Input Tax Credit – My Fundamental or Vested Right or a Concession?

Since the dawn of GST (Goods and Services Tax) in India, Input Tax Credit has been a concern of extensive debate. Seldom do we see a topic that generates as much discussion as ITC (Input Tax Credit).

The main concerns revolve around the availment of ITC in GST is whether it is a fundamental or vested right of a person or is merely a concession/ benefit that one is entitled to receive.

In this article, we delve into the intricacies of this ongoing debate, examining different legal perspectives and shedding light on the significance of ITC in today’s complex business landscape.

The Confusion Surrounding Input Tax Credit Rights

• Many presume that claiming ITC (Input Tax Credit) is their vested right, vested here, meaning that one will receive the claim without any legislative conditions and terms attached.
• There is another conundrum surrounding ITC in GST being assumed as a definite benefit. These disputes have led to numerous pending litigations in the Honourable Courts.

Is Input Tax Credit a Vested Right?

To answer the big question – NO. A vested right is a definite or fixed right of a person that they can claim in the present or future. The nature of the Indian Input Tax Credit does not come under this definition.

As per GST law, the provision of under Section 16 of the CGST (Central GST) Act, 2017 defines the “Eligibility and Conditions for taking Input Tax Credit (ITC).”

Section 16(1) clearly states the following absolute facts –

• Every person who wants to claim ITC in GST must be a registered person.
• They are subject to prescribed conditions and restrictions and in the manner specified in section 49.
• The credit of ITC is available only when there is a supply of goods or services or both to them.
• Further, the above third point should be used in the course or furtherance of their business.
• Lastly, the credited amount at the set Input Tax Credit rate shall be credited to the electronic credit ledger of such person.

Section 16 (2) states the details of the conditions, the completion of which will make the registered person eligible to claim for Input Tax Credit.

It states that if the legal conditions and requirements are not fulfilled or complied by, then in repercussion, Section 16(1) will not withstand.

Similarly, Sections 16(3), 16(4), 17, and 18 also specify conditions that must be complied with to avail of ITC in GST under Section 16(1).

ITC is a vested right or an indefeasible (absolute) right subject to lawful conditions but, once established for a registered person, cannot be altered.

But to attain this stature of indefeasibility, the person must fulfil some preconditions and post-conditions mentioned in Sections 16 (2), 16(3), 16(4), 17 and 18

Therefore, it is safe to say Input Tax Credit is inchoate, meaning it is at a preliminary or rudimentary stage until the prerequisite of condition fulfilment is justified, on whose non-compliance, ITC benefit is subject to the operation of law. The department can take it away.

It is a vested right once the conditions are compliant under Section 16(1).

Transitional Nature of Input Tax Credit and Law Attached

ITC in GST is of transitional nature, which means a person can claim ITC at the afore-set Input Tax Credit rate on the purchase of stocks lying with him transfer the tax to other parties in the supply chain. But to claim this ITC, the credit must be claimed within a limited period, and the amount must be credited to his Electronic Credit Ledger under the GST.

But if there is a delay in filing the credit amount, will the credit be disregarded?

To resolve such scenarios, a considerable judgment was passed in Hon’ble Gujarat High Court in M/s. Siddharth Enterprises vs The Nodal Officer, TS-684-HC-2019(GUJ)-NT which stated –

“The entitlement of credit of eligible duties on the purchases made in the pre-GST regime as per the then existing CENVAT credit rules is a vested right and, therefore, it cannot be taken away by virtue of Rule 117 of the Central GST Rules, 2017, with retrospective effect for failure to file the form GST Tran-1 within the due date, i.e. 27.12.2017. The provision for the facility of Input Tax Credit is as good as the tax paid till the tax is adjusted, and, therefore, the right to the credit had become absolute under the Central Excise Act; therefore, the credit is indefeasible, and the same cannot be taken away.

Is Input Tax Credit a Fundamental Right?

Law says Input Tax Credit is not a fundamental right but a constitutional right under Article 300A of the Indian Constitution. Once the prerequisite conditions are complied with, ITC in GST becomes a vested right, and the person claiming the right is protected under the constitutional law in case of any disputes or grievances.

In fact, once the right becomes absolute, the Constitution gives a right of property to every citizen under the law.

Is Input Tax Credit Just a Concession or a Benefit?

Contrary to the aforementioned arguments, some argue that ITC is merely a concession granted by the tax authorities. This viewpoint posits that tax laws and regulations provide for ITC as a means to incentivize compliance and encourage businesses to maintain proper documentation and reporting.

According to this perspective, ITC in GST is contingent upon fulfilling certain conditions and is subject to the discretion of the tax authorities.

This is well established by the following case judgments passed by the Honourable Courts –

The Supreme Court, in the case of Ald Automotive – 2018-TIOL-385-SC-VAT, held that input credit is in nature of benefit/ concession extended to dealers under the statutory scheme.

In the Nelco case – 2020-TIOL-641-HC-MUM-GST, the Bombay High Court held that availing of input tax credit under section 140(1) is a concession attached with conditions of its exercise within the time limit.

The Apex Court in the case of M/S. TVS Motor Company Ltd. vs. The State of Tamil Nadu And Others, 2018 Latest Caselaw 763 SC, read as under:

“After discussing certain judgments of this Court and other High Courts, the High Court has observed that the legal position was that the right to claim ITC is not a vested right or an indefeasible right. It is a benefit conferred under the Act in certain contingencies and subject to conditions prescribed in the statutory scheme. Therefore, it is open to the State Legislature to provide for conditions and restrictions while extending the concession. Likewise, it was also necessary for any assessee to claim input credit to fulfil those conditions.”

Conclusion

From the above discussion, it is well established that Input Tax Credit is considered a benefit or concession on fulfilling the prerequisite conditions. Also, it is not a vested right or an absolute right at the time of procurement of goods, but the compliance of pre- and post-conditions makes it a vested right for a registered person.

It is undeniable that ITC in GST plays a pivotal role in indirect taxation systems, promoting efficiency, fairness, and compliance. Whether it is regarded as a fundamental or vested right or merely a concession, the significance of ITC cannot be overlooked.

Understanding its implications and staying updated with evolving tax regulations are vital to ensuring seamless operations and optimal fiscal management in today’s dynamic business landscape.