Input Tax Credit

Pre-GST
No credit where credit’s dueThis 1300 includes
100 as tax paid
Pre-GST & VAT earlier. Hence, tax on Post GST
tax.

Total Effective
Point of Value Tax Output Point of Value Output
Cost Tax Cost GST ITC tax
taxation added applicable Price taxation added Price
@10% incidence

Raw material Sales Raw material

___ ___ 100 1000 ___ ___ __ 100 1000
supplier Tax supplier

Central
Manufacturing 300 1300 Excise 130 1430 Manufacturing 300 1300 130 100 30 1330
@10

Sales
Wholesale 200 1630 163 1793 Wholesale 200 1530 153 130 23 1553
@10

CST@
Retailer 100 1893 189.3 2082.3 Retailer 247 1800 180 153 27 1827
10
Taxes that couldn’t be setoff with each other

VAT X Service Tax

Excise Duty X VAT

Excise Duty X Service Tax

CENVAT X VAT

VAT on purchase ✓ VAT on sale

Important Definitions
Ledgers

Electronic Cash Ledger

Section 2(43) "electronic cash ledger" means the electronic cash ledger referred to in sub- section (1) of section 49 ;
• Section 49(1) - Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit
cards or National Electronic Fund Transfer or Real Time Gross Settlement or by such other mode and subject to such conditions and restrictions as
may be prescribed , shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed
• Therefore, it provides summary of all the GST payments made under different heads such as IGST, SGST, CGST, Cess.
• An amount may be added to cash ledger and tax is according debited from it.

Electronic Credit Ledger

Section 2(46) "electronic credit ledger" means the electronic credit ledger referred to in sub-section (2) of section 49 ;
• Section 49(2)- The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger,
• ITC is reflected in electronic credit ledger.

Electronic Liability Ledger

• Reflects the amount of tax supplier has to pay to the government and is due.
Input and Capital Goods

Input

Section 2(59) "input" means any goods other than capital goods used or intended to be used by a supplier in the course or
furtherance of business

• The reason for excluding services is because it is defined separately

• Eg. of input - buying raw material for manufacturing a new good is input w.r.t supply of the new good.
• Furtherance of business suggests that it is meant only for businesses and not personal use.
Capital Goods

Section 2(19) "capital goods" means goods, the value of which is capitalised in the books of account of the person claiming the
input tax credit and which are used or intended to be used in the course or furtherance of business;

• Eg. A coaching centre buys ACs and furniture for Rs. 20,00,000 @ 18% rate. Total tax liability is Rs. 3,60,000. This value will
be capitalised in the books of account as they are fixed assets to be used in furtherance of business.
Input Tax, Input Services and ITC

Input Tax
Section 2(62) "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on
any supply of goods or services or both made to him and includes-
(a) the integrated goods and services tax charged on import of goods;
(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-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act; (RCM)
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or (RCM)
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, (RCM)
but does not include the tax paid under the composition levy;

• Eg. Ortis Pvt. Ltd. is incorporated and registered in Delhi and manufactures eyeglasses. Their supply is Rs. 1,80,000 and GST is charged at
@12% to be Rs. 21600. It imports lens (input goods) from Punjab for Rs. 1000 and pays IGST @12% = Rs. 120. It avails the technical
services (input services) of an ophthalmology firm from Delhi to set up their equipment for 1,20,000, taxed @5% = Rs. 6000. It further
imports equipments to manufacture glasses (capital goods) from Bangalore for Rs. 7,00,000 charged @12% GST = 84,000. It also pays tax of
Rs. 1600 on behalf of a supplier on reverse charge basis.
• In the above example the amounts of 120, 6000, 84,000 and 1600 are called input tax.
Input Service
Section 2(60) "input service" means any service used or intended to be used by a supplier in the course or
furtherance of business
• Eg. Akshat pays 25,00,000 to an accounting firm for managing accounts for his firm that manufactures
speakers. W.r.t. the supply of goods, services by accounting firm are input services.

ITC
Section 2(63) "input tax credit" means the credit of input tax.
• It is a credit that may be availed from output tax liability.
• In the previous example, Ortis Pvt. Ltd.’s. Output tax liability os Rs. 21600. Net tax liability will be
21600 - (120+6000+1600). Here the amount of Rs. 7720 is ITC. The amount of Rs. 84,000 towards
capital input also qualifies for ITC but as a usual business practice it is not availed (see 16(3)).
GST Returns
Types

• A GSTR is a document to declare the income from carrying out business transaction by all the owners of business registered for GST.
• There are 11 types of GSTR depending upon the type of registered person.
• Purchaser is dependent on supplier for the returns and ITC claimed. If supplier fails, ITC may not be claimed by the purchaser.
• GSTIR 1 - it is filed by the supplier containing the statement of outward supply at the 11th of next month for each month. It is also
referred to as sales return.
• GSTIR 2A - for purchases and inward supplies made by a taxpayer that is automatically compiled by the GSTN based on the information
present within the GSTR-1 of the suppliers. Seller when files their GSTIR 1, it is automatically reflected in buyer’s GSTIR 2A.
• GSTIR 2 - purchasers manually updated the information from GSTR 2A to report the inward supplies of goods and services, i.e. the
purchases made during a tax period. 
• GSTIR 2B - is an auto-drafted ITC statement which is generated for every normal taxpayer on the basis of the information furnished by his
suppliers in their respective GSTR-1.
Conditions for claiming ITC
1. Registered person eligible to claim ITC

Section 16(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section
49 , be entitled to 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 and the said amount shall be credited to the electronic credit ledger of such person.

• Person must be registered to claim ITC - Section 2(94) "registered person" means a person who is registered under section 25. And section 25
provides for procedure for registration.

• Section 49 - payments of tax etc. lays down the manner in which tax is to be paid.
• Used or intended to be used - under section 17(5)(h), ITC is not available for goods lost, stolen, destroyed, written off or disposed of by way of gift
or free samples; and

• In furtherance of business has the same meaning as provided under section 7 (refer to slides on section 7). Eg. Re: NALCO Ltd (2019, Orissa
AAAR) - It is established that to claim input tax credit, an input service must be integrally connected with the business of manufacturing the final
product Cost of an input service forming part of the cost of final product alone cannot be a condition to allow the benefit of input tax credit.
Therefore, for manufacturing aluminium metal through its refineries, maintaining townships, residential colonies, hospitals, guest houses for the
purpose of accommodating the touring employees and guests is not in furtherance of business.

• Such an ITC is credited to the taxpayer’s electronic ledger.

2. Conditions for availing eligible ITC

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any
input tax in respect of any supply of goods or services or both to him unless,-
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax
paying documents as may be prescribed
(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the
statement of outward supplies and such details have been communicated to the recipient of such invoice or debit
note in the manner specified under section 37 ;
(b) he has received the goods or services or both.
(ba) the details of input tax credit in respect of the said supply communicated to such registered person under
section 38 has not been restricted;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the
Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39 :
Subsection 2 has 6 conditions in addition to the person being registered under (1). All these conditions have to be fulfilled simultaneously to be
eligible to claim ITC:
1. Possessing tax invoice or debit note: A supplier issues a tax invoice. Eg. X supplies goods worth Rs. 12,00,000. He mistakenly under-
invoices the goods and sends an invoice of Rs. 11,00,000. He adds a debit note of 1,00,000. If a supplier is unregistered, he may not send an
invoice.
2. Has received the goods or services or both: This section further explains deemed receipt of the goods/services. Explanation - For the
purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether
acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;
3. Has actually paid the tax - supplier needs to upload the details in GSTN of the tax paid to the government. No ITC can be claimed if the
oiutput tax has not been actually paid.
4. Furnishing of returns - section 39 lays down the manner and time within which returns are to be furnished. Eg. GSTIR 1 is to be filed on
11th of every month.
5. Finance Act, 2021 inserted (2)(aa)- a registered person would not be eligible to avail the
ITC on an invoice unless the same is reflecting in GSTIR 2B of that registered person. This
has been done to ensure timely payment of GST and filing or returns for the same by the
supplier.

6. Finance Act, 2022 inserted (2)(ab) - w.e.f. Oct , 2022 is similar to 2(aa) as here, the
recipient would fail to claim ITC if the supplier fails to provide details of outward supply
before 10th of every month (section 38).
• The above two amendments have made the claim of ITC dependent of the supplier. When
supplier files their GSTIR 1 (outward supply for supplier), the tax paid by the recipient (the
input tax for such recipient) is automatically uploaded to their GSTIR 2A which is an
automated form. Based on this recipient can claim ITC.
3. No ITC on capital goods on which depreciation is claimed Inder IT Act

Section 16(3)- Where the registered person has claimed depreciation on the tax
component of the cost of capital goods and plant and machinery under the provisions of
the Income tax Act, 1961 (43 of 1961), the input tax credit on the said tax component
shall not be allowed.

• A person can claim ITC for input of capital goods used for business purposes.
• A person can also claim depreciation from the business income under IT Act for the
same capital goods.

• A person cannot claim both depreciation under IT Act and credit for input of capital
under CGST.
Chowgule Industries Ltd. (2019) Mah AAR

Facts
• Applicant (Maruti car dealership) made purchase of certain vehicles against tax invoices which were reflected in
the books of account as capital goods
• The vehicles were used as demo vehicles for customers to help them understand features of vehicles
• This was an essential part of sales and promotion and applicant was required to keep one car of each model in
every location
• Applicant had not claimed depreciation on tax component of the demo cars
Issue
Can input tax paid by dealer on purchase of demo cars be used as ITC on capital goods and set off against output
tax liability?
Held

• Sec 16 does not make any distinction b/w capital and non-capital goods
• Requirement is that the goods must be used or intended to be used in course of or
furtherance of business purposes

• Observed the demo vehicles will be accounted as fixed assets of the company
• Applicant will not/has not claimed depreciation against them
• Thus, allowed to claim ITC against the tax on capital goods
4. Time limit for availing ITC

Section 16 (4) A registered person shall not be entitled to take input tax credit in respect
of any invoice or debit note for supply of goods or services or both after the thirtieth day
of November following the end of financial year to which such invoice or debit note
pertains or furnishing of the relevant annual return, whichever is earlier.

• Therefore, ITC cannot be claimed beyond 30 November of the year following the
financial year to which such invoice or invoice relating to such note pertains.
Apportionment of Credit and Blocked Credits
Concept

• Supplier is eligible for the supply of taxable supply. If the supply is exempted supply,
the credit for the input tax is not possible.

• Section 17 provides for the rules that govern whether ITC may be claimed or not for
the supplies that are fully exempt, part exempt part part taxable and/or for a personal
use.

• It also provides for the list of supplies for which the credit is not allowed.
• By any reason, if the credit is claimed and the supply falls under blocker category then
such a credit is reversed.
Part attributability - where goods are not used for business purposes

Section 17 (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.

• Eg. Veda Pharma buys 50 cans of water for a tax liability of 5000 Rs. 10 cans are used
for domestic purposes. The credit will be available fr 4000 rs. and not the 1000 Rs.
that are consumed at home.
Part attributability where the goods are used for outward supply of
exempt, nil-rated, non-taxable and zero rated supply

Section (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.
• Under this subsection, the credit may not be availed for the exempted supply as there is
no outward tax liability for exempted supply.
• This also includes non availability for nil-rated and non-taxable supply.
• ITC is attributable for the supply of taxable and zero-rated supply
 Use of ITC for

Taxable Zero-rated Non-taxable Nil Rated

Exempt supply
supply supply supply Supply

ITC Available ITC Not Available

Exempt supply
• Exempt supply is defined in section 2(47) and includes nil-rated and non-taxable supply. "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 Integrated Goods and Services Tax Act,
and includes nontaxable supply;
• Therefore, ITC for such a supply is not available.
• Though exempted supply does not attract outward tax but on the input side, the cost was paid the supplier of exempt supply that they may not set-off with
the credit as it is not available. Eg. supply of frozen meat is exempt but the supplier while buying the livestock has paid the 1000 rs. that includes 100 rs.
as GST. Not being able to set rs. 100 upon the outward supply renders such a supply as not truly a “zero rated” supply.
Zero rated supply
• Section 16 of IGST - (1) “zero rated supply” means any of the following supplies of goods or services or both, namely: – a) export of goods or services or
both; or b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-
rated supplies, notwithstanding that such supply may be an exempt supply.
• While supplying to SEZ or export the product the supplier need not pay any tax however, they are allowed to claim ITC.
• In the above example, if supply of frozen meat is made to a meat processing unit in SEZ, the taxability will be as such
input price = (900+100 as GST), value added = 200 Rs.
output cost =1000 + 200 = 1200
As no taxes shall be levied, the cost will remain 1200.
Supplier may further claim ITC of Rs. 100 as the tax paid to the previous supplier.
1100 as the output cost is truly a zero rated supply.
Credit reversal and NBFC

Section 17 (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.
Explanation .- For the purposes of this sub-section, the expression "value of exempt supply" shall not include the value of
activities or transactions specified in Schedule III , except those specified in paragraph 5 of the said Schedule;
• Section 17(3) expands the scope of exempt supplies and includes supplies on RCM, of securities and sale of land. It does
not include supply under Schedule III but includes sale of land.
• Section 17(3) identifies supplies attracting reverse charge to be exempt supplies in the hands of the supplier effecting such
supplies.
• Section 17(4) A banking company or financial institution including a NBFC engaged in supplying services by way of
accepting deposits, extending loans or advances can
- Either comply with Sec 17(2); or
- Every month avail 50% of eligible ITC and the rest shall lapse
Blocked Credits
Motor Vehicles and vessels under 17(5)

• Section 17(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18 , input
tax credit shall not be available in respect of the following, namely:-
(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including
the driver), except when they are used for making the following taxable supplies, namely:-
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;

(aa) vessels and aircraft except when they are used- (i) for making the following taxable supplies, namely:- (A) further supply
of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or (D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or
aircraft referred to in clause (a) or clause (aa):
Blocked motor vehicles

• Such motor vehicles which are of personal use such small cars are not allowed for
claiming ITC. Though no clear legislative intent appears.

• Motor vehicles and conveyances with seating capacity of less than 13 persons. Eg. a 5
seater car’s supply will not be eligible for ITC.

Exception

• If further supply of such vehicles and conveyances; Eg. a car sold by BMW to a
retailer for further supply

• Making taxable supply of transportation of passengers; or

• Supply of imparting training, driving on such motor vehicles
In the matter of BMW India Pvt Ltd.

Facts
• BMW India Pvt. Ltd. Gurugram is registered in GST at Gurugram as a State administered taxpayer for running a training centre for the
training of Engineers and Marketing professionals etc.
• They get BMW branded vehicles made in Chennai plant as inter-state stock transfer on which IGST and compensation cess have been
paid, and use these vehicles for 'a very limited period of about 12 months', as under :
A. 'Training fleet' : vehicles for training ol Dealers and Authorized Service Centre operators;
B. ‘Press fleet' vehicles provided to media houses/ senior journalists for test purpose;
C. 'Marketing fleet' : vehicles for undertaking various marketing and promotional activities such as road shows, exhibitions etc.
D. 'Sales fleet' : Vehicles assigned to corporate sales team for giving it to customers for test drive and product experience
E. 'Visitor cars' : Vehicles used in Gurugram to service visitor transportation needs and business use of employees;
F. 'Personally Assigned Vehicles : Vehicles assigned to employees and Expats of the company for business purpose.
• Barring last two, appellant seeks ITC for the input of these vehicles.
• After the said uses, the Appellant sells these vehicles to Company's authorized dealers, as old and used vehicles, after the said limited
period use. That, such vehicles are capitalised in the book of accounts due to applicable accounting standards.
Issue

• Whether the Applicant unit is entitled to avail Input Tax Credit (ITC) of /GST and
Compensation Cess paid on receipt of cars (on stock transfer basis) for use in relation
to specified business activities and thereafter outwards supply to dealers after use by
the Applicant unit for a limited period of time?

Ruling by AAR

• In a cryptic manner, the AAR held against the assessee and disallowed the credit.
Held
• Upon hearing BMW that - AARRuling is vague/cryptic; They are entitled to take Input Tax Credit (lTC) as the vehicles were further
used for specified taxable supply mentioned under Section 17(5)(a)(i)(A); That, vehicles were always intended to be further supply by
the Appellant after specified use; That, no time limit has been prescribed under CGST Act for further supply of vehicles;
• The authority discusses the legislative intent being section 16 that a recipient Taxpayer is entitled to take the ITC if it has in possession,
the duly issued invoices and the goods or services have been received and are intended for furtherance of business.
• Further the restrictions under Section 17 for availment of ITC on certain goods and services. One such purpose is as expressly
mentioned under Section 17(5)(g) viz., "(g) goods or services or both used for personal consumption." It can be inferred that sub-
SectionLT(5)(g) restricts ITC on the Motor Vehicles as these are potential items of personal/non-business use.

• Section 17 - (a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons
(including the driver), except when they are used for making the following taxable supplies, namely:-

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
As may be seen, a plain reading of this sub-Section indicates the legislative intent clearly that when used other than the intended
purposes, the ITC cannot be allowed on the Motor Vehicles of seating capacity up to 13 persons. The intended purposes are also limited
i.e. numbered only three.
• We find that none of the uses to which the BMW Vehicles are put to, fits into the uses which find mention in
sub-Section 17(5). The vehicles under question are not meant for "further supply of such motor vehicles' i.e
'further supply as such", but are first put to the mentioned uses. These are disposed of after prolonged use,
which may even not restrict to 12 months as mentioned by the Appellant.

• If the argument of the party is allowed then in that case all the motor vehicles, irrespective of the nature of
Supply will be eligible for ITC across the industries. It will no longer be a restricted clause for Car Dealers, but
will be an open-clause for all the trade and industry to avail the ITC on all the Vehicles purchased by them. This
has never been the intent of the Parliament.

• As regards to the Applicant's contention that these vehicle are sold after 12 months ITC may be allowed as
Input, we observe that in the very first demonstration run demo car loses the character of the new motor vehicle
and demo vehicles is sold akin to second hand goods and which is different from new Vehicle and accordingly
treated differently under GST law, so the demo car is not an input.

• So it appears that the BMW Vehicles received by the Appellant under stock transfer have never been received
with the intent to simply 'further supply of such motor vehicles,/'sell as such'. Input Tax Credit on these
vehicles, thus, cannot be allowed.
Food, beverages, catering etc. under 17(5)

Section 17(5)(2)the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor
vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health
insurance:

Provided that the input tax credit 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;
• Catering and other such services used for activities by a business that is not involved in the further supply of same goods or services mentioned
above will not get ITC for the input of those services.
• Eg. X Ltd., a company providing travel services hires a caterer for an event. They will not get an ITC for it as this input does not fall under the
proviso.
• Eg. Y Ltd., an event management company sub-contracts a caterer to further provide their services to Y’s client who also uses stage decoration
and a entertainment services including catering from Y Ltd. Y Ltd. as a composite supply provides entertainment + stage decor + catering as
outward supply to the client for which they can claim ITC on catering used.
• Similar example may be used for other goods and services mentioned above.
Membership of club, services to employee…

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
Provided that the input tax credit in respect of such goods or services or both shall be available, where it
is obligatory for an employer to provide the same to its employees under any law for the time being in
force
• Eg. Section 48 of Factories Act mandates an employer to have a canteen for its workers. Here ITC may
be claimed.
• Eg. 2. Office Memorandum of 1988 by Government of India, Ministry of Home Affairs, grants are to be
provided towards recreational activities such as membership of club for employees. Here, a PSU
complying with such an OM may claim ITC.
Works contract

• Section 2(119) "works contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out,
improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of
property in goods (whether as goods or in some other form) is involved in the execution of such contract;
• Section 17(5)(c) 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;
• Eg. A contractor constructing multi-storeyed building receives services of sub-contractors to install the pipeline may avail the ITC as he is
using them for further supply of works contract services.
• Section 17(5) (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or
machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation .-For the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation, additions or
alterations or repairs, to the extent of capitalisation, to the said immovable property;
• Eg. 1. A contractor constructing multi-storeyed building to build his own commercial complex. Here the ITC would be blocked for
construction of goods brought by him.
Plants and Machinery
• Buildings and other immovable property are not goods, being immovable property. As no GST will be levied for
output, no ITC may be claimed either.
• The reason for exclusion of plants and machinery from blocking ITC is that in common parlance, both are used
to carry on a business activity
• The term is defined under explanation - For the purposes of this Chapter and Chapter VI, the expression "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 or services or both and includes such foundation and
structural supports but excludes--
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises
• The reason for excluding land, buildings etc is because in catena of judgments, they have been held to be plant so
under this Act they are being clearly excluded even if they were to be used in furtherance of business.
In the matter of Vijayneha Polymers Private Limited

Facts
• The applicant M/s. Vijayaneha Polymers Pvt Ltd., has constructed a factory building wherein they have
hired works contractors for executing the construction in (2) different ways.
1. Where the applicant provided material and contractor provided construction services.
2. The contractor provided both material and services.
• Such construction included foundation of machinery, rooms for chillers, boilers, generators and
transformers, erecting of electrical poles, laying of internal roads, factory building, internal drainage,
laboratory etc.
Question
The advance ruling is sought on availability of ITC on GST charged by the contractor supplying service of
works contract.
• As seen from the facts of the case, the applicant has either purchased goods or services for construction of
immovable property on his own account or engaged the works contractor for supply of construction services. The
Section 17(5) of the CGST/SGST Acts states among others that input tax credit shall not be available in respect of
the inputs mentioned under 17(5)(c) and (d).
• The above provisions when read in tandem lead to the following conclusions with respect to the facts of the present
case:
1. ITC cannot be availed on works contract services for construction of an immovable property except for erection
of plant & machinery.
2. ITC can be availed on plant & machinery as defined in the explanation to Section 17 i.e., on apparatus,
equipment & machinery fixed to earth by foundation or structural support; which means plant & machinery and
machine foundation are eligible for ITC.

3. Plant & machinery will not include building or other civil structures and pipelines laid outside factory premises.

4. ITC cannot be availed on goods or services or both received by a tax payer on his own account for construction
of immovable property.

In light of the above conclusions, the applicant is eligible for ITC to the extent of machine foundation only.
Safari Retreats Pvt Ltd v Chief Commr CGST

Facts
• Petitioners had been carrying out the business of constructing shopping malls for purpose of letting out same to
numerous tenants
• Paid GST on inputs and input services
• One of the shopping malls whose construction they completed was in Bhubaneshwar
• Petitioner had made arrangements for letting out different units of the said shopping mall to different persons on
rental basis
• Renting is a commercial activity attracting GST, no ITC could be claimed hence an accumulation of Rs.
34,40,18,028 could not be set off.
• There reason was Section 17(5)(d), CGST Act, 2017 under which ITC is blocked for construction on own account.
• Petitioner made various arguments claiming violation of Art 14, Art 19(1)(g), etc.
• But, the main argument centred around multiplicity of taxes/prevention of cascading effect of taxes
• And, that GST was enacted to prevent a cascading effect of taxes; if in the instant case it was not allowed to
offset input taxes it would defeat the objective of GST

Held
• "provisions of Section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the
provision by the Department, is not required to be accepted”
• In the present case, assessee is retaining the property and not using it for his own purpose but letting it out on
which he is covered under GST; Consequently, if the assessee is required to discharge GST on the rental
income arising out of investment on which GST is paid, it is eligible to avail the ITC of GST
Other blocked credits

Section 17(5)(e) goods or services or both on which tax has been paid under section 10 ; - composition scheme may be
availed by a supplier in which discounted tax is paid to the government. Here, as the discount is availed, no further ITC
may be claimed.

Section 17(5)(f) goods or services or both received by a non-resident taxable person except on goods imported by him
- NRTP don’t get any ITC as they work casually without having any permanent establishment or business connection
hence may not avail tax benefit.

Section 17(5)(g) goods or services or both used for personal consumption;

Section 17(5)(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

Section 17(5)(i) any tax paid in accordance with the provisions of sections 74 , 129 and 130 - where no tax was paid
due to fraudulent intent or other criminal intent and tax is levied thereafter, no ITC may be claimed upon such payment
due to presence of men rea.
Recap

For claiming ITC following points must be remembered:

• Must possess invoice or debit note from registered dealer
• Must have received the goods or services on which ITC is being claimed
• Supplier must have paid the tax for which ITC is being claimed
• Supplier has filed GSTR1 and the amount is reflected in GSTR 2B of the recipient
• ITC is allowed on capital goods
• ITC not allowed for goods/services for personal use
• ITC is claimed for the input IGST paid in this order - if it is absorbed by IGST paid upon outward supply,
if not carry forward towards CGST paid and if still unabsorbed, then towards SGST.
Practice

1. Anmol Enterprises manufacturing leather coats, purchases raw material worth Rs. 10,00,000 @10% GST from A2Z
Ltd. A2Z wrongly assumed that Anmol Ent. is eligible for a discount issues the above invoice. Later they find that the
cost must have been 12,00,000 and the tax must be levied at 10% on this amount. Compute the total amount eligible
for ITC.
2. Mayur Honda orders 100 units of cars each costing 10,00,000 Rs. It paid 10% GST on the import of such cars. Mayur
Honda decides to use 20 such cars for the purposes of display and test drive. How much ITC can be claimed by
Mayur?
3. Anmol Enterprises from Q.1, at its factory serves food through a canteen to its employees. It paid 50,00,000 as GST to
the canteen for availing its services. How much ITC can be claimed by Anmol Enterprise?
4. KLM Constructions are in the line of constructing residential units and taking contracts for construction. It bought raw
material worth 3 crore Rs. for which it paid GST @ 10%. It also availed services of one ABC Contractors to work on
one of the projects. KLM paid ABC a sum of 50,00,000 Rs. and tax on it @10%. Determine the tax liability.
Inverted Duty Structure
Meaning

• Where, the outward supply attracts GST that is lower than the inward supply, the IT remains unabsorbed and
accumulated.
• Some supply attract very low GST. Eg. solar water heaters attract a mere 2.5% of GST while its input
components may receive higher tax.
Eg. one unit of solar water heater is sold at 10,000. Its raw material cost 9000 Rs. and are taxed at 28%. The
tax on output is 2500 Rs. while tax on input was 2520. 20 Rs. remain unabsorbed.
• Section 54(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any
unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit
shall be allowed in cases other than--
• (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on
output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as
may be notified by the Government on the recommendations of the Council
UOI v VKC Footsteps SC 2021

• UOI preferred an appeal against the judgment of Guj HC, where the High Court therefore directed the Union Government to allow
the claim for refund made by the Petitioners before it, considering unutilised ITC on input services as part of "Net ITC" for the
purpose of calculating refund in terms of Rule 89(5), in furtherance of Section 54(3)
• Rule 89(5) provides a formula for refund of ITC, in “a case of refund on account of inverted duty structure”
• It uses the term “Net ITC” to compute the refund. The term ‘Net ITC’ which in turn is referred to as “input tax credit availed on
inputs”
• Thus, Revenue Dept took the position that refunds of inverted duty structure are only applicable when input tax is paid on goods and
not on services .
• The Gujarat High Court held that by prescribing a formula in Sub-rule (5) of Rule 89 of the CGST Rules to execute refund of
unutilized ITC accumulated on account of input services, the delegate of the legislature had acted contrary to the provisions of Sub-
section (3) of Section 54 of the CGST Act which provides for a claim of refund of any unutilized ITC.
• The SC held that the appealsfiled by the Assessees against the judgment of the Madras High Court and connected cases dismissed.
Availability of credit in special circumstances
Section 18

Section 18(1) (a) a person who has applied for registration under this Act within thirty days from the date on which he becomes
liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of inputs held in
stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which
he becomes liable to pay tax under the provisions of this Act;

Section 18 (1)(b) a person who takes registration under sub-section (3) of section 25 shall be entitled to take credit of input tax in
respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately
preceding the date of grant of registration

Section 18(1)(c) 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

Section 18(1)(d) where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such
person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or
finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the
day immediately preceding the date from which such supply becomes taxable
 Credit for Credit for Credit for
Supplier For the stock, a day prior to…
input input services capital

18(1)(a) Unregistered supplier Crosses

threshold and is now liable for registration ✓ X X The day he is liable to pay tax

18(1)(b) voluntary registration ✓ X X The day he becomes registered

The day from which he becomes

18(1)(c) Changes from composition scheme
to regular scheme ✓ X ✓ liable to pay tax under regular
scheme

18(1)(d) supply becomes taxable from

exempt ✓ X ✓ The day prior from which exempt
supply becomes taxable
Section 18(3) Where there is a change in the constitution of a registered person on account
of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific
provisions for transfer of liabilities, the said registered person shall be allowed to transfer
the input tax credit which remains unutilised in his electronic credit ledger to such sold,
merged, demerged, amalgamated, leased or transferred business in such manner as may be
prescribed
• ITC can be transferred form the ledger of the old entity to the new entity that may have
been formed for the reasons such as sale, merger, demerger, amalgamation, lease or
transfer of business
• Provided there is a provision in the instrument of transfer for the transfer of liabilities.
ITC for Job Work
Section 19

• This section contemplates a situation where a registered principal manufacturer sends inputs or capital goods to
a job worker for further processing.

• The credit is available on inputs or capital goods sent to job worker.

• Section (68) "job work" means any treatment or process undertaken by a person on goods belonging to another
registered person and the expression "job worker" shall be construed accordingly

• Section 19(2) Notwithstanding anything contained Sec 16(2)(b) principal shall be entitled to take credit of input
tax even if inputs are directly sent to a job worker for job work without being first brought to his place of
business.

• Eg. A registered jewellery designer sends gold ingots to the job worker (small jeweller) to mould the gold into
circular bangles. To do this, he even supplies castings tools to the job worker. Even if such gold ingot is directly
sent from raw material supplier to job worker, this registered designer, being principal may claim ITC.
Input Service Distributor
Sections 20 and 21

• Section 2(61) "Input Service Distributor" means an office of the supplier of goods or services or both
which receives tax invoices issued under Section 31 towards the receipt of input services and issues a
prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or
Union territory tax paid on the said services to a supplier of taxable goods or services or both having the
same Permanent Account Number as that of the said office;
• This includes the principal companies, head offices, procurement units who do not provide any outward
supply of goods or services but pay taxes for procuring goods/services for their subsidiaries or regional
offices.
• In such case, such a principal company or a head office may not claim fair ITC and the credit may get
accumulated.
• Such credit may then be distributed by it to its branches etc.
Distribution of credit by ISD

• Section 20 lays down certain conditions to distribute credit:

i. The ISD shall distribute the ITC subject to following conditions, namely:
ii. The credit can be distributed to recipients of credit against a document containing such details as may
be prescribed;
iii. The amount of credit distributed shall not exceed the amount of credit available for distribution;
iv. The credit of tax attributable to a recipient of credit shall be distributed only to that recipient;
• Section 21 - Where ISD distributes credit in contravention of Sec 20, resulting in excess distribution of
credit to one or more of recipients of credit, excess credit so distributed shall be recovered from the
recipients along with interest.