Input Tax Credit in case of Imports, SEZ & ISD | Taxation for CA Intermediate PDF Download

Under the GST Regime, the input tax credit of IGST and GST Compensation Cess is available to the importer. However, the input tax credit of Basic Customs Duty (BCD) would not be available. In order to avail ITC of IGST and GST Compensation Cess, an importer has to mandatorily declare GST Registration number (GSTIN) in the Bill of Entry.

The Customs EDI system (Electronic Data Interchange is the computer-to-computer exchange of business documents in a standard electronic format between business partners) would be inter-connected with the GST portal for the validation of ITC. Bill of entry in the non-EDI locations would be digitized and used for validation of input tax credit provided by the GST portal.

Input Tax Credit in case of SEZ 

As per the IGST Law, supplies of goods and services to or by Special Economic Zone (SEZ) units or SEZ developers will be treated as inter-state supplies. As per the SEZ Act 2005, supply of goods from SEZs is treated as import of goods into India. Accordingly Basic Customs Duty (BCD) & Integrated GST will be levied on such supplies from SEZ units and SEZ developers into DTA (Domestic Tariff Area). Supplies of goods and services to SEZ units or SEZ developers are to be treated as “zero rated supplies” and the SEZ developer or SEZ unit receiving such zero rated supplies will be given similar treatment as exports.

Input Tax Credit in case of ISD 

Who is an Input Service Distributor (ISD) under GST?

An input service distributor (ISD) is a business which receives invoices for services used by its branches. It distributes the tax paid, to such branches on a proportional basis by issuing an ISD invoice. The branches can have different GSTINs but must have the same PAN as that of ISD.
For example: Head Office of ABC limited is located at Bangalore having branches at Chennai, Mumbai and Kolkata. The head office incurred annual software maintenance expense (service received) on behalf of all its branches and received the invoice for the same. Since software is used by all its branches, the input tax credit of entire services cannot be claimed at Bangalore. The same has to be distributed to all the three locations. Here, the Head Office at Bangalore is the Input Service Distributor.
However, ISD cannot distribute the input tax credit:

• Paid on Inputs e.g. Raw materials and capital goods e.g. Machine purchased 
• To outsourced manufacturers or service providers.