THE INPUT TAX CREDIT MECHANISM UNDER GOODS AND SERVICE LAW IN INDIA

ABSTRACT

The meaning of tax is defined as the extraction of money from the public by the State for the welfare of the public. Tax can be divided in many classes but in general, the classification of tax may be defined direct and indirect tax. The direct tax means that the amount of tax bear by the assessee in himself and indirect tax envisages that the tax is not bear by the taxable person. It is collected by the taxable person from the public on behalf of the State and deposited the same in the Government treasury. Before the independence of our country, there were several  indirect tax applicable such as General Sales Goods Act, Central Excise Duty and Import Duty on goods. With the change of the time, there are certain other indirect tax regime was come to in existence. After the independence of the country, there are several tax regime has been changed according to the need of the country and several new tax has been introduced. In brief, we can say Sales Tax, Central Sales Tax, Central Excise Duty, Import Duty and Service Tax etc. In the beginning, in all these taxes, there was not any provision regarding the adjustment of tax paid by the purchaser at the time of purchase against the outstanding liability of the taxable person. In the year 1986, the new scheme was introduced in the Central Excise i.e. Modified Value Added Tax (MODVAT) in case of manufacture of the goods. The same system of MODVAT has been apply in the year 2000 in case of service tax was introduced in the year 1994 and the scheme name was changed or renamed CENVAT . In the year 2005, when Value Added Tax has been introduced, the provision of input tax credit has been introduced subsequently and the input tax credit scheme has been extended to the capital goods. The Central Government has amended the service tax in Section 9(2) of Finance Act, 1994 in the year 2002 conferred the power to the Central Government regarding making rule of input tax credit by amendment . The rule further amended by the Central Government . The both CENVAT Credit Rule were merged. This rule has contains 16 Rules, whereby both manufacturers and service providers are allowed to take input tax credit on goods and services apart from capital goods. The scope of CENVAT scheme has been enlarged time to time and includes the tax paid on capital goods. When a Task Force Committee was formed under the Chairmanship of Dr.Vijay Kelkar on the subject implementation of fiscal responsibility and Budget Management Act, the Kelkar Committee has submitted his report in July, 2004 and strongly recommended introduction of Goods and Service Tax (GST) and input tax credit on goods and services or both.

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