for
further sale if any supplies whether its
goods or services received for
construction of a mobile property on own
account then input tax credit is not
available you could say that none of the
mobile properties are directly used in
producing output this specific exemption
for plantman missionary works contract
and a mobile property except for plant
and machinery and so plant and machinery
obviously is directly involved in
producing output and that’s not the
purpose of the negative list and that’s
why input tax credit on plant and
machinery is allowed but not on any
other immutable property again as in the
case of Motor Vehicles there are a lot
of arguments against this provision but
for now it is still there in the model
draft law the fourth item in this
category of no double tax benefit is
definitely the composition scheme we
have discussed in detail what the
composition scheme is all about in the
previous module and you know there’s a
specific clause in the composition
scheme that no input tax credit can be
claimed under the composition scheme tax
is already at a discounted rate and the
government does not want to give them
double tax benefit and that’s why no
input tax credit the last reason that we
had was an alkie and there is only one
item in that list fraud and error
basically what this item broadly says is
that if you have to pay any additional
taxes on account of either fraud or
error then you cannot really claim
import tax credit on that component of
tax that you have aid additionally there
are three instances under which you will
have to pay additional tax on account of
fraud or error the first of these
instances is all about tax not eight
short paid or ere earnestly refunded by
the government or if you’ve claimed
input tax credit wrongly or utilised it
by reasons of fraud or any willful
misstatement or suppress
of fact so basically it’s all related of
fraud willful misstatement is again
fraud suppression of fact is also fraud
see of aid short tax or not pay tax at
all or the government has refunded money
to you by error then this tax component
that you’ll have to pay additionally you
cannot claim input tax credit on that
the next two instances are related to
goods and services the first these talks
about transportation and storage if you
have transported or stored goods in
manners which are contradictory to the
provisions of the Act and the government
finds out and you have to pay or tax or
penalty on that amount input tax credit
cannot be claimed on this tax component
the last instance is about supplying and
receiving goods if you have done this
supplied or received boots in manners
contradictory to the app then you cannot
claim input tax credit on the additional
tax that you’ll have to pay for such act
so these are the eight broad categories
under the negative list personal
consumption non-existent goods
composition scheme and fraud and error
are pretty much self-explanatory the
remaining four items of specific list
Motor Vehicles works contract and in
mobile property need a little more of
explanation to do you notice that in
specific lists motivate ill and works
contract now something called exceptions
apply negative list is basically list
where no input tax credit is allowed so
exceptions to negative list would be
nothing but a positive list on which in
pip tax credit would be allowed will
check these exceptions out in the next
lecture