ITC (ITC)

Input Tax Credit (ITC) is the mechanism under India's GST system that allows a registered business to deduct the GST already paid on its inputs — goods purchased, services consumed, capital equipment, and certain expenses — from the GST it must pay on its outputs. ITC is the structural feature that converts GST from a cascading tax (tax-on-tax) into a value-added tax — every supplier in a chain pays GST only on the value it adds, with the cumulative GST burden borne by the final consumer.

The mechanism is straightforward in concept. A recycler buys a shredder for Rs 50 lakh + 18% GST (Rs 9 lakh). The Rs 9 lakh is recorded as input tax credit. In the same month, the recycler sells Rs 30 lakh of regranulate + 18% GST (Rs 5.4 lakh). The recycler offsets the Rs 5.4 lakh output GST against the Rs 9 lakh ITC and pays Rs 0 to the government that month; the remaining Rs 3.6 lakh ITC carries forward to subsequent months. Over time, as output sales grow, ITC is fully utilised and the plant starts net paying GST.

Eligibility is fenced by Section 16 of the CGST Act 2017: (1) the supplier's invoice must be in the buyer's name and GSTIN; (2) the goods must have been received; (3) the supplier must have actually paid the tax to the government (verifiable on the GSTR-2A/2B portal); (4) the buyer must file GSTR-3B claiming the credit by the due date; (5) payment to the supplier must occur within 180 days, else ITC is reversed. Blocked credits under Section 17(5) exclude motor vehicles for personal use, food & beverages, employee benefits not statutorily required, and free samples.

For recycling plants, ITC management is the single most actionable lever on working capital. The recurring pain points are: scrap purchases from unregistered dealers — no GST invoice, no ITC, no offset against output GST; the workaround is RCM (reverse-charge mechanism) under Section 9(4) which requires the recycler to self-deposit GST on the scrap purchase and then claim it back as ITC, neutralising tax but adding compliance load. Inverted duty refunds — when input GST permanently exceeds output GST (typical for CBG at 5% output vs 18% on machinery), Section 54 refunds accumulated ITC, but the refund cycle is 6-18 months and excludes capital goods, restricting refundable ITC to inputs and input services. Supplier non-compliance — if the supplier doesn't pay GST or file returns, the buyer's ITC is automatically reversed via the GSTR-2B reconciliation, creating principal-supplier liability the recycler cannot control. Vendor due diligence on GST compliance has become standard practice for any procurement above Rs 50,000.