76220bos61590 cp7
76220bos61590 cp7
LEARNING OUTCOMES
After studying this Chapter, you will be able to –
describe what are inputs, input services, capital goods and other relevant terms
in relation to ITC
explain the various conditions, timelines and restrictions for taking ITC on
goods and services in general and in special circumstances
identify the items on which ITC is available as also the blocked items on which
ITC is not available
explain the concept relating to availing of proportionate ITC when common
inputs or input service or capital goods are used or intended to be used for
exempted and taxable supplies or business and non-business activities
comprehend the concept of an input service distributor and the manner of
distribution of credit by him
describe the manner of recovery of credit distributed in excess
comprehend, analyse and apply all the above provisions as also the provisions
relating to utilization of ITC in problem solving
compute the GST liability of a registered person.
1. INTRODUCTION
In earlier indirect tax regime, the
credit mechanism for indirect taxes
levied by the Union Government,
(central excise duty and service tax)
was governed by the CENVAT Credit
Rules, 2004; and the credit
mechanism for State-level VAT on
sale of goods was governed by the
States under their respective VAT
laws. The VAT legislations allowed
ITC of VAT on inputs and capital
goods in transactions within the
State, but not on inputs and capital
goods coming in the State from outside the State, on which central sales tax was
paid. CENVAT Credit Rules, 2004 allowed availing and utilizing credit of duty/tax
paid on both goods (capital goods and inputs) and services by the manufacturers
and the service providers across the country.
The credit across goods and services was integrated vide the CENVAT Credit Rules,
2004 in the year 2004 to mitigate the cascading effects of central levies namely,
central excise duty and service tax. However, the credit chain remained fragmented
on account of State-Level VAT as the credit of central taxes could not be set off
against a State levy and vice versa. The chain further got distorted as ITC was not
available on inter-State purchases. This resulted in cascading of taxes leading to
increase in costs of goods and services.
The GST regime promises seamless credit on goods and services across the entire
supply chain with some exceptions like supplies charged to tax under composition
scheme, blocked credits and supply of exempted goods and/or services. ITC is
considered to be the lifeline of the GST regime. In fact, it is the provisions of ITC
which essentially make GST - a value added tax i.e., collection of tax at all points of
supply chain after allowing credit of tax paid at earlier points.
Chapter V of the CGST Act [Sections 16 to 21] & Chapter V: Input Tax Credit of the
CGST Rules [Rules 36-45] prescribe the provisions relating to ITC.
Further, section 41 contains provisions for availment of ITC, sections 49(5), 49A, 49B
and rule 88A together prescribe the sequence of utilisation of ITC and rules 86A
and 86B stipulate the conditions of use of amount available in electronic credit
ledger and restrictions on use of amount available in electronic credit ledger. State
GST laws also prescribe identical provisions in relation to ITC. First the statutory
provisions of these sections together with the relevant rules have been extracted
followed by their analysis1.
Provisions of ITC under CGST Act have also been made applicable to IGST Act vide section 2
The scheme is designed to avoid cascading effect of taxes and make GST a
destination-based tax.
Broadly, ITC is available on all inputs, input services and capital goods used
for purposes of business by a taxable person. The exception is ‘blocked
credit’, where ITC is not available even when these goods or services are used
for the purposes of business.
ITC is used for payment of tax on taxable output supply to avoid cascading
effect of taxes.
GST law does not require ‘one to one’ co-relation between inputs/input
services and final products/services. Any eligible ITC can be used for payment
of tax on any taxable output supply.
1
The provisions of section 19 relating to taking ITC on inputs and capital goods sent for job
work have been discussed in Chapter 16: Job Work in Module 3 of this Study Material.
Since ITC can be availed & utilized for payment of tax on taxable output
supply, as a natural corollary, ITC cannot be availed in respect of exempt
output supply on which tax is not payable.
The exception to the above principle is ‘zero rated supply’, i.e. exports or
supplies to a special economic zone (SEZ) developer/unit for authorised
operations, where ITC is available even if no tax is payable on output supply
as zero-rated supplies are not exempt supplies. Such ITC can be utilized either
for making supplies by paying tax or refund of the unutilized ITC can be
obtained. This simple mechanism is used to make exports and supplies to
SEZ completely tax free.
If a taxable person is making both taxable and exempt supply, he is entitled
to avail full credit of ITC in respect of inputs, input services and capital goods
exclusively used for taxable supply and no credit at all can be availed for
inputs, input services and capital goods exclusively used for exempt supply.
If common inputs, input services and capital goods are used for taxable as
well as exempt supply, only proportionate ITC attributable to the taxable
supply is available. The common ITC is apportioned in the ratio of value of
taxable supply and exempt supply. Elaborate provisions have been made in
the GST law to prescribe the manner of calculation of proportionate ITC.
ITC can be availed on inputs and capital goods sent for job work; ITC is
available even if the inputs and capital goods are sent directly to the job
worker without being first brought to the place of business of the supplier.2
Input services received at head office or branch offices are ultimately
indirectly used for supplies made from manufacturing or trading or business
premises. ITC of such input services can be availed through mechanism of
‘input service distributor’.
Before proceeding to understand the statutory provisions relating to ITC, let us first
go through few relevant definitions.
2
The provisions relating to taking ITC on inputs and capital goods sent for job work have
been discussed in Chapter 16: Job Work in Module 3 of this Study Material.
2. RELEVANT DEFINITIONS
Agent means a person, including a factor, broker, commission agent, arhatia,
del credere agent, an auctioneer or any other mercantile agent, by whatever
name called, who carries on the business of supply or receipt of goods or
services or both on behalf of another [Section 2(5)].
Business includes
(a) any trade, commerce, manufacture, profession, vocation, adventure,
wager or any other similar activity, whether or not it is for a pecuniary
benefit;
(b) any activity or transaction in connection with or incidental or ancillary
to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or
not there is volume, frequency, continuity or regularity of such
transaction;
(d) supply or acquisition of goods including capital goods and services in
connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a
subscription or any other consideration) of the facilities or benefits to
its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been
accepted by him in the course or furtherance of his trade, profession or
vocation;
(h) activities of a race club including by way of totalisator or a licence to
book maker or activities of a licenced book maker in such club; and
(i) any activity or transaction undertaken by the Central Government, a
State Government or any local authority in which they are engaged as
public authorities [Section 2(17)].
Capital goods means goods, the value of which is capitalized in the books of
account of the person claiming the ITC and which are used or intended to be
used in the course or furtherance of business [Section 2(19)].
Conveyance includes a vessel, an aircraft and a vehicle [Section 2(34)].
Exempt supply means supply of any goods or services or both which attracts
nil rate of tax or which may be wholly exempt from tax under section 11, or
under section 6 of the IGST Act, and includes non-taxable supply
[Section 2(47)].
Input means any goods other than capital goods used or intended to be used
by a supplier in the course or furtherance of business [Section 2(59)].
Input service means any service used or intended to be used by a supplier
in the course or furtherance of business [Section 2(60)].
(b) the tax payable under the provisions of sub-sections (3) and (4) of
section 9;
(c) the tax payable under the provisions of sub-section (3) and (4) of
section 5 of the IGST Act;
(d) the tax payable under the provisions of sub-section (3) and sub-section
(4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-section (3) and sub-section
(4) of section 7 of the Union Territory Goods and Services Tax Act,
but does not include the tax paid under the composition levy [Section 2(62)].
Input tax credit means the credit of input tax [Section 2(63)].
Invoice or tax invoice means the tax invoice referred to in section 31 [Section
2(66)].
a place from where the business is ordinarily carried on, and includes a
warehouse, a godown or any other place where a taxable person stores
his goods, supplies or receives goods or services or both; or
STATUTORY PROVISIONS
(2) Input tax credit shall be availed by a registered person only if all
the applicable particulars as specified in the provisions of Chapter
VI are contained in the said document.
Provided that if the said document does not contain all the specified
particulars but contains the details of the amount of tax charged,
description of goods or services, total value of supply of goods or
services or both, GSTIN of the supplier and recipient and place of
supply in case of inter-State supply, input tax credit may be availed
by such registered person.
(4) (a) the details of such invoices or debit notes have been
furnished by the supplier in the statement of outward
supplies in FORM GSTR-1 or using the invoice furnishing
facility; and
(b) the details of input tax credit in respect of such invoices
or debit notes have been communicated to the registered
person in FORM GSTR-2B under sub-rule (7) of rule 60.
Sub-rule Particulars
(1) A registered person, who has availed of input tax credit on any
inward supply of goods or services or both, other than the
supplies on which tax is payable on reverse charge basis, but
fails to pay to the supplier thereof, the amount towards the
value of such supply whether wholly or partly, along with the
tax payable thereon, within the time limit specified in the
second proviso to sub-section (2) of section 16, shall pay or
reverse an amount equal to the input tax credit availed in
respect of such supply, proportionate to the amount not paid
to the supplier, along with interest payable thereon under
section 50, while furnishing the return in FORM GSTR-3B for
Provided that where the said amount of input tax credit is not
reversed by the registered person in a return in FORM GSTR-3B
on or before the 30th day of November following the end of
such financial year during which such input tax credit has been
availed, such amount shall be payable by the said registered
person along with interest thereon under section 50.
Provided further that where the said supplier subsequently
furnishes the return in FORM GSTR-3B for the said tax period,
the said registered person may re-avail the amount of such
credit in the return in FORM GSTR-3B for a tax period
thereafter.
ANALYSIS
(i) Eligibility for taking ITC [Section 16(1)]
(a) Registration under GST
Every registered person shall be entitled to ITC of GST charged on inward
supply [See definition of inward supply] of goods and / or services. This
is subject to the provisions relating to use of ITC under section 49 and
the conditions and restrictions in the rules. [Section 49 prescribes
provisions relating to payment of tax, interest, penalty & other amounts.
The same has been discussed in detail in Chapter 11: Payment of Tax in
this Module of the Study Material. Relevant portion is discussed in this
Chapter subsequently.]
(b) Goods/services to be used for business purposes
ITC of GST will be available on goods and/or services which are used or
intended to be used in the course or furtherance of the business [See
definition of business]. The scope of the definition of ‘business’ is very
wide. It is also an inclusive definition. The relation of inputs and input
services with business can be direct or indirect.
Thus, tax paid on goods and or/services which are used or intended to
be used for non-business purposes cannot be availed as credit. ITC will
be credited to electronic credit ledger. [Provisions relating to electronic
credit ledger have been discussed in detail in Chapter 11: Payment of Tax
in this Module of the Study Material.]
Moulds and dies provided by the original equipment manufacturer
(OEM) to component manufacturer on FOC basis – when not
considered as being in the course or furtherance of business?
Moulds and dies owned by the original equipment manufacturer (OEM)
which are provided to a component manufacturer (the two not being
related persons or distinct persons) on free on cost (FOC) basis does
not constitute a supply as there is no consideration involved. Further,
since the moulds and dies are provided on FOC basis by the OEM to the
component manufacturer in the course or furtherance of his business,
there is no requirement for reversal of ITC availed on such moulds and
dies by the OEM.
(iv) Bill of entry or similar document prescribed under the Customs Act5
(v) Document issued by input service distributor
The documents on the basis of which ITC is being taken should contain
at least the following details:
Amount of tax charged
Description of goods or services
Total value of supply of goods and/or services
3
Circular No. 47/21/2018 GST dated 08.06.2018 also clarifies aspects relating to valuation
of moulds and dies provided by the OEM to component manufacturer on FOC basis. The
same are covered in Chapter 6: Value of Supply in Module 1 of this Study Material.
4
Provisions relating to invoice/revised invoice have been discussed in detailed in Chapter 9:
Tax Invoice: Credit and Debit Notes in this Module of the Study Material.
5
Provisions relating to the Customs Act, 1962 have been discussed in Module 4 of this Study
Material.
6
The provisions relating to QRMP, filing of GSTR-1/IFF and GSTR-2B have been discussed in
detail in Chapter 13: Returns in this Module of the Study Material.
✪ Invoices on which ITC is not available under any of the provisions e.g., under
by the suppliers.
✪ On the other hand, full ITC can be availed in respect of IGST paid on imports, do
A is a trader who places an order on B for a consignment of soda ash. A receives a buyin
and in turn he raises an invoice on C. Though the goods are not physically received at t
The registered head office (New Delhi) of ABC Pvt. Ltd. enters into a contract with DE
Though the actual services are received by the branch office and not by the head office
(d) Details of ITC in respect of the said supply communicated to the registered
person under section 38 not restricted [Section 16(2)(ba)]
Section 38 stipulates that the details of outward supplies furnished
by the registered suppliers in GSTR-1/using IFF and an auto-
generated statement - GSTR-2B - containing the details of ITC is
made available to the recipients of such supplies every month.
7
Rule 86B provides that the registered person shall not utilise the amount available in
electronic credit ledger to discharge his liability towards output tax in excess of 99% of such
tax liability, in cases where the value of taxable supply other than exempt supply and zero-
rated supply, in a month exceeds ` 50 lakh subject to specified exceptions. It has been
discussed subsequently in this chapter.
(iv) Payment for the invoice to be made within 180 days [Second proviso to
section 16(2) read with rule 37]
The registered person must pay to the supplier, the value of the goods
and/or services along with the tax within 180 days from the date of issue
of invoice [Second proviso to section 16(2)].
However, where a registered person, who has availed of ITC on any
inward supply fails to pay to the supplier thereof, the amount towards
the value of such supply, whether wholly or partly, along with the tax
payable thereon, within 180 days from the date of issue of invoice by
supplier, shall pay or reverse an amount equal to the ITC availed in
respect of such supply, proportionate to the amount not paid to the
supplier, along with interest payable thereon under section 50, while
furnishing the return in Form GSTR-3B for the tax period immediately
following the period of 180 days from the date of the issue of the invoice.
Exceptions
This condition of payment of value of supply plus tax within 180 days
does not apply in the following situations:
(a) Supplies on which tax is payable under reverse charge
(vi) Time limit for availing ITC: 30th November of succeeding financial year or
date of filing of relevant annual return, whichever is earlier [Section 16(4)]
ITC on invoices pertaining to a financial year or debit notes issued in a
financial year can be availed any time till 30th November of the succeeding
financial year or the date of filing of the relevant annual return, whichever is
earlier.
(9) Hercules Machinery delivered a machine to XYZ, a monthly return filer under GST, in the m
trial runs and calibration of the machine as per the requirements of XYZ. The amount chargeabl
The time-limit to avail ITC in respect of tax paid on supply for Invoice No. 49 would be 30th No
Since the debit note is received in the next financial year, the time limit for taking ITC available
8
Circular No. 160/16/2021 GST dated 20.09.2021
Exception
The time limit u/s 16(4) does not apply to claim for re-availing of credit that
had been reversed earlier.
(vii) Restriction of ITC in proportion of (i) taxable supplies (ii) business purposes
[Sub-sections (1) and (2) of section 17]
ITC is restricted in proportion of the use of the goods and/or services (i) in
the taxable and / or zero-rated supplies (ii) for business purposes. This is
elaborated in heading (4) below.
(viii) ITC not allowed on certain supplies [Section 17(5)]
ITC has been blocked for specified goods and services. This is elaborated in
heading (4) below.
STATUTORY PROVISIONS
(1) Where the goods or services or both are used by the registered
person partly for the purpose of any business and partly for other
purposes, the amount of credit shall be restricted to so much of the
input tax as is attributable to the purposes of his business.
(2) Where the goods or services or both are used by the registered
person partly for effecting taxable supplies including zero-rated
supplies under this Act or under the Integrated Goods and Services
Tax Act and partly for effecting exempt supplies under the said
Acts, the amount of credit shall be restricted to so much of the
input tax as is attributable to the said taxable supplies including
zero-rated supplies.
(3) The value of exempt supply under sub-section (2) shall be such as
may be prescribed, and shall include supplies on which the
recipient is liable to pay tax on reverse charge basis, transactions
in securities, sale of land and, subject to clause (b) of paragraph 5
of Schedule II, sale of building.
Provided further that the restriction of fifty per cent. shall not apply
to the tax paid on supplies made by one registered person to
another registered person having the same Permanent Account
Number.
(B transportation of passengers; or
9
Circular No. 172/04/2022 GST dated 06.07.2022 clarifies that this proviso is applicable to
the whole of section 17(5)(b).
(6) The Government may prescribe the manner in which the credit
referred to in sub-sections (1) and (2) may be attributed.
(a) the said company or institution shall not avail the credit
of,-
(i) the tax paid on inputs and input services that are
used for non-business purposes; and
(c) fifty per cent. of the remaining amount of input tax shall
be the input tax credit admissible to the company or the
institution and the balance amount of input tax credit
shall be reversed in Form GSTR-3B;
(1) The input tax credit in respect of inputs or input services, which
attract the provisions of sub-section (1) or sub-section (2) of
section 17, being partly used for the purposes of business and
partly for other purposes, or partly used for effecting taxable
supplies including zero rated supplies and partly for effecting
exempt supplies, shall be attributed to the purposes of business or
for effecting taxable supplies in the following manner, namely,-
(a) the total input tax involved on inputs and input services
in a tax period, be denoted as ‘T’;
(g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared
by the registered person at summary level in FORM
GSTR-3B;
(h) input tax credit left after attribution of input tax credit
under clause (f) shall be called common credit, be
denoted as ‘C2’ and calculated as-
C 2 = C 1 - T4 ;
(i) the amount of input tax credit attributable towards
exempt supplies, be denoted as ‘D1’ and calculated as-
D1= (E ÷ F) × C2
where,
‘E’ is the aggregate value of exempt supplies during the
tax period, and
‘F’ is the total turnover in the State of the registered
person during the tax period:
(2) The input tax credit determined under sub-rule (1) shall be
calculated finally for the financial year before the due date for
furnishing of the return for the month of September following the
end of the financial year to which such credit relates, in the
manner specified in the said sub-rule and,-
(1) Subject to the provisions of sub-section (3) of section 16, the input
tax credit in respect of capital goods, which attract the provisions
of sub-sections (1) and (2) of section 17, being partly used for the
purposes of business and partly for other purposes, or partly used
for effecting taxable supplies including zero rated supplies and
10 Clause (f) of the rule which contained the provisions for computation of ‘Tr’ has been
omitted vide Notification No. 16/2020 CT dated 23.03.2020. This has rendered the formula
given in clause (g) otiose as the term ‘Tr’ is now nowhere defined in the amended rule.
where,
‘E’ is the aggregate value of exempt supplies, made,
during the tax period, and ‘F’ is the total turnover in the
State of the registered person during the tax period:
Explanation:-For the purposes of rule 42 and this rule, it is hereby clarified that
the aggregate value of exempt supplies shall exclude:-
(b) the value of security shall be taken as one per cent. of the
sale value of such security.
ANALYSIS
Section 17 requires apportionment and concomitant restriction of ITC in two
situations as also blocking of ITC on specified inward supplies.
A. Apportionment of ITC [Sub-sections (1) and (2) of section 17 read with
rule 42 and rule 43 of the CGST Rules]
The fundamental principle of credit scheme under value added tax is that tax
paid on inputs, input services and capital goods can be availed as credit only
when the output is taxable. Thus, when tax is not payable on output, credit
cannot be availed.
Accordingly, ITC under GST can be availed and utilised for payment of tax on
output supply. Consequently, ITC cannot be availed when tax is not payable
on output supply, i.e. on exempt supply. The only exception to the above
principle is ‘zero rated supply, where ITC is available even if no tax is payable
on output supply as zero rated supply is not an exempted supply.
If a taxable person is making both taxable and exempt supply, he is entitled
to full credit of ITC in respect of inputs, input services and capital goods
exclusively used for taxable supply and no credit at all for inputs, input
services and capital goods exclusively used for exempt supply.
If common inputs, input services and capital goods are used for taxable as
well as exempt supply, only proportionate ITC attributable to the taxable
supply is available. The common ITC is apportioned in the ratio of value of
taxable supply and exempt supply.
Also, in case goods and/or services are used by the taxable person partly for
the business purposes and partly for non-business purposes, he is entitled to
full credit of ITC in respect of inputs, input services and capital goods
exclusively used for business purposes and no credit at all can be availed for
goods and/or services exclusively used for non-business purposes.
If common inputs, input services and capital goods are used partly for
business and partly for non-business purposes, only proportionate ITC
attributable to the business purpose is available.
Elaborate provisions have been made in sub-sections (1) and (2) of section 17
and rules 42 and 43 for calculation of such proportionate ITC. Such provisions
are discussed in detail in the ensuing pages.
The situations requiring apportionment are as follows:
(a) when the goods and / or services are used by the registered person
partly for the purpose of business [See the definition of business] and
partly for other purposes [Section 17(1)]; and
(b) when the goods and / or services are used by the registered person
partly for making taxable supplies including zero-rated supplies and
partly for making exempt supplies [See the definition of exempt supplies]
[Section 17(2)].
In both the above situations, full ITC on inward supplies cannot be taken; only
proportionate ITC is allowed in such scenarios. Where goods and/or services
are used partly for non-business purposes and partly for business purposes,
Total
T1,input
T2, tax
T3 involved
and T4 on
will inputs & input services
be determined in a
and declared T the
by
tax period
registered person at the invoice level in GSTR 2 and summary level
Less:in Input
GSTR-3B.
tax on inputs & input services that are (T1)
intended
Where to ITC be
on used
inputs exclusively
and input for non-business
services used partly for non-
purposes
business purposes and exempt supplies can be segregated at
Less:invoice level,
Input the inputs
tax on same will be added
& input to Tthat
services 1 and
areT2 respectively
(T2) and
intended to be used
the balance creditexclusively for exempt
will be added in T4. supplies
Less:The
Input tax identified
portion on inputsas&pertaining
input services whichsupplies
to taxable are in(TC32) will
ineligible for credit
be allowed [blocked credits- See discussion under
as ITC.
point (B)]
ITC credited to Electronic Credit Ledger C1
Less: ITC on inputs & input services that are intended to (T4)
be used exclusively for taxable supplies including zero
rated supplies
Common ITC available for apportionment C2
Notes:
(i) If the registered person does not have any turnover during the
said tax period, or the above information is not available, the
values for the last tax period may be used.
(ii) Here, exempt supplies include reverse charge supplies,
transactions in securities, sale of land and sale of building
when entire consideration is received either after issuance of
completion certificate by the competent authority or its first
occupation, whichever is earlier and supply of warehoused
goods before clearance for home consumption. Thus, ITC
attributable to such supplies will need to be reversed.
D2 = 5% of C2 (common credit)
(vi) Change from exclusive use for taxable including zero rated
supplies to common use: Where capital goods which were
initially covered under (ii) above get subsequently covered under
(iii), add input tax claimed in respect of the same to aggregate
value of ‘Tc’.
Step 2 - Determine common credit during the useful life of capital goods for a
tax period as under and denote the same as ‘Tm’:
Tm = Tc ÷ 60
Notes:
(i)
Tm is to be computed during the useful life of capital goods which is
five years from the date of invoice.
(ii)
If the registered person does not have any turnover during the said
tax period, or the above information is not available, the values for
the last tax period may be used.
(iii)
Here, exempt supplies include reverse charge supplies, transactions
in securities, sale of land and sale of building when entire
consideration is received either after issuance of completion
certificate by the competent authority or its first occupation,
whichever is earlier and supply of warehoused goods before
clearance for home consumption. Thus, ITC attributable to such
supplies will need to be reversed.
(iv)
Here, exempt supplies exclude-
Credit of tax paid on inputs and input services that are used for
non-business purposes and items mentioned u/s section 17(5)
[blocked credits] cannot be availed.
The restriction of availing 50% ITC shall not apply to the tax paid
on supplies procured from another registration within the same
entity, i.e. 100% credit of such tax can be availed.
The option once exercised cannot be changed during the
remaining part of the financial year.
Interest is the main income of banks and NBFCs and the same is exempt
from GST. Thus, if rule 42 and 43 are applied strictly, significant portion
of ITC of banks and NBFCs will have to be reversed/added to output tax
liability. Therefore, banks and NBFCs have been given the said option
The blocked list of credit covers mainly items of personal consumption, inputs
and input services use of which results into formation of an immovable
property (except plant and machinery), telecommunication towers, pipelines
laid outside the factory premises, etc. and taxes paid as a result of detection
of evasion of taxes, etc.
The various goods and/or services on which credit is blocked are discussed
hereunder:
(i) Motor vehicles and other conveyances and related services (insurance,
servicing and repair and maintenance)
Motor vehicles and conveyances have been defined in the CGST Act
[See definition under the heading Relevant Definitions]. Motor vehicles
exclude –
vehicle with less than 4 wheels fitted with engine capacity of upto
25cc – (Thus, railways, two/three wheelers with engine capacity of
upto 25cc, bicycle etc. do not fall in the definition of motor
vehicle.)
Broadly, ITC is blocked on motor vehicles, vessels and aircrafts used for
passenger transportation with certain exceptions. Further, ITC is also
blocked on certain services relating to motor vehicles, vessels and
aircrafts namely, general insurance, servicing and repair and
maintenance. The basic principle here is that the motor vehicles,
are byused
Such services when provided by theto its employees
an employer
taxpayer who is in
the same line of
business.
**The term “leasing” referred in above table refers to leasing of motor vehicles, ves
not to leasing of any other items.
Accordingly, availment of ITC is not barred in case of leasing, other than leasing of
ITC on cars purchased by a manufacturing company for official use of its employees is bl
ITC on cars purchased by a car dealer for sale to customers is allowed.
ITC on cars purchased by a company engaged in renting out cars for transportation of pa
ITC on cars purchased by a car driving school for imparting training on driving is allowed
ITC on buses (seating capacity for 24 persons) purchased by a company for transportation
ITC on trucks purchased by a company for transportation of its finished goods is allowed.
ITC on aircraft purchased by a manufacturing company for official use of its CEO is blocke
11
Circular No. 172/04/2022 GST dated 06.07.2022
Works contract has been defined in the CGST Act [See definition under
the heading Relevant Definitions]. Essentially works contract is a
composite supply involving both goods and services. Under the
erstwhile laws, definition of works contract included work in relation to
both movable and immovable properties. However, under GST law, the
ambit of works contract has been confined only to immovable
property.
Meaning of construction
“Construction” includes re-construction, renovation, additions or
alterations or repairs, to the extent of capitalization, to the said
immovable property.
Thus, if re-construction, renovation, additions or alterations or repairs
are not capitalized, it would not tantamount to construction under GST
law. Consequently, ITC on works contract services availed for such
construction (which is not capitalized) whether for any immovable
property or for any plant and machinery, would be allowed to all the
recipients irrespective of their line of business.
ITC on works contracts services availed by a software company for construction of its offi
CD & Co., a works contractor of Noida, has been awarded a contract for construction of a
ITC on works contract services availed by an automobile company for construction of a
ITC on works contract services availed by a manufacturing company for construction of p
A consulting firm has availed services of a works contractor for repair of its office building
A telecommunication company has availed services of a works contractor for repair of its
The answer is No. ITC is not allowed on goods and/or services received
by a taxable person for construction of an immovable property (other
than plant and machinery) on his own account even though such
goods and/or services are used in the course or furtherance of business.
Thus, ITC on goods and/or services used in the construction of an
immovable property is blocked only in those cases where the taxable
person constructs the immovable property for his own use even if the
immovable property being constructed is used in the course or
furtherance of his business.
The discussion on terms, ‘construction’ and ‘plant and machinery’ for works contrac
MN & Constructions procures cement, paint, iron rods and services of architects and int
ITC on such goods and services is allowed to MN & Co.
A company buys cement, tiles etc. and avails the services of an architect for renovation
ITC on goods and/or services used by an automobile company for construction of a fou
(vii) Goods/services used/intended to be used for CSR related activities [Clause (fa)
of section 17(5)]
ITC is blocked on goods or services or both received by a taxable
person, which are used or intended to be used for activities relating
to his obligations under corporate social responsibility referred to
in section 135 of the Companies Act, 2013.
(viii) Inward supplies used for personal consumption [Clause (g) of section 17(5)]
One of the foremost conditions laid down in section 16 for availing ITC
on goods and/or services is that such goods and/or services should be
used in the course or furtherance of business. Further, where goods
and/or services are used partly for the purpose of any business and
partly for other purposes, section 17(1) restricts the credit to so much
of the ITC as is attributable to business purposes.
Meaning of ‘gift’
The term gift has not been defined in the GST law. Therefore, we will have to look for
In common parlance, gift is made without consideration, is voluntary in nature and is made
Meaning of ‘sample’
Sample is also not defined in the GST law. The dictionary meaning of sample is “a small par
However, the supplier shall be entitled to avail the ITC for such
inputs, input services and capital goods used in relation to the
supply of goods or services or both on such discounts.
D. Secondary discounts
These are the discounts which are not known at the time of supply
or are offered after the supply is already over. Such discounts
shall not be excluded while determining the value of supply.
There is no impact on availability or otherwise of ITC in the hands
of supplier in this case.
ITC reversal when return of time expired medicines/drugs are treated as fresh
supply
The common trade practice in the pharmaceutical sector is that the
drugs or medicines (hereinafter referred to as “goods”) are sold by the
manufacturer to the wholesaler and by the wholesaler to the retailer on
the basis of an invoice/bill of supply as case may be. Such goods have
a defined life term which is normally referred to as the date of expiry.
Such goods which have crossed their date of expiry are colloquially
referred to as time expired goods and are returned back to the
manufacturer, on account of expiry, through the supply chain.
Circular No. 72/46/2018 GST dated 26.10.2018 has clarified that the
retailer/ wholesaler can return the time expired goods, either by
treating the same as fresh supply or by issuing credit notes12.
Return of time-expired goods by treating the same as fresh supply
In case the person returning the time expired goods is a registered
person (other than a composition taxpayer), he may, at his option,
12
The procedure for return of time expired drugs or medicines by issuing credit note is covered
in Chapter 9: Tax Invoice, Credit and Debit Note in this Module of the Study Material.
STATUTORY PROVISIONS
(1) The input tax credit claimed in accordance with the provisions of
sub-section (1) of section 18 on the inputs held in stock or inputs
contained in semi-finished or finished goods held in stock, or the
credit claimed on capital goods in accordance with the provisions
of clauses (c) and (d) of the said sub-section, shall be subject to the
following conditions, namely -
(a) the input tax credit on capital goods, in terms of clauses
(c) and (d) of sub-section (1) of section 18, shall be
claimed after reducing the tax paid on such capital
goods by five percentage points per quarter of a year or
part thereof from the date of the invoice or such other
documents on which the capital goods were received by
the taxable person.
(c) the declaration under clause (b) shall clearly specify the
details relating to the inputs held in stock or inputs
contained in semi-finished or finished goods held in
stock, or as the case may be, capital goods–
(i) on the day immediately preceding the date from
which he becomes liable to pay tax under the
provisions of the Act, in the case of a claim under
clause (a) of sub- section (1) of section 18;
(ii) on the day immediately preceding the date of the
grant of registration, in the case of a claim under
clause (b) of sub-section (1) of section 18;
(iii) on the day immediately preceding the date from
which he becomes liable to pay tax under section
9, in the case of a claim under clause (c) of sub-
section (1) of section 18;
(iv) on the day immediately preceding the date from
which the supplies made by the registered person
becomes taxable, in the case of a claim under
clause (d) of sub- section (1) of section 18;
the details furnished in the declaration under clause (b)
(d) shall be duly certified by a practicing chartered
accountant or a cost accountant if the aggregate value
(2) The amount of credit in the case of supply of capital goods or plant
and machinery, for the purposes of sub-section (6) of section 18,
shall be calculated by reducing the input tax on the said goods at
the rate of five percentage points for every quarter or part thereof
from the date of the issue of the invoice for such goods.
Sub-rule Particulars
(3) The transferee shall, on the common portal, accept the details so
furnished by the transferor and, upon such acceptance, the un-
utilized credit specified in FORM GST ITC-02 shall be credited to
his electronic credit ledger.
(4) The inputs and capital goods so transferred shall be duly
accounted for by the transferee in his books of account.
Rule 41A Transfer of credit on obtaining separate registration for multiple places
of business within a State or Union territory
(1) The amount of input tax credit relating to inputs held in stock,
inputs contained in semi-finished and finished goods held in stock,
and capital goods held in stock shall, for the purposes of sub-
section (4) of section 18 or sub-section (5) of section 29, be
determined in the following manner, namely,-
(a) for inputs held in stock and inputs contained in semi-
finished and finished goods held in stock, the input tax
credit shall be calculated proportionately on the basis of
the corresponding invoices on which credit had been
availed by the registered taxable person on such inputs;
(b) for capital goods held in stock, the input tax credit
involved in the remaining useful life in months shall be
computed on pro-rata basis, taking the useful life as five
years.
(2)
The amount, as specified in sub-rule (1) shall be determined
separately for input tax credit of central tax, State tax, Union
territory tax and integrated tax.
(3)
Where the tax invoices related to the inputs held in stock are not
available, the registered person shall estimate the amount under
sub-rule (1) based on the prevailing market price of the goods on
the effective date of the occurrence of any of the events specified
in sub-section (4) of section 18 or, as the case may be, sub-section
(5) of section 29.
(4)
The amount determined under sub-rule (1) shall form part of the
output tax liability of the registered person and the details of the
amount shall be furnished in FORM GST ITC-03, where such
amount relates to any event specified in sub-section (4) of section
18 and in FORM GSTR-10, where such amount relates to the
cancellation of registration.
(5)
The details furnished in accordance with sub-rule (3) shall be duly
certified by a practicing chartered accountant or cost accountant.
(6) The amount of input tax credit for the purposes of sub-section (6)
of section 18 relating to capital goods shall be determined in the
same manner as specified in clause (b) of sub-rule (1) and the
amount shall be determined separately for input tax credit of
central tax, State tax, Union territory tax and integrated tax:
ANALYSIS
Section 18 provides for
(1) entitlement of ITC on inputs in stock and inputs contained in finished goods
or work-in-progress, and in last two cases in respect of capital goods as well
(i) at the time of registration/voluntary registration, (ii) on coming into regular
tax-paying status by exiting composition levy, (iii) on coming into tax-paying
status on account of exempt supply becoming taxable supply for a registered
person
(2) reversal of ITC on inputs in stock and inputs contained in finished goods or
work-in-progress and capital goods (i) at the time of exit from regular tax-
paying status by opting for composition levy, (ii) at the time of exit from tax-
paying status on account of taxable supply becoming exempt supply for a
registered person
(3) amount payable on supply of capital goods or plant and machinery on which
ITC has been taken
(4) transfer of ITC on account of change in constitution of the registered person
(i) Entitlement of ITC at the time of registration/voluntary registration or switching
to regular tax paying status or coming into tax-paying status [Sub-sections (1)
and (2) of section 18 read with rule 40]
The credit on inputs held in stock and contained in semi-finished goods or
finished goods held in stock and capital goods at the time of
(1)
S. Persons Goods entitled to ITC Restriction/conditions
N eligible to
1.o. take credit Inputs held As on
in stock/capital
goods
In all the above cases, the registered person has to make an electronic
declaration in the prescribed form 13 on the common portal, clearly specifying
the details relating to the inputs held in stock, inputs contained in semi-
finished or finished goods held in stock and capital goods on the days
mentioned in column (4) of table above. The declaration is to be filed within
30 days (extendable by Commissioner/Commissioner of State
GST/Commissioner of UTGST) from the date when the registered person
becomes eligible to avail ITC. If the claim of ITC pertaining to CGST,
SGST/UTGST, IGST put together exceeds ` 2,00,000, the declaration needs to
be certified by a practicing Chartered Accountant/Cost Accountant.
13
Declaration is to be filed in Form GST ITC-01 where a registered person ceases to pay
composition tax and switches to regular scheme or his exempt supplies become taxable
supplies.
‘Z’ becomes liable to pay tax on 1st August and has obtained registration on 15th August w.
finished goods held in stock as on 31st July. ‘Z’ cannot take ITC on capital goods.
‘A’ applies for voluntary registration on 5th June and obtains registration
w.e.f. 22nd June. ‘A’ is eligible for ITC on inputs held in stock and as part of semi-finished goo
(44) ‘B’, a registered taxable person, was paying tax under composition scheme upto 30th Jul
ITC involved in the remaining useful life (in months) of the capital goods
should be reversed on pro-rata basis, taking the useful life as 5 years.
(45) Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months = 5 months ignoring a
The registered person has to debit the electronic credit or cash ledger
by the reversal amount in respect of inputs held in stock and inputs
contained in semi-finished or finished goods held in stock and capital
goods on the day immediately preceding the date of switch over/ date
of exemption. [Provisions relating to electronic cash ledger have been
discussed in detail in Chapter 11: Payment of Tax in this Module of the
Study Material.]
(iii) Amount payable on supply of capital goods or plant and machinery on which
ITC has been taken [Section 18(6) read with rule 40(2) & rule 44(6)]
If capital goods or plant and machinery on which ITC has been taken
are supplied outward by the registered person, he must pay an amount
that is the higher of the following:
ITC taken on such goods reduced by 5% per quarter of a year or
part thereof from the date of issue of invoice for such goods [i.e.,
ITC pertaining to remaining useful life of the capital goods (in
quarters)]*, or
The above provisions have been explained with the help of the diagram given
below:
2 Provision for
transfer of liabilities
1
Change in constitution • Sale
of registered person • Merger
• Demerger
• Amalgamtion
• Lease
• Transfer of business
In the case of demerger, ITC will be apportioned in the ratio of the value of
assets of the new units as specified in the demerger scheme. Circular No.
133/3/2020 GST dated 23.03.2020 has clarified that the said formula for
apportionment of ITC shall be applicable for all forms of business re-
organization that results in partial transfer of business assets along with
liabilities and not just demerger. Here, “value of assets” means the value of
the entire assets of the business irrespective of whether ITC has been availed
thereon or not.
Circular No. 133/3/2020 GST dated 23.03.2020 has clarified the following in
relation to apportionment of ITC in cases of business reorganization:
(1) For the purpose of apportionment of ITC pursuant to a demerger, the
value of assets of the new units is to be taken at the State level (at the
level of distinct person) and not at the all-India level. The transferor
would be required to file Form GST ITC-02 only in those States where
both transferor and transferee are registered.
in State of U.P. will be transferred to ABC in ratio of value of assets in State of U.P, i.e. 10/40 = 0.25.
(2) The ratio of value of assets shall be applied to the total amount of
unutilized ITC of the transferor, i.e. sum of CGST, SGST/ UTGST and IGST
credit. The said formula need not be applied separately in respect of
each heads of ITC (CGST/ SGST/ IGST). Further, the said formula shall
also be applicable for apportionment of cess between the transferor
and transferee.
(3) The total amount of ITC to be transferred to the transferee (i.e. sum of
CGST, SGST/ UTGST and IGST credit) should not exceed the amount of
ITC to be transferred [Refer point (2) above]. However, the transferor
shall be at liberty to determine the amount to be transferred under each
tax head (IGST, CGST, SGST/ UTGST) within this total amount, subject to
the ITC balance available with the transferor under the concerned tax
head.
48
(4) The apportionment formula shall be applied on the ITC balance of the
transferor as available in electronic credit ledger on the date of filing of
Form GST ITC – 02 by the transferor.
(5) For the purpose of apportionment of ITC, the ratio of the value of assets
should be taken as on the “appointed date of demerger” as specified in
the respective scheme for demerger. Thus, for the purpose of
apportionment of ITC, the ratio of the value of assets taken as on the
“appointed date of demerger” should be applied on the ITC balance of
the transferor on the date of filing Form GST ITC – 02.
(v) Transfer of ITC on obtaining separate registrations for multiple places of
business within a State/ Union Territory [Rule 41A]
Section 25 enables a taxpayer to obtain separate registrations for multiple
places of business within a State/ Union territory [Provisions of section 25 are
discussed under Chapter 8: Registration in this Module of the Study Material].
The registered person (transferor), having separate registrations for multiple
places of business within a State/Union Territory, can transfer the unutilised
ITC (wholly or partly) lying in his electronic credit ledger to any or all of the
newly registered place(s) of business in the ratio of the value of assets held
by them at the time of registration. Here, the ‘value of assets’ means the
value of the entire assets of the business irrespective of whether ITC has been
availed thereon or not.
The registered person should furnish the prescribed details on the common
portal within a period of 30 days from obtaining such separate registrations.
Upon acceptance of such details by the newly registered person (transferee)
on the common portal, the unutilised ITC gets credited to his electronic credit
ledger.
STATUTORY PROVISIONS
(1) The inputs service distributor shall distribute the credit of central tax
as central tax or integrated tax and integrated tax as integrated tax
or central tax, by way of issue of a document containing the amount
of input tax credit being distributed in such manner as may be
prescribed.
(2) The Input Service Distributor may distribute the credit subject to the
following conditions, namely:–
(b) the amount of the credit distributed shall not exceed the
amount of credit available for distribution;
(1) An Input Service Distributor shall distribute input tax credit in the
manner and subject to the following conditions, namely, -
(c) the input tax credit on account of central tax, State tax,
Union territory tax and integrated tax shall be distributed
separately in accordance with the provisions of clause (d);
(3) Subject to sub-rule (2), the input service distributor shall, on the
basis of the input service distributor credit note specified in clause
(h) of sub-rule (1), issue an input service distributor invoice to the recipient entitle
ANALYSIS
Since the common expenditure is meant for the business of all units, it is but
natural that the credit of input services in respect of such common invoices
should be apportioned between all the consuming units.
ISD mechanism enables proportionate distribution of credit of input services
amongst all the consuming units. The concept of ISD under GST is a legacy
carried over from the service tax regime.
ISD invoice
SAME
SAME PAN
Thus, the concept of ISD is a facility made available to business having a large
share of common expenditure and where billing/payment is done from a
centralized location. The mechanism is meant to simplify the credit taking
process for entities and the facility is meant to strengthen the seamless flow
of credit under GST.
It is important to note that the ISD mechanism is meant only for distributing the credit
INPUT SERVICES and not goods (inputs or capital goods).
Can a
company have multipleYes,
ISDs?different offices of a
company like marketing
division, security division
etc. may apply for
separate ISD registration.
(iii) Manner of distribution of credit by an ISD [Section 20 read with rule 39 of the
CGST Rules]
The ISD is required to maintain ITC of input services is distributed ONLY amongst t
arithmetical accuracy and ensure
that the credit distributed does not
exceed the credit available with it
for distribution. Further, in
distributing the credit among
different locations of the entity -
which are supplying goods and/or services and have same PAN as that of the
ISD (‘recipients’) - it must follow these principles:
(a) The credit connected to an input service must be distributed only to the
particular recipient to whom that input service is attributable.
(b) If the input service is attributable to more than one recipient, the
relevant ITC is distributed to such recipients in the ratio of turnover of
the recipient in a State / Union Territory [See definition of turnover in
State or turnover in Union Territory] to the aggregate turnover [See
definition of aggregate turnover] of all the recipients to whom the input
service is attributable and which are operational during the current year.
(c) ITC pertaining to input services which are common for all units, is
distributed to all the recipients in the ratio of turnover as described in
(b) above.
(d) Both ineligible and eligible ITC are distributed separately.
If some or all the recipients did not have turnover in their State / Union
territory during the previous financial year, then the last quarter for
which details of turnover of all the recipients is available, prior to the
month for which credit is to be distributed, will be the “relevant period”.
If there are two or more locations of a recipient in a State / Union
territory, the sum of their turnover is to be considered in working out
the proportion of the credit that will be distributed to that registration.
(This is because a PAN number will have a single registration for all its
locations within a business vertical in a State / Union territory – Refer
Chapter 9: Registration in this Module of the Study Material for more
details.)
“T” is the aggregate of the turnover, during the relevant period, of all
DISTRIBUTION OF
ITC
attributabl ITC attributable to ITC attributable to all
e to more than one recipients
specific recipient
The ITC is to be distributed between Pune and Bangalore units in the ratio
1:2. Therefore, Pune unit will be given ITC of ` 8 lakhs, and Bangalore unit will
be given ITC of ` 16 lakhs from the advertising bills.
Distribution of taxes
distributed
Recipient Input tax
and ISD as credited under
Credit of
located in
CGST
distributed
Recipient
Credit of and ISD as Input tax
SGST/UTGST located in credited as
different IGST
is used at all the locations, but invoice for these services (indicating CGST and
SGST) are received at Corporate Office. Since the software is used at all the
four locations, the ITC of entire services cannot be claimed at Bangalore. The
same has to be distributed to all the four locations. For that reason, the
Bangalore Corporate office has to act as ISD to distribute the credit.
Determine the credit to be distributed by XYZ Ltd. to each of its three units.
Answer
The ISD invoice and ISD credit note must contain the following
information:
Date of issue;
Relaxation for banks & FIs: If the ISD is a banking company/ financial
institution including NBFC, the document for distributing credit need
not be serially numbered.
(iv) Issue of debit note and credit note on ISD [Rule 39 of the CGST Rules]
Issue of a debit note
Excess credit distributed can be recovered along with interest only from
If the ISD has distributed excess credit to any recipient, the excess will be
recovered from the recipient with interest as if it was tax not paid by initiating
action under section 73 or 74 [Refer Chapter 19 : Demands and Recovery in
Module 3 of this Study Material for detailed discussion on sections 73 and 74].
Penalties may be applicable depending on the circumstances. Circular No.
71/45/2018 GST dated 26.10.2018 has clarified that the ISD would also be
liable to a general penalty under section 122(1)(ix).
STATUTORY PROVISIONS
(5) The amount of input tax credit available in the electronic credit
ledger of the registered person on account of––
(f) the State tax or Union territory tax shall not be utilised
towards payment of central tax.
(1) (a) the credit of input tax has been availed on the strength of
tax invoices or debit notes or any other document
prescribed under rule 36-
(b) the credit of input tax has been availed on the strength of
tax invoices or debit notes or any other document
prescribed under rule 36 in respect of any supply, the tax
charged in respect of which has not been paid to the
Government; or
(c) the registered person availing the credit of input tax has
been found non-existent or not to be conducting any
business from any place for which registration has been
obtained; or
(d) the registered person availing any credit of input tax is not
in possession of a tax invoice or debit note or any other
document prescribed under rule 36,
(3) Such restriction shall cease to have effect after the expiry of a
period of one year from the date of imposing such restriction.
Provided that the input tax credit on account of central tax, State
tax or Union territory tax shall be utilised towards payment of
integrated tax, central tax, State tax or Union territory tax, as the
case may be, only after the input tax credit available on account
of integrated tax has first been utilised fully.
ANALYSIS
ITC is credited to a registered person’s electronic credit ledger. A taxable person
is entitled for ITC of CGST, SGST/UTGST and IGST depending upon the nature of
supplies received by him.
To illustrate, a supplier making purchases intra-State, inter-State and via import (of
goods) is eligible for ITC as under:
BCD IGST
CGST SGST
IGST
The person may use the ITC to pay his output tax liability. As we know that Indian
GST is a dual GST wherein two taxes viz, CGST and SGST/UTGST are levied
concurrently on a supply transaction. While the CGST revenue accrues to Central
Government, SGST and UTGST revenue accrue to respective State Government and
Union Territory respectively. Hence, ITC of CGST and SGST/UTGST is not inter-
changeable and thus, cross utilisation of CGST and SGST/UTGST is not permissible.
IGST is a transitory tax. IGST paid by taxpayer initially goes to the Central Clearing
Authority. ITC of IGST can be utilised for payment of CGST or SGST/UTGST (or vice
versa). Thus, cross utilization of IGST and CGST, SGST/UTGST is permissible.
Flexibility has been provided to the taxpayer to utilise ITC of IGST (after payment
of IGST first) for payment of CGST and/or SGST/UTGST in any proportion and in
any order subject to the condition that the entire input tax credit of Integrated tax
is completely exhausted before the input tax credit of Central Tax or State/Union
territory tax can be utilized. If ITC of IGST is used for payment of SGST/UTGST (or
vice versa), corresponding debit/credit is made to respective State
Government/Union Territory.
Sections 49(5), 49A, 49B, rule 88A and Circular No. 98/17/2019 GST dated
23.04.2019 together prescribe the sequence of utilisation of ITC. A combined
reading of such provisions shows that the order of utilization of ITC is as per the
order (of numerals) given below:
(50) Amount of ITC available and output tax liability under different
tax heads
Option 1
SGST/UTGST 0 - 200 0
Option 2
CGST 0 200 - 0
Option 3
SGST/UTGST 0 - 150 50
Total 1000 300 300 100
There can be other options also for utilization of ITC of IGST against CGST and SGST
liabilities. In this example, three options for utilizing ITC of IGST against CGST and
SGST liabilities are shown.
The Additional Director General /Principal Additional Director General of DGGI can
also exercise the powers assigned to the Commissioner under rule 86A. The
monetary limits for authorization for exercise of powers under rule 86A to the
officers of the rank of Assistant Director and above of DGGI by the Additional
Director General /Principal Additional Director General may be same as mentioned
for equivalent rank of officers in the table above14.
Restrictions on the use of amount available in electronic credit ledger [Rule
86B]
Rule 86B restricts the use of ITC available in the electronic credit ledger for
discharging output tax liability. The aforesaid rule starts with a non-obstante clause
and thus, has an over-riding effect on any other provisions of the CGST Rules.
Applicability of rule 86B
Rule 86B is applicable to the registered person having value of taxable
supply (other than exempt supply and zero-rated supply) in a month
exceeding ` 50 lakh.
Therefore, in cases wherein value of taxable supply in a month is upto
` 50 lakh, then this restriction would not be applicable.
Nature of restriction imposed
The registered person to whom the said rule Minimum 1% of the output tax liability be di
is applicable cannot use ITC to discharge the
output tax liability in excess of 99% of such
tax liability. In other words, amount available
in electronic credit ledger shall be utilized
only to the extent of 99% of the output tax
liability while discharging such tax liability. Balance 1% of the output tax
liability needs to be discharged from electronic cash ledger.
The above restriction can be explained with the help of numerical example:
(51) The total value of inter-State supply of Raman & Sons for the
month of February is of ` 100 lakh. Said supply is taxable @ 18%
IGST. Thus, total output tax liability of Raman & Sons is ` 18 lakh.
Amount available in electronic credit ledger is ` 20 lakh (IGST).
14
CBEC - 20/16/05/2021 GST/1552 dated 02.11.2021
In terms of restriction imposed by rule 86B, Raman & Sons can discharge 99%
of its output tax liability, i.e. ` 17,82,000 (99% of ` 18,00,000) from the
amount available in electronic credit ledger. However, it has to mandatorily
discharge the balance 1% of the output tax liability i.e. ` 18,000 (1% of
` 18,00,000) through electronic cash ledger only.
Exceptions to rule 86B
In order to strike a balance between restricting potential misuse of ITC and
providing relief to compliant taxpayers, few exceptions to rule 86B have been
carved out. They take into account different circumstances and ensure that
taxpayers who have fulfilled certain criteria are not unduly burdened by the
restrictions imposed by rule 86B.
Payment of income tax of more than ` 1 lakh
Restriction under rule 86B is not applicable in cases where the below
mentioned person(s) have paid a sum of more than ` 1 lakh as income
tax (under the Income -tax Act, 1961) in each of the last 2 FYs for which
the time limit to file return of income under section 139(1) of the
Income-tax Act has expired:
Registered person/Karta/proprietor/managing director/ any of its
two partners
Whole-time directors,
Members of Managing Committee of Associations
Board of Trustees
ILLUSTRATION 1
ANSWER
Vijay Sales, a registered supplier, receives 100 invoices (for inward supply of goods/
services)
ITC involvingbyGST
to be claimed of Sales
Vijay ` 10 inlakh, from various
its GSTR-3B suppliers
for the month ofduring the to
October month of
be filed
October.
by 20th November will be computed as under-
Out of 100 invoices, details of 80 invoices involving GST of ` 6 lakh have been
Notes:
Invoicesby the suppliers in their respective
furnished Amount of on
GSTR-1s filed ITC
the Amount
prescribed dueof date
ITC
therefor
(1) 100%andITCarecan
reflected in GSTR-2B
be availed involved
of Vijay
on invoices Sales. byinthe the
furnished thatin their
suppliers canGSTR-1s
be
and reflected in GSTR-2B of Vijayby invoices (`)
Sales. availed (`)
Compute the ITC that can be claimed Vijay Sales in its GSTR-3B for the month of
(2)80 invoices
October to be
As per furnished
filed
rule 36(4), inthITC
by the
20 GSTR-1
November
in respectassuming 6that
of invoiceslakh
notGST of ` 10 by
furnished lakh
the6issuppliers
lakh
otherwisein
eligible forGSTR-1s
their ITC. [Refer
and thus, not being reflected in GSTR-2B of recipient, cannot Note 1] be
20 invoices
claimed. not furnished
Thus, in of
in respect GSTR-1 4 lakh
20 invoices which are not furnished in Nil
GSTR-1s of
[Refer
suppliers and are not reflected in GSTR-2B of Vijay Sales, no ITC Note 2] be
can
Total 15
availed . 10 lakh 6 lakh
15
Let us suppose, subsequently, the suppliers of these 20 invoices furnish the details of said
invoices in their GSTR-1s for the month of November, the details shall be reflected in GSTR-
2B of Vijay Sales of November month and Vijay Sales can take credit of such invoices in its
GSTR-3B for the month of November.
ILLUSTRATION 2
PQR Company Ltd., a registered supplier of Bengaluru (Karnataka), is a manufacturer
of goods. The company provides the following information pertaining to GST paid
on inward supplies during the month of April (current financial year):
S. No. Items GST paid in
(`)
(i) Life Insurance premium paid by the company for the 1,50,000
life insurance of factory employees as per the policy of
the company. There is no legal obligation for such
insurance for employees.
(ii) Raw materials purchased for which invoice is missing 38,000
but delivery challan is available
(iii) Raw materials purchased which are used for zero rated 50,000
supply
(iv)
Works contractor's service used for repair of factory 30,000
building which is debited in the profit and loss account
of company
(v)
Company purchased the capital goods for ` 4,00,000 48,000
and claimed depreciation of ` 44,800 (@ 10%) on the
full amount of ` 4,48,000 under Income Tax Act, 1961
Other information:
(1) In the month of September of previous financial year, PQR Company Ltd.
availed ITC of ` 2,40,000 on purchase of raw material which was directly
sent to job worker's premises under a challan on 25 th September (previous
financial year). The said raw material has not been received back from the
job worker up to 30th April (current financial year).
(2) All the above inward supplies except at S. No. (iii) above have been used in the
manufacture of taxable goods. Inward supplies at S. No. (iii) above have been
used in the manufacture of exempt goods.
Compute the amount of net ITC available with PQR Company Ltd. for the month of
April with necessary explanations for the treatment of various items as per the
provisions of the CGST Act. Subject to the information given above, assume that all
the other conditions necessary for availing ITC have been fulfilled.
ANSWER
Computation of ITC available with PQR Company Ltd. for the month of April
Particulars
Notes: ITC (`)
(1)LifeITC
Insurance
on lifepremium
insurancepaid
service
by the
is company
available on
onlythewhen
life ofit is obligatory forNilan
factory employees
employer [Note said
to provide 1] services to its employees under any law for the time
being in force. Since it is not obligatory for the employer in the instant case
Raw materials purchased [Note 2] Nil
and thus, the ITC thereon is blocked [Second proviso to section 17(5)(b)].
Raw materials used for zero rated supply [Note 3] 50,000
(2) ITC cannot be taken since invoice is missing and delivery challan is not a valid
Work contractor’s
document service
to avail [Note 4]16(2)(a)].
ITC [Section 30,000
(3)Capital goods
ITC can purchased
be availed in respect
for making of whichsupplies,
zero-rated depreciation is
notwithstanding Nil
that such
claimed onmay
supply the be
tax an
component [Note [Section
exempt supply 5] 16(2) of the IGST Act].
(4)Goods
ITC sent to job on
is blocked worker’s
works premises [Note 6] when supplied for construction -of
contract services
an immovable property. However, “construction” includes only that repairs
Total ITC available 80,000
which are capitalized along with the said immovable property.
In this case, since repairs of building is debited to P & L Account, the same
does not amount to ‘construction’ and hence ITC thereon is available [Section
17(5)(c)].
(5) ITC is not available when depreciation has been claimed on the tax
component of the cost of capital goods under the Income-tax Act [Section
16(3)].
(6) The principal is entitled to take ITC of inputs sent for job work even if the said
inputs are directly sent to job worker. However, where said inputs are not
received back by the principal within a period of 1 year of the date of receipt
of inputs by the job worker, it shall be deemed that such inputs had been
supplied by the principal to the job worker on the day when the said inputs
were received by the job worker [Sub-sections (2) and (3) of section 1916].
Hence, the ITC taken by PQR Company Ltd. in the month of September last
year is valid and since one year period has yet not lapsed in April, there will
be no tax liability on such inputs.
ILLUSTRATION 3
S. Ltd.
Siddhi Particulars
is a registered manufacturer engaged in taxable supply of GST (`)
goods.
No.
Siddhi Ltd. purchased the following goods during the month of January. The
following
1. particulars
Capital arepurchased
goods provided by
onthe company:
which depreciation has been 15,000
taken on full value including GST paid thereon
2. Goods purchased from Ravi Traders (Invoice of Ravi Traders 20,000
is received in month of January but goods were received after
two months in the month of March)
3. Car purchased for making further supply of such car. Such 30,000
car is destroyed in accident while being used for test drive by
potential customers.
4. Goods used for setting up telecommunication towers 50,000
5. Truck purchased for delivery of finished products 80,000
Determine the amount of ITC available with Siddhi Ltd. for the month of January by
giving necessary explanations for treatment of various items as per the provisions of
16
Provisions of section 19 have been discussed in Chapter 16 – Job work in Module 3 of this
Study Material.
the CGST Act. Subject to the information given above, assume that all the other
conditions necessary for availing ITC have been fulfilled.
ANSWER
Computation of ITC available with Siddhi Ltd. for the month of January
Notes:
Particulars GST (`)
(1)Capital
Sincegoods [Note 1]has been claimed on the tax component of the value
depreciation Nilof
the capital goods, ITC of such tax cannot be availed in terms of section 16(3).
Goods purchased from Ravi Traders [Note 2] Nil
(2) ITC in respect of goods not received cannot be availed in terms of section 16(2)
Cars purchased for making further supply [Note 3] Nil
(b).
Goods used for setting telecommunication towers [Note 4] Nil
Since the goods have been received in the month of March, ITC thereon can
Trucks purchased
be availed for delivery
in the month of output
March goods [Note
and not 5] month of January
in the 80,000
even
though the invoice for the same has been received in the month of January.
Total ITC available with Siddhi Ltd. 80,000
(3) Though ITC on motor vehicles used for further supply of such vehicles is not
blocked, ITC on goods destroyed for whatever reason is blocked [Clauses (a)
and (h) of section 17(5)].
(4) ITC on goods used by a taxable person for construction of immovable
property (other than plant and machinery) on his own account is blocked even
when such goods are used in the course or furtherance of business [Section
17(5)(d)].
However, explanation to section 17 excludes telecommunication towers from
the purview of plant and machinery. Therefore, ITC thereon will not be
allowed.
(5) Section 17(5)(a) blocks ITC in respect of only those motor vehicles which are
used for transportation of persons albeit with certain exceptions. Thus, ITC
on motor vehicles used for transportation of goods is allowed.
LET US RECAPITULATE
I. Definitions of certain key terms are summarized by way of diagrams
as under:
BUSINESS
includes
Any activity incidental/ancillary to it
Any trade/commerce, manufacture, profession, vocation etc. even if there is no monetary benefit
for a consideration
totalisator
Activities of a race club or abylicence
including way ofto book maker or activities of a licensed book maker in su
EXEMPT SUPPLY
means includes
Non-taxable supply
CGST IGST
Goods Services
goods value of which is capitalized in the books of account of person claiming ITC
goodsotherthan capital goods services
INPUT TAX
Principal
means
Agent
INWARD SUPPLY
means
with/without consideration
ZERO-RATED SUPPLY
Export of goods and/or services Supply of goods and /or services to SEZ developer/ SEZ unit
He has
Tax on receive Details
Registered
Details of He hasof validITC in
used/ such if d goods respecttaxof the said
person to take
invoices/debit
intended
supply and/or supply
credit of
notes uploaded by invoice/debit
tohas
be been services
these communicated
tax in his
the supplier note/prescribed to
used
paid SIX. the
paid on or using IFF
GSTR-1 tax payingregistered
in the conditio person
document. under
inward
and details
course or ns are section 38 not
supplies
communicated in
furtherance fulfilled: restricted
of
Form GSTR-2B
goods of business
If depreciation
claimed on tax
component •ITC not allowed
Used partly for making taxable (including zero rated supplies) supplies & partly for exempt sup
Attributable to taxable supplies including zero
Exempt supplies include reverse charge supplies & transactions in securities and exclude activities specified in Schedule
Balance will be
reversed in GSTR-3B.
Option
Option 1: Avail proportionate 2: Avail
ITC Restriction of 50%
shall not apply to the
50% of eligible ITC tax paid on supplies
received from
another registration
within the same
entity.
Option once
exercised cannot be
withdrawn during
remaining part of the
year.
T1 T2 Total IT on I +T3IS C1
D1 D2 C3
Ineligible ITC
C3 will be computed separately for ITC of CGST, SGST/ UTGST and IGST.
∑ (D1 + D2) will be computed for the whole financial year, by taking
exempted turnover and aggregate turnover for the whole financial
year. If this amount is more than the amount already reversed every
month, the differential amount will be reversed in any of the month till
September of succeeding year along with interest @ 18% from 1st
April of succeeding year till the date of payment.
If this amount is less than the amount reversed every month, the
additional amount paid has to be claimed back as credit in the return of
any month till September of the succeeding year.
Tc
Te
E Aggregate value of exempt supplies during the tax period; F Total turnove
Tm is to be computed during the useful life of capital goods which is
five years from the date of invoice.
Tie and Te are to be computed separately for ITC of CGST, SGST/ UTGST
and IGST and declared in GSTR-3B
Exempt supplies include reverse charge supplies & transactions in
securities.
Exempt supplies exclude
(i) activities specified in Schedule III except sale of land and sale of
building when entire consideration is received post completion
certificate/first occupation, whichever is earlier, and supply of
warehoused goods before clearance for home consumption
Aggregate value of exempt supplies and total turnover exclude central
excise duty, state excise duty, central sales tax and VAT.
Value of exempt supply in respect of land and building is the stamp
duty value and for security is 1% of the sale value of such security.
Inward
WCS for construction of immovable supplies received by taxable person for construction of immovable prope
property
EXCEPTIONS
EXCEPTIONS
Credit available
(A) WCS for P & M
(B) WCS availed by a works (A) Construction of P & M
contractor for further supply of (B) Construction of
on such
WCS [Sub-contracting] immovable property for
(C) Where value of WCS is not others
capitalized (C) Value of construction
is not capitalised
Ineligible MV-Motor vehicle for transportation of persons with seating capacity ofincludes
Construction 13 persons (including driver);
re-construction/ Ves & AC-Vessel
renovation/ & Aircraft
addition/ altera
P & M means apparatus, equipment, & machinery fixed to earth by
Registered person
switching from Registered person's Person applying for Person obtaining
composition levy to exempt supplies registration within 30 voluntary
regular scheme of becoming taxable days of becoming liable registration
payment of taxes for registration
Credit entitled on
Credit entitled on
Inputs as such held in stock
Inputs as such held in stock
Inputs contained in semi-finished goods held in stock
Inputs contained in semi- finished goods held in stock
Inputs contained in finished goods held in stock
Inputs contained in finished goods held in stock
Capital goods [In case of exempt supply becoming taxable Capital Goods used exclusively for such exempt supply]
Note: ITC claimed shall be verified with the corresponding details furnished by the corresponding supplier.
ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the supplier.
Manner of reversal of credit on inputs and capital goods & other conditions
Inputs Proportionate reversal based on corresponding invoices. If such invoices not available, prevailing market price on the effective da
Capital goods Reversal on pro rata basis pertaining to remaining useful life (in months), taking useful life as 5 years.
ITC to be reversed will be calculated separately for ITC of CGST, SGST/UTGST and IGST.
Reversal amount will be added to output tax liability of the registered person.
Electronic credit/cash ledger will be debited with such amount. Balance ITC if any will lapse.
In case of sale, merger, amalgamation, lease or transfer of business, unutilised ITC can be transferred to the new
Transfer of unutilised ITC on account of change
In case of demerger, ITC is apportioned in the ratio of value of entire assets (including assets on which ITC has
Details of change in constitution are to be furnished on common portal along with request to transfer unutilise
Upon acceptance of such details by the transferee on the common portal, the unutilized ITC is credited to his E
in constitution of registered person
Registered person having separate registrations for multiple places of business can transfer the unutilised ITC t
Transfer of unutilised ITC on obtaining separate
registrations for multiple places of business
Value of assets means the value of the entire assets of the business irrespective of whether ITC has been availe
The resgistered person should furnish the prescribed details on the common portal within a period of 30 days f
Upon acceptance of such details by the newly registered person (transferee) on the common portal, the unutili
within a State/UT
An ISD is required to
obtain a separate ITC of input services is distributed
registration even though only amongst those recipients to
it may be separately whom the input services are
registered. The threshold attributable.
limit of registration is not ITC is distributed amongst the
applicable to ISD. operational units only and in the
ratio of turnover in a State/UT
of the recipient during the
relevant period to the aggregate
ISD should issue an ISD of turnover of all recipients
invoice for distributing ITC. It during the relevant period to
should be clearly indicated in whom input service being
such invoice that it is issued distributed is attributable.
only for distribution of ITC. Relevant period is previous FY or
The ISD needs to issue a ISD last quarter prior to the month of
credit note, for reduction in distribution for which turnover of
credit if the distributed credit all recipients is available.
gets reduced for any reason. Distributed ITC should not exceed
ITC available for distribution the credit available for distribution.
in a month is to be distributed
in the same month.
Details of distribution of
credit and all ISD invoices If the ISD has distributed excess
issued should be furnished by credit to any recipient, the
ISD in monthly GSTR-6 within excess will be recovered from
13 days after the end of the the recipient with interest as if
month. it was tax not paid.
I. II.
III.
ITC of IGST ITC of CGST
ITC of SGST
IGST CGST
SGST
CGST/SGST in
any order & in any proportion IGST
IGST, only when ITC of CGST = NIL
SGST/ UTGST
CGST
8. With reference to the provisions of section 17, examine the availability of ITC
in the following independent cases:
(i) MBF Ltd., an automobile company, has availed works contract service
for construction of a foundation on which a machinery (to be used in
the production process) is to be mounted permanently.
(ii) Shah & Constructions procured cement, paint, iron rods and services of
architects and interior designers for construction of a commercial
complex for one of its clients.
(iii) ABC Ltd. availed maintenance & repair services from “Jaggi Motors” for
a truck used for transporting its finished goods.
9. On 25th August, M/s Agarwal & Agarwal, a registered supplier of taxable goods
located in Bengaluru (Karnataka), purchased one machine for
` 12,39,000 (including IGST) from one supplier of Maharashtra who issued the
invoice on the same date. M/s Agarwal & Agarwal received the machinery on
the same day and availed ITC for the eligible amount.
M/s Agarwal & Agarwal used the machine in the process of manufacture of
taxable goods. However, M/s Agarwal & Agarwal sold this machine to
Mr. Suresh Kumar of Andhra Pradesh on 20 th August of next year for ` 7,50,000
(excluding lGST).
With reference to section 18(6), determine the amount payable, if any, by
M/s Agarwal & Agarwal at the time of sale of the machine.
Note: The applicable rate of IGST is 18%.
10. Krishna Motors is a car dealer selling cars of an international car company. It
also provides maintenance and repair services of the cars sold by it as also of
other cars. It seeks your advice on availability of ITC in respect of the following
expenses incurred by it during the course of its business operations:
(i) Cars purchased from the manufacturer for making further supply of such
cars. Two of such cars are destroyed in accidents while being used for
test drive by potential customers.
(ii) Works contract services availed for constructing a car parking shed in its
premises
11. With the help of information given below in respect of a manufacturer for the
month of September, compute the ITC credited to the Electronic Credit Ledger,
for the month. Also, compute the amount of ITC to be added to the output tax
liability for the month of September. Ignore interest, if any.
Particulars Amount
(`)
Outward supply of taxable goods (exclusive of taxes) 70,000
Outward supply of exempt goods 40,000
Total turnover 1,10,000
Inward supplies GST paid (`)
Capital goods used exclusively for taxable outward supply 2,000
Subject to the information given above, assume that all the other conditions
necessary for availing ITC have been fulfilled.
Compute the ITC credited for the month of June to the Electronic Credit Ledger
and net GST payable from Electronic Cash Ledger by X for the month of June.
Rate of GST is 18% (Ignore CGST, SGST or IGST and provisions of rule 86B for
the sake of simplicity).
Subject to the information given above, assume that all the other conditions
necessary for availing ITC have been fulfilled. All the purchases are made from
registered suppliers.
13. Sarani Weavers, at Pune, Maharashtra is a registered input service distributor
and intends to distribute ITC for the month of March. The following are the
details available for such distribution:
lTC available on input services used commonly for all branches is as under: CGST - ` 60,000
SGST - ` 60,000
IGST - ` 1,20,000
lTC (IGST) of ` 10,000 pertaining to March (last year) was inadvertently not
distributed. Whether the same can be considered for distribution in March this
year?
Madhugiri, Karnataka branch uses input services to manufacture exempted
products. Turnover excludes duties & taxes payable to Central and State
Government.
Determine the manner of input tax distribution.
14. George Pvt. Ltd., a registered supplier of goods at Kerala who pays GST under
regular scheme, has made the following transactions (exclusive of tax) during
a tax period:
2,50,000 8,00,000
[Purchases made from [Sales made to registered person in Trivandrum]
registered person in
Trivandrum, Kerala]
The company has complied with all the conditions for availing the ITC. The
following further information regarding various opening balances available
with it for the tax period, is provided by the company:
- SGST @ 6% 7,500
Value of inputs contained in finished goods held in
stock- ` 2,00,000 [Such inputs were procured on 19th
September last year. Invoice for the goods was also issued
on the same day]
- IGST @ 18% 36,000
Inputs valued at ` 50,000 procured on 13th September lying
in stock:
- IGST @ 18% 9,000
Capital goods procured on 12th September
-CGST @ 6% 12,000
-SGST @ 6% 12,000
You are required to compute the net GST payable from Electronic Cash Ledger
by Quanto Enterprises for the month of September assuming that conditions
for availing ITC are fulfilled subject to the information given above.
You are also required to mention reasons for treatment of all above items.
B & D Company has furnished the following details with respect to its turnover
(exclusive of taxes) and stock (exclusive of taxes):
The entire stock of the products ‘P’ and ‘Q’ available with the firm as on 30 th
September is purchased during the said half year except a consignment of
product ‘P’ valuing ` 3,00,000, which was purchased in the April month of the
preceding financial year. The said stock could not be sold during the month of
October. In the current financial year, in the month of October, no purchases
were made, and the products were sold with a profit margin of 20% on sales
[exclusive of taxes].
The extract of the only bill book maintained by the firm showed the following
details-
Compute the ITC to be credited to the Electronic Credit Ledger of the B & D
Company, when it exits composition scheme and becomes liable to pay tax
under regular scheme, in accordance with the provisions of section 18(1)(c).
Note: Make suitable assumptions wherever required. Stock is valued at cost
price.
17. XYZ Pvt. Ltd. is a manufacturing company registered under GST in the State of
Uttar Pradesh. It manufactures two taxable products ‘Alpha’ and ‘Beta’ and
one exempt product ‘Gama’. On 1st October, while product ‘Beta’ got exempted
through an exemption notification, exemption available on ‘Gama’ got
withdrawn on the same date. The turnover (exclusive of taxes) of ‘Alpha’, ‘Beta’
and ‘Gama’ in the month of October was ` 9,00,000, ` 10,00,000 and
` 6,00,000 respectively.
XYZ Pvt. Ltd. has furnished the following details:
(e)
Machinery ‘Z’ purchased on 1st October two 3,00,000 54,000
years ago for being used in manufacturing
all the three products
(i) Amount of ITC to be credited to Electronic Credit Ledger, for the month
of October
(ii) Amount of aggregate value of common credit (Tc)
(iii) Aggregate value of various items procured for being sold in the Store:
Taxable items – ` 55,00,000
(iv) Freight paid to goods transport agency (GTA) for inward transportation
of taxable items – ` 1,00,000
(v) Freight paid to GTA for inward transportation of exempted items –
` 80,000
(vi) Freight paid to GTA for inward transportation of non-taxable items -
` 20,000
(vii) Monthly rent payable for the complex – ` 5,50,000 (one third of total
space available is used for personal residential purpose).
(viii) Activity of packing the items and putting the label of the Store along with
the sale price has been outsourced. Amount paid for packing of all the
items – ` 2,50,000
(ix) Salary paid to the regular staff at the Store – ` 2,00,000
(x) GST paid on inputs used for personal purpose – ` 5,000
(xi) GST paid on rent a cab services availed for transportation of employees,
which is not obligatory under any law – ` 4,000
(xii) GST paid on items given as free samples – ` 4,000
Given the above available facts, you are required to compute the following:
B. Common Credit
C. ITC attributable towards exempt supplies out of common credit
E. Net GST payable from Electronic Cash Ledger for the month if opening
balance of ITC is nil.
Note:
(1) GTA has not exercised the option to pay tax itself. Tax is payable on such
services @ 5%. Rate of GST in all other cases is 18% (Ignore CGST, SGST
or IGST for the sake of simplicity).
(2) All the inward supplies are procured from registered suppliers.
(3) Wherever applicable, the amounts given are exclusive of taxes.
(4) Subject to the information given above, assume that all the other
conditions necessary for availing ITC have been fulfilled.
19. Vansh Shoppe is a retail supplier of both taxable and exempted goods,
registered under GST in the State of Rajasthan. Vansh Shoppe has furnished
the following details for a month:
(`)
(1) Details of sales:
Supply of taxable goods 50,00,000
Supply of goods not leviable to GST 10,00,000
All the above amounts are exclusive of all kind of taxes, wherever applicable.
All the inward and outward supplies made by Vansh Shoppe are from/to
registered suppliers within Rajasthan.
Assume, wherever applicable, for purpose of reverse charge payable by Vansh
Shoppe, the CGST, SGST and IGST rates as 2.5%, 2.5% and 5% respectively.
CGST, SGST and IGST rates to be 6%, 6% and 12% respectively in all other
cases.
There is no opening balance in the electronic cash ledger or electronic credit
ledger. Subject to the information given above, assume that all the other
conditions necessary for availing ITC have been fulfilled.
You are required to compute the following:
(4) Net GST payable from Electronic Cash Ledger for the month
20. Mr. Rajesh Surana has a proprietorship firm in the name of Surana & Sons in
Jaipur. The firm, registered under GST in the State of Rajasthan, manufactures
three taxable products ‘M’, ‘N’ and ‘O’. Tax on ‘N’ is payable under reverse
charge. The firm also provides taxable consultancy services.
The firm has provided the following details for a tax period:
Particulars ( `)
Common inputs and input services used for supply of goods 50,00,000
and services mentioned above [Inputs - ` 35,00,000; Input
services - ` 15,00,000]
With the help of the above-mentioned information, compute the net GST
liability of Surana & Sons, payable from Electronic Credit Ledger and/or
Electronic Cash Ledger, as the case may be, for the tax period.
Note: Assume that rate of GST on goods and services are 12% and 18%
respectively (Ignore CGST, SGST or IGST for the sake of simplicity). Subject to
the information given above, assume that all the other conditions necessary for
availing ITC have been fulfilled. Turnover of Surana & Sons was ` 85,00,000 in
the preceding financial year.
21. M/s XYZ, a registered supplier, supplies the following goods and services for
construction of buildings and complexes -
- excavators for required period at a per hour rate
The GST paid during the said month on services received by M/s XYZ is as
follows:
- Maintenance for excavators - ` 1,00,000
All the above amounts are exclusive of all kinds of taxes, wherever applicable. However, the
applicable taxes have also been paid by the company.
Further, following additional details are furnished by the company in respect of
the payments and receipts reported by it:
(i) Raw material amounting to ` 0.80 lakh is procured from Bihar and
` 1.5 lakh is imported from China. Basic customs duty of ` 0.15 lakh,
social welfare surcharge of ` 0.015 lakh and integrated tax of ` 0.2997
lakh are paid on the imported raw material.
(v) Audit fee is paid to M/s Goyal & Co., a firm of Chartered Accountants
registered in West Bengal, for the statutory audit of the preceding
financial year.
(vi) Telephone expenses pertain to bills for landline phone installed at the
factory and mobile phones given to employees for official use. The
telecom service provider is registered in West Bengal.
(vii) Bank charges are towards company’s current account maintained with a
Private Sector Bank registered in West Bengal.
(viii) The breakup of sales is as under:
Sales in West Bengal – ` 7 lakh
Sales in States other than West Bengal – ` 3 lakh
(ix) The opening balance of ITC with the company for the tax period is:
CGST - ` 0.15 lakh
SGST - ` 0.08 lakh
IGST - ` 0.09 lakh
Compute (i) Total ITC available with V-Supply Pvt. Ltd. for the tax period; and
(ii) Net GST payable [CGST, SGST or IGST, as the case may be] from Electronic
Cash Ledger by V-Supply Pvt. Ltd. for the tax period.
Note-
(i) CGST, SGST & IGST rates to be 9%, 9% and 18% respectively, wherever
applicable.
(ii) The necessary conditions for availing ITC have been complied with by V-
Supply Pvt. Ltd., wherever applicable.
You are required to make suitable assumptions, wherever necessary.
23. ABC Company Ltd. of Bengaluru is a manufacturer and registered supplier of
machineries. It has provided the following details for a tax period:
ABC Company Ltd. also provides service of hiring of machines along with
manpower for operation. As per trade practice, machines are always hired out
along with operators and also operators are supplied only when machines are
hired out.
Outward supply (exclusive of GST) for the tax period are as follows:
Compute the amount of ITC available as also the net GST payable from the
Electronic Cash Ledger for the tax period by giving necessary explanations for
treatment of various items.
Note: Opening balance of ITC is Nil.
24. Pari Ltd. of Jodhpur (Rajasthan) is a registered manufacturer of cosmetic
products. Pari Ltd. has furnished following details for a tax period:
Particulars (`)
Details of Outward supplies
(i) Supplies in Rajasthan 8,75,000
(ii) Supplies in States other than Rajasthan 3,75,000
(iii) Export under LUT 6,25,000
Details of expenses
(i) Raw materials purchased from registered suppliers 1,06,250
located in Rajasthan
(ii) Raw materials purchased from unregistered suppliers 37,500
located in Rajasthan
(iii) Raw materials purchased from Punjab from registered 1,00,000
supplier
(iv) Integrated tax paid on raw materials imported from 22,732
USA
(v) Consumables purchased from registered suppliers 1,56,250
located in Rajasthan including high speed diesel
(Excise and VAT paid) valuing ` 31,250 for running the
machinery in the factory
(vi) Monthly rent for the factory building to the owner in 1,00,000
Rajasthan
(vii) Salary paid to employees on rolls 6,25,000
(viii) Premium paid on life insurance policies taken for 2,00,000
specified employees. Life insurance policies for
specified employees have been taken by Pari Ltd. to fulfill a statutory obligation in this regard
All the above amounts are exclusive of all kinds of taxes, wherever applicable. However, th
The opening balance of ITC with Pari Ltd. for the given tax period is- CGST ` 20,000
SGST` 15,000
IGST` 15,000
Assume CGST, SGST and lGST rates to be 9%, 9% and 18% respectively,
wherever applicable.
Assume that all the other necessary conditions to avail the ITC have been
complied with by Pari Ltd., wherever applicable.
Compute (i) ITC available with Pari Ltd. for the tax period; and (ii) Net GST
payable [CGST, SGST or IGST, as the case may be] from Electronic Cash Ledger
by Pari Ltd. for the tax period.
25. Flowchem Palanpur (Gujarat) has entered into a contract with R Refinery, Abu
Road (Rajasthan) on 1stJuly to supply 10 valves on FOR basis. The following
information is provided in this regard:
(1) List price per valve is ` 1,00,000, exclusive of taxes.
(2) One of the conditions of the contract is that Flowchem should ensure a
two stage third party inspection for the valves during the manufacturing
process. Cost of two stage inspection of ` 15,000 (for 10 valves) is directly
paid by R Refinery to testing agency.
(3) R Refinery requires a special packing for the valves. Cost of special
packing is ` 10,000 (for 10 valves).
(4) Flowchem arranges for erection and testing of the valves supplied by it at
R Refinery’s site. Cost of erection etc. is ` 15,000 (for 10 valves).
(5) Goods are dispatched with tax invoice on 20 th July and they reach the
destination at Abu-Road on 21stJuly. Lorry freight of` 5,000 has been
paid by R Refinery directly to the lorry driver.
Assume CGST and SGST rates to be 9% each and IGST rate to be 18%. Opening
balance of ITC of IGST is Nil, CGST is ` 20,000 and SGST is ` 20,000. All the
given amounts are exclusive of GST, wherever applicable.
Flowchem has also undertaken following local transactions during the month
of July on which it has paid CGST and SGST as under:
Work
S. out Particulars
the net GST [CGST, SGST or IGST, as the case may be] payable
Amount Amountfrom
Electronic
No. Cash Ledger of Flowchem, Palanpur (Gujarat) paid
for the month
paidof July
after making suitable assumptions, if any. CGST SGST
(`) (`)
ANSWERS/HINTS
1. As per section 17(5), tax paid under sections 74, 129 and 130 is not available
as ITC. Further, rule 36(3) also lays down that tax paid in pursuance of any
order where any demand has been confirmed on account of any fraud, willful
misstatement or suppression of facts cannot be availed as ITC by a registered
person.
In the given case, Xenon Pvt. Ltd. has paid tax in pursuance of an order issued
under section 74. Therefore, Freshbite Pvt. Ltd. cannot avail ITC of such tax.
2. As per section 17(5)(i)(b), ITC on supply of inter alia food and beverages and
outdoor catering is blocked. However, ITC in respect of such goods or
services or both shall be available where an inward supply of such goods or
services or both is used by a registered person for making an outward taxable
supply of the same category of goods or services or both or as an element of
a taxable composite or mixed supply.
In the given case, Flamingo Ltd. is availing outdoor catering service to provide
outdoor catering (meals) to the passengers on board the aircraft. Since ITC
in respect of outdoor catering is available if the same is used for making an
outward taxable supply as an element of a taxable composite or mixed supply,
Flamingo Ltd. can avail ITC on outdoor catering service procured by it as it
will be considered as supply of an ancillary service to the passenger
transportation services supplied by it (principal supply).
3. It may appear at first glance that in case of offers like “Buy One, Get One
Free”, one item is being “supplied free of cost” without any consideration.
As per clause (a) of section 7(1) read with clause (c) thereof, goods or services
which are supplied free of cost (without any consideration) shall not be
treated as supply except in case of activities mentioned in Schedule I.
Circular No. 92/11/2019 GST dated 07.03.2019 has clarified the entitlement of
ITC in the hands of supplier in respect of sales promotional scheme like ‘buy
one get one free’. Such promotional offers are not individual supplies of free
goods, but a case of two or more individual supplies where a single price is
being charged for the entire supply. It can at best be treated as supplying
two goods for the price of one.
Taxability of such supply will be dependent upon as to whether the supply is
a composite supply or a mixed supply and the rate of tax shall be determined
as per the provisions of section 8.
ITC shall be available to the supplier for the inputs, input services and capital
goods used in relation to supply of goods or services or both as part of such
offers.
Therefore, the given case is not the case of individual supplies of free goods,
but a case of three individual supplies where a single price is being charged
for the entire supply. Thus, Jumbo Sales Pvt. Ltd. will be entitled to avail ITC
on inputs, input services and capital goods used in relation to supply of T-
Shirts as part of such offer.
4. Thread and lining material are inputs which are used for making taxable as
well as exempt supplies. Therefore, credit on such items will be apportioned
and credit attributable to exempt supplies will be reversed in terms of
rule 42.
6. As per section 16, Mohan Ltd. is eligible to avail ITC of the tax paid on inputs
received by it on the basis of the invoice issued by the supplier provided other
conditions for availing ITC are fulfilled.
Payment of value of the goods along with the tax to the supplier is not a pre-
requisite at the time of availing credit, but Mohan Ltd. has to pay the said
amount within 180 days from the date of issue of invoice. If Mohan Ltd, fails
to do so, Mohan Ltd. shall pay or reverse an amount equal to the ITC availed
in respect of such supply (ITC of ` 24,000), proportionate to the amount not
paid to the supplier, along with interest payable thereon under section 50,
while furnishing the return in Form GSTR-3B for the tax period immediately
following the period of 180 days from the date of the issue of the invoice will
be added to its output tax liability with interest under section 50 [Second
proviso to section 16(2) read with rule 37].
If Mohan Ltd. makes the payment of ` 2,24,000 (Value + tax) to the supplier
on 18th March of next calendar year, i.e. after the expiry of 180 days from date
of issue of invoice, Mohan Ltd. can avail the credit of ` 24,000 while filing
form GSTR-3B for the month of March.
(iii) The amount of the credit distributed shall not exceed the amount of
credit available for distribution.
(iv) The credit related to an input service must be distributed only to the
particular recipient to whom that input service is attributable.
(v) If the input service is attributable to more than one recipient, the
relevant ITC is distributed pro rata to such recipients in the ratio of
turnover of the recipient in a State/ Union Territory to the aggregate
turnover of all the recipients to whom the input service is attributable
and which are operational during the current year.
(vi) ITC pertaining to input services which are common for all units, is
distributed to all the recipients in the ratio of turnover in the prescribed
manner.
(vii) ITC available for distribution in a month shall be distributed in the same
month and the details thereof shall be furnished in the prescribed form.
(viii) Both ineligible and eligible ITC are to be distributed separately.
(other than plant and machinery) except where it is an input service for
further supply of works contract service.
Further, the term “plant and machinery” means apparatus, equipment
and machinery fixed to earth by foundation or structural support that
are used for making outward supply of goods and/or services and
includes such foundation or structural support but excludes land,
building or other civil structures, telecommunication towers, and
pipelines laid outside the factory premises.
In the given case, Shah & Constructions has used the goods and
services for construction of immovable property for some other person
and not on its own account. Hence, ITC in this case will be allowed.
(iii) On a conjoint reading of section 17(5)(a) and 17(5)(ab), it can be
concluded that ITC is allowed on repair and maintenance services
relating to motor vehicles, which are eligible for input tax credit.
Further, as per section 17(5)(a) ITC is allowed on motor vehicles which
are used for transportation of goods.
Thus, ITC on maintenance & repair services availed from “Jaggi Motors”
for a truck used for transporting its finished goods is allowed to ABC
Ltd.
9. As per section 18(6), if capital goods/ plant and machinery on which ITC has
been taken are supplied (outward) by a registered person, he must pay an
amount that is higher of the following:
(a) ITC taken on such goods reduced by 5% per quarter or part thereof
from the date of issue of invoice for such goods or
(b) tax on transaction value of such outward supply determined under
section 15.
Accordingly, the amount payable on supply of machinery by M/s Agarwal &
Agarwal shall be computed as follows:
However, the said amount can also be computed in accordance with rule
44(6), i.e. ITC involved in the remaining useful life (in months) of the capital
goods/ machine can be reversed on pro-rata basis, taking the useful life as 5
years.
10. As per section 16(1), every registered person can take credit of input tax
charged on any supply of goods or services or both to him which are used or
intended to be used in the course or furtherance of his business. However,
section 17(5) specifies certain goods and services on which the input tax
credit is not available.
In the light of the foregoing provisions, the availability of ITC in respect of
the various expenses incurred by Krishna Motors is discussed below:
(i) Section 17(5)(a) specifically blocks ITC on motor vehicles for
transportation of passengers having approved seating capacity of not
more than thirteen persons. However, the same is allowed when the
motor vehicles are used, inter alia, for further supply of such vehicles.
Thus, ITC on cars purchased from the manufacturer for making further
supply of such cars will be allowed.
However, ITC on the cars fully destroyed in accident will not be allowed
as the ITC on goods destroyed for whichever reason is specifically
blocked under section 17(5)(h).
(ii) Section 17(5)(c) specifically blocks ITC on works contract services when
supplied for construction of an immovable property (other than plant
and machinery) except where it is an input service for further supply of
works contract service. Since, in this case the car parking shed is not a
plant and machinery but a civil structure (excluded from “plant and
machinery”) and the works contract service is not used for further
supply of works contract service, ITC thereon will not be allowed.
It may be noted that as per the erstwhile clause (f) of rule 43(1) value of ‘Tr’ was
the aggregate of ‘Tm.’.
12. Computation of ITC available and net GST payable from Electronic Cash
Ledger for the month of June
Particulars
Working Note: Amount (`)
GST on taxable turnover for the month of June 10,80,000
Computation of ITC (out of common credit) attributable to exempt
[` 60,00,000 × 18%]
supplies
Less: ITC available for June month in terms of rule 42
Opening balance of ITC available in the ` 1,60,000
Particulars Amount (`)
Electronic Credit Ledger
Input tax on
Add: ITC raw materials
credited to the[Note1]
Electronic Credit ` 40,000 40,000
Ledger for the month of June [Refer working
Input tax on catering for housewarming [Note 2] Nil
note below]
Input
Less: tax
ITC on
outinputs contained
of common in exempt
credit supplies [Note
attributable 3]
(` 1,290) Nil
1,98,710
to exempt supply [Refer working note below]
Input tax on cosmetic and plastic surgery of CEO of Nil
Net GST payable from Electronic Cash Ledger 8,81,290
company [Note 4]
40,000
Common credit [Note 5]
1,290
ITC attributable towards exempt supplies to be
reversed [Note 6]
Notes:
(1) Being used in the course or furtherance of business, input tax on raw
materials is available as ITC and is credited to the Electronic Credit
Ledger [Section 16(1)].
(2) ITC on outdoor catering is blocked in terms of section 17(5) if the same
is not used for making an outward supply of outdoor catering or as an
element of a taxable composite/mixed supply. Hence, the same is not
credited to the Electronic Credit Ledger [Rule 42].
(3) Input tax on inputs used exclusively for making exempt supplies is not
available as ITC and thus, not credited to the Electronic Credit Ledger
in terms of rule 42.
(4) ITC on cosmetic and plastic surgery is blocked in terms of section 17(5)
if the same are not used for making the same category of outward
supply or as an element of a taxable composite/ mixed supply. Hence,
the same is not credited to the Electronic Credit Ledger [Rule 42].
(5) Since there are no inputs and input services which are used exclusively
for effecting taxable supplies, the entire ITC credited to Electronic Credit
Ledger, i.e. ` 40,000 will be the common credit [Rule 42].
(6) ITC attributable towards exempt supplies = Common credit x
(Aggregate value of exempt supplies during the tax period / Total
turnover in the State during the tax period)
= ` 40,000 × ` 2,00,000/ ` 62,00,000 - (rounded off)
= ` 1,290 (rounded off)
13. As per section 20 read with rule 39:
(ii) IGST credit of ` 1,50,000, CGST credit of ` 15,000 and SGST credit of
` 15,000 specifically attributable to Mumbai Branch, Maharashtra will
be distributed as IGST credit of ` 1,50,000, CGST credit of ` 15,000 and
SGST credit of ` 15,000 respectively, only to Mumbai Branch,
Maharashtra [Since recipient is located in the same State in which ISD
is located].
(iii) CGST credit of ` 60,000, SGST credit of ` 60,000 and IGST credit of
`1,20,000 have to be distributed among the three branches and
Mumbai Branch, Maharashtra in proportion of their turnover of the last
quarter.
- Ganganagar Branch, Rajasthan will get: ` 48,000 [` 2,40,000 x
(` 10,00,000/ ` 50,00,000)] as IGST credit.
- Madhugiri Branch, Karnataka will get: ` 24,000 [` 2,40,000 x
(` 5,00,000/ ` 50,00,000)] as IGST credit.
- The credit attributable to a recipient is distributed even if such
recipient is making exempt supplies.
- Kosala Branch, UP will get: ` 72,000 [` 2,40,000 x (` 15,00,000/
` 50,00,000)] as IGST credit.
(iv) ITC of ` 10,000 of March (last year) cannot be distributed in March this
year as ITC available for distribution in a month is to be distributed in
the same month.
14. Computation of net CGST, SGST and IGST payable from the electronic
cash ledger by George Pvt. Ltd. for the tax period
Note: Since sufficient balance of ITC of CGST is available for paying CGST liability and cross-
15. Computation of net GST payable from Electronic Cash Ledger by Quanto
Enterprises for the month of September
Particulars
Notes: CGST (Rs) SGST (Rs)
1. Output
Credit taxofliability
IGST isforfirst
theutilized
month towards payment
24,000of IGST and 24,000
thereafter
Less:forITC
CGST
[Notes and1 SGST
& 2] in any order and in any9,000
proportion. 12,000
Credit of CGST
(SGST)
and SGST can be utilized only after IGST credit (IGST) has been fully utilized
[Rule 88A read with sections 49(5), 49A and 49B].
12,000 (CGST)
Since Quanto Enterprises does not make any inter-State supply, in the
Net GST payable (from electronic 3,000 12,000
above answer, entire credit of IGST has been utilized towards payment
cash ledger)
of CGST. Credit of IGST can also be utilised against SGST liability or
against both CGST and SGST liabilities in any proportion and thus, the
final answer will change accordingly.
However, he cannot take ITC in respect of capital goods held on the day
immediately preceding the date of grant of registration.
ITC on inputs needs to be availed within 1 year from the date of issue
of the invoice by the supplier [Section 18(2)].
In this case, since Quanto Enterprises has been granted voluntary
registration on 25th September, it will be entitled to ITC on inputs held in
stock and inputs contained in semi-finished/ finished goods held in stock,
on 24th September. In view of the said provisions, eligible ITC for Quanto
Enterprises is computed as follows:
PAN, to be computed on all India basis but excludes CGST, SGST/UTGST, IGST
and GST Compensation Cess.
In the given case, the firm is registered under the composition scheme in the
State of Maharashtra. The aggregate turnover of the firm exceeds
rd
` 1.5 crore on 3 October [aggregate of both taxable and exempt turnover
from 1st April to 3rd October, i.e. ` 1,50,05,000 (` 1,44,65,000 +
` 2,03,000 + ` 1,38,250 + ` 1,06,250 + `92,500)].
Thus, the firm will pay tax under regular scheme (Section 9) from 3rd October.
As per section 18(1)(c) read with rule 40, where any registered person ceases
to pay tax under section 10, he shall be entitled to take credit of input tax in
respect of inputs held in stock, inputs contained in semi-finished or finished
goods held in stock and on capital goods on the day immediately preceding
the date from which he becomes liable to pay tax under section 9.
Further, ITC on supplies of inputs and capital goods shall not be available
after the expiry of one year from the date of issue of tax invoice
[Section 18(2)].
In the light of the above-mentioned provisions, the ITC credited to the
Electronic Credit Ledger of the B & D Company on inputs held in on
2nd October will be computed as under:
Notes:
(1) ITC in respect of capital goods used commonly for effecting taxable
supplies and exempt supplies denoted as ‘A’ shall be credited to the
electronic credit ledger [Rule 43(1)(c)].
(2) ITC in respect of capital goods used or intended to be used exclusively
for effecting supplies other than exempted supplies but including zero
rated supplies shall be credited to the electronic credit ledger [Rule 43(1)
(b)].
(4) Machinery ‘Y’ is being used for effecting both taxable and exempt
supplies from 1st October. Prior to that it was exclusively used for
effecting taxable supplies. Therefore, ITC in respect of such machinery
would have already been credited to the electronic credit ledger.
(5) Machinery ‘Z’ is being used for effecting both taxable and exempt
supplies from 1st October two years ago. Therefore, ITC in respect of
such machinery would have already been credited to the electronic
credit ledger.
(6) ITC in respect of inputs used for effecting taxable supplies will be credited
in Electronic Credit Ledger. ITC in respect of inputs used for effecting
exempt supplies will not be credited in the electronic credit ledger
[Rule 42].
(7) The aggregate of the amounts of ‘A’ credited to the electronic credit
ledger in respect of common capital goods whose useful life remains
during the tax period, to be denoted as ‘Tc’, shall be the common credit
in respect of such capital goods [Rule 43(1)(d)].
(8) Where any capital goods which were used exclusively for effecting
taxable supplies are subsequently also used for effecting exempt
supplies, the ITC claimed in respect of such capital goods shall be added
to arrive at the aggregate value of common credit ‘T c’ [Proviso to rule
43(1)(d)].
= ` 1,62,000 ÷ 60
= ` 2,700
The useful life of any capital goods shall be considered as five years
from the date of invoice and the said formula shall be applicable during
the useful life of the said capital goods
(10) The amount of common credit attributable towards exempted supplies,
be denoted as ‘Te’, and shall be calculated as:
‘E’ is the aggregate value of exempt supplies, made, during the tax
period, and
‘F’ is the total turnover in the State of the registered person during the
tax period [Rule 43(1)(g)].
to exempt supply, value of ‘T m’ has been used here. It may be noted that as per
the erstwhile clause (f) of rule 43(1) value of ‘Tr’ was the aggregate of ‘Tm.’
Where,
Particulars (`)
Particulars (`)
**Since GST paid on inputs used for personal purposes has been
considered while computing T1, the same has not been considered again
in computing T3.
C1 = T - (T1+T2+T3)
Particulars
Common Credit C2 = C1 - T4 (`)
GST
=` paid on–taxable
11,06,000 items
` 9,95,000 = ` 1,11,000 9,90,000
where,
‘E’ is the aggregate value of exempt supplies during the tax period, and
‘F’ is the total turnover in the State of the registered person during the
tax period
Aggregate value of exempt supplies during the month
= ` 15,00,000 (` 12,00,000 + `3,00,000)
= ` 1,11,000 - ` 25,615
= ` 85,385
Note: While computing net GST liability, ITC credited to the electronic
ledger can alternatively be computed as follows:
Particulars (`)
Particulars
20. Computation of net GST liability of Surana & Sons for the tax period
Particulars (`)
Working Note 1
Working Note 2
Particulars
Note: (`)
As Common
per sectioncredit on value
17(3), inputsofand input supply
exempt servicesincludes
[Tax onsupplies
inputs - on which
6,90,000
the
` 4,20,000 (` 35,00,000 x 12%) + Tax on input services –
recipient is liable to pay tax on reverse charge basis, transactions in securities,
` 2,70,000
sale (` 15,00,000
of land and, x 18%)]
subject to clause (b) of paragraph 5 of Schedule II, sale of
building.
Common As credit
per explanation
attributabletotoChapter
exempt V of the (rounded
supplies CGST Rules,off) the 4,74,820
value of
exempt supply credit
= Common in respect of land
on inputs and
and building
input is the
services value adopted for paying
x (Exempt
stamp duty during
turnover and forthesecurity
periodis /1% of the
Total sale value
turnover during of the
suchperiod)
security.
= ` 6,90,000
Further, x ` 1,33,50,000/
as per explanation 1,94,00,000
to rule` 42, the aggregate value of exempt supplies
Exempt
inter turnover the
alia excludes = `value
1,33,50,000 and by
of services total
wayturnover =
of accepting deposits,
`1,94,00,000 [Refer note below]
Therefore, value of exempt supply in the given case will be the sum of value
of output supply on which tax is payable under reverse charge ( ` 6,00,000),
value of sale of building (` 2,50,000 / 2 x 100 = ` 1,25,00,000) and value of
sale of shares (1% of ` 2,50,00,000 = ` 2,50,000), which comes out to be
` 1,33,50,000.
Total turnover = ` 1,94,00,000 (` 14,00,000 + ` 6,00,000 + ` 10,00,000 +
` 2,50,000 + ` 10,00,000 + ` 20,00,000 + ` 1,25,00,000 + ` 4,00,000 +
` 2,50,000)
Working Note 3
Computation of ITC available in the Electronic Credit Ledger of the
Surana & Sons for the tax period
21. Particulars
Computation of net GST payable by M/s XYZ (`)
Working Notes
Notes:
Particulars Value Rate GST
(i) received of GST payable
Since the excavators are invariably hired out along with operators
(`) only when the excavator
and excavator operators are supplied (`) is
hired out, it is a case of composite supply under section 2(30)
Hiring charges for excavators 18,00,000 12% 2,16,000
wherein the principal supply is the hiring out of the excavator.
Service charges
As per sectionfor
8(a),supply of
the composite 20,000 12% as the2,400
supply is treated supply
manpower for operation of
of the principal supply. Therefore, the supply of manpower for
excavators
operation[Refer Note
of the 1]
excavators (ancillary supply) will also be taxed at
the rate applicable for hiring out of the excavator (principal
Service charges for soil testing 2,50,000 18% 45,000
supply), which is 12%.
and seismic evaluation [Refer
(ii)Note
Soil
2] testing and seismic evaluation services being independent of
the hiring out of excavator will be taxed at the rate applicable to
Gross GST
them, liability
which is 18%. 2,63,400
Particulars
Notes: GST ITC
paid available
(i) Section 17(5)(d) blocks credit on goods/ or services received by a
(`) (`)
taxable person for construction of an immovable property on his
Maintenance
own account. services
Here,for excavators
though 1,00,000
the excavators are used for1,00,000
building
[Refer Note 1]
projects, the same are not used by M/s. XYZ on its own account
for construction
Health insurance of immovable
for property instead
excavator 11,000they are used -for
outward
operators taxable
[Refer Note supply
2] of hiring out of machinery. Further,
excavators are special purpose vehicles whose credit is not
Scientific and technical consultancy 1,00,000 1,00,000
restricted
[Refer Note 1]under section 17(5)(a), therefore, ITC on maintenance
service for excavators shall be allowed.
Total ITC available 2,00,000
Therefore, the maintenance service for the excavators does not
get covered by the bar under section 17 and the credit thereon
will be available. The same applies for scientific & technical
consultancy for construction projects because in this case also,
the service is used for providing the outward taxable supply of
soil testing and seismic evaluation service and not for
construction of immovable property.
(ii) Section 17(5)(b)(i) allows input tax credit on health insurance only
where an inward supply of such services is used by a registered
person for making an outward taxable supply of the same
22. Computation of ITC available with V-Supply Pvt. Ltd. for the tax period
S. Particulars ITC
No.
CGST* SGST* IGST* Total
` ` ` `
1. Opening balance of ITC 15,000 8,000 9,000 32,000
2. Raw Material
Raw material purchased 14,400 14,400
from Bihar [Refer Note
1(i)]
Raw material imported 29,970 29,970
from China [Refer Note
1(ii)]
Raw material purchased Nil Nil Nil
from unregistered
suppliers within West
Bengal [Refer Note 1(iii)]
Raw material destroyed Nil Nil Nil
due to seepage [Refer
Note 1(iv)]
Remaining raw material 7,650 7,650 15,300
purchased from West
Bengal [Refer Note 1(i)]
Notes:
(1) (i) Credit of input tax (CGST & SGST/ IGST) paid on raw materials
used in the course or furtherance of business is available in terms
of section 16(1).
6. Audit fee, telephone expenses and bank charges are all services used in
the course or furtherance of business and thus, credit of input tax paid
on such service will be available in terms of section 16(1).
7. Export of goods is a zero rated supply in terms of section 16(1)(a) of the
IGST Act. A zero rated supply under LUT is made without payment of
integrated tax [Section 16(3)(a) of the IGST Act].
8. Since export of goods is a zero rated supply, there will be no
apportionment of ITC and full credit will be available [Section 16 of the
IGST Act read with section 17(2) of the CGST Act].
(i) IGST is utilised towards payment of IGST first and then CGST and
SGST in any proportion and in any order.
(ii) CGST is utilised towards payment of CGST and IGST in that order.
ITC of CGST shall be utilized only after ITC of IGST has been
utilised fully.
(iii) SGST is utilised towards payment of SGST and IGST in that order.
ITC of SGST shall be utilized only after ITC of IGST has been
utilised fully.
10. Section 49(4) lays down that the amount available in the electronic
credit ledger may be used for making payment towards output tax.
However, tax payable under reverse charge is not an output tax in terms
of section 2(82). Therefore, tax payable under reverse charge cannot
be set off against the ITC and thus, will have to be paid in cash.
*11. CGST and SGST are chargeable on intra-State inward and outward
supplies and IGST is chargeable on inter-State inward and outward
supplies.
23. Computation of net GST payable by ABC Company Ltd.
Particulars
Working Notes: GST payable
(`)
(1) Computation of ITC available with ABC Company Ltd.
Gross GST liability [Refer working note (2) below] 91,200
Particulars GST (`)
Less: Input tax credit [Refer working note (1) below] 82,000
Health insurance of factory employees [Note – 1] 20,000
Net GST payable from Electronic Cash Ledger 9,200
Raw material received in factory [Note – 2] Nil
Notes:
1. ITC of health insurance is available in the given case in terms of
proviso to section 17(5)(b) since it is obligatory for employer to
provide health insurance to its employees under the Factories Act,
1948. -
persons (including the driver), except when they are used for
making taxable supply of-
(i) further supply of such vehicles,
Particulars
Notes: CGST SGST IGST
(`) (`) (`)
1. (i) Credit of input tax (CGST & SGST/ IGST) paid on raw materials
Intra-State supply
used 78,750
in the course or furtherance of business 78,750
is available in terms
of supply
Inter-State section 16. 67,500
(ii) under
Exports Tax onLUTprocurements
[Note 6] made by Nil a registered person
Nil from Nil
an
unregistered supplier is levied only in case of notified goods and
Total output tax liability 78,750 78,750 67,500
services in terms of section 9(4). Therefore, since no GST is paid
Less: ITC on such raw material purchased,
67,812.50
there does62,812.50 55,732
not arise any question
Net GST of ITC on (rounded
payable such raw material.
off) 10,938 15,938 11,768
(iii) IGST paid on imported goods qualifies as input tax in terms of
section 2(62). Therefore, credit of IGST paid on imported raw
materials used in the course or furtherance of business is available
in terms of section 16.
2. ITC on consumables, being inputs used in the course or furtherance of
business, is available. However, since levy of GST on high speed diesel
has been deferred till a date to be notified by Government, there cannot
be any ITC of the same.
3. ITC on monthly rent is available as the said service is used in the course
or furtherance of business.
Particulars
Working Note 1 CGST @ SGST @ IGST @
9% (`) 9% (`) 18% (`)
Computation of output tax liability of Flowchem for the month of July
Output tax liability [Working Note 1] 1,88,100
Particulars Amount (`)
Less: ITC of CGST [Working Note 2] (25,000)
List price of 10 valves (` 1,00,000 x 10) 10,00,000
Less: ITC of SGST has been utilized (25,000)
Add: Amount paid by R Refinery to testing agency [Note 1] 15,000
only after ITC of CGST has been
Add: Special
utilized fully packing [Note
in terms 2]
of proviso to 10,000
section 49(5)(c) [Working Note 2]
Notes:
(1) As per section 15(2), any amount that the supplier is liable to pay in
relation to a supply but which has been incurred by the recipient of the
supply and not included in the price actually paid or payable for the
goods shall be included in the value of supply.
Since, in the given case, arranging inspection was the liability of the
supplier, the same should be included in the value of supply charges for
the same, however, have been paid directly to the third party service
provider by the recipient. Therefore, the value shall be included in
taxable value.
(2) As per section 15(2), any amount charged for anything done by the
supplier in respect of the supply of goods at the time of, or before
delivery of goods shall be included in the value of supply.
(3) As per section 15(2), any amount that the supplier is liable to pay in
relation to a supply but which has been incurred by the recipient of the
supply and not included in the price actually paid or payable for the
goods shall be included in the value of supply.
Since, in the given case, the supply contract is on FOR basis, payment
of freight is the liability of supplier but the same has been paid by the
recipient and thus, should be included in the value of supply.
(4) As per section 10(1) of the IGST Act, 2017, where the supply involves
movement of goods, the place of supply is the location of the goods at
the time at which the movement of goods terminates for delivery to the
recipient, which in the given case is Abu Road (Rajasthan). Since the
location of the supplier (Gujarat) and the place of supply (Rajasthan) are
in two different States, the supply is an inter-State supply liable to IGST.
Working Note 2
Particulars
Notes: CGST (`) SGST (`)
Opening ITC 20,000 20,000
(1) As per section 17(5), ITC on works contract services when supplied for
Work contract of
construction services availed for
an immovable erecting
property 5,000 plant 5,000
(other than and
foundation for fixing the machinery to the earth in
machinery) except where it is an input service for further supply of
the works
factorycontract
[Note 1] service, is blocked. Further, plant and machinery
Laying of pipeline
includes up toand
foundation thestructural
gate of supports
factory from
used to fix Nil
the machinery
Nil
water source located outside the factory [Note 2]
to earth.
(2)Installation of telecommunication
As per section towers
17(5), ITC on goods and/[Note 2]
or services Nil by a taxable
received Nil
person
Services of for construction
travel company to of provide
an immovable property (otherNilthan plantNil
home travel or
machinery) on his
facility to employees Note 3]own account including when such and/ or services
are used
Services in course/
of fitness centerfurtherance of business, is blocked. However, plant
to provide wellness
and machinery
services to employees excludes
[Note pipelines
3] laid outside the factoryNilpremises andNil
telecommunication towers.
Total ITC 25,000 25,000
(3) As per section 17(5), ITC on travel benefits extended to employees on
home travel concession and membership of health and fitness center is
blocked unless it is obligatory for an employer to provide the same to
its employees under any law for the time being in force.