Input Tax Credit (Advanced)

Input Tax Credit (Advanced) 5

This Module Includes

5.1 Introduction
5.2 Specific Provisions on Input Tax Credit
5.3 Case Studies and Illustrations on Input Tax Credit including Job Work, Input Service Distributor

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Input Tax Credit (Advanced)

SLOB Mapped against the Module
1. To develop detail understanding of various provisions of Goods and Services Tax (GST) to facilitate
valuation, computation of tax liability including management of input tax credit.
2. To obtain detail knowledge about the provisions under GST relating to accounts and record, annual returns
and dispute resolution to ensure better compliance.
3. To facilitate strategic decision making by appropriate management of various indirect tax issues.

Module Learning Objectives

After studying this module, the students will be able to:
~ Explain the terms and conditions for availing ITC
~ Understand how to apportion common ITC for exempted and taxable supplies
~ Explain what blocked credit is
~ Get clear picture on availment of ITC in certain Special Circumstances
~ Apply how to utilise ITC

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Introduction 5.1

T
he basic concept of INPUT TAX CREDIT (ITC) is to avoid the cascading effect of duty. Cascading effect of
duty (i.e. duty on duty) happens where tax is levied at every stage of supply.
The following examples will help us understand this.

Example 1
If the duty is based on the manufacture of a product, the tax burden keeps increasing as raw material and final
product passes from one stage to another.

Cascading effect

(`) (`)
Assessee A B
Purchases 100 224
Value added 100 76
200 × 12% = 24
Assessable Value 200 300 Duty paid
Add: Excise Duty @ 12% 24 36 24 × 12% = 2.88
on duty
Sale prices 224 336 76 × 12% = 9.12

GST eliminates cascading effect of tax

No Cascading effect
Assessee A B
(`) (`)
Purchases 100 200.00 (` 224 – ` 24)

Value added 100 76.00 Output tax 33.12

Assessable Value 200 276.00
i.e.
Add: Excise Duty @ 12% 24 33.12 Input tax (24.0) 76×12% =
Sale prices 224 309.12 net payable 9.12 9.12

Uninterrupted and seamless chain of input tax credit (hereinafter referred to as, “ITC”) is one of the key features of
Goods and Services Tax. As the tax charged by the Central or the State Governments would be part of the same tax
regime, the credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage.

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Specific Provisions on Input

5.2
Tax Credit
Input (Section 2(59) of the CGST Act, 2017): means any goods other than capital goods used or intended to be
used by a supplier in the course or furtherance of business.
Capital Goods (Section 2(19) of the CGST Act, 2017): means goods, the value of which is capitalized 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.
Input Service (Section 2(60) of the CGST Act, 2017): means any service used or intended to be used by a
supplier in the course or furtherance of business.
Input Tax (Section 2(62) of the CGST Act, 2017): 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 Section 9(3) and Section 9(4) of the CGST Act, 2017;
(c) the tax payable under Section 5(3) and Section 5(4) of the IGST Act, 2017;
(d) the tax payable under SGST Act (i.e. person liable to pay GST under RCM);
(e) The tax payable under UTGST Act (i.e. person liable to pay GST under RCM),
But does not include the tax paid under the composition levy.
Input Tax Credit (Section 2(63) of the CGST Act, 2017): means the credit of input tax.
Electronic cash ledger (Section 2(43) of the CGST Act 2017): means the electronic cash ledger referred to in
sub-section (1) of section 49.
Electronic credit ledger Section 2(46) of the CGST Act, 2017: means the electronic credit ledger referred to
in sub-section (2) of section 49;
Exempted supply (Section 2(47) of the CGST Act, 2017): 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 non-taxable supply;
Invoice or tax invoice (Section 2(66) of the CGST Act, 2017): means the tax invoice referred to in section 31;

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Inward supply (Section 2(67) of the CGST Act, 2017): “inward supply” in relation to a person, shall mean receipt
of goods or services or both whether by purchase, acquisition or any other means with or without consideration;
Job work (Section 2(68) of the CGST Act, 2017): 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;
Non-taxable supply (Section 2(78) of the CGST Act, 2017): means a supply of goods or services or both which
is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;
Output tax (Section 2(82) of the CGST Act, 2017): “output tax” in relation to a taxable person, means the tax
chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes
tax payable by him on reverse charge basis;
Outward supply (Section 2(83) of the CGST Act, 2017): “outward supply” in relation to a taxable person,
means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or
disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business;
Quarter (Section 2(92) of the CGST Act, 2017): “quarter” shall mean a period comprising three consecutive
calendar months, ending on the last day of March, June, September and December of a calendar year;
Works contract (Section 2(119) of the CGST Act, 2017): 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;
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 (SEZ), developer of SEZ unit (As referred
under Section 16(1) of the IGST Act, 2017.
Export of goods (Section 2(5) of the IGST Act, 2017): with its grammatical variations and cognate expressions,
means taking goods out of India to a place outside India;
Export of service (Section 2(6) of the IGST Act, 2017): means the supply of any service when,––
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange
[w.e.f. 1-2-2019, or in Indian rupees wherever permitted by the Reserve Bank of India]; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in
accordance with Explanation 1 in section 8;

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Over all view of Input Tax Credit under GST:

Input Tax Credit (ITC)

APPLICABLE NOT APPLICABLE

GOODS & SERVICES GOODS & SERVICES
Section 16 of the CGST Act, 2017 Section 17(5) of the CGST Act, 2017

(a) Motor vehicle (except few cases)

CAPITAL INPUT (b) Goods and/or services provided in relation to—
INPUT
GOODS SERVICES (i) Food and beverages, outdoor catering, beauty
Section treatment, health services, cosmetic and plastic
Section Section
2(59) of the surgery, except under specified circumstances;
2(19) of the 2(60) of the
CGST Act. (ii) Membership of a club, health and fitness centre;
CGST Act. CGST Act.
(iii) Rent-a-cab, life insurance, health insurance except
where it is obligatory for an employer under any
law;
Input goods, Capital goods & Input services
(iv) Travel benefits extended to employees on vacation
are used in the course or furtherance of
such as leave or home travel concession;
business.
(c) Works contract services when supplied for construction
of immovable property, other than plant & machinery,
except where it is an input service for further supply of
works contract;
(d) Goods or services received by a taxable person for
construction of immovable property on his own account,
other than plant & machinery, even when used in course
or furtherance of business;
(e) Goods and/or services on which tax has been paid under
composition scheme;
(f) Goods or services or both received by a non-resident
taxable person except on goods imported by him;
(fa) w.e.f. 1st October 2023, 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.
(g) Goods and/or services used for private or personal
consumption, to the extent they are so consumed;
(h) Goods lost, stolen, destroyed, written off, gifted, or free
samples;
(i) Any tax paid due to short payment on account of fraud,
suppression, mis-declaration, seizure, and detention.

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Eligibility to avail ITC

As per Section 16(1) of the CGST Act, 2017 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.

Example 2
Mr. K of Kolkata sold taxable goods to Mr. C of Chennai. Mr. B being a buyer of goods is eligible to claim the
IGST as credit on purchases based on the tax invoice issued by Mr. K of Kolkata.
Step by step approach:
1. Mr K will upload the details of all tax invoices issued in GSTR-1.
2. The details with respect to sales to Mr C will auto populate/get reflected in GSTR 2B.
3. Mr C will then accept the details that the purchase has been made and reported by the seller correctly and
subsequently the tax on purchases will be credited to ‘Electronic Credit Ledger’ of Mr C and he can adjust
it against future output tax liability.
Utilization of ITC:

Inward Outward supply

Remarks
supply CGST SGST IGST
ITC of CGST Allowed Not allowed Allowed 1st CGST next IGST in that order
ITC of SGST Not allowed Allowed Allowed 1st SGST next IGST in that order
ITC of IGST Allowed Allowed Allowed W.e.f. 1-4-2019 section 49A of CGST Act, 2017
read with Rule 88A of CGST Rules, 2017:
IGST credit can be adjusted equally between
CGST and SGST or any other proportion at the
option of the assessee.

Amendments made by the IGST (Amendment) Act, 2018 – Effective from 01.02.2019
IGST not apportioned under sub-sections (1) and (2) of section 17 to be apportioned equally amongst
Central Government and State Government/Union Territories on ad hoc basis [New sub-section (2A)
inserted in section 17 of the IGST Act]
Section 17 of the IGST Act prescribes the provisions for such apportionment of IGST and settlement of funds
between the Central Government and the State Governments.
Sub-sections (1) and (2) of section 17 provides for apportionment of IGST between the Central Government and
State Governments/Union Territories in respect of those supplies where the input tax credit cannot be availed and
thus, the tax revenue finally accrues to the exchequer.
A new sub-section (2A) has been inserted in section 17 to provide that the amount of IGST not apportioned under
sub-section (1) and sub-section (2) may, for the time being, on the recommendations of the Council, be apportioned
at the rate of 50% to the Central Government and 50% to the State Governments or the Union territories, as the case
may be, on ad hoc basis and shall be adjusted against the amount apportioned under the said sub-sections. Thus,
essentially, the new sub-section (2A) provides for apportionment of IGST in respect of B2B supplies wherein input
tax credit has been taken by the recipients.

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ITC is an integration of Goods and Services

Since GST is charged on both goods and services, input tax credit can be availed on both goods and services
(except those which are on the exempted/negative list). Input tax credit is allowed on capital goods.

Example 3:

Note: Goods or services or both which are used or intended to be used in the course or furtherance of business
and the said amount shall be credited to the electronic credit ledger of such person.

Conditions for taking ITC

Section 16(1) of the CGST Act, 2017 Conditions for taking ITC:
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.
Notification No 11/2017-CT(R) dt 28.06.2017 is amended w.e.f. 20-10-2023:
Transport of passengers by any motor vehicle designed to carry passengers where the cost of fuel is included in
the consideration charged from the service recipient is taxable @ 5% [Sl no 8(vi), Heading 9964] on the condition
that ITC other than the ITC of input services in the same line of business has not been taken. [The said supply of
service is taxable @ 12% with availability of full ITC].
Renting of any motor vehicle designed to carry passengers where the cost of fuel is included in consideration
charged from the service recipient is taxable @ 5% on the condition that ITC other than the ITC of input services
in the same line of business has not been taken. [The said supply of service is taxable @ 12% with availability of
full ITC].
w.e.f. 20th October 2023, in the above two services a new condition is added that if tax is charged by the supplier
of input service in the same line of business at a rate higher than 5%, ITC in respect of such input service in the
same line of business shall not be taken in excess of 5% [vide Notification No 12/2023-CGST(R) dt 19.10.2023 &
15/2023-IGST(R) dt 19.10.2023].
lustration: ‘A’ engages ‘B’ for transport from New Delhi to Jaipur in a motor cab for ₹1000. ‘B’, for supplying
the said service, hires a motor cab with operator from ‘C’ for ₹800. ‘C’ charges ‘B’ CGST & SGST at the rate of

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12% (₹ 96). If ‘B’ charges ‘A’ CGST & SGST at the rate of 5%, he shall be entitled to take input tax credit on the
input service in the same line of business supplied by ‘C’ only to the extent of ₹ 40 (5% of Rs. 800) and not ₹ 96.
Question: Whether ‘same line of business’ in case of passenger transport service and renting of motor
vehicles includes leasing of motor vehicles without operators.
Answer: As per CBIC Circular No. 206/18/2023-GST dated 31st October 2023, Services of transport of
passengers by any motor vehicle (SAC 9964) and renting of motor vehicle designed to carry passengers with
operator (SAC 9966), where the cost of fuel is included in the consideration charged from the service recipient
attract GST at the rate of 5% with input tax credit of services in the same line of business.
Same line of business as stated in the notification No. 11/2017-Central Tax (Rate) means “service procured from
another service provider of transporting passengers in a motor vehicle or renting of a motor vehicle”.
It is hereby clarified that input services in the same line of business include transport of passengers (SAC 9964)
or renting of motor vehicle with operator (SAC 9966) and not leasing of motor vehicles without operator (SAC
9973) which attracts GST and/or compensation cess at the same rate as supply of motor vehicles by way of sale.
Section 16(2) of the CGST Act, 2017: 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;
(b) he has received the goods or services or both.
w.e.f. 1-2-2019 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.
(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:
Provided that where the goods against an invoice are received in lots or instalments, the registered person
shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than
the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along
with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice
by the supplier, an amount equal to the input tax credit availed by the recipient shall be (w.e.f. 1st October
2023) paid by hm along with interest payable under section 50), in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him
(w.e.f. 1st October 2023) to the supplier of the amount towards the value of supply of goods or services or
both along with tax payable thereon.
Section 16(3) of the CGST Act, 2017: 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,
the input tax credit on the said tax component shall not be allowed.

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Section 16(4) of the CGST Act, 2017: 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 due date of furnishing of the return
under section 39 for the month of September following the end of financial year to which such invoice or invoice
relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Simplified Approach:

Conditions for taking ITC by a Registered Person

Possession of tax paying

NO YES
document u/s 16(2)(a)

Goods or services or
NO YES
both received u/s 16(2)(b)

Tax actually paid to

NO YES
Govt. u/s 16(2)(c)

Filling of return (GSTR-

Input Tax Credit not allowed NO YES
2) u/s 16(2)(d)

Input Tax Credit (ITC) allowed

● Goods received in lots ITC available only on receipt of last lot/installment [1st proviso to Sec 16(2)].
● Payment for the invoice to be made within 180 days from the date of issue of invoice by the supplier
[2nd proviso to Sec 16(2)].

Amendment as per Finance Act, 2021 (w.e.f. 1-1-2022): In section 16 of the Central Goods and Services Tax Act,
in sub-section (2), after clause (a), the following clause shall be inserted, namely:– (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;
It means ITC claims will be allowed only when the details of such invoice or debit note have been furnished by
the supplier in his GSTR-1 and subsequently, it appears in GSTR-2A/2B. So, the taxpayers can no longer claim
5% provisional ITC under the CGST Rule 36(4) and ensure every ITC value claimed was reflected in GSTR-
2A/2B

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Accordingly, Rule 36(4) has been substituted to provide that with effect from 01.01.2022, a registered person
shall be able to avail ITC in respect of only those invoices or debit notes which have been furnished by the suppli-
er in the statement of outward supplies in FORM GSTR-1 or using the invoice furnishing facility and the details
of such invoices or debit notes have been communicated to him in FORM GSTR-2B under sub-rule (7) of rule
60 (Notification No. 40/2021 – Central Tax dt. 29th December, 2021)
W.e.f. 1-10-2022, new clause (ba) inserted in Section 16(2) of CGST Act, 2017:
“The details of input tax credit in respect of the said supply communicated to such registered person under sec-
tion 38 has not been restricted”.
As per this amended provision, the registered person would be eligible to claim the ITC only when the details of
invoices/debit notes made available to him electronically on the GSTN Portal are not restricted in the auto-gen-
erated statement referred to as GSTR-2B.
This means that details of invoices/debit note communicated to the taxpayer in GSTR-2B as per section 38,
should not be restricted from claiming ITC.
‘Communication of details of inward supplies and Input Tax Credit’:
As per provisions of section 38(2) notified vide notification 18/2022-Central Tax, dated 28-09-2022 effected
from 01-10-2022, the details furnished by the supplier in GSTR 1 shall be communicated to the taxpayer in an
auto-generated statement GSTR 2B. This statement shall consist of 2 parts.
One Part shall state eligible Input Tax Credit which the Recipient can avail and utilize.
The Second Part shall provide details of such supplies in respect of which Input Tax Credit cannot be availed by
the Recipient wholly or partly as may be prescribed.
The above section introduces a completely new mechanism under which the auto-generated GSTR 2B shall itself
decide and provide the list of Invoices or Debit notes on which ITC can be claimed by the taxpayer.
As a result recipient shall have not to do any work on to locate the supplier whose supply shall not be eligible for
the purpose of input tax credit as per section 38.
Question:
Whether it is mandatory to claim ITC as per GSTR-2B generated under Section 38?
Answer:
Yes. As per the newly inserted clause (ba) in section 16(2), it provides mandatory condition that ITC claimed by
recipient should not be restricted under section 38. Hence ITC restricted or in-eligible as per GSTR 2B cannot be
claimed as per clause (ba) of section 16(2).
New clause (ba) inserted in section 16(2) – Additional condition for claiming ITC by buyer that ITC can be
claimed only if that ITC has not been restricted in auto generated statement -GSTR-2B u/s 38 of CGST Act,
2017.
The Second Part shall provide details of such supplies in respect of which Input Tax Credit cannot be availed by
the Recipient wholly or partly as may be prescribed.
Restrictions imposed under section 38 of CGST Act, 2017 for which ITC can’t be availed are as follows:
1. Related to suppliers who have taken new registration for such period as may be prescribed.
2. Related to suppliers who have defaulted in payment of tax and default continues for such period as may be
prescribed.

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3. Related to suppliers who have declared output tax liability more in GSTR-1 but paid tax less in GSTR-3B.
4. ITC claimed more than ITC auto-populated in GSTR-2B
5. ITC claimed in violation of conditions prescribed in Section 49(12)- Maximum proportion of output tax
liability which may discharged through electronic credit ledger.
W.e.f. 01-10-2022, amendment in rule 36 (Documentary requirements and conditions for claiming input
tax credit) –
Pursuant to the amendment made in section 38 w.e.f. 01-10-2022, with regard to removal of Form GSTR-2 and
doing away with two-way communication process, rule 36 has been amended to remove the reference to Form
GSTR-2 therefrom - Rule 36(2).
Rule 36(4)(b), Further, it has been provided that the details of input tax credit in respect of invoices or debit notes
shall be communicated in Form GSTR-2B.

Quantum of credit [Section 16(1) of the CGST Act, 2017]

The entire credit on the input and capital goods allowed can be availed at the time of receipt of input and capital
goods. Thus, to this extent there is no difference between input and capital goods under GST Law.

Tax Invoice or debit note [Section 16(2)(a) of the CGST Act, 2017]
The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis
of any of the following documents (Rule 36(1) of the CGST Rules, 2017), namely,—
(a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section
31;
(b) an invoice issued under reverse charge;
(c) a debit note;
(d) a bill of entry
(e) an Input Service Distributor invoice or Input Service Distributor credit note.
All these documents are to be furnished at the time of filing form GSTR-2, in accordance with Rule 36(2) of the
CGST Rules, 2017.
As per Rule 36(3) of the CGST Rules, 2017, No input tax credit shall be availed by a registered person in respect
of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any
fraud, willful misstatement or suppression of facts.

Illustration 1
M/s. X Ltd. supplied taxable goods from the factory after manufacture in the month of May 2024 for sale to a
distributor for `8,00,000. M/s X Ltd has suppressed this transaction. However, he deposited the GST @12% on
these goods on 10-1-2025 against show cause notice issued under Section 74 (when there is fraud) of the CGST
Act, 2017 by the Central Tax Officer and passed the order accordingly.
Whether distributor namely recipient of these goods is eligible to take input tax credit.

Solution:
As per rule 36(3) of the CGST Rules, 2017, No credit on payment of tax due to fraud, willful-misstatement or
suppression of fact etc. shall be allowed.

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In the given case no input tax credit was available to registered person if the supplier has paid tax in pursuance of
order where any demand has been confirmed on account of any fraud, willful-misstatement or suppression of facts
and so on under Section 74 of the CGST Act, 2017.
Hence, input tax credit is not allowed to recipient of these goods (i.e. distributor in the given case).
Notification No. 39/2018-CT, dated 4-9-2018:
Input tax credit may be availed based on following particulars:
(i) Amount of tax charged
(ii) Description of goods or services
(iii) Total value of supply of goods or services or both
(iv) GSTIN of the supplier and recipient and
(v) Place of supply in case of inter-State supply,

ITC on receipt of goods or services [Section 16(2)(b) of the CGST Act, 2017]:
(a) No credit when tax paid on advance receipt:
As we are aware of that time of supply of goods (Section 12 of the CGST Act, 2017) or time of supply of
supply of service (Section 13 of the CGST Act, 2017) where time of supply is the date on which the supplier
receives the payment if the payment is received prior to raising of invoice/supply of goods or services
(except where supply of goods turnover does not exceed `150 lacs, in such case date of invoice namely
supply of goods is the time of supply).
GST paid by supplier on advance is not auto populated to the account of receipt of goods or services. The
recipient of goods or services is not entitled for credit of tax paid on advances by the supplier. Section 16(2)
(b) provides that the receiver should have received the goods or services for availment of credit. When the
payments are made on advance receipt of supplier, the recipient has not received the goods or services.
Therefore, he is not entitled for credit on input tax paid.
(b) Receipt of goods and services:
Registered person shall receive the goods or services and used or intended to be used in the course or
furtherance of business. In case of input or input services are not received, by the registered person, the
question of its use in the course or furtherance of business does not arise and hence, ITC not allowed.
In case goods received in instalment:

Illustration 2
M/s C Ltd Chennai procured goods 10,000 Kgs @ `100 per Kg., from M/s D Ltd of Delhi. These goods came to
M/s C Ltd of Chennai in the following manner:

Date of No. Kgs Normal loss in Abnormal loss No. Kgs

Date of receipt
dispatch dispatched transit kgs in transit Kgs received
10th Oct 2,000 15th Nov 2 Nil 1,998
2nd Nov 5,000 20th Nov 5 Nil 4,995
3rd Dec 3,000 1st Jan 1 20 2,979
Invoice shows 10,000 Kgs. and GST @18%.

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You are required to answer:

(a) M/s C Ltd can avail the proportionate credit on 15th Nov and 20th Nov.
(b) M/s C Ltd is eligible for input tax credit if so when.
(c) How much credit is allowed to M/s C Ltd.?
Solution:
(a) M/s C Ltd. cannot take proportionate credit on
the quantity received on 15th Nov and 20th Nov.
(b) M/s C Ltd is eligible to avail the input tax credit
on 1st Jan.
(c) Input tax credit allowed = `1,79,640/-
(10,000 Kgs × `100) × 18% × 9980 kgs/10,000 kgs.
Note:
(i) Goods received in lots ITC available only on receipt of last lot/instalment [1st proviso to Section 16(2)]
(ii) Entire input tax credit is allowed in case of transit loss (i.e. normal loss). Whereas input tax credit is not
allowed to the extent of transit loss (i.e. abnormal loss).
Loss of Inputs

LOSS OF INPUTS

PROCESS LOSS LOSS DURING TRANSIT

Normal loss Abnormal loss Normal loss Abnormal loss

ITC
ITC on
ITC NOT
inputs
ALLOWED ALLOWED
allowed

CCEv ANDHRA Bhuwalka Steel CARBORANDUM

PAPER MILL (2011) Industries Ltd. (2010) UNIVERSAL v CCE
(AP HC) (CESTAT) (2008) (CESTAT)

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Deemed receipt of goods [Explanation to Section 16(2)(b) of the CGST Act, 2017]
The explanation expands the meaning of receipt of goods to provide that it is not necessary that the goods are
physically received by the recipient. The recipient can issue directions to deliver the goods to third person.

Example 4
Goods sent to job worker from supplier on the directions of buyer (i.e. Bill To Ship).

Tax charged in respect of such supply has been actually paid to the Government [Section 16(2)(c) of the
CGST Act, 2017 subject to the provisions of Section 41 of the CGST Act, 2017]
It is now specially provided that the supplier has actually paid to the credit of appropriate Govt. the tax amount
on the supply made by him.
The liability of payment of tax will be computed by the common portal based on the information of outward
supply declared by the supplier goods or services or by recipient himself. The liability so computed as per GSTR-
3 will automatically reflected in common portal in tax liability register of taxpayer in Part 1 of the GST-PMT-1.
The taxpayer can make the payment of such liability either by using the balance available in the credit ledger or
cash ledger. The payment is required to be made by 20th of following month.
It means supplier will give the credit to recipient only when tax paid to the Govt.

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Illustration 3
M/s. X Ltd. supplied taxable goods from the factory after manufacture in the month of October
20XX for sale to a distributor for `8,00,000. However, he deposited the GST @12% on these goods on
10-1-20XX against show cause notice issued under Section 74 (when there is fraud) of the CGST Act, 2017 by the
Central Tax Officer and passed the order accordingly.
During the month of December 20XX, M/s X Ltd received goods worth `5,00,000 by paying GST 12%.
(a) Find the Net GST deposited by M/s X Ltd. into the Government Account on 10th January 20XX.
(b) Your answer is different if M/s X Ltd. paid GST 12% against show cause notice issued under section 73
(when there is no fraud).
(c) Rework, M/s X Ltd. paid output tax by following self-assessment (i.e. when there is no show-cause notice
issued)
Note: Ignore penalty and interest.

Solution:
(a) Statement showing Net GST deposited by M/s X Ltd. (where there is fraud Section 74 of the CGST Act):

Particulars CGST 6% SGST 6% Remarks

Output tax 48,000 48,000 (`8 lac × 6%)
Less: ITC Not Not GST @12% paid on `5 lac is not allowed as ITC.
(Since, it is paid against the allowed allowed
order where there is fraud)
Net GST liability 48,000 48,000

(b) Our answer remains same as stated in (a) above.

(c) Statement showing Net GST deposited by M/s X Ltd. (where there is no show cause notice issued):
Particulars CGST 6% SGST 6% Remarks
Output tax 48,000 48,000 (`8 lac × 6%)
Less: ITC (30,000) (30,000) GST @12% paid on `5 lac is allowed as ITC.
Net GST deposited 18,000 18,000
Return under Section 39 of the CGST Act, 2017 must submit to avail the credit Section 16(2)(d) of the CGST
Act, 2017
Payment to supplier of goods or services or both [2nd Proviso to Section 16(2) of the CGST Act, 2017]
The recipient shall pay to the supplier of goods or services or both, other than the supplies on which tax is
payable on reverse charge basis, the value along with the tax payable thereon within a period of 180 days from the
date of issue of invoice by the supplier.
It means recipient of goods/services should pay to the supplier (Including Taxes), within 180 days from the date
of issue of invoice, else the Input Credit shall be reversed
Rule 37(1) has been amended retrospectively w.e.f. 01-10-2022 to provide for reversal of an amount of ITC
proportionate to the amount not paid by the recipient to the supplier vis-à-vis the invoice value.

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Only proportionate reversal of ITC required in case of part payment of the value of supply plus tax in respect of
an inward supply within 180 days (vide Notification No, 26/2022 dt. 26.12.2022):
As per Rule 37(1) of CGST Rules, 2017, 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 the tax period immediately following the period of one hundred and eighty days
from the date of the issue of the invoice:
Rule 37A. Reversal of input tax credit in the case of non-payment of tax by the supplier and re-availment
thereof.-
Newly inserted rule 37A, Where input tax credit has been availed by a registered person in the return in FORM
GSTR-3B for a tax period in respect of such invoice or debit note, the details of which have been furnished by
the supplier in the statement of outward supplies in FORM GSTR-1 or using the invoice furnishing facility, but
the return in FORM GSTR-3B for the tax period corresponding to the said statement of outward supplies has not
been furnished by such supplier till the 30th day of September following the end of financial year in which the
input tax credit in respect of such invoice or debit note has been availed, the said amount of input tax credit shall
be reversed by the said registered person, while furnishing a return in FORM GSTR-3B on or before the 30th day
of November following the end of such financial year:
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 person along with interest there-
on 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 (Notification No, 26/2022 CT dt 26.12.2022).
For example, M/s X Ltd supplied goods in the month of December 2023; the same shown in GSTR-1 return
submitted by supplier on 11th January 2024. The recipient of these gods availed Input Tax Credit in the return
in Form GSTR-3B submitted by him on 20th January 2024. But the return in Form GSTR-3B for the tax period
namely for December 2023 has not been furnished by M/s X Ltd (namely supplier) till the 30th day of September
2024, the said amount of input tax credit shall be reversed by the said recipient, while furnishing a return in Form
GSTR-3B on or before the 30th day of November following the end of such financial year (Rule 37A). Recipient
who fail to comply with rule 37A will be issued a GST demand notice demanding tax payment and interest to the
extent of excess ITC claimed. The interest is charged as per section 50 of the CGST Act, at 24% p.a. for excess
ITC claimed and utilized from the date of such utilisation until the date of payment.
It means the credit will be denied even when the recipient has paid tax to the supplier and supplier has failed to
pay the tax to the Government.
Notification No. 26/2018-CT, dated 13-6-2018:
Reversal of input tax credit in case of non-payment of consideration is not required (i.e. Deemed to have
been paid): Notification No. 26/2018-CT, dated 13-6-2018:
Value of supplies on account of any amount added in accordance with the provisions of section 15(2)(b) of CGST
Act, 2017 shall be deemed to have been paid for the purposes of the second proviso to section 16(2) of the CGST
Act, 2017.
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Illustration 4
M/s A Ltd of Aluva (Kerala) receives the input service from M/s B Ltd of Bengaluru who raises the invoice for
supply of service on 17th December, 2023 and availed the credit on the same date.
Find the time limit within which M/s A Ltd is required to pay the bill amount inclusive of tax to supplier of
service.
Also explain consequence if payment is not made within the stipulated time period as mentioned in 2nd proviso
to section 16(2) of the CGST Act, 2017.
Re-credit is allowed if the payment is made to the supplier of service after expiry of time period as mentioned in
2nd proviso to section 16(2) of the CGST Act, 2017.

Solution:
In the given case M/s A Ltd must pay to M/s B Ltd the value of services and GST payable thereon by 14th June
2024.
Working note:

From To No. of days

18th Dec 2023 14th June 2024 180
In case M/s A Ltd does not pay by 14th June 2024, the credit availed by it will be added to his output liability.
The amount will be added to their output tax liability with interest.
Note: February 2024 will consist of 29 days instead of the usual 28 days.
The 3rd proviso to Section 16(2) of the CGST Act, 2017, provides that the amount so reversed can be again taken
as a credit when the payment for receipt goods or services has been made to the supplier of goods or services.
As per Rule 37(4) of the CGST Rules, 2017, the time limit specified in sub-section (4) of section 16 shall not
apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this
Chapter that had been reversed earlier.

Illustration 5
M/s X Ltd. has establishment in Chennai, and establishment in Hyderabad. Supply of goods (open market value
of `5,00,000) made by M/s X Ltd. Chennai to M/s X Ltd. Hyderabad. M/s X Ltd. Chennai paid IGST of `60,000.
Accordingly, M/s X Ltd. Hyderabad availed the input tax credit of `60,000. 2nd Proviso to Section 16(2) of CGST
Act, 2017 is applicable in the given case (i.e. to revere the credit where payment is not made within 180 days from
the date of invoice). Advise.

Solution:
As per proviso to rule 37(1) of the CGST Rules, 2017, the value of supplies made without consideration as
specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to
sub-section (2) of section 16.
In the given case M/s X Ltd. Hyderabad is not required to reverse the input tax credit. Since, as per Section 25(4)
of the CGST Act, 2017 two establishments are considered as establishment of distinct person and accordingly,
supply made by one establishment to another establishment will be covered under Schedule I without consideration.
W.e.f 01-10-2022, Amendment in rule 37, Reversal of input tax credit in case of non-payment of consideration
within 180 days: vide Notification No. 19/2022-CT, dated 28.09.2022) whereby sub-rule (1) and (2) have been

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substituted [and sub-rule (3) has been omitted] as below—

Rule 37 (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 along with the tax payable thereon, within the time limit specified
in the second proviso to sub-section(2) of section 16, shall pay an amount equal to the input tax credit availed in
respect of such supply 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 (one hundred and eighty) days from the date
of the issue of the invoice:
Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be
deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16:
Provided further that the value of supplies on account of any amount added in accordance with the provisions of
clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso
to sub-section (2) of section 16;
Rule 37(2) Where the said registered person subsequently makes the payment of the amount towards the value
of such supply along with tax payable thereon to the supplier thereof, he shall be entitled to re-avail the input tax
credit referred to in sub-rule (1).
Rule 37(3) OMITTED. Sub-rule (3) providing for payment of interest has been omitted since the same as now
been incorporated in sub-rule (1).
Rule 37(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of
any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed
earlier.
Example: if 180 days expires on 06.10.2023, the tax period following the said period is November 2023 and
hence the reversal should be made in the GSTR-3B return for the month of November 2023, which would be filed
on 20th December 2023. But nothing prevents the taxpayer to reverse the same in the GSTR-3B return for the
month of October 2023 itself, which would be filed on 20th November 2023, so that the interest liability could be
reduced further.
Depreciation on GST component of the Capital Goods under Income Tax Act, 1961 under section 16(3)
of the CGST Act, 2017:
Taxable person shall not claim depreciation on tax component of the cost of capital goods under the provisions
of the Income Tax Act, 1961. If the depreciation under section 32 of the Income Tax Act, 1961 is claimed on the tax
component by capitalizing with the cost of capital goods, input tax credit shall not be allowed.

Example 5
M/s Jay Ltd. being a manufacturer purchased machinery worth `10,00,000 on which GST `1,80,000 is paid. The
manufacturer has following two options:
Option 1: claim depreciation on the entire value of machinery inclusive of GST (i.e. `11,80,000) by forgoing
ITC on capital goods.
Option 2: claim depreciation on the cost of machine (i.e. `10,00,000) and avail the ITC of GST portion
(i.e. 1,80,000).
Time limit to avail the input tax credit Section 16(4) of the CGST Act, 2017
W.e.f. 01-10-2022, 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 30th November following the end of financial year to

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which such invoice or debit note pertains (prior to 01-10-2022 due date of furnishing of the return under section 39
for the month of September following the end of financial year to which such invoice or invoice relating to such
debit note pertains) or furnishing of the relevant annual return, whichever is earlier.
The words were “invoice relating to such” has been omitted w.e.f. 1-1-2021) It means the recipient can avail ITC
of GST paid through debit note, even if the supply pertains to previous financial years.
The limit to avail the input tax credit:
(a) 30th November of the following financial year
OR
(b) Filling of annual return
whichever is earlier
Similarly. W.e.f 01-10-2022, the time limit of 20th October prescribed in section 34 for declaring detail of a
Credit Note pertaining to any supply made in preceding FY is also revised and allowed upto 30th November or
furnishing of Annual Return, whichever is earlier.
The time limit under section 16(4) does not apply to claim for re-availing of credit that had been reversed earlier.

5 4 5

5 4 5

As per the amended provision, date of debit note and date of underlying invoice have been delinked. Thus, debit
note in respect of an invoice can be raised even after 30th November following end of financial year to which the
invoice pertains.

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Circular No. 211/5/2024-GST dated 26 June 2024

Clarification regarding the time limit under section 16(4) of the CGST Act for RCM supplies received from
unregistered persons:
Section 16(4) of the CGST Act links the time limit for ITC availability with the financial year (FY) to which the
invoice or debit note pertains.
This circular clarifies that in case the supplies on which tax is paid by a recipient under RCM are received from
unregistered suppliers and the invoice is issued by recipient as per section 31(3)(f) of the CGST Act, the relevant
FY for the calculation of time limit for availing ITC will be the FY in which self-invoice has been issued by the
recipient, as per section 16(4) of the CGST Act. This is subject to the fulfilment of other conditions and restrictions
of sections 16 and 17 of the CGST Act.
Additionally, when the recipient issues invoice after the time of supply and pays tax thereon, it will be required to
pay interest and may also be liable to pay a penalty according to section 122 of the CGST Act.
Example: Time of Supply and ITC for RCM on GTA Services
Scenario
• Supplier: M/s Hanu & Co (unregistered person, GTA service provider).
• Recipient: M/s Bhola Ltd. (registered person under GST).
• Date of Service Provided: April 1, 2019.
• Freight Amount: ₹2,00,000.
• Applicable GST: 5% (under reverse charge mechanism).
Step 1: Time of Supply Under Section 13(3)
As per Section 13(3) of the CGST Act, the time of supply for services under RCM is determined as the earlier of:
1. Date of payment: April 10, 2019.
2. 60 days from the date of invoice: If no payment date is provided, the time of supply would be June 1, 2019.
Here, the time of supply is April 10, 2019, based on the date of payment. Due date to pay is 20th May 2019.
Step 2: Tax Payment and Self-Invoice Issuance by M/s Bhola Ltd.
• Delay in Compliance:
• M/s Bhola Ltd. issued the self-invoice only on July 12, 2024, after a significant delay.
• GST under RCM was paid on August 20, 2024.
• Interest and Penalty:
• As per Section 50(1) of the CGST Act:
• Interest @18% p.a. is payable on the delayed tax payment from 21st May, 2019, until the payment date
(August 20, 2024).
• Penalty of ₹25,000 under Section 122(3)(e) may also be levied for the delayed payment of tax. An equal
amount of penalty under SGST Act will be levied.

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Step 3: Relevant Financial Year for ITC

As per Section 16(4) and the circular:
• The relevant FY for ITC purposes is the year in which the self-invoice was issued (July 12, 2024).
• Therefore, the relevant FY is 2024-25.
Step 4: ITC Time Limit
Under Section 16(4), ITC can be availed until:
1. 30th November of the next FY (FY 2025-26), or
2. The date of filing the annual return for FY 2024-25 (i.e. last date is 31st December 2025), whichever is earlier.
Thus, M/s Bhola Ltd. can claim ITC until:
• 30th November 2025, or
• Annual return filing date for FY 2024-25, whichever is earlier.
Outcome
1. GST Payable:
• GST on ₹2,00,000 at 5% = ₹10,000.
• This was paid on August 20, 2024 under RCM.
2. Interest:
• Interest is payable on ₹10,000 from 21st May, 2019, to August 20, 2024.
3. Penalty:
• A penalty under Section 122(3)(e) may be applicable due to the delay in issuing the self-invoice and
paying GST.
4. ITC Claim:
• M/s Bhola Ltd. can claim ITC for the ₹10,000 GST paid under RCM in the 2024-25 FY, as the self-invoice
was issued in July 2024.
Amendments relating to Tax Invoice:
Invoice by a person liable to pay tax under reverse charge [Section 31(3)(f) of the CGST Act, 2017]
a registered person who is liable to pay tax under sub-section (3) or subsection (4) of section 9 shall [w.e.f. 1-11-
2024, F.A. 2024 dated 16-8-2024, “within the period as may be prescribed” shall be inserted] issue an invoice in
respect of goods or services or both received by him from the supplier who is not registered on the date of receipt
of goods or services or both;
Invoice by a person liable to pay tax under reverse charge [Section 31(3)(g) of the CGST Act, 2017]
a registered person who is liable to pay tax under sub-section (3) or subsection (4) of section 9 shall issue a payment
voucher at the time of making payment to the supplier.
w.e.f. 1-11-2024, F.A. 2024, dated 16-8-2024 the following Explanation shall be inserted, namely:–
[Explanation – For the purposes of clause (f), the expression “supplier who is not registered” shall include the
supplier who is registered solely for the purpose of deduction of tax under section 51.]

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As per Rule 36(3) of the CGST Rules, 2017, No input tax credit shall be availed by a registered person in respect
of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any
fraud, wilful misstatement or suppression of facts [under section 74, inserted w.e.f. 8-10-2024, Notification No.
20/2024 CG dt. 8-10-2024].
Time limit for issuance of self-invoice notified to be 30 days from date of receipt of supply – Insertion of Rule 47A
(w.e.f. 1-11-2024).:
Notwithstanding anything contained in rule 47, where an invoice referred to in rule 46 is required to be issued
under clause (f) of sub-section (3) of section 31 by a registered person, who is liable to pay tax under sub-section
(3) or sub-section (4) of section 9, he shall issue the said invoice within a period of thirty days from the date of
receipt of the said supply of goods or services, or both, as the case may be.”.
Also, there cannot be any consolidation of invoices from multiple suppliers. For each relevant supply, a separate
self-invoice is to be issued.
Time of supply: In respect of GST payable under Reverse Charge Mechanism(RCM), separate time of supply
(ToS) was introduced for supplies received from Registered and Un-registered suppliers through Finance Act (no.
2) of 2024.
For supplies received from unregistered suppliers, the time of supply was prescribed to be earlier of:
a) The date of payment as entered in the books of account of the recipient or the date on which the payment is
debited in his bank account, whichever is earlier; or
b) the date of issue of invoice by the recipient, in cases where invoice is to be issued by the recipient.
Illustration 6:
M/s X Ltd. purchased input for `2,00,000 vide Tax Invoice No. 12, dated 1st December 2024. M/s X Ltd. has
submitted annual return for the financial year 2024-25 on 15th September 2025. Find the time limit within which
input tax credit can be availed on input by X Ltd.
M/s X Ltd. wants to take input tax credit on such input on 30th September, 2024, advise.
Solution:
Time limit to avail the credit is earlier of the following:
(a) 30th November 2025
Or
(b) 15th September 2025
Therefore, M/s X Ltd can’t avail the input tax credit on 30th September, 2025.
Illustration 7
M/s X Ltd. delivered a machine to M/s Y Ltd. in January 2025 under Invoice No. 180, dated 21st January for
`5,00,000 plus GST, and undertook trial runs and calibration of the same machine as per the requirements of M/s
Y Ltd. The amount chargeable for the past delivery activities were covered in a debit note raised in May 2025 for
`1,25,000 plus GST. M/s Y Ltd filed its annual return 31st December 2025 for the financial year 2024-25 and 31st
December 2026 for the financial year 2025-26.
Find the time limit under section 16(4) of the CGST Act, 2017 within which input tax credit can be availed by
M/s Y Ltd.
Solution:
Time limit to avail the ITC on machine (vide Invoice No. 180, dated 21.01.2025) is 30th November 2025.

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Time limit to avail the ITC on debit note is 30th November 2026.

Note: As per Finance Act, 2020, the words were “invoice relating to such” has been omitted.
The effect of the amendment is that date of debit note, and date of underlying invoice have been delinked. Thus,
debit note in respect of an invoice can be raised even after 30th September following end of financial year to
which the invoice pertains.
It means the recipient can avail ITC of GST paid through debit note, even if the supply pertains to previous
financial years.
Date of issuance of debit note to determine the relevant financial year for the purpose of section 16(4) of the
CGST Act, 2017:
(Circular No. 160/16/2021 GST dt. 20.09.2021)
For example, a debit note dated 17th July 2024 is issued in respect of the original invoice dated 16th March 2025.
As the invoice pertains to Financial Year 2024-25, the relevant financial year for a availment of ITC in respect of
the said invoice in terms of section 16(4) shall be Financial Year 2024-25.
However, as the debit note has been issued in Financial Year 2025-26, the relevant financial year for availment
of ITC in respect of the said debit note shall be Financial Year 2025-26 in terms of amended provision of section
16(4) of the CGST Act, 2017.
Section 16(5) of CGST Act, 2017 [inserted by F.A. 2024, dated 16-8-2024, w.e.f 27-9-2024, vide SO 4253€, dt.
W.r.e.f 01-07-2017]:
Amendment of section 16. - In section 16 of the Central Goods and Services Tax Act, with effect from the 1st
day of July, 2017, after subsection (4), the following section 16(5) shall be inserted, namely:–– “Notwithstanding
anything contained in sub-section (4), in respect of an invoice or debit note for supply of goods or services or both
pertaining to the Financial Years 2017- 18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled
to take input tax credit in any return under section 39 which is filed upto the thirtieth day of November, 2021.
Example: A registered taxpayer, ABC Ltd, received a service invoice dated 15th March 2021 for FY 2020–21 but
failed to claim ITC in the returns filed within the original deadlines under Section 16(4).
• The taxpayer later claimed this ITC in the September 2021 return, filed on 20th October 2021.
Issue Before Amendment:
• Tax authorities could disallow the ITC claim, citing the time limit under Section 16(4).
Impact of Section 16(5):
• The ITC claim by ABC Ltd is now valid because it was claimed before 30th November 2021, even if it
exceeded the original time limit under Section 16(4).
Section 16(6) of CGST Act, 2017 [inserted by F.A. 2024, dated 16-8-2024, w.e.f 27-9-2024, vide SO 4253€, dt.
W.r.e.f 01-07-2017]:
Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of
registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate
Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit
note was not restricted under sub-section (4) on the date of order of cancellation of registration, the said person
shall be entitled to take the input tax credit in respect of such invoice or debit note for supply of goods or services
or both, in a return under section 39,––

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(i) filed upto thirtieth day of November following the financial year to which such invoice or debit note pertains
or furnishing of the relevant annual return, whichever is earlier; or
(ii) for the period from the date of cancellation of registration or the effective date of cancellation of registration,
as the case may be, till the date of order of revocation of cancellation of registration, where such return is filed
within thirty days from the date of order of revocation of cancellation of registration,
whichever is later.”.
Example 1: Revocation by the Tax Authorities
• Scenario:
• A taxpayer, XYZ Ltd., had its GST registration cancelled on 15th March 2024 for non-filing of returns.
• The registration was reinstated on 1st August 2024 upon filing an application for revocation under Section
30.
• XYZ Ltd. has invoices from February 2024 to July 2024 for which ITC was not claimed.
• Entitlement Under Section 16(6):
• XYZ Ltd. can claim ITC for:
1. Invoices dated before the cancellation (February 2024):
These invoices belong to FY 2023–24, so ITC can be claimed in the return filed up to 30th November
2024 or with the relevant annual return for FY 2023–24, whichever is earlier.
2. Invoices during the cancellation period (March 2024 to July 2024):
ITC for these invoices can be claimed if XYZ Ltd. files the return for this period within 30 days of the
revocation order, i.e., by 31st August 2024.
3. Whichever Is Later Rule:
The later date between 30th November 2024 and 31st August 2024 applies. Therefore, ITC for all
invoices (pre-cancellation and cancellation period) can be claimed up to 30th November 2024.
Example 2: Revocation by Court Order
• Scenario:
• A taxpayer, ABC Pvt. Ltd., had its GST registration cancelled effective 1st July 2023 due to tax arrears.
• On 15th April 2025, the Appellate Tribunal revoked the cancellation and reinstated the registration
retroactively.
• ABC Pvt. Ltd. has invoices from June 2023 to March 2024 for which ITC was not availed.
• Entitlement Under Section 16(6):
• ABC Pvt. Ltd. can claim ITC for:
1. Invoices dated before the cancellation (June 2023):
These invoices belong to FY 2023–24, so ITC can be claimed in the return filed up to 30th November
2024 or with the relevant annual return for FY 2023–24, whichever is earlier.
2. Invoices during the cancellation period (July 2023 to March 2024):

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ITC for these invoices can be claimed if ABC Pvt. Ltd. files the return for this period within 30 days
of the Tribunal’s order, i.e., by 15th May 2025.
3. Whichever Is Later Rule:
The later date between 30th November 2024 (pre-cancellation timeline) and 15th May 2025 (30 days
from the revocation order) applies. Therefore, ITC for all invoices (pre-cancellation and cancellation
period) can be claimed up to 15th May 2025.
Notification No. 22/2024-Central Tax dated 8th October 2024: Special procedure for rectification of certain
specified orders issued under sections 73, 74, 107 or 108 of CGST Act:
This notification provides a streamlined rectification process for addressing cases where the ITC, initially
disallowed, is now permissible under the law, allowing taxpayers to avoid unnecessary litigation.
Process Summary:
Applicability: The procedure applies to registered persons against whom an order has been issued confirming a
demand for wrongful availment of input tax credit (ITC) in violation of Section 16(4). In other words, case where
ITC initially disallowed, is now available under Section 16(5) or Section 16(6), and the person has not filed an
appeal against the original order.
Filing of Application: The registered person must file an application for rectification of the order electronically
on the common portal. Such application for rectification is to be filed within six months from the date of the
notification, and the officer must issue a rectified order within three months from the date of the application. Along
with the application, the person must upload information in the prescribed Annexure A format.
Summary of Rectified Order: Once the rectification is made, the authority must upload a summary of the
rectified order electronically in the relevant forms based on the section under which the original order was issued.
Opportunity for personal hearing: If the rectification process adversely affects the registered person, the
principles of natural justice must be followed, ensuring that the person is provided a fair opportunity to be heard
before any adverse decision is made.

Extension of ITC Claim Deadlines under Sections 16(5) and 16(6) of the CGST Act: Clarification of GST
Circular No. 237/31/2024, dated 15th October 2024:
Sections 16(5) and 16(6) of the CGST Act extend the time limits for claiming ITC retrospectively from July 1,
2017. This amendment offers relief to taxpayers who were unable to claim ITC within the prescribed period under

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Section 16(4). The retrospective application, however, has raised concerns about how past cases—where ITC
claims were disallowed—should be handled.
To address these concerns, the GST Circular No. 237/31/2024 lays out specific instructions for various scenarios,
ensuring that taxpayers can claim ITC for earlier periods without facing penalties for having missed the original
deadlines.
Key Clarifications for Handling Past ITC Cases
The GST Circular No. 237/31/2024 provides clarity on how authorities and taxpayers should approach cases
involving incorrect ITC availment due to non-compliance with Section 16(4). The guidance applies to different
stages of tax proceedings, such as investigations, demand notices, and appeals.
Cases Without Demand Notices
In situations where proceedings for wrong ITC claims were initiated but no formal demand notice was issued
under Sections 73 or 74 of the CGST Act, tax authorities must now consider the amended Sections 16(5) and
16(6). This allows taxpayers to benefit from the extended period for claiming ITC. Proper officers are required to
take appropriate action under these provisions, even if informal documents like FORM DRC-01A were previously
issued.
Cases with Demand Notices Issued but No Final Order
For cases where demand notices were issued but no final order was passed by the adjudicating authority, retrospective
amendments to Sections 16(5) and 16(6) should be taken into account when issuing the final order. This will allow
taxpayers to claim ITC, provided their case qualifies under the new provisions.
Appeals in Progress
In cases where orders have already been passed under Sections 73 or 74 and an appeal has been filed under Section
107, but no appellate order has been issued, the appellate authority must now consider the retrospective extension
of ITC claims. This ensures that taxpayers who filed appeals due to denied ITC claims are treated fairly under the
new legal framework.
Revisional Proceedings Pending
If revisional proceedings were initiated under Section 108 but no final order has been issued, the Revisional
Authority is required to factor in the amendments. The revised provisions should guide the decision, ensuring that
taxpayers are allowed to rectify their claims where applicable.
Final Orders with No Appeal Filed
Where final orders have already been passed, and either no GST appeal was filed, or no appeal is pending with the
Appellate Tribunal, taxpayers can still apply for rectification under the special procedure laid out in Notification
No. 22/2024 within 6 months. This must be done within six months of the notification date to rectify any past
discrepancies involving ITC claims.
Special Procedure for Rectification of ITC Claims
For taxpayers whose ITC claims were denied due to violations of Section 16(4), but are now eligible under the
retrospective amendments, the CBIC has provided a specific rectification process. Here are the key steps:
 Filing Period: Taxpayers must file for rectification within six months from the date of the notification issued
on October 8, 2024.
 Application Submission: Applications can be filed electronically through the GST portal. Taxpayers need to
submit relevant details, including Annexure A, to rectify past ITC claims.

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 Order Processing: The proper officer who issued the original order will handle the rectification and is required
to issue a new order within three months of the application.
 Rectified Orders: Summaries for rectified orders will be uploaded through the appropriate forms—FORM
DRC-08 for cases under Sections 73 or 74, and FORM GST APL-04 for cases under Sections 107 or 108.
 Adverse Effect of Rectification: If rectification adversely affects the applicant, the principle of natural justice
will apply. This means before passing the adverse order the proper office will give the opportunity to be heard
to taxpayer.
 Appeal Rights: If the rectified order results in adverse outcomes for the taxpayer, they have the right to appeal
under Sections 107 or 112 of the CGST Act.
 No refund: No refund will be granted for taxes already paid of ITC reversed, even if the ITC is now eligible
due to the retrospective amendments in Section 16(5) and 16(6).
Limitations of the Rectification Process
It’s important to note that the special rectification process only applies to cases where ITC was denied due to
violations of Section 16(4). Taxpayers whose cases don’t involve such contraventions cannot benefit from the
special procedure.
Additionally, no refunds will be provided for taxes already paid or ITC that was reversed, even if the ITC is now
eligible under the retrospective amendments.
Common inputs and input services for taxable and exempted supplies [Section 17 of the CGST Act, 2017]
Section 17(1) of the CGST Act, 2017 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.
Section 17(2) of the CGST Act, 2017 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.
Section 17(3) of the CGST Act, 2017 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.

w.e.f. 1-2-2019
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 (w.e.f. 1st October 2023),
(i) the value of activities or transactions specified in paragraph 5 of the said Schedule; and
(ii) the value of such activities or transactions as may be prescribed in respect of clause (a) of paragraph 8 of the
said Schedule.

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Insertion of new Explanation 3 to Rule 42 and 43 (w.e.f. 01-10-2023):

The value of activities or transactions mentioned in entry 8(a) of Schedule III of the GST Act which is
required to be

included in the value of exempt supplies in terms of clause (b) of the Explanation to section 17(3) of the Act
shall be the value of supply of goods from the Duty Free Shops located at the arrival terminal in international
airports to the incoming passengers.

Manner of determination of input tax credit in respect of inputs or input services and reversal thereof
[Rule 42(1) of the CGST Rules, 2017]

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,—

Step 1: Calculate common input tax credit on inputs and input services which are used to supply taxable
as well as exempted output supplies:
Value in
Particulars CGST Rules, 2017
(`)
Total ITC on inputs and input services Xxx As per rule 42(1)(a)
Less: ITC on supplies exclusively used for the purpose other than business (xx) As per rule 42(1)(b)
Less: ITC on supplies exclusively used for providing exempted supplies (xx) As per rule 42(1)(c)
Less: ITC not available under section 17(5) of the CGST Act, 2017 (xx) As per rule 42(1)(d)
Input tax credit which are used to supply taxable as well as exempted Xxx As per rule 42(1)(e)
output supplies
Less: ITC on supplies used exclusively for taxable supply including Zero (xx) As per rule 42(1)(f)
rated supply (i.e. ITC on normal supplies)
Common ITC, which are used to supply taxable as well as exempted Xx As per rule 42(1)(h)
output supplies (denoted as “C2”)

Note: As per Rule 42(1)(g) of the CGST Rules, 2017, information relating to Rule 42(1)(b), (c), (d) and (f) shall
be determined and declared by the registered person at the invoice level in FORM GSTR-2;
Step 2: Amount of reversal of input tax credit attributable towards Exempt supplies rule 42(1)(i) of the
CGST Rules, 2017 (denoted as “D1”):

Exempted supplies during the tax period (‘E’) Common ITC, which are used to supply
= ×
Total turnover in the State of the registered taxable as well as exempted, output
person during the tax period (‘F’) supplies

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Provided that where the registered person does not have any turnover during the said tax period or the aforesaid
information is not available, the value of ‘E/F’ shall be calculated by taking values of ‘E’ and ‘F’ of the last tax
period for which the details of such turnover are available, previous to the month during which the said value of
‘E/F’ is to be calculated;
The ITC so availed by the recipient of deemed export supplies would not be subjected to provisions of Section
17 of the CGST Act, 2017 (vide CBIC Circular No. 172/04/2022-GST, dated 6th July, 2022).
Explanation:
For the purposes of this clause, it is hereby clarified that the aggregate value of exempt supplies and the total
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the
Constitution and entry 51 and 54 of List II of the said Schedule;
Notification No. 55/2017-Central Tax, dated 15th November 2017, w.e.f. 15th November, 2017:
An explanation has been inserted after sub-rule (2) in rule 43 for the purposes of rule 42 and this rule that the
aggregate value of exempt supplies shall exclude the value of supply of services having place of supply in Nepal
or Bhutan, against payment in Indian Rupees.
Notification No. 3/2018-Central Tax, dated 23rd January 2018:
For the purposes of rule 42 and this rule, it is hereby clarified that the aggregate value of exempt supplies shall
exclude:—
(a) the value of services by way of accepting deposits, extending loans or advances in so far as the consideration
is represented by way of interest or discount, except in case of a banking company or a financial institution
including a non-banking financial company, engaged in supplying services by way of accepting deposits,
extending loans or advances; and
(b) the value of supply of services by way of transportation of goods by a vessel from the customs station of
clearance in India to a place outside India.
Tax period
As per section 2(106) of the CGST Act, 2017 tax period means for the purpose for which return is required to
be furnished. As per section 39 return is required to be furnished on monthly basis by the registered person except
the person opting for composition scheme or persons eligible to file return quarterly (other than composition levy
assessees) based on their aggregate turnover not exceeds `150 lacs.
This rule is not applicable to persons opting for composition scheme.
Computing proportionate amount attributable to use for non-business purposes (i.e. Personal purpose)
[Rule 42(1)(j) of the CGST Act, 2017]
The amount of credit attributable to non-business purposes if common inputs and input services are used partly
for business and partly for non-business purposes, be denoted as ‘D2’, and shall be equal to five per cent of C2; and
Common ITC, which are used to supply taxable as well as exempted xx As per rule 42(1)(h)
output supplies (denoted as “C2”)
Thus, if input or input services have been used for the purpose of non-business, as per rule 42(1)(j) of the CGST
Rules, 2017 credit of 5% of “C2” will be required to be reversed. It means the same should be deducting from input
tax credit on input or input services exclusively used for taxable supply in the electronic credit ledger.
Quantum of eligible ITC [Rule 42(1)(k) of the CGST Act, 2017]
The remainder of the common credit shall be the eligible input tax credit attributed to the purposes of business
and for effecting supplies other than exempted supplies but including zero rated supplies and shall be denoted as
‘C3’, where,—
C3 = C2 – (D1+D2)
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Indirect Tax Laws and Practice

Eligible ITC to be separately computed for different taxes [Rule 42(1)(l) of the CGST Rules, 2017]
That “C3” shall be computed separately for CGST, SGST, UTGST and IGST.
Added to the output tax liability Rule 42(1)(m) of the CGST Rules, 2017:
Person shall compute D1 and D2 (i.e. ineligible credit in addition to ineligible credit at invoice level and add
that amount to the output tax liability. This will be added on monthly basis and the registered person should pay
the amount.
Adjustment at the year end [Rule 42(2) of the CGST Rules, 2017]
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—
(a) where the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’ exceeds the aggregate of
the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’, such excess shall be added to the
output tax liability of the registered person in the month not later than the month of September following the
end of the financial year to which such credit relates and the said person shall be liable to pay interest on the
said excess amount at the rate specified in sub-section (1) of section 50 for the period starting from the first
day of April of the succeeding financial year till the date of payment; or
(b) where the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’ exceeds the
aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’, such excess amount shall be claimed
as credit by the registered person in his return for a month not later than the month of September following
the end of the financial year to which such credit relates.
w.e.f. 1-4-2020, For the removal of doubt, it is clarified that 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
w.e.f. 1st February 2019, The Central Government vide Notification No. 03/2019-CT, dated 29th January 2019
has amended CGST Rules, 2017 details of which are explained below:

Revised Comment
Insertion of Rule 1. A registered person who has obtained separate registration for Please note
41A [Transfer of multiple places of business in accordance with the provisions of that this rule
credit on sale, merger, rule 11 and who intends to transfer, either wholly or partly, the is especially
amalgamation, lease unutilized ITC lying in his electronic credit ledger to any or all where separate
or transfer of a of the newly registered place of business, shall furnish within registration is
business]: 30 days from obtaining such separate registrations, the details in obtained under
FORM GST ITC-02A electronically, the amended
Provided that the ITC shall be transferred to the newly registered section 25(2).
entities in the ratio of the value of assets (value of the entire assets of
the business whether or not input tax credit has been availed thereon.)
held by them at the time of registration and upon such acceptance by
newly registered person (transferee), the unutilized input tax credit
specified in FORM GST ITC-02A shall be credited to his electronic
credit ledger.

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w.e.f. 1st February 2019, The Central Government vide Notification No. 03/2019-CT, dated 29th January, 2019
has amended CGST Rules, 2017 details of which are explained below:

Revised Comment
Insertion in Explana- After the word and figures “entry 84”, the word, figures and letter
tion to Rule 42 and Rule “and entry 92A” shall be inserted. Therefore for the purposes of
43 [Manner of determi- Rule 42 & 43, the aggregate value of exempt supplies and the total
nation of input tax credit turnover shall exclude the amount of any duty or tax levied under
in respect of inputs or entry 84 and entry 92 A* of List I of the Seventh Schedule to the
input services /capi- Constitution and entry 51 and 54 of List II of the said Schedule
tal goods and reversal *Entry 92A levy taxes on the sale or purchase of goods other than
thereof] newspapers, where such sale or purchase takes place in the course
of inter-State trade or commerce.
The Central Government vide Notification No. 16/2019-CT, dated 29th March 2019 has amended Central Goods
and Services Tax Rules, 2017. Amendments made are explained below:

Rule Revised Provision Comment

Rule 41: Insertion of Explanation: - it is hereby clarified that the “value Comment: With the
(Transfer of of assets” means the value of the entire assets of the business, insertion of this explanation
credit on sale, whether or not input tax credit has been availed thereon. it is clarified that for the
merger, amal- purpose of apportionment
gamation, of ITC in case of demerger
lease or on the basis of ratio of assets
transfer of a of the new units as specified
business) in the demerger scheme
value of assets means value
of all assets whether ITC
claimed or not.
Insertion Insertion of Explanation in clause (f): For the purpose of Comment: In case of service
in Rule 42: calculation of T4, it is hereby clarified that in case of supply of Construction of complex,
(Manner of of services covered by clause (b) of paragraph 5 of Schedule building, civil structure
determina- II (Construction of complex, building, civil structure or part or part thereof except
tion of input thereof except where entire consideration received after where entire consideration
tax credit issuance of completion certificate), value of T4 shall be zero received after issuance of
in respect during the construction phase because inputs and input services completion certificate value
of inputs or will be commonly used for construction of apartments booked of T4 shall be zero during
input services on or before the date of issuance of completion certificate or the construction phase.
and reversal first occupation of the project, whichever is earlier, and those Comment: Now, a taxpayer
thereof) which are not booked by the said date. shall declare T1’, ‘T2’, ‘T3’
Insertion in clause (g): T1’, ‘T2’, ‘T3’ and ‘T4’ shall be and ‘T4’ at summary level
determined and declared by the registered person at the invoice in FORM GSTR-3B as well
level in FORM GSTR-2 and at summary level in FORM earlier this information was
GSTR-3B only required in GSTR- 2 at
the invoice level.

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Rule Revised Provision Comment

Insertion of proviso in clause (i): Provided that in case of Comment: A proviso has
supply of services covered by clause (b) of paragraph 5 of been inserted to provide
Schedule II of the Act, the value of ‘E/F’ for a tax period shall that in case of service of
be calculated for each project separately, taking value of E and Construction of complex,
F as under:- building, civil structure
E= aggregate carpet area of the apartments, construction of or part thereof except
which is exempt plus but are identified to be sold after issue of where entire consideration
completion certificate or first occupation, whichever is earlier received after issuance
of completion certificate,
F= aggregate carpet area of the apartments in the project.
value of ‘E/F’ for a tax
Further as per explanation, value of E shall also include period shall be calculated
aggregate carpet area of the apartments, which have not been for each project
booked. separately.
Substitution in Sub Rule (1) clause (l): the amount ‘C3‘, ‘D1’ Comment: This now gives
and ‘D2’ shall be computed separately for input tax credit of teeth the instructions from
central tax, State tax, Union territory tax and integrated tax CBIC to carry out reversals
and declared in FORM GSTR-3B or through FORM GST (for earlier years) through
DRC-03 DRC03. It was seen that
reversals for earlier year
were made through GSTR
3B which resulted in double
counting of reversal in
subsequent financial year.
Substitution Sub Rule (1) clause (m): the amount equal to
aggregate of ‘D1’ and ‘D2’ shall be reversed by the registered
person in FORM GSTR-3B or through FORM GST DRC-03
Substitution in sub rule (2): Except in case of supply
of services covered by clause (b) of paragraph 5 of the
Schedule II of the Act, the input tax credit 44 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
Substitution in sub rule (2) clause (a): where the aggregate Comment: This is
of the amounts calculated finally in respect of ‘D1’ and ‘D2’ consequential effect that is
exceeds the aggregate of the amounts determined under sub- required to accommodate
rule (1) in respect of ‘D1’ and ‘D2’, such excess shall be previous rule changes.
reversed by the registered person in FORM GSTR-3B or
through FORM GST DRC-03 45 in the month not later than
the month of September following the end of the financial year
to which such credit relates……..

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Rule Revised Provision Comment

Insertion of Sub Rule (3): In case of supply of services covered Comment: Where
by clause (b) of paragraph 5 of the Schedule II of the Act, the transition adjustment has
input tax determined under sub-rule (1) shall be calculated been made (into new rate-
finally, for each ongoing project or project which commences regime), the reversal effect
on or after 1st April, 2019, which did not undergo or did not needs to be treated without
require transition of input tax credit consequent to change of allowing these adjustments
rates of tax on 1st April, 2019 In the manner prescribed in the to unduly impact the
said sub-rule. reversal.
Rule 43: Insertion in sub rule 1 clause (a): the amount of input tax in Comment: Earlier the ITC
Manner of respect of capital goods used or intended to be used exclusively on capital goods used for
determination for non-business purposes or used or intended to be used non-business purpose and
of input tax exclusively for effecting exempt supplies shall be indicated used for effecting exempt
credit in in FORM GSTR-2 and FORM GSTR-3B and shall not be supplies was required to be
respect of credited to his electronic credit ledger. indicated in GSTR 2 only.
capital goods Insertion in sub rule 1 clause (b): he amount of input tax Now, it shall be indicated in
and reversal in respect of capital goods used or intended to be used GSTR 3B as well.
thereof in exclusively for effecting supplies other than exempted supplies Further, ITC in respect
certain cases. but including zero-rated supplies shall be indicated in FORM of capital goods used for
GSTR-2 and FORM GSTR-3B and shall be credited to the effecting supplies other
electronic credit ledger. than exempted but includ-
Insertion of explanation in clause (b): For the purpose for ing zero rated shall also be
calculating ITC on capital goods used for effecting supplies indicated in GSTR 3B now.
other that exempted, it is hereby clarified that in case of supply of Comment: This is welcome
services covered by clause (b) of paragraph 5 of the Schedule II as difficulty in determining
of the said Act, the amount of input tax in respect of capital goods reversal during year of
used or intended to be used exclusively for effecting supplies construction which would
other than exempted supplies but including zero rated supplies, have impacted the correct-
shall be zero during the construction phase because capital ness of reversal which
goods will be commonly used for construction of apartments could be favourable or
booked on or before the date of issuance of completion unfavourable to RPs and
certificate or first occupation of the project, whichever subverts correct determina-
is earlier, and those which are not booked by the said date. tion of reversal required.
Insertion in clause (g): ‘F’ is the total turnover in the State of Comment: Earlier the
the registered person during the tax period: clause defining abbrevia-
tion “F” is modified in a
way to provide that total
turnover only within a state
will be considered.
Insertion of proviso in clause (g): Comment: A proviso has
Provided that in case of supply of services covered by clause been inserted to provide
(b) of paragraph 5 of the Schedule II of the Act, the value that in case of service of
of ‘E/F’ for a tax period shall be calculated for each project Construction of complex,
separately, taking value of E and F as under building, civil structure

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Rule Revised Provision Comment

E= aggregate carpet area of the apartments, construction of or part thereof except
which is exempt from tax plus aggregate carpet area of the where entire consideration
apartments, construction of which is not exempt from tax, received after issuance
but are identified by the promoter to be sold after issue of of completion certificate,
completion certificate or first occupation, whichever is earlier. value of ‘E/F’ for a tax
F= aggregate carpet area of the apartments in the project period shall be calculated
for each project separately.
Insertion of clause (i): The amount Te shall be computed Comment: A new clause
separately for input tax credit of central tax, State tax, Union has been inserted to
territory tax and integrated tax and declared in FORM GSTR provide that calculation
3B of the amount of common
credit attributable towards
exempted supplies shall be
computed separately for
each tax type.
Substitution of sub rule 2: In case of supply of services Comment: This is welcome
covered by clause (b) of paragraph 5 of schedule II of the Act, as it takes into consideration
the amount of common credit attributable towards exempted the timing-difference of
supplies (Te final) shall be calculated finally for the entire projects executed over
period (from commencement to completion or occupation more than one financial
whichever earlier) as under: year.
Te final = [(E1 + E2 + E3)/F] × Tc final,
where value of Te final exceeds the aggregate of amounts of Te
determined for each tax period under sub-rule (1), such excess
shall be reversed by the registered person in FORM GSTR-3B
or through FORM GST DRC-03 in the month not later than the
month of September and the said person shall be liable to pay
interest on the said excess amount.
Such excess amount shall be claimed as credit by the registered
person in his return
Circular No. 214/8/2024-GST dated 26 June 2024, Clarification on the requirement of ITC reversal regarding
the portion of premium for life insurance policies which is not included in the taxable value:
Life insurance policies which include a component of investment along with the component of risk cover for life
insurance, are covered under the life insurance business.
The provisions regarding the value of supply of the services in relation to life insurance business are contained in
rule 32(4) of the CGST Rules. It provides that the value of supply of services in respect of life insurance business
is primarily to be determined by deducting the amount of premium allocated for investment or savings on the
policy holder’s behalf from the gross premium charged from them. It also provides for the determination of value
of supply of such services based on a certain percentage of gross premium in other situations.
Section 17(2) of the CGST Rules read with rules 42 or 43 of the CGST Rules require ITC reversal where ITC is
used partly for effecting taxable supplies and partly for exempt supplies.

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The circular clarifies that just because some amount of consideration is not included in the value of taxable supply
as per valuation provisions, the said portion of consideration cannot be said to be attributable to a non-taxable or
exempt supply. Hence, there is no requirement of ITC reversal regarding the said amount.
Example: Life Insurance Policies with Investment and Risk Cover Components
Scenario
• Insurance Company: ABC Life Insurance Ltd., registered under GST.
• Policy Details: A life insurance policy includes:
• Premium: ₹1,00,000 annually.
• Risk Cover Component: ₹30,000.
• Investment Component: ₹70,000 (allocated to a savings/investment account).
Value of Supply Under Rule 32(4)
1. Gross Premium: ₹1,00,000.
2. Investment Component: ₹70,000 (not part of the value of supply as it is allocated for investment/savings).
3. Value of Taxable Supply:
• As per Rule 32(4), the value of taxable supply = Gross Premium - Investment Component.
• Taxable Value = ₹1,00,000 - ₹70,000 = ₹30,000.
GST Implications
1. Output Tax on Taxable Supply:
• Assume the GST rate for life insurance services is 18%.
• GST Payable = ₹30,000 × 18% = ₹5,400.
2. Input Tax Credit (ITC):
• ABC Life Insurance Ltd. uses inputs (goods/services) for taxable and exempt components.
• Normally, ITC reversal is required for the exempt portion of supplies (as per Section 17(2) and Rule
42/43).
3. Clarification on ITC Reversal:
• The ₹70,000 investment component is not exempt or non-taxable; it is merely excluded from the value of
taxable supply due to valuation provisions.
• Hence, there is no ITC reversal required for the investment component.
Conclusion
• Taxable Value of Supply: ₹30,000.
• GST Payable: ₹5,400.
• ITC Reversal: No ITC reversal is required for the ₹70,000 investment component, as clarified in the circular.

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Illustration 8:
M/s. Vipin Ltd. purchased raw material ‘A’ 10,000 kg @ `80 per Kg. plus GST. The said raw material was used
to manufacture product ‘P’. The other information’s are as under:
(i) Processing loss : 2% on inputs ‘A’.
(ii) Transaction value of ‘P’ : `100 per kg.
(iii) Other material ‘M’ used in the manufacture of ‘P’ : `2 lac plus GST.
(iv) GST on capital goods imported during the period and used in the manufacture of ‘P’:
— Basic customs duty `20,000
— IGST under customs under section 3(7) of the Customs Tariff Act, 1975 `10,000;
(v) Rate of GST on ‘A’, ‘M’ and ‘P’: 12%.
M/s. Vipin Ltd. is not eligible for composition scheme under Section 10 of CGST Act, 2017
Compute: (i) Amount of input tax credit available and
(ii) Net GST payable by M/s. Vipin Ltd.

Solution:
(i) Statement showing eligible input tax credit of M/s Vipin

Particulars Value in ` Working note

Raw material ‘A’ 96,000 (10,000 kg × `80) × 12%
Other material ‘M’ 24,000 2,00,000 × 12%
Capital goods (imported) 10,000 IGST allowed as ITC.
Total ITC 1,30,000

(ii) Net GST liability of M/s Vipin

Input ‘A’ 10,000 kg Out put ‘P’ 9,800 kg
(`)
GST payable on value of supply ‘P’ = 1,17,600
(9,800 kg `100) × 12%
Less: ITC allowed = (1,30,000)
Excess ITC c/f = (12,400)

Illustration 9
M/s X Ltd manufacturer of textile products. Company received order from Government to supply goods to
defence (exempted supply). The turnover of the other taxable goods and exempted goods `4 crore and `1 crore
respectively. Common inputs on which GST paid `20,000.
Calculate the eligible ITC on common inputs?

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Solution:
Common inputs credit = `20,000
Total turnover = `5 crores
Credit attributable to exempted supplies = `4,000
(`20,000 × `1 crore/ `5 crore)
Eligible ITC is `16,000 (i.e. 20,000 – 4,000)
Illustration 10
M/s Lips Ltd., manufactures four types of ‘Nail Polishes’, namely Sweety, Pretty, Beauty, Tweety.
The Company has taken input tax credit of `3,00,000 on the common inputs used in the manufacture of ‘Nail
Polishes’. Common inputs also used partly for non-business purposes. During the financial year the company
manufactured 1000 litres of each type of ‘Nail Polishes’. The Company was not in a position to maintain separate
set of records with regards to inputs used for final products. GST payable on final goods @12%.
You are required to calculate the net GST payable by M/s Lips Ltd. for the year from the following data:

Sale price
Product Name Description
(Exclusive of GST)
Sweety Sale to Domestic Tariff Area `30 per 20ml. bottle

Pretty Sale to a Special Economic Zone (SEZ) `40 per 20ml. bottle

Beauty Sale to A Ltd. of USA `50 per 20ml. bottle

Tweety Sale to Defence Canteen(Exempted from GST) `60 per 20ml. bottle

Solution:
Statement showing GST on outward supplies:
Sale price GST
Product Transaction
Description (Exclusive of liable to Remarks
Name Value `
GST) pay `
Sweety Sale to Domestic `30 per 20ml. 15,00,000 1,80,000 `15,00,000 (1000 litres ×
Tariff Area bottle 1000ml./ 20ml × `30)
GST = `1,80,000
(`15,00,000 × 12%)
Pretty Sale to a unit of SEZ `40 per 20ml. 20,00,000 Zero rated `20,00,000 (1000 litres ×
(treated as exports) bottle supplies 1000ml./ 20ml × `40)
Beauty Sale to A Ltd. of USA `50 per 20ml. 25,00,000 Zero rated `25,00,000 (1000 litres ×
(export sales) bottle supplies 1000ml./ 20ml × `50)
Tweety Sale to Defence `60 per 20ml. 30,00,000 Exempted `30,00,000 (1000 litres ×
Canteen (Exempted bottle 1000ml/20ml × `60)
from GST)
Total 90,00,000 1,80,000

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As per Section 17(2) of the CGST Act, 2017 read with rule 42(1)(i) and rule 42(1)(j) of the CGST Rules,
2017 proportionate reversal of credit is as follows:

Particulars ITC reversal ` Working note

Input tax credit proportionate reversal on common inputs [rule 1,00,000 (`30,00,000/`90,00,000)
42(1)(i)] × `3,00,000
Credit attributable to non-business purposes on common inputs 15,000 `3,00,000 × 5%
[rule 42(1)(j)]
Total 1,15,000
Therefore, quantum of eligible ITC (Rule 42(1)(k) of the CGST Rules, 2017) `is `1,85,000/-
[`3,00,000 – (1,00,000 + 15,000)]
Statement showing net GST liability or excess credit:
Therefore, the GST payable on taxable supply of goods = `1,80,000
Add: ITC reversed (i.e. Output tax liability) = `1,15,000
Total Tax liability = `2,95,000
Less: ITC credit allowed = `(3,00,000)
Excess ITC can be carried forward into next month = `(5,000)

Illustration 11
Assume in above illustration, M/s Lips Ltd., utilized the credit `2,25,000. Excess credit paid on 15th April 20XX.
Find the interest if any payable by M/s Lips Ltd.

Solution:
w.e.f. 1-4-2019, As per Rule 42(2) of the CGST Rules, 2017 where the aggregate of the amount calculated finally
in respect of ineligible credit exceeds the aggregate of the amounts determined under rule 42(1)(i) and (j), such
excess shall be reversed by the registered person in GSTR 3B or in the prescribed form in the month not later than
the month of September following the end of the financial year to which such credit relates and the said person
shall be liable to pay interest on the said excess amount at the rate specified in sub-section (1) of Section 50 for the
period starting from the 1st day of April of the succeeding financial year till the date of payment.
Interest = `296/-
[(`2,25,000 – 1,85,000) × 18% × 15/365]

Illustration 12
Y Ltd. manufactures taxable and exempted goods. Y Ltd. also simultaneously provides taxable as well as
exempted output services. Raw material 10,000 units were purchased @ `100 per unit used commonly during the
month of January 2025 to produce all final products. GST paid on inputs 12%. Input services commonly used for
all goods and services in the month of January 2025. Total ITC on inputs and input services taken into books of
account in the relevant tax period is `1,74,000.
Turnover for the month of January 2025 (excluding all taxes)

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Particulars Value of finished goods `

Taxable supply of goods 2,00,000
Exempted supply of goods (`80 per unit) 1,00,000
Taxable supply of services 1,00,000
Exempted supply of services 50,000
Total 4,50,000
You are required to compute the amount of reversal of input tax credit as per rule 42(1)(i) of the CGST Rules,
2017 for the month of January 2025.
Note: Each unit of exempted final product needs 2 units of raw materials. Assumed that there is no process loss.

Solution:
Step 1: Calculate common input tax credit on inputs and input services which are used to supply taxable as well
as exempted output supplies:

Particulars Value in ` Working note

Total ITC on inputs and input services 1,74,000 rule 42(1)(a)
Less: ITC on supplies exclusively used for the purpose other Nil rule 42(1)(b)
than business
Less: ITC on supplies exclusively used for providing (30,000) 2,500u × `100 × 12%[rule
exempted supplies 42(1)(c)]
Less: ITC not available under section 17(5) of the CGST Nil rule 42(1)(d)
Act, 2017
Input tax credit which are used to supply taxable as well as 1,44,000 rule 42(1)(e)
exempted output supplies
Less: ITC on supplies used exclusively for taxable supply (90,000) (10,000u – 2,500u) × `100 ×
including Zero rated supply (i.e. ITC on normal supplies) 12%. As per rule 42(1)(f)
Common ITC, which are used to supply taxable as well as 54,000 As per rule 42(1)(h)
exempted output supplies (denoted as “C2”)
Step 2: Amount of reversal of input tax credit attributable towards exempted supplies rule 42(1)(i) of the CGST
Rules, 2017 is as follows:
(`1,50,000/4,50,000) × `54,000 = `18,000/-

Working Note:
(i) Number of units of exempted final products 1,250 units (i.e. `1,00,000/ `80 per unit = 1,250 units)
(ii) Since, each unit of exempted final product needs 2 units of raw materials. Raw material used exclusively for
exempted final product 2,500 units (i.e. 1,250 units x 2 units = 2,500 units).

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Illustration 13
Ram & Co., being a registered person under GST supplied the following in the month of January 20XX:

Particulars Value in `
Taxable supply of goods 20,00,000
Exempted supply of goods 5,00,000
Sale of land 12,50,000
Recovery Agent services supplied to OK Bank 2,50,000
Deposit on which interest received 2,00,000
Total 42,00,000
Common inputs for the relevant tax period is `2,00,000.
GST applicable rate on outward supply of goods @28%
Find the GST liability?
Solution:
Statement showing net GST liability: (`)
Output tax = 5,60,000
Add: ITC reversed = 95,238
Out tax liability = 6,55,238
Less: ITC = (2,00,000)
Net GST liability = 4,55,238
Working note:
(1) Exempted supply:

(`)
Exempted supply of goods 5,00,000
Sale of land 12,50,000
Recovery Agent services supplied to OK Bank 2,50,000
TOTAL 20,00,000
(2) Net ITC allowed = `1,04,762 (`2,00,000 - `95,238)
(3) GST liability on outwards supply = `20,00,000 × 28% = `5,60,000
(4) ITC not allowed as per Rule 42(1)(i) of CGST Rules, 2017
2,00,000 × 20 L/42 L = `95,238/-
Sale of land and Recovery Agent to a banking company is treated as exempted supply as per Section 17(3)
of the CGST Act, 2017
W.e.f. 25.1.2018, interest on deposits should not include in exempted supply. However, it is included in total
turnover.

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Rule 43 of the CGST Rules, 2017: Manner of determination of input tax credit in respect of capital goods
and reversal thereof in certain cases:
This provision elucidated in the following manner:
w.e.f 1-4-2020, For the removal of doubt, it is clarified that 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.
Amendment in rule 43 of the CGST Rules which prescribes the manner of determination of ITC in respect
of capital goods and reversal thereof in certain cases w.e.f. 1-4-2020.

[Notification No. 16/2020-CT, dated 23.03.2020]

Illustration 14
Praja Industries is a manufacturing company registered under GST. It manufactures two taxable products ‘X’
and ‘Y’ and one exempt product ‘Z’. The turnover of ‘X’, ‘Y’ and ‘Z’ in the month of April, 20XX was `2,00,000,
`10,00,000 and `12,00,000. Praja Industries is in possession of certain machines and purchases more of them.
Useful life of all the machines is considered as 5 years.
From the following particulars furnished by it, compute the amount to be credited to the electronic credit ledger
of Praja Industries and amount of common credit attributable towards exempted supplies, if any, for the month of
April, 20XX.

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Particulars GST paid (`)

Machine ‘A’ purchased on 01.04.20XX for being exclusively used for non-business purposes 19,200
Machine ‘B’ purchased on 01.04.20XX for being exclusively used in manufacturing zero- 38,400
rated supplies
Machine ‘C’ purchased on 01.04.20XX for being used in manufacturing all the three products 96,000
– X, Y and Z
Machine ‘D’ purchased on April 1, 2 years before 01.04.20XX for being exclusively used in 1,92,000
manufacturing product Z. From 01.04.20XX, such machine will also be used for manufacturing
products X and Y.
Machine ‘E’ purchased on April 1, 3 years before 01.04.20XX for being exclusively used 2,88,000
in manufacturing products X and Y. From 01.04.20XX, such machine will also be used for
manufacturing product Z.

Solution:
Statement showing Common ITC on Capital Goods as on 1st April, 20XX

Particulars Value in ` Working note

Capital goods C Used both for taxable and 96,000 As per rule 43(1)(c) of CGST Rules, 2017
exempted supplies
Capital goods D (has been exclusively 1,92,000 Proviso to rule 43(1)(c) of CGST Rules, 2017.
used for 2 years for exempted supplies). `1,92,000 ITC allowed fully, provided, `77,800 is
Now there is change in use, both for considered as output tax liability in April, 20XX.
taxable and exempted supplies. 1.92 L × 5% × 8 quarters = `76,800.
Capital goods E (has been exclusively 2,88,000 Proviso to rule 43(1)(d) of CGST Rules, 2017.
used for 3 years for taxable supplies). ITC already availed and hence, ITC in April 20XX
Now there is change in use, both for is not allowed.
taxable and exempt supplies.
Common credit 5,76,000
the amount of input tax credit attribu-table 9,600 As per Rule 43(1)(e) of the CGST Rules, 2017
to a tax period on common capital goods calculated as:
during their useful life 5,76,000 ÷ 60 = `9,600
the amount of common credit attribu-table 4,800 As per Rule 43(1)(g) of the CGST Rules, 2017
towards exempted supplies calculated as:
`9,600 × `12,00,000 / `24,00,000.

Statement showing Total ITC to the Electronic Credit Ledger for the month of April 20XX:
Particulars Value in `
Capital goods B used exclusively for taxable supplies (i.e. Zero-rated supply) 38,400

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Capital goods C Used both for taxable and exempted supplies 96,000
Capital goods D (has been exclusively used for 2 years for exempted supplies). 1,92,000
Now there is change in use, both for taxable and exempted supplies.
Electronic Credit Ledger 3,26,400
w.e.f. 1-4-2020, For the removal of doubt, it is clarified that 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.

Banking Company or NBFC [Section 17(4) of the CGST Act, 2017]

A banking company or a financial institution including a non-banking financial company, engaged in supplying
services by way of accepting deposits, extending loans or advances shall have the option to either comply with the
provisions of sub-section (2), or avail of, every month, an amount equal to 50% of the eligible input tax credit on
inputs, capital goods and input services in that month and the rest shall lapse:
Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year:
Provided further that the restriction of 50% shall not apply to the tax paid on supplies made by one registered
person to another registered person having the same Permanent Account Number.

Illustration 15
X Bank of India has corporate office in Mumbai and branches in Chennai, Delhi and Kolkata. Mumbai office
provided services to Chennai office accordingly IGST paid. Office of Chennai will avail the credit of IGST. Whether
Chennai office is required to reverse such credit? Explain.

Solution:
As per Section 17(4) of the CGST Act, 2017 that reversal of 50% shall not be made for the credit availed by
Chennai office on services provided by corporate office. Thus, no credit reversal shall be made for the credit
availed on input services provided by one registered person to another registered person holding same PAN.

Illustration 16
OK Bank has availed credit of `25,00,000 lacs in the month of May 2024. Total credit, out of which `5,00,000
pertains to non-business purpose and `7,00,000 pertains to credit availed under 2nd proviso of section 17(4). Find
the total input tax credit eligible to OK Bank.
Note: OK Bank opted to avail ITC an amount equal to 50% of eligible credit.
Solution:
Statement showing eligible ITC to OK Bank for the month of May 2024:
ITC
Particulars Remarks
Amount in `
Input tax credit attributable to non-business purpose Nil ITC fully not allowed
ITC from its other establishment 7,00,000 ITC fully allowed.
Other ITC 6,50,000 (25,00,000 – 5,00,000 – 7,00,000) × 50%
Total ITC allowed in Form GSTR-2B 13,50,000

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W.e.f. 01-10-2022, Rule 38 providing for claim of credit by a banking company or a financial institution has been
amended to remove the reference to Form GSTR-2 therefrom

Restriction on availment of input tax credit (ITC) in respect of invoices/debit notes not uploaded
by the suppliers in their GSTR-1s [New sub-rule (4) inserted in rule 36 of the CGST Rules] omitted
w.e.f. 1-1-2022.

Restriction on availment of ITC

invoice/debit note
has been uploaded
NO YES
by the supplier in
his GTSR-1.

w.e.f.1-1-2021, @5% (from 1-1-2020 to Full ITC is allowed to the recipient (if
31-12-2020, @10%) (from 9th Oct 2019 all other conditions of availing ITC
to 31st Dec 2019, @20%) of the eligible are fulfilled)
ITC available in respect of the uploaded
invoices/debit notes. However, the ITC
so claimed should not exceed the actual
eligible ITC available in respect of the
invoices not uploaded.

From 1st January 2022, ITC claims will be allowed only if it appears in GSTR-2B. So, the taxpayers can no
longer claim 5% provisional ITC under the CGST Rule 36(4) and ensure every ITC value claimed was reflected
in GSTR-2B.

Restrictions on utilisation of ITC [Rule 86A]

A new rule 86A has been inserted in the CGST Rules to empower the Commissioner/ an officer (not below the
rank of an Assistant Commissioner) authorised by him, to impose restrictions on utilization of ITC available in
the electronic credit ledger if he has reasons to believe that such ITC has been fraudulently availed or is ineligible.
The restrictions can be imposed in the following circumstances:
(i) ITC has been availed on the basis of tax invoices/valid documents -
~ issued by a non-existent supplier or by a person not conducting any business from the registered place
of business; or
~ without receipt of goods or services or both; or
~ the tax in relation to which has not been paid to the Government
(ii) Registered person availing ITC has been found non-existent or not to be conducting any business from the
registered place of business; or

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(iii) Registered person availing ITC is not in possession of tax invoice/valid document.
If the ITC is so availed, the restrictions can be imposed by not allowing such ITC to be used for discharging any
liability under section 49 or not allowing refund of any unutilised amount of such ITC. Such restrictions can be
imposed for a period up to 1 year from the date of imposing such restrictions. However, the Commissioner/officer
authorised by him, can withdraw such restriction if he is satisfied that conditions for imposing the restrictions no
longer exist.
[Notification No. 75/2019-CT, dated 26.12.2019]

Restriction on use of amount available in Electronic Credit Ledger Rule 86B of the CGST Rules, 2017:

The CBIC has issued Guidelines for disallowing debit of electronic credit ledger under Rule 86A of the
CGST Rules, 2017. The salient points of the Guidelines are elaborated below:

1. Grounds for disallowing debit of amount from electronic credit ledger

i. The Commissioner or an officer authorised by him, not below the rank of Assistant Commissioner, must
“form an opinion” for disallowing debit of an amount from electronic credit ledger after proper application
of mind considering all the facts of the case including the nature of prima facie fraudulently availed or
ineligible input tax credit and whether the same is covered under the grounds mentioned in rule 86A(1), the
amount of input tax credit involved, and whether such disallowance is necessary for restricting him from
utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue.

ii. The power of disallowing debit of amount from electronic credit ledger must not be exercised in a mechanical
manner and “careful examination of all the facts of the case” is important to determine case(s) fit for exercising
power under rule 86A. The remedy of disallowing debit of amount from electronic credit ledger being, by
its very nature. extraordinary’ has to be resorted to with utmost circumspection and with maximum care and
caution. It contemplates an objective determination based on intelligent care and evaluation as distinguished
from a purely subjective consideration of suspicion. The reasons are to be on the basis of material evidence
available or gathered in relation to fraudulent availment of input tax credit or ineligible input tax credit
availed as per the conditions/grounds under sub-rule (l) of rule 86A.

1. Proper authority for the purpose of rule 86A

i. The Commissioner/ Principal Commissioner may authorize exercise of powers under rule 86A based on the
following monetary limits:

Total amount of ineligible fraudulently availed Officer authorized to disallow debit of amount from
input tax credit electronic credit ledger under rule 86A
Upto ` 1 crore Deputy/ Assistant Commissioner
Above `1 crore but upto Rs. 5crore Additional/ Joint Commissioner
Above `5 crore Principal Commissioner/ Commissioner

ii. 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 above for equivalent
rank of officers.

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iii. Where during the course of Audit under section 65 or 66 of CGST Act, 2017, it is noticed that any input
tax credit has been fraudulently availed or is ineligible as per the grounds mentioned in rule 86A(1), the
concerned Commissioner/ Principal Commissioner of CGST Audit Commissionerate may refer the same to
the jurisdictional CGST Commissioner for examination of the matter for exercise of power under rule 86A.
1. Procedure for disallowance
i. The amount of fraudulently availed or ineligible input tax credit availed by the registered person, as per the
grounds mentioned in rule 86(1) shall be prima facie ascertained based on material evidence available or
gathered on record. The “reasons to believe” to disallow debit from electronic credit ledger as formed by
the Commissioner or any other officer authorized by him shall be duly recorded by the concerned officer
in writing on file, before he proceeds to disallow debit of amount from electronic credit ledger of the said
person.
ii. The amount disallowed for debit from electronic credit ledger should not be more than the amount of input
tax credit which is believed to have been fraudulently availed or is ineligible, as per the conditions/ grounds
mentioned in rule 86A(1).
iii. The action to disallow such debit from electronic credit ledger shall be informed on the portal to the concerned
registered person, along with the details of the officer who has disallowed such debit.
1. Allowing debit of disallowed/restricted credit under rule 86A(2)
i. The Commissioner or the authorized officer, either on his own or based on the submissions made by the
taxpayer with material evidence, may examine the matter afresh and on being satisfied that the input tax
credit, initially considered to be fraudulently availed or ineligible, is no more ineligible or wrongly availed,
either partially or fully, may allow the use of the credit so disallowed/restricted, up to the extent of eligibility,
as per powers granted under rule 86A(2).
ii. Reasons for allowing the debit of electronic credit ledger, which had been earlier disallowed, shall be duly
recorded on file in writing, before allowing such debit of electronic credit ledger.
iii. Upon expiry of one year from the date of restriction, the registered person shall be able to debit input tax
credit so disallowed, subject to any other action that may be taken against such person.
iv. As the restriction on debit of electronic credit ledger under rule 86A(1) is resorted to protect the interests of
the revenue and the said action also has bearing on the working capital of the registered person, it should
be endeavoured that in all such cases’ the investigation and adjudication are completed at the earliest, well
within the period of restriction, so that the due liability arising out of the same can be recovered from the said
taxable person and the purpose of disallowing debit from electronic credit ledger is achieved.
Source: Guidelines for disallowing debit of electronic credit ledger under rule 86A of the CGST Rules, 2017
Restriction on use of amount available in Electronic Credit Ledger Rule 86B of the CGST Rules, 2017:
w.e.f. 1-1-2021, New Rule 86B has been inserted which restricts the use of credit available in Electronic Credit
Ledger. The said rule restricts the use of Input Tax Credit by more than 99% against output tax liability. This
restriction is applicable for taxpayers whose taxable supply other than exempt supply and zero-rated supply
exceeds ` 50 lakhs in a month.

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Example 6
The total value of inter-State supply of Shiva & Sons for the month of March 2024 is of `100 lakh. Said supply
is taxable @ 18% IGST. Thus, total output tax liability of Shiva & Sons is `18 lakh. Amount available in electronic
credit ledger is ` 20 lakh (IGST).
In terms of restriction imposed by rule 86B, Shiva & 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.
Further, the said rule is not applicable in the following cases:—

(a) The taxpayer (proprietor/Karta/managing director/partner/Whole Time Director/Members of the managing

committee of Association/Board of Trustees) have paid income tax exceeding `1 lakh in each of the 2
preceding financial years or

(b) Where taxpayers have received a refund of unutilized input tax credit exceeding `1 lakh in the preceding
financial year on account of exports or supplies to SEZ or

(c) Where taxpayers have received a refund of unutilized input tax credit exceeding `1 lakh in the preceding
financial year on account of inverted duty structure or

(d) The taxpayer has discharged his liability towards output tax through the Electronic Cash Ledger for an
amount which is more than 1% of the total output liability, applied cumulatively, up to the said month in the
current financial year or

(e) The taxpayer is—

~ Government Department

~ Public Sector Undertaking

~ Local authority

~ Statutory body

The Commissioner or any officer authorized by him on this behalf may remove the said restriction after such
verification and safeguards as he may deem fit (vide Notification No. 94/2020-CT., dated 22-12-2020).

W.e.f. 01-10-2022, section 49(12) of CGST Act, 2017 has been inserted concerning the above rule. This insertion
gives rule 86B legal backing.

Input Tax Credit (ITC) not applicable goods and services Section 17(5) of the CGST Act, 2017

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:

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ITC not allowed

Section 17(5) of the CGST Act, 2017

Capital Goods Input Input Service

Section 2(19) of the CGST Act, 2017 Section 2(59) of the CGST Act, 2017 Section 2(60) of the CGST Act, 2017

w.e.f. 1-2-2019: (b) w.e.f. 1-2-2019, the following supply of goods or services or
(a) motor vehicles for transportation of persons both—
having approved seating capacity of not more (i) food and beverages, outdoor catering, beauty treatment,
than 13 persons (including the driver), except health services, cosmetic and plastic surgery, leasing, renting
when they are used for making the following or hiring of motor vehicles, vessels or aircraft referred to in
taxable supplies, namely:- clause (a) or (aa) except when used for the purposes specified
therein, life insurance and health insurance;
A. further supply of such vehicles; or
Provided that input tax credit in respect of such goods or
B. transportation of passengers; or services or both shall be available where an inward supply of
C. imparting training on driving such motor such goods or services or both is used by a registered person
vehicles; for making an outward taxable supply of the same category
(aa) vessel and aircraft except when they are of goods or services or both or as an element of a taxable
composite or mixed supply;
used-
(ii) membership of a club, health and fitness centre;
(i) For making the following taxable
supplies, namely: - (iii) travel benefits extended to employees on vacation such as
leave or home travel concession;
A. Further supply of such vessels or
Provided that the input tax credit in respect of such goods or
aircraft; or
services or both shall be available, where it is obligatory for an
B. Transportation of passengers or employer to provide the same to its employees under any law for
C. Imparting training on navigating the time being in force.
such vessel or (c) works contract services when supplied for construction of an
D. Imparting training on flying such immovable property (other than plant and machinery) except
aircraft where it is an input service for further supply of works contract
service;
(ii) For transportation of goods;
(d) goods or services or both received by a taxable person for
(ab) services of general insurance, servicing, construction of an immovable property (other than plant or
repair and maintenance insofar as they relate machinery) on his own account including when such goods or
to motor vehicles, vessels or aircraft referred services or both are used in the course or furtherance of business.
to in clause (a) or (aa); (e) goods or services or both on which tax has been paid under
Provided that the input tax credit in respect of section 10;
such services shall be available— (f) goods or services or both received by a non-resident taxable
(i) Where the motor vehicles, vessels or aircraft person except on goods imported by him;
referred to in clause (a) or (aa) are used for fa) w.e.f. 1st October 2023, goods or services or both received by a
the purposes specified therein; taxable person, which are used or intended to be used for activities
(ii) Where received by a taxable person engaged- relating to his obligations under corporate social responsibility
referred to in section 135 of the Companies Act, 2013.
(I) In the manufacture of such motor vehicles,
vessels or aircraft; or (g) goods or services or both used for personal consumption;
(II) In the supply of general insurance services (h) goods lost, stolen, destroyed, written off or disposed of by way of
gift or free samples; and
in respect of such motor vehicles, vessels
or aircraft insured by him; (i) any tax paid in accordance with the provisions of Fraud,
Detention, Seizure and confiscation of goods or conveyance.

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Amendment of section 17 (w.e.f. 1-11-2024, F.Y. 2024 dated 16-8-2024):

In section 17 of the Central Goods and Services Tax Act, in sub-section (5), in clause (i), for the words and figures
“sections 74, 129 and 130”, the words and figures “section 74 in respect of any period upto Financial Year 2023-24”
shall be substituted.
Explanation: For the purposes of clauses (c) and (d) of Section 17(5) of the CGST Act, 2017, the expression
“construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization,
to the said immovable property;
Section 2(76) of the CGST Act, 2017 “motor vehicle” shall have the same meaning as assigned to it in clause
(28) of section 2 of the Motor Vehicles Act, 1988;
Section 2(34) “conveyance” includes a vessel, an aircraft and a vehicle;
17.29.1 Section 17(5)(a)(ii) of the CGST Act, 2017 further provides that credit on any motor vehicle or other
conveyance used for transportation of goods by the company himself or for making taxable supply will be available
to avail credit on motor vehicles.
Section 17(5)(a) motor vehicles and other conveyances except when they are used––
(i) for making the following taxable supplies, namely:—
Section 17(5)(a) motor vehicles and other conveyances ITC Not allowed except when they are used––
(i) for making the following taxable supplies, namely:—
Motor vehicles or conveyances are used for further supply of such vehicles or conveyances:

M/s K Ltd. of Kolkata (Dealer in buying &

selling motor vehicles) Sol
T
GS

dm
ach

oto
cs e

rv

Statement showing net GST liability of

la

ehi

M/s K Ltd of Kolkata

pai r ` 18

cle

Value in 28%
for

Particulars
28% les fo
d

(` ) IGST (`)
`2
0 la
ic

Supply of 20,00,000 5,60,000

veh

cs G

Motor vehicle
tor

ST

Less: ITC on 18,00,000 5,04,000

Mo

28%

purchase of
ed

motor vehicles
has

pai
rc

Net IGST 56,000

Pu

liability

M/s C Ltd of Chennai CA. Ram Purchaser of new

Manufacturer of cars car Located in Haryana

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There are many taxable persons who are engaged in purchase and sale of used cars. These dealers purchase used
cars from others by paying GST then the credit of GST paid will be available to such dealers (i.e. while selling they
are liable to pay GST).
Clarification on availability of input tax credit in respect of demo vehicles (CBIC Circular No. 231/25/2024-
GST dt. 10th September 2024):
Here are numerical examples based on the legal framework provided for the availability of input tax credit (ITC)
on demo vehicles used by authorized dealers:
Scenario 1: Demo Vehicles Not Capitalized
Facts:
• Dealer A purchases a demo vehicle for ₹10,00,000 (excluding GST) to showcase features and provide test
drives to potential customers.
• GST charged by the supplier is ₹1,80,000 (18%).
• Dealer A uses the demo vehicle to promote the sale of similar vehicles.
Legal Framework:
• As per Section 17(5)(a) of the CGST Act, ITC is blocked on motor vehicles for transportation of persons
(capacity ≤ 13 persons) unless used for:
• Further supply of such motor vehicles.
• Transportation of passengers.
• Training on driving such motor vehicles.
• Clarification: Since demo vehicles are used to promote the sale of similar vehicles, they are considered as
being used for “further supply of such motor vehicles.”
Outcome:
• ITC Eligibility: ITC of ₹1,80,000 is allowed because the demo vehicle is used for making taxable supplies
(sale of similar vehicles).
• Compliance Notes: The dealer must ensure the demo vehicle is used exclusively for business purposes and not
for personal use.
Scenario 2: Demo Vehicles Capitalized
Facts:
• Dealer B purchases a demo vehicle for ₹12,00,000 (excluding GST) and capitalizes it in the books of accounts.
• GST charged by the supplier is ₹2,16,000 (18%).
• Dealer B uses the demo vehicle for test drives and later sells it after 2 years for ₹8,00,000.
Legal Framework:
1. Capital Goods Definition (Section 2(19)): If a vehicle is capitalized and used in the course or furtherance of
business, it qualifies as capital goods.
2. Section 16(3): ITC is not allowed on the tax component of the cost of capital goods if depreciation is claimed
on the tax component under the Income Tax Act.

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3. Section 18(6): On the sale of capital goods, tax liability is calculated as the higher of:
• GST on the transaction value (sale price).
• ITC attributable to the remaining life of the capital good (reduced by 5% per quarter).
Calculations:
1. ITC on Demo Vehicle:
•Dealer B capitalized the vehicle but did not claim depreciation on the GST component. Hence, full ITC of
₹2,16,000 is available.
2. GST Payable on Sale of Demo Vehicle:
• Transaction Value on Sale: ₹8,00,000.
• GST on Sale (18%): ₹1,44,000.
• ITC Reversal Calculation:
ITC is reduced by 5% per quarter. Total ITC = ₹2,16,000. Vehicle used for 8 quarters.
• ITC attributable to remaining life:
• Tax Payable: Higher of:
• GST on transaction value = ₹1,44,000.
• ITC reversal = ₹1,29,600.
Tax Payable = ₹1,44,000.
Scenario 3: Demo Vehicle with Depreciation on Tax Component
Facts:
• Dealer C purchases a demo vehicle for ₹15,00,000 (excluding GST) and claims depreciation on the tax
component under the Income Tax Act.
• GST charged is ₹2,70,000 (18%).
Legal Framework:
• Section 16(3) of the CGST Act prohibits ITC on the tax component of capital goods if depreciation is claimed
on the same under the Income Tax Act.
Outcome:
• ITC Eligibility: ITC of ₹2,70,000 is not allowed as depreciation on the tax component was claimed.
Scenario 4: Sale of Demo Vehicle Without Capitalization
Facts:
• Dealer D purchases a demo vehicle for ₹9,00,000 (excluding GST) and does not capitalize it. GST charged is
₹1,62,000 (18%).
• After 1 year, the demo vehicle is sold for ₹7,00,000 (excluding GST).
Legal Framework:
1. ITC on demo vehicles is allowed as they are used for further supply of similar vehicles.
2. On sale of demo vehicles, GST is payable on the transaction value.

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Calculations:
1. ITC Availed: ₹1,62,000.
2. GST Payable on Sale (18% of ₹7,00,000): ₹1,26,000.
Scenario 4: Dealer Acting as an Agent for the Manufacturer
Facts:
• Dealer A purchases a demo vehicle for ₹12,00,000 (excluding GST) from a vehicle manufacturer to provide
test drive facilities for potential customers on behalf of the manufacturer.
• GST charged on the demo vehicle is ₹2,16,000 (18%).
• The dealer is not directly involved in the purchase or sale of vehicles; instead, the sale invoice for the vehicle
is issued by the manufacturer directly to the customer.
• After one year or a certain number of kilometers, Dealer A sells the demo vehicle to a customer for ₹8,00,000
(excluding GST), charging applicable GST on the sale.
Legal Framework:
1. Section 17(5)(a) of the CGST Act:
• ITC is not available for motor vehicles used for transporting passengers with a seating capacity ≤13 unless
used for:
• Further supply of such motor vehicles.
• Transportation of passengers.
• Training on driving such motor vehicles.
2. Clarification:
• In this scenario, Dealer A is acting as an agent or service provider to the manufacturer.
• For providing facility of vehicle test drive to the potential customers of the vehicle, the dealer purchases
demo vehicle from the vehicle manufacturer.
• Therefore, the demo vehicle is not used for making “further supply of such motor vehicles”, and ITC is
blocked under Section 17(5)(a).
3. Implications of Sale:
• When the demo vehicle is sold after use, GST must still be charged on the sale value (transaction value).
However, ITC remains unavailable to the dealer due to the blockage under Section 17(5)(a).
Calculations:
1. Input Tax Credit on Demo Vehicle:
• GST paid on purchase of the demo vehicle: ₹2,16,000.
• ITC Eligibility: Not allowed as per Section 17(5)(a).
2. Sale of Demo Vehicle:
• Sale Price: ₹8,00,000.
• GST on Sale (18%): ₹1,44,000.
• The dealer collects and remits ₹1,44,000 GST to the government.

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Outcome:
• ITC on Demo Vehicle: Not Available.
• GST on Sale of Demo Vehicle: Dealer must charge and pay GST of ₹1,44,000 on the sale of the demo vehicle.
Key Points:
1. Since the dealer acts as an agent/service provider to the manufacturer and does not engage in further supply of
motor vehicles on their own account, ITC is blocked under Section 17(5)(a).
2. The sale of the demo vehicle is still subject to GST, but ITC on the purchase remains unavailable.
Summary of Scenarios

Scenario ITC Eligibility

Demo vehicle not capitalized ITC allowed
Demo vehicle capitalized, no depreciation ITC allowed
Demo vehicle capitalized, with depreciation ITC not allowed
Demo vehicle not capitalized, later sold ITC allowed
Dealer purchases a demo vehicle from a vehicle manufacturer to provide test drive facilities ITC not allowed
for potential customers on behalf of the manufacturer.
Illustration 17
M/s A Ltd. a registered person under GST law and purchased 10 cars for `45 lakh plus 28% GST. M/s A Ltd sold
8 cars for `55 Lakh plus 28% GST.
Find the GST liability in the following two independent cases:
(a) M/s A Ltd is a dealer of motor vehicles
(b) M/s A Ltd is not a dealer of motor vehicles
Solution:
Statement showing net GST liability of M/s A Ltd.

M/s A Ltd. is a dealer M/s A Ltd. is not

Particulars in motor vehicles a dealer in motor Remarks
` in lacs vehicles ` in lacs
GST on Supply of goods 15.40 15.40 `55 lacs × 28%

Less: ITC (12.60) Not allowed `45 lacs × 28%

Net GST liability 2.80 15.40

Section 17(5)(a)/(aa) motor vehicles and other conveyances ITC not allowed except when they are used––
(i) for making the following taxable supplies, namely:—
Motor vehicles or conveyances are used for transportation of passengers:

The person boarding in the motor vehicle for performing the journey can be considered as passenger under
GST. As a result, transportation of passengers from one place to another in any motor vehicle can be considered as
transportation of passenger.

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Illustration 18
M/s Parveen Travels transporting passengers from Chennai-Mumbai-Chennai. For this purpose, M/s Parveen
Travels purchased Volvo Bus (air-conditioned) for `55 lakhs plus GST 28%. M/s Parveen Travels is eligible for
ITC on Volvo Bus in the following two cases:
1. M/s Parveen Travels paying GST 12% on supply of output supplies.
2. M/s Parveen Travels paying GST 5% on supply of output supplies.
Solution:
Case (1). Yes. M/s Parveen Travels is eligible to avail the ITC on purchase of Volvo Bus.
Case (2). No. M/s Parveen Travels is not eligible to avail the ITC on capital goods and input goods (except input
services from similar line of business).
Note: AC contract/stage carriage other than motor cab GST @5% – with ITC of input services only from similar
line of business (vide Notification No. 31/2017-Central Tax (Rate), dated 13th October 2017)

Illustration 19
M/s MR Ltd. manufacturer of motor vehicles. Company purchased a passenger vehicle for `20 lacs plus GST
28% for transportation of their employees from their residence to factory and from factory to their residence. M/s
MR Ltd. is eligible to avail the credit on purchase motor vehicle?

Solution:
No. M/s MR Ltd. is not in the business of transporting passengers and hence credit on purchase of motor vehicle
is not allowed.
Moreover, it is not used for taxable supply.
Note: If the taxable person transports its own employees free of cost it will not be covered by the aforesaid clause
and hence, he will not be able to claim benefit of input tax credit in respect of the same.

Illustration 20
Sukhee Bhava Hospital is a clinical establishment purchased four ambulances for `32 lakhs plus GST 28%. Find
the input tax credit available to Sukhee Bhava Hospital.

Solution:
Input tax credit = nil
Note: since, supply of services of Sukhee Bhava is exempted from GST under health care services.

Illustration 21
Ferrari Company for conducting Formulae One car races purchased 20 Racing Cars for `80 lakhs plus GST 28%.
Ferrari company is eligible for availing ITC on purchase of Racing Cars.

Solution:
No. Ferrari Company can not avail the ITC on purchase of Racing Cars which are not treated as passenger
vehicles.

Illustration 22
Mr. Ram a school van driver and also registered person under GST law. He purchased Omni vehicle for `8 lacs
plus GST 28%. Mr. Ram is eligible for ITC on this vehicle. Explain.

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Solution:
Since, Mr. Ram is a registered person supplying taxable services in the nature of transportation of passengers, he
is eligible to avail the ITC on motor vehicle.
If Mr. Ram supplies services to school, he is not eligible for ITC. Since, his supplies exempted from GST.

Illustration 23
M/s Sharma Travels supplied rent-a-cab services to M/s Infosys Company for transporting their employees (i.e.
pickup and drop). Accordingly, M/s Sharma Travels charging monthly rent of `22,500 per cab plus GST 12%. 10
Motor cabs purchased by M/s Sharma Travels for `85,000 each plus GST 28% and used for transporting company
employees. Find the Net GST liability of M/s Sharma Travels for the financial year.

Solution:
Statement showing GST liability of M/s Sharma Travels for the Financial year:

Value in
Particulars Remarks
(`)
Output supply: 3,24,000 22,500 × 12% × 12 months × 10Nos
Rent-a-cab
Less: ITC on motor 2,38,000 Since, M/s sharma travel using motor cabs for further supply, ITC
vehicle allowed. 85,000 × 10 Nos × 28%
Net GST liability 86,000
Therefore, M/s Sharma Travels is liable to GST for the Financial year `86,000.

Section 17(5)(a)/(aa) motor vehicles/vessels/aircrafts and other conveyances ITC not allowed except when they
are used—
for making the following taxable supplies, namely:—
Motor vehicles/vessels/aircrafts are used for imparting training on driving, flying, navigating such vehicles/
aircrafts/vessels;

Illustration 24
M/s Maruti Driving School Pvt. Ltd. supplied taxable services in the month of April 2024 for `15 lacs (plus GST
18%) to provide training on driving. Company purchased two vehicles for this purpose namely passenger vehicle
for `20 lacs plus GST 28% and goods vehicle for `33 lacs plus GST 28%. Find the net GST liability of M/s Maruti
Driving School Pvt Ltd.

Solution:
GST on output supply = `2,70,000
Less: ITC
On passenger vehicle = `- 5,60,000
On goods vehicle = `- 9,24,000
Net Excess ITC c/f = ` 12,14,000

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Illustration 25
Course completion certificate/training offered M/s Sky Ltd. (Flying Training Institute) purchased aircraft for `22
crores plus GST 28%. Whether the flying institute is eligible for input tax credit on purchase of aircraft.

Solution:
Yes. M/s Sky Ltd. (Flying Training Institute) is eligible to avail ITC.
Navigating means transport to direct the way that a ship, aircraft, etc. will travel, or to find a direction across,
along, or over an area of water or land, often by using a map.
(ii) Motor vehicles/vessels/aircrafts are used for transportation of goods:

(ii) for transportation of goods

Credit of GST paid on motor vehicle and other conveyance will be available when motor vehicle/vessels/ aircrafts
are used for transportation of goods. The motor vehicle/vessels/ can be sued for
(a) making outward supply of transportation of goods;
(b) transporting own goods.
Note: If the vehicle is used for supplying own goods if those goods are taxable supplies the taxable person will
be entitled to avail credit of such input tax paid on such vehicle.

Illustration 26
Mr. A buy a passenger car worth `3,00,000 with GST `80000. He deals in electronic goods and uses the car to
travel to his showroom.
1. Mr. A is eligible for ITC?
2. Rework if Mr. A purchased goods transport vehicle for transport his own electronics.

Solution:
1. In this case, even if the car is used for his business, ITC `80,000 cannot be claimed.
2. Yes. ITC allowed.

Illustration 27
DHL courier purchased vehicles (i.e. two wheelers) for `20 lacs plus GST 28% for transport of goods.
Whether ITC allowed on two wheels?

Solution:
No. since, two wheelers cannot be registered as goods transport vehicles under Motor vehicles Act.
Section 17(5)(b) the following supply of goods or services or both — ITC not allowed:

Illustration 28
R Academy organizes parents meeting and provides meal during meeting to students and their parents. The
supplier of food charged `72,500 plus GST 18%, under the category of outdoor catering. Explain R Academy being
provider of taxable supply of services namely commercial training and coaching services is eligible to avail the
credit of GST paid on outdoor catering service.

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Solution:
GST paid on outdoor catering is not allowed as ITC even though such services are used for business purpose.
Since, it is specifically mentioned under Section 17(5)(b)(i) of the CGST Act, 2017 where credit is not allowed.

Illustration 29
Annapoorna caterings supply outdoor catering services to its customers by sub-contracting the same. Sub-
contractor supplied food items like ice creams, North Indian Meals, South Indian Meals and so on to Annapoorna
caterings. Sub-contractor raised invoice on Annapoorna caterings for supply of outdoor catering services `2,00,000
plus GST 18%. Annapoorna caterings supplied outdoor catering to its customers for `2,10,000 plus GST 18%. Find
the Net GST liability of Annapoorna caterings.

Solution:
Statement showing net GST liability of Annapoorna caterings:

Particulars Value in ` Remarks

GST on outward supply 37,800 `2,10,000 × 18%

Less: ITC from similar line of business (36,000) `2,00,000 × 18%

Net GST liability 1,800

Illustration 30
Sky Ltd is engaged in supply of transport of passengers by air services. The company avails outdoor catering
services of M/s Anna Caterers in order to provide food and beverages to the passengers. M/s Anna Caterers raises
an invoice on Sky Ltd charging GST.
Sky Ltd. wants to avail the ITC on outdoor catering services supplied by M/s Anna Caterers. Advise.

Solution:
ITC shall be available where an inward supply of goods or services or both of a particular category is used by a
registered person as an element of a taxable composite or mixed supply.
Advise: In the given case, Sky Ltd will be entitled to avail the ITC of the GST paid to M/s Anna Caterers since
outdoor catering services forms part of taxable composite supply of passengers by air services.

Membership charges: -
For example, if you have taken any subscription of the gym, or membership of any club for any sport or for
anything else, the ITC credit shall not be allowed.

Rent a cab:
Illustration 31
Wipro Pro Ltd is a BPO which works on night shift basis. As per the Government Notification, it has to provide
rent a cab facility to its employees who work on night shifts.
Whether, Wipro Pro is eligible to avail ITC on rent a cab service.

Solution:
Yes. Wipro pro Ltd can claim ITC on the GST paid on such rent-a-cab services.

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Illustration 32
Hotel King Pvt Ltd. provider of short-term accommodation services and also provides picking up guest from
airport. Accordingly, Hotel King Pvt Ltd availed rent-a-cab services from M/s X & Co.
Rent-a-cab services provided by M/s X & Co to Hotel King Pvt Ltd. during Nov 20XX for `2,00,000 plus GST
18%.
Hotel King Pvt Ltd. provided short-term accommodation services to its customers (i.e. guests) during Nov 20XX
for `15,75,250 plus GST 18%.
Find the Net GST liability of Hotel King Pvt Ltd. during the month of November 20XX.

Solution:
Statement showing Net GST liability of Hotel King Pvt Ltd for the month of Nov 20XX

Particulars Value in (`) Remarks

GST on outward supplies 2,83,545 15,75,250 × 18%
Less: ITC on rent-a-cab service (36,000) 2,00,000 × 18%
Net GST liability 2,47,545
Note: In the given case Hotel King Pvt Ltd. providing a composite supply of rent-a-cab and accommodation
service. The principal supply of service is accommodation service. Hence, GST paid on rent-a-cab will be
available as a credit to Hotel King Pvt Ltd.

Illustration 33
Infosys Ltd. being a registered person under GST Law paid insurance premium for its employees along with GST
thereon. Infosys Ltd. can avail the ITC of GST paid on insurance premium?

Solution:
No. Infosys Ltd cannot avail the ITC benefit in the given case.

Illustration 34
M/s MRFL Ltd. being a manufacturer of taxable goods paid general insurance premium to cover loss of stock of
finished goods. Company wants to avail the GST paid on such premium as input tax credit. Advise.

Solution:
GST paid on general insurance premium to cover loss of stock of finished goods is well allowed as input tax
credit. Hence, M/s MRFL Ltd. is eligible to avail the tax paid on general insurance premium as ITC.

Illustration 35
X Ltd is provider of rent a cab services to Infosys company. Infosys company using cab services for following
purposes.
Case 1: if Infosys uses cab services for transportation of their employees.
Case 2: if Infosys uses cab services for their prospective customers.
Case 3: if Infosys under an obligation of Law to provide such cab service to employees.
Find the applicability of input tax credit to Infosys Company?

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Solution:
Case 1: ITC not allowed.
Case 2: ITC not allowed.
Case 3: ITC allowed.

Section 17(5)(b) the following supply of goods or services or both— ITC Not allowed:
(iii) travel benefits extended to employees on vacation such as leave or home travel concession;
ITC on tax paid on travel benefits extended to employees on vacation such as leave or home travel concession
shall not be available.
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.
As per CBIC Circular No. 172/04/2022-GST, dated 6th July, 2022, it is clarified that that the proviso after sub-
clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act is applicable to the whole of clause (b) of
sub-section (5) of section 17 of the CGST Act.
It is clarified that “leasing” referred in sub-clause (i) of clause (b) of sub-section (5) of section 17 refers to leasing
of motor vehicles, vessels and aircrafts only and not to leasing of any other items. Accordingly, availment of ITC
is not barred under sub-clause (i) of clause (b) of sub-section (5) of section 17 of the CGST Act in case of leasing,
other than leasing of motor vehicles, vessels and aircrafts (CBIC Circular No. 172/04/2022-GST, dated 6th July,
2022).

Section 17(5) of the CGST Act, 2017 ITC Not allowed:

(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;
Situations in which ITC can be availed on any tax paid on work contract services:
ITC for any tax paid on work contract services shall be available in the following cases:
(a) When supplied for construction of plant and machinery
(b) Where it is an input service for further supply of works contract service.
Works contract:
Under section 2(119) of CGST Act “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.
The expression ‘works contract’ is limited to contracts to do with immoveable property, unlike the existing
understanding of the phrase which also extends to moveable property. A contract will amount to a ‘works contract’
only where there is a transfer of property in goods, while such a transfer may result in goods or anything else (i.e.,
immoveable property).
Construction [applicable to clause (c) and (d)]:
The expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the
extent of capitalization, to the said immovable property.

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Plant and machinery:

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:
(a) land, building or any other civil structures
(b) telecommunication towers; and
(c) pipelines laid outside the factory premises.

Section 17(5) of the CGST Act, 2017 ITC Not allowed:

(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.
It is important to note: Distinction between Section 17(5)(c) and Section 17(5)(d) of the CGST Act, 2017:

Section 17(5)(c), deals with works contract services i.e. when such services are received under composite
contracts and used for the purpose of construction of an immovable property (other than plant and machinery).

Section 17(5)(d), deals with situations when goods or services or both are received under different independent
contracts i.e. supply of goods and supply of services under separate contracts for the construction of an immovable
property (other than plant and machinery).

Input tax credit (ITC) shall not be available in respect of the following Section 17(5) of the CGST Act, 2017:

(c) works contract services when supplied for construction of an immovable property (other than plant and
machinery) except where it is input service for further supply of works contract service;

Explanation: For the purpose of Chapter V (i.e. Input Tax Credit) and Chapter VI (i.e. Registration), 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 support but excludes—

(a) land, building or any other civil structures;

(b) telecommunication towers; and

(c) pipelines laid outside the factory premises.

Example:

M/s Raj Ltd. being registered person under GST availed works contract service for repair of office building.
Amount of repair was debited in the profit and loss account. Comment?

Answer:

The GST paid on works contract for carrying out repair of factory building / office building shall be available for
ITC to the extent to which the said expense is not capitalized to the said immovable property as per section 16(1)
but subject to the provision under Section 17(5) [J.K.Fenner (India) Limited (GST AAR Tamilnadu)].

In the given case M/s Raj Ltd. is eligible to avail ITC.

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Example 7
M/s A Ltd. being a manufacturer of laptops registered under GST. Company appointed M/s B Ltd. for construction
of factory building in the factory premises.

Example 8
M/s A Ltd. being a manufacturer of laptops registered under GST. Company appointed M/s B Ltd. for construction
of factory building in the factory premises. Accordingly M/s B Ltd. sub-contacted works contract service to
M/s C Ltd.

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Example 9
M/s A Ltd. being a manufacturer of laptops registered under GST. Company appointed M/s B Ltd. for construction
of foundation or structural support of Hot Mix Plant (i.e. plant and machinery) that are used for making outward
supply of goods or services or both. Accordingly, M/s B Ltd used cement, steel, Iron, water, chemicals and labour
to complete the job. GST paid on such works contract service is allowed as input tax credit to M/s A Ltd. GST paid
on Hot Mix Plant (i.e. plant and machinery) is also allowed as input tax credit to M/s A Ltd.

Input tax credit (ITC) shall not be available in respect of the following Section 17(5) of the CGST Act, 2017:

(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: Construction [applicable to clause (c) and (d) of Section 17(5) of the CGST Act, 2017]:
The expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the
extent of capitalization, to the said immovable property.
Explanation: For the purpose of Chapter V (i.e. Input Tax Credit) and Chapter VI (i.e. Registration), 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 support but excludes—
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.

Example 10
M/s A Ltd. being a manufacturer of laptops registered under GST. Company appointed M/s B Ltd. for construction
of factory building in the factory premises. M/s B Ltd. agreed to undertake only labour contract plus GST. Material
supplied by M/s C Ltd, plus GST.

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Illustration 36
M/s Bharti Airtel Limited purchased antennas, towers and parts thereof by paying GST. Company also received
works contract service from M/s B Ltd. for its installation by paying GST thereon. Finally towers and parts thereof
are fastened and are fixed to the earth and after their erection become Immovable. Find the eligibility of input tax
credit to M/s Bharti Airtel Limited.

Solution:

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Example 11:
M/s Indian Oil Corporation wants to lay down pipeline from Bhubaneswar to Chennai. Company awarded this
contract to M/s B Ltd. for a consideration plus GST. Is it input service to M/s Indian Oil Corporation?

Illustration 37
M/s X Ltd manufacturer of taxable goods and registered under GST Law. M/s X Ltd assigned the contract in the
month of January 2025, for `5,00,000 plus GST 18% to M/s Y Ltd. for constructing structural support of Hot Mix
Plant, which is used for making taxable supply of goods.
Accordingly, M/s Y Ltd used cement, steel, Iron, water, chemicals and labour to complete the job. Entire work
has been completed and payment also be received in the month of January 2025.
M/s X Ltd further provides the following information to find net GST liability of M/s X Ltd. for the month of
January 2025:

Inward supply Value in (`) GST Rate Outward supply Value in (`) GST Rate
Raw material (10 Kgs) 2,00,000 18% Finished goods 15,00,000 28%
Hot Mix Plant 6,00,000 28%
Works contract service 5,00,000 18%
Note: there is process loss @1% while converting raw materials into finished goods.

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Solution:
Statement showing net GST liability for the month of January 2025 of M/s X Ltd.

Particulars GST (`) Remarks

Output tax 4,20,000 15,00,000 × 28%
Less: ITC on Input (36,000) 2,00,000 × 18%
ITC on Capital goods (1,68,000) 6,00,000 × 28%
ITC on Input service (90,000) 5,00,000 × 18%
Net GST liability 1,26,000

Note: Hot Mix Plant is capital goods, hence ITC allowed.

Inputs and input services used for constructing of building or any other civil structures ITC not allowed:

Illustration 38
M/s A Ltd. being a manufacturer of laptops registered under GST. Company appointed M/s B Ltd. for construction
of factory building in the factory premises. Contract price is `120 lacs plus GST 18%. M/s B Ltd., supplied cement,
steel and labour while executing the contract. Whether M/s A Ltd is eligible to avail the input tax credit on such
works contract service.

Solution:
GST paid on works contract services which is used for land, building or any other civil structures specifically
excluded from availing input tax credit under section 17(5)(c) of the CGST Act, 2017.
Therefore, in the given case M/s A Ltd is not eligible for input tax credit.

Illustration 39
Mr. X being a contractor undertaken
construction work of an individual residential unit otherwise than as part of a residential complex.
You are required to answer:
(a) Mr. X is liable to pay GST where he under taken pure labour contract.
(b) Mr. X is liable to pay GST where he under taken both labour and material contract.
(c) Mr. X is gives contract to sub-contractor, can sub-contractor also get exemption if it is pure labour contract.
Solution:
As per Notification No. 12/2017-Central tax (Rate) “Services by way of pure labour contracts of construction,
erection, commissioning, or installation of original works pertaining to a single residential unit otherwise than as a
part of a residential complex.” are exempt from GST.
Since, Mr. X undertaken services by way of pure labour contracts of construction of single residential unit
is exempt from GST.
(a) If in case Mr. X providing service with both labour and material i.e. termed as works contract under GST. He
will be charged 18% GST.
(b) Yes. Services provided by a sub-contractor to a contractor are also exempt as he is providing labour for the
construction of residential house.
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Illustration 40
M/s Raji builders appoint M/s Viswa contractors for providing the service of plastering of walls. As per terms of
contract M/s Raji builders provides the entire material namely cement, water, bricks and chemicals and so on. As
a result, M/s Viswa contractors does not use any material.
Is it works contract service?

Solution:
It cannot be considered as works contract service, as it does not involve the transfer of property.

Illustration 41
M/s MR Ltd. manufacturer of laptops. Company appoints M/s RM Constructions for constructing a new factory
building. Terms and conditions of contract are as follows:

S. No. Particulars Value in (`) Remarks

1. Land value 2 crores Land owned by M/s MR Ltd.
2. Material cost 30 lacs Material supplied by M/s RM Constructions
3. Service cost 10 lacs Supplied by RM Constructions
a. Construction completed in the month of April 2024.
b. Assume Time of supply in the month of April 2024.
c. Applicable rate of GST 18%.
d. Fully payment made in the month of April 2024.
Output supplies of M/s MR Ltd during the month of April 2024 are `20,00,000 plus GST 18%.
Find the net liability of GST in the hands of M/s MR Ltd. in the month of April 2024.
Rework, if M/s MR limited is provider of works contract service.

Solution:
Net GST liability in the month of April 2024 is `3,60,000.
(20,00,000 × 18%).
Note: works contract service is not input service to M/s MR Ltd.

Re-work:
Net GST liability in the month of April 2024 is as follows
GST on output supply = `3,60,000
Less: ITC on Works contract service
(`30 lacs + `10 lacs) × 18% = `(7,20,000)
Excess ITC c/f = `(3,60,000)
Note: works contract services are an input service to a supplier of works contract services.

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Illustration 42
M/s P Ltd. appoints M/s Q Ltd. for laying of pipelines inside its factory premises which resulting into movable
property. For which M/s P Ltd. purchased pipelines for `10,00,000 plus GST 12%. On completion of works contract
service M/s Q Ltd charged for `2,00,000 plus GST 18%. Find the eligible input tax credit to M/s P Ltd.

Solution:
The credit of GST paid on pipelines inside the factory will be available. Since, pipelines laid inside the factory
premises are in the course or furtherance of business (i.e. capital goods).
Therefore, input tax credit allowed is `1,20,000.
GST paid on works contract services, which are used for laying of pipelines resulting into movable property, is
also qualify for claiming input tax credit of `36,000.
Therefore, total eligible input tax credit is `1,56,000.

Illustration 43
Ram is the chairman of reputed construction company. He ordered certain input goods or services like cement,
steel and labour to be used for the construction of his house. Cement purchased was also used partly for the own
company building (i.e. captive use).
Whether Input tax credit allowed on purchase of cement?

Solution:
ITC would not be available on purchase of cement including steel and labour (sec. 17(5)(d) of the CGST Act,
2017).
Even if cement is used for own company building purpose ITC is not allowed.
Note: As per Section 17(5)(d) of the CGST Act, 2017, No ITC will be provided for materials used in the
construction of immovable property of for furtherance of business. ITC will not be available for the goods or
services or both provided to a taxable person used in the construction of an immovable property on his own account
including when such goods or services or both are used in the course or furtherance of business.

Illustration 44
Determine the amount of input tax credit available with Arihant Manufacturing Ltd. in respect of the following
items procured by them in the month of January 2025:

Items GST paid in `

Raw materials 72,000
Food and beverages & catering services are used in the guesthouse primarily for the stay 40,000
of the newly recruited employees.
Inputs used for making structures for support of plant and machinery 1,25,000
Capital goods used as parts and components for use in the manufacture of final product 40,000

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Solution:
Statement showing eligible input tax credit to Arihant Manufacturing Ltd.

Items ITC in (`)

Raw materials 72,000
Food and beverages & catering services are used in the guesthouse primarily for the stay Not allowed
of the newly recruited employees.
Inputs used for making structures for support of plant and machinery 1,25,000
Capital goods used as parts and components for use in the manufacture of final product 40,000
Total credit allowed 2,37,000

Illustration 45
ABC India Ltd. is engaged in the manufacture of some taxable goods. It purchased the following goods in the
month of October, 2024:—

Items GST paid in (`)

Raw material used for the production of the final product 1,00,000
Goods used for generation of electricity for captive consumption 20,000
Goods used for providing free warranty – Value of such free warranty provided by ABC 10,000
India Ltd. is included in the price of the final product and is not charged separately from
the customers
Light diesel oil 5,000
Note: ABC India Ltd. is also purchased High Speed Diesel oil by paying central excise duty of `12,000, which
is also used in the manufacturer of taxable output.
Compute the amount of input tax credit available to ABC India Ltd.

Solution:
Statement showing Input tax Credit of ABC India Ltd.

Items ITC in `
Raw material used for the production of the final product 1,00,000
Goods used for generation of electricity for captive consumption 20,000
Goods used for providing free warranty 10,000
Light diesel oil 5,000
High Speed Diesel oil Not allowed
Total input tax credit 1,35,000

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GOODS CAPTIVELY CONSUMED:

Section 17(5)(e) of the CGST Act, 2017 Goods or services or both on which tax has been paid under section 10;
Goods and/or services on which tax is paid by the supplier is not eligible for ITC under composition scheme.
Accordingly, a small supplier who has opted for composition scheme would stand to lose business, because
neither supplier nor recipient of supply is eligible for ITC.
Section 17(5)(f) of the CGST Act, 2017 Goods or services or both received by a non-resident taxable person
except on goods imported by him;
Input tax credit shall not be available in respect of goods or services or both received by a non-resident taxable
person except on goods imported by him. It means IGST on import of goods allowed as ITC. It is to avoid double
taxation.
The taxes paid by a non-resident taxable person shall be available as credit to the respective recipients.

Illustration 46
Mr. A of USA being technician came to India to assemble parts of machinery. He also imported goods worth
`10,00,000 and paid following customs duties:
(i) Basic customs duty is `1,00,000.
(ii) Education Cess 2% plus 1% Secondary and Higher Education Cess together it is `3,000.
(iii) Integrated Goods and Services Tax (IGST) of `1,98,540.

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In India Mr. A wants to register as non-resident taxable person and his estimated liability is `2,50,000. How much
Mr. A is liable to pay as advance tax?
Solution:
Mr. A of USA is liable to pay advance tax of `51,460.
(i.e. `2,50,000 – `1,98,540)
Section 17(5)(fa) w.e.f. 1st October 2023, 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.
Facts of the case: Assessee had availed credit of GST paid on house-keeping and gardening services. In the given
case assessee incurred expenditure of housekeeping and gardening in his business premises, out of CSR fund.
However, Revenue disallowed the credit and also imposed penalty on the ground that the assessee was not eligible
to avail credit of GST paid on these services.
Assesse claim: The environmental law expects the employer to keep the factory without contravening any of
those laws. That apart, now the concept of corporate social responsibility is also relevant. Under the CSR policy,
the company has contributed 2% of its net profit earned during the last three financial years. The majority of the
CSR fund is utilized on Contribution towards the environment protection. It is to discharge a statutory obligation,
when the employer spends money to maintain their factory premises in an eco-friendly manner, certainly, the tax
paid on such services would form part of the costs of the final products.
However, w.e.f. 1-10-2023, 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 is blocked credit under section 17(5)(fa) of CGST Act, 2017. Therefore, ITC is not
allowed.
From the above, it is evident that Revenue action is correct.
Section 17(5)(g) of the CGST Act, 2017 goods or services or both used for personal consumption;
Input tax paid on goods and or services used for personal consumption is not eligible for ITC.
If the goods or services on which input tax credit has been availed are used for personal consumption, it actually
means that the credit on the input or input services to the extent of its use for personal consumption shall be
disallowed. It means reverse the credit by debiting to profit and loss account or pay an amount to the department
by using electronic cash ledger account.
Example 12
M/s X Ltd. purchased shoes for their employee’s personal consumption by paying GST thereon. ITC not allowed
on such goods.
Example 13
M/s Y Ltd. for safety reasons purchased hand gloves and shoes for workers as mandatory. Hence, ITC on such
goods cannot be considered as used for personal purpose. Therefore, ITC allowed.

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Illustration 47
M/s Info Ltd. providing various facilities to their employees like club, sports facilities etc. to ensure that the
employees stay comfortably in the colony. It increases the efficiency of employee. Examine the credit applicability
in this case.
Solution:
Expenses incurred in colony are in the course or furtherance of business. Hence, credit of GST paid on such
services will also be available to the taxable person.
Illustration 48
M/s Andhra ITC Ltd. purchased inputs and capital goods by paying GST to produce electricity or steam for
manufacture of taxable goods. The electricity generated for use in manufacture of goods is sometimes also supplied
in the residential colony of employees. Whether, M/s Andhra ITC Ltd. is eligible to avail the credit fully?
Solution:
As per the GST Law provisions there is no requirement of use of electricity in manufacture of goods. The only
requirement is that the input or capital goods shall be used in the course or furtherance of business. This view also
confirmed by Hon’ble Andhra Pradesh High Court in the case of ITC Ltd. 2013(32) STR 283 (AP).
Therefore, M/s Andhra ITC Ltd. is eligible to avail input tax credit.
Section 17(5)(h) of the CGST Act, 2017 goods lost, stolen, destroyed, written off or disposed of by way of gift
or free samples;
Credit of GST paid on input or capital goods is permitted when input or capital goods are used in the course or
furtherance of business.
ITC not allowed in the following cases:
~ Goods lost

~ Goods stolen

~ Goods destroyed

~ Goods written off or

~ Disposed of by way of gift

~ Disposed of by way of free samples

Note: As per Section 17(5)(h) of the CGST Act, 2017 input tax credit shall be reversed when the goods have
been disposed of by way of gift or free sample. In this case, there is no consideration for sale of goods and GST is
not payable on output supply. However, the input tax credit availed on such goods shall be reversed or pay GST to
the department as the case may be.

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Drugs or medicines – Return of time expired drugs or medicines (CBIC Circular No. 72/46/2018-GST, dated
26-10-2018):

(A) Return of time expired goods to be treated as fresh supply:

(a) The wholesaler or manufacturer, as the case may be, who is the recipient of such return supply, shall be
eligible to avail Input Tax Credit (ITC).
(b) Where the time expired goods which have been returned by the retailer/wholesaler are destroyed by
the manufacturer, he/she is required to reverse the ITC availed on the return supply in terms of the
provisions of Section 17(5)(h) of the CGST Act, 2017.
Circular No. 219/13/2024-GST dated 26 June 2024 -
Clarification regarding availability of ITC on ducts and manholes used in the network of Optical Fibre
Cables (OFCs) according to section 17(5) of the CGST Act, 2017:
The circular has clarified the issue of availing ITC on ducts and manholes used in the network of OFC’s which was
denied as the same was said to be restricted in terms of sections 17(5)(c) and
17(5)(d) of the CGST Act. Now, it has been clarified that availing ITC on ducts and manholes used in the network
of OFC’s is not restricted in terms of the said section because of the following –
a. Ducts and manholes are basic components for the optical fibre network used in providing Telecommunication
services.
b. Regarding the explanation to section 17 of the CGST Act, 2017, ducts and manholes are not specifically
excluded from the definition of plant and machinery as they are neither in the nature of land, building or civil
structures nor are they in the nature of telecommunication towers or pipelines laid outside factory.

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c. Ducts and Manholes are in the nature of plant and machinery as

they are used as part of the OFC network for making outward
supply of the transmission of telecommunication signals.
Example: Availability of ITC on Ducts and Manholes in
OFC Networks
Scenario:
1. Company: XYZ Telecom Ltd.
2. Infrastructure:
• Ducts: Used to house and protect optical fibre cables
(OFCs) underground.
• Manholes: Provide access points for maintaining and
connecting OFCs.
Key Clarifications for ITC:
1. Ducts and Manholes Are Essential:
• They are basic components for setting up and operating the OFC network.
• Used directly in providing telecommunication services.
2. Not Excluded from Plant and Machinery:
• As per Section 17 of the CGST Act, ducts and manholes:
• Are not categorized as land, building, or civil structures.
• Are not telecommunication towers or pipelines outside a factory.
3. Eligible for ITC:
• Since ducts and manholes are part of the telecommunication network (plant and machinery), ITC is
available for their purchase and installation.
Illustration 49
Manufacturer has availed ITC of `10,000 at the time of purchase of inputs to manufacture of medicines. At the
time of return of such medicine on the account of expiry, the ITC available to the manufacturer on the basis of fresh
invoice issued by the retailer/wholesaler is `15,000.
If so, how much ITC is required to reverse, at the time expired medicines are destroyed by the manufacturer?
Solution:
Manufacturer would be required to reverse ITC of `15,000 and not of `10,000.

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(B) Return of time expired goods by issuing Credit Note:

Date of supply Date of return
of goods from of time expired
manufacturer/ goods from Treatment in terms of tax
wholesaler to retailer/wholesaler liability & credit note
wholesaler/ to wholesaler/
retailer manufacturer
Case 1st July 2024 30th November Credit note will be issued by the supplier (manufacturer/
1 2025 wholesaler) and the same to be uploaded by him on
the common portal. Subsequently, tax liability can
be adjusted by such supplier provided the recipient
(wholesaler/retailer) has either not availed the ITC or
if availed has reversed the ITC
Case 1st July 2024 20th December 2025 Credit note will be issued by the supplier (manufacturer/
2 wholesaler) but there is no requirement to upload the
same on the common portal. Subsequently, tax liability
cannot be adjusted by such supplier
It may be noted that though this circular discusses the scenarios in relation to return of goods on account of
expiry of the same, it may be applicable to such other scenarios where the goods are retuned on account of
reasons other than the one detailed above.
Section 17(5)(i) of the CGST Act, 2017 any tax paid in accordance with the provisions of Fraud, Detention,
Seizure and confiscation of goods or conveyance.
(a) Section 74 of the CGST Act, 2017: Show cause notice issued in case of fraud, to recover the GST.
(b) Section 129 of the CGST Act, 2017: Tax is paid, when goods are under detention by the officers for
further investigation
(c) Section 130 of the CGST Act, 2017: Tax paid, when the goods or conveyance are being confiscated.
GST paid under the above provisions, credit is not available to a taxable person.
Note: Section 73 of the CGST Act, 2017: Show cause notice issued in case other than fraud to recover the
GST. It means duty paid under section 73 of the CGST Act, 2017 can avail the credit by the taxable person
(namely receipt of goods or services)
Illustration 50
M/s X Ltd. sold goods to M/s Y Ltd. for `2,00,000 plus GST `36,000. M/s X Ltd. remitted the GST on or before
the due date. During the audit of M/s X Ltd books by the Central Tax Department quantified the GST liability
`72,000 and demanded to pay differential duty of `36,000 under section 74 of the CGST Act, 2017. Finally, M/s X
Ltd paid the differential GST of `36,000.
M/s Y Ltd wants to avail the input tax credit of differential amount of GST, advise.
Solution:
Since, the differential GST paid by M/s X Ltd. against show cause notice under section 74 of the CGST Act,
2017, will not be available as credit to M/s Y Ltd in view of clause (i) of section 17(5) of the CGST Act, 2017.

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Availability of credit in special circumstances [Section 18 of the CGST Act, 2017]

Section 18 (1) Subject to such conditions and restrictions as may be prescribed—
(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;
(b) a person who takes registration under sub-section (3) of section 25 (i.e. voluntary 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 of grant of registration;
(c) where any registered person ceases to pay tax under section 10 (i.e. from composition levy to normal levy
of GST), 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:
Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed;
(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:
Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.
(2) A registered person shall not be entitled to take input tax credit under sub-section (1) in respect of any supply
of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating
to such supply.
(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.
(4) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where
the goods or services or both supplied by him become wholly exempt, he shall pay an amount, by way of
debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect
of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital
goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date
of exercising of such option or, as the case may be, the date of such exemption:
Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic
credit ledger shall lapse.
(5) The amount of credit under sub-section (1) and the amount payable under sub-section (4) shall be calculated
in such manner as may be prescribed.
(6) In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the
registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant
and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of
such capital goods or plant and machinery determined under section 15, whichever is higher:
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Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person
may pay tax on the transaction value of such goods determined under section 15.
Simplified approach with regard to Section 18 of the CGST Act, 2017:

ITC Capital goods sec Xxx Availability of credit Section 18 of the CGST
18(1)(c) or (d) Act, 2017
Less: 5% p.q of a year or (xx)
part thereof from the date
Credit is
of invoice (rule 40(1)(a)
YES eligible to NO
of the CGST Rues, 2017
avail
ITC allowed on C.G. XX
Provision Goods eligible for ITC Provision Goods not eligible for ITC.
Sec. 18(1)(a): Person Inputs held in stock, WIP or Sec. ITC not allowed to take under Sec.
got registered ≤ 30 days F.G. as on the day immediately 18(2): 18(1) in respect of goods > 1 Year
from date need arises. preceding the date from which he from the date of issue of tax invoice.
becomes liable to pay GST. Sec. Total ITC as on the day other Xx
Sec. 18(1)(b): person Inputs held in stock, WIP or F.G. as 18(4): than C.G
voluntarily registered. on the day immediately preceding Person Less: input tax on RM, WIP (xx)
the date of grant of registration. opted to or F.G
Sec. 18(1)(c): person Inputs held in stock, WIP or F.G. pay GST
Pay an amount through xx
who ceases to pay and capital goods as on the day u/s 10 or
electronic cash ledger
composition tax. immediately preceding the date goods or
account (If excess ITC if any
from which be becomes liable to services
shall lapse).[In case of input
pay GST under regular scheme. are
tax credit on C.G. involved
ITC on capital goods as stated in wholly
in the remaining useful life
rule 40(1)(a) of the CGST Rues, exempt.
in months shall be computed
2017. on pro-rata basis, taking
Sec. 18(1)(d): exempt Inputs held in stock, WIP or F.G. useful life as 5 Years (Rule
supply becomes and capital goods as on the day 44(1)(b) of the CGST Rules,
taxable. immediately preceding the date 2017]
from which such supply becomes Sec. ITC taken on Capital Goods Xx
taxable. ITC on capital goods 18(6): Less: 5% p.q. of a year or (xx)
as stated in rule 40(1)(a) of the supply part thereof from the date
CGST Rues, 2017. of capital of invoice (rule 40 (2) of the
Sec. 18(3): Change ITC remains unutilized in goods CGST Rues, 2017
in constitution of a his electronic credit ledger to
Balance ITC (i.e. Tax on Xx
registered person such sold, merged, demerged,
notional value) or Tax on Xx
on account of sale, amalgamated, lease or transferred
Transaction value u/s 15
merger, demerger, business.
amalgamation, lease or Whichever is higher, shall pay an
transfer of the business. amountITC

Proviso to section 18(6) of the CGST Act, 2017 where refractory bricks, moulds and dies, jigs and fixtures are
supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under Section
15. It means 5% per quarter reduction not required to apply.

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As per Rule 40(1)(b) of the CGST Rules, 2017 the registered person shall within a period of 30 days from
the date of his becoming eligible to avail the input tax credit under sub-section (1) of section 18 shall make a
declaration, electronically, on the common portal in FORM GST ITC-01 to the effect that he is eligible to avail
the input tax credit as aforesaid;
As per Rule 40(1)(d) of the CGST Rules, 2017 the details furnished in the declaration under clause (b) shall be
duly certified by a practicing Chartered Accountant or a Cost Accountant if the aggregate value of the claim on
account of central tax, State tax, Union territory tax and integrated tax exceeds `2,00,000;
Manner of reversal of credit under special circumstances: As per Rule 44(1)(b) of the CGST Rules, 2017 the
amount of tax credit relating to capital goods held in stock shall, for the purpose of Section 18(4) of the CGST Act,
2017 (i.e. person opted to pay composition scheme or supplies are exempted wholly from GST) or section 29(5) of
the CGST Act, 2017 (i.e. registration cancelled), be determined in the following manner, namely:—
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.

Example 14
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months = 5 months ignoring a part of the month.
Input tax credit taken on such capital goods = C
Input tax credit attributable to remaining useful life = C × 5/60.
Therefore, input tax credit attributable to remaining useful life shall be reversed or pay as an amount.

vide Notification No. 16/2020-CT, dated 23.03.2020, w.e.f. 01.04.2020:

The amount of input tax in respect of capital goods used or intended to be used exclusively for non-business
purposes or used or intended to be used exclusively for effecting exempt supplies shall be indicated in FORM
GSTR-2 [and FORM GSTR3B] and shall not be credited to his electronic credit ledger;
An item of capital goods declared as above on its receipt shall not attract the provisions of sub-section (4) of
section 18, if it is subsequently covered under this clause.
Clarification in respect of apportionment of ITC in cases of business reorganization under section 18(3) of
the CGST Act read with rule 41(1) of the CGST Rules.

Amalgamating Companies
Ram Ltd. Rahim Ltd. Robert Ltd.
Registered under GST Registered under GST Registered under GST

RRR Ltd.
(Transferee Company)
Unutilized ITC of transferor will become ITC of tranferee
Amalgamated Company

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Question:
Is the transferor required to file FORM GST ITC-02 in all States where it is registered?

Answer:
No. The transferor is required to file FORM GST ITC-02 only in those States where both transferor and transferee
are registered.
The ratio of value of assets, as prescribed under proviso to sub-rule (1) of rule 41 of the CGST Rules, shall be
applied to the total amount of unutilized input tax credit (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.

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How to determine the amount of ITC that is to be transferred to the transferee under each tax head (IGST/
CGST/SGST) while filing of FORM GST ITC-02 by the transferor?
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, as determined under Rule 41(1) of the CGST Rules.
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.
In other words, for the purpose of apportionment of ITC under sub-rule (1) of rule 41 of the CGST Rules,
while the ratio of the value of assets should be taken as on the “appointed date of demerger” [Section 232(6) of
the Companies Act, 2013], the said ratio is to be applied on the ITC balance of the transferor on the date of filing
FORM GST ITC-02 to calculate the amount to transferable ITC.

Illustration 51
M/s X Ltd becomes liable to pay tax on 1st December and has obtained registration on 15th December.
The GST paid goods lying in the premises of M/s X Ltd as on 30th November are as follows:

Value in ` GST
Particulars
(Excluding tax) `

Raw material 2,00,000 36,000

Capital goods 5,00,000 1,40,000
Raw material lying work in progress 3,00,000 54,000
Raw material lying in Finished Goods 12,00,000 2,16,000
You are required to answer the following:

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(a) Eligible amount of input tax credit.

(b) Time limit to submit declaration on common portal.
(c) Whether any certification required while availing the credit, if so from whom.
Solution:
(a) Eligible input tax credit is `3,06,000/-
(b) Declaration in Form GST ITC-01 on or before 14th January should be submitted on common portal of
GSTN.
(c) Declaration regarding inputs tax credit shall be duly certified by a practicing Chartered Accountant or a Cost
Accountant if the aggregate value of the claim on account of central tax, State tax, Union territory tax and
integrated tax exceeds `2,00,000.
In the give case, since, input tax credit declared is `3,06,000. Therefore, certificate from a practicing Chartered
Accountant or a Cost Accountant is required.
Note: M/s X Ltd cannot take ITC on capital goods.
Illustration 52
Mr. A applies for voluntary registration on 22nd November and obtained registration on 25th November.
Mr. A has stock on the following two dates:

Date Opening balance (units) Purchased (units) Sold (units)

21st November 12,000 20,000 8,000
On 24th November, Mr. A purchased 5,000 units and sold 15,000 units.
On 24th November, Mr. A is also purchased plant and machinery for `2,00,000 plus GST 28%.
Mr. A purchased goods at uniform rate throughout the year at `100 per unit plus GST paid 18%.
You are required to find the eligible input tax credit to Mr. A.
Solution:
Stock as on 24th November = 14,000 units
Value of stock = `14,00,000
(i.e. 14,000 units x `100 per unit).
Input tax credit eligible is `2,52,000/-.
Note: ITC on capital goods not allowed.
Illustration 53
Mr. C a registered taxable person, was paying tax at composition scheme upto 30th July. However, w.e.f. 31st
July, Mr. C becomes liable to pay tax under regular scheme.
Other information:
(a) Input as on 30th July for `3,54,000 (inclusive of GST paid @18%).
(b) Capital goods purchased for `5,00,000 (invoice date 22nd April, GST 18%)
Find the eligible ITC to Mr. C.
Note: Mr. C not availed depreciation on the GST portion paid on capital goods.

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Solution:
Statement showing total ITC allowed to Mr. C as on 31st July

Particulars Value in (`) Working note

ITC allowed on inputs 54,000 3,54,000 × 18/118
ITC allowed on capital goods 81,000 ITC on Capital goods 90,000
Less: 5% p.q (`90,000 × 5% × 2) (9,000)
Net allowed 81,000
Total ITC allowed 1,35,000
Illustration 54
The goods manufactured by Royal Ltd. have been exempted from GST with effect from 15th November 2023.
Earlier these goods were liable to tax @18%. Its inputs were liable to GST @ 12%. Following information is
supplied on 15th November 2023:
(i) The inputs costing `1,44,720 are lying in stock.
(ii) The inputs costing `77,184 are in process.
(iii) The finished goods valuing `4,82,400 are in stock, the input cost is 50% of the value. Royal Ltd. also
purchased capital goods for `2,00,000 by paying GST 28% (invoice dated 10th July 2023)
The balance in electronic credit ledger account shows credit balance of `2,79,104.
The department has asked Royal Ltd. to reverse the credit taken on inputs referred above. However, Royal Ltd.
contends that credit once validly taken is indefeasible and not required to be reversed. Decide.
What would be your answer if the balance in electronic credit ledger receivable account as on 15th November
2023 were `29,104?
Solution:
Statement showing amount to be paid by Royal Ltd. as on 15th November 2023
S. Amount to
Particulars Workings
No. be paid (`)
(i) Inputs lying in stock 17,366 `1,44,720 × 12/100 = `17,366

(ii) Inputs in process (i.e. Work in Progress) 9,262 `77,184 × 12/100 = `9,262

(iii) Inputs contained in finished goods lying in stock 28,944 `4,82,400 × 50% × 12/100 = `28,944

(iv) Capital goods 51,333 Useful life as per rule 44(1)(b) = 5

years (i.e. 60 months).
No. of months capital goods have been
in use = 4 months 5 days (i.e. 5 months)
The useful remaining life in months =
55 months
2,00,000 × 28% × 55/60 = `51,333
Amount to be paid by Royal Ltd. 1,06,905

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Amount payable by Royal Ltd. = `1,06,905

Less: ITC Receivable = `(2,79,104)

Excess ITC shall lapse = ` (1,72,199)

Excess ITC in electronic credit ledger of `1,72,199 shall lapse as 15th November 2023.
If the balance in electronic credit ledger as on 15th November 2023 is `29,104, then amount payable is as follows:
Amount payable by Royal Ltd. = `1,06,905
Less: ITC Receivable = `(29,104)

Amount payable by electronic cash ledger = `77,801

Illustration 55
M/s A Ltd. sold plant and machinery after being used in the manufacture of taxable goods for `4,00,000 on 1st
November 2024. GST is payable on transaction value of plant and machinery 18%. M/s A Ltd. was purchased this
machine vide invoice dated 22nd November 2023 for `5,50,000/- plus GST 18%.
M/s A Ltd. availed the credit on said plant and machinery. Find the amount payable by M/s A Ltd. under section
18(6) of the CGST Act, 2017.

Solution:

Particulars Amount in ` Working note

ITC taken on capital goods 99,000 5,50,000 × 18%
Less: 25% reduction (24,750) No. of quarters = 5
5% × 5 = 25% reduction
Balance ITC 74,250
Tax on Transaction value 72,000 4,00,000 × 18%
Therefore, M/s A Ltd is liable to pay an amount of
`74,250/-.

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Case studies and Illustrations on Input Tax Credit

including Job Work, Input Service Distributor 5.3
Taking input tax credit in respect of inputs and capital goods sent for job work [Section 19 of the CGST
Act, 2017]
(1) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax
credit on inputs sent to a job worker for job work.
(2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be
entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job work
without being first brought to his place of business.
(3) Where the inputs sent for job work are not received back by the principal after completion of job work or
otherwise or are not supplied from the place of business of the job worker in accordance with clause (a) or
clause (b) of sub-section (1) of section 143 within one year of being sent out, 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 sent out:
Provided that where the inputs are sent directly to a job worker, the period of one year shall be counted from
the date of receipt of inputs by the job worker.
(4) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax
credit on capital goods sent to a job worker for job work.
(5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be
entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker
for job work without being first brought to his place of business.
(6) Where the capital goods sent for job work are not received back by the principal within a period of three
years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the
job worker on the day when the said capital goods were sent out:
Provided that where the capital goods are sent directly to a job worker, the period of three years shall be
counted from the date of receipt of capital goods by the job worker.
(7) Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies, jigs and fixtures, or
tools sent out to a job worker for job work.
Explanation: For the purpose of this section, “principal” means the person referred to in section 143.

Taking input tax credit in respect of inputs and capital goods sent for job work Section 19 of the CGST
Act, 2017:

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As per Section 19(2) or (5) of the CGST Act, 2017:

As per Section 19(3)/19(6) of the CGST Act, 2017:

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w.e.f. 1-2-2019: 2nd Proviso to section 143 of the CGST Act, 2019:
The period of one year and three years may, on sufficient cause being shown, be extended by the Commissioner
for a further period not exceeding one year and two years respectively.

What is job-work?
Section 2(68) of the CGST Act, 2017 defines job-work as ‘any treatment or process undertaken by a person on
goods belonging to another registered person’. The one who does the said job would be termed as ‘jobworker’.
Contents of a job-work
~ The ownership of the goods does not transfer to the job-worker, but it rests with the principal.
~ The job worker is required to carry out the process specified by the principal on the goods.

Who is Principal?
Section 143 of the CGST Act, 2017: A registered person (hereafter in this section referred to as the “principal”)
may under intimation and subject to such conditions as may be prescribed, send any inputs or capital goods, without
payment of tax, to a job worker for job work and from there subsequently send to another job worker and likewise.

Deemed supply
As per section 143(3) and 143(4) of the CGST Act, 2017 makes provision for payment of tax when the inputs or
capital goods respectively are not returned back by the job worker.
The inputs after processing shall be returned back within ONE year of their being sent out. Otherwise it will be
treated as deemed supply (i.e. supplied by the principal to the job worker on the day when the said inputs were sent
out). Therefore, the principal will have to pay tax along with interest.

Illustration 56
M/s X Ltd. has supplied inputs to job worker M/s Y Ltd on 25th August 2023. These inputs not received back till
24th August 2024 by M/s X Ltd., after processing.
Find the consequences in this regard?

Solution:
As per section 143(3) of the CGST Act, 2017 principal will be required to pay the tax on supply of inputs. The
time of supply is 25th August 2023. If the principal decided to pay tax on 25th August 2024 he will have to pay tax
with interest of one year.

Illustration 57
M/s X Ltd. (i.e. seller) supplied capital goods on 20th May 2024 directly to job worker M/s Y Ltd and the same
received on 25th May 2024 by the job worker, based on the directions of M/s Z (i.e. Buyer-Principal).
These capital goods not received back till 24th May 2027 by M/s Z Ltd. after processing.
Find the consequences in this regard?
Solution:
These capital goods not received back on 24th May 2027 by M/s Z Ltd., after processing. As per section 143(4)
of the CGST Act, 2017 principal will be required to pay the tax on supply of capital goods. The time of supply is
25th May 2024. If the principal decided to pay tax on 25th May 2027 he will have to pay tax with interest of 3 year.

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Job-work procedural aspects

Certain facilities with certain conditions are offered in relation to job-work, some of which are as under:
(a) A registered person (Principal) can send inputs/capital goods under intimation and subject to certain
conditions without payment of tax to a job-worker and from there to another job-worker and after completion
of job-work bring back such goods without payment of tax. The principal is not required to reverse the ITC
availed on inputs or capital goods dispatched to job-worker.
(b) Principal can send inputs or capital goods directly to the job-worker without bringing them to his premises
and can still avail the credit of tax paid on such inputs or capital goods.
(c) However, inputs and/or capital goods sent to a job worker are required to be returned to the principal within
1 year and 3 years, respectively, from the date of sending such goods to the job-worker.
(d) After processing of goods, the job-worker may clear the goods to—
(i) Another job-worker for further processing
(ii) Dispatch the goods to any of the place of business of the principal without payment of tax
(iii) Remove the goods on payment of tax within India or without payment of tax for export outside India on
fulfilment of conditions.
The facility of supply of goods by the principal to the third party directly from the premises of the jobworker on
payment of tax in India and likewise with or without payment of tax for export may be availed by the principal on
declaring premise of the job-worker as his additional place of business in registration.
In case the job-worker is a registered person under GST, even declaring the premises of the job-worker as
additional place of business is not required.
Before supply of goods to the job-worker, the principal would be required to intimate the Jurisdictional Officer
containing the details of the description of inputs intended to be sent by the principal and the nature of processing
to be carried out by the job-worker.
The said intimation shall also contain the details of the other job-workers, if any. The inputs or capital goods shall
be sent to the job worker under the cover of a challan issued by the principal.
The challan shall be issued even for the inputs or capital goods sent directly to the job-worker. The challan shall
contain the details specified in Rule 10 of the Invoice Rules. The responsibility for keeping proper accounts for the
inputs or capital goods shall lie with the principal.
Waste clearing provisions
As per Section 143(5) of the CGST Act, 2017, waste generated at the premises of the job-worker may be supplied
directly by the registered job-worker from his place of business on payment of tax or the principal may clear such
waste, in case the job-worker is not registered.
Latest up-dations under job work:
(i) In case of goods sent from one job worker to another job worker, the challan may be issued either by the
principal or the job worker sending the goods to another job worker as per rule 55 of the CGST Rules, 2017.

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(ii) Where the gods are sent by one job worker to another or are returned to the principal, the challan issued by
the principal may be endorsed by the job worker, indicating therein the quantity and description of goods.
Such endorsed challan may be further endorsed by another job worker, indicating therein the quantity and
description of goods.

(iii) The details of challans in respect of goods dispatched to a job worker or received from a job worker or sent
from one job worker to another during a quarter shall be furnished for that period on or before the 25th
day of the month succeeding the said quarter (Form GST ITC-04).

(iv) Frequency of filing GST ITC-04 revised from quarterly to annual/half-yearly:

(Notification no. 35/2021 CT dated 24.09.2021)

In respect of a principal whose aggregate turnover Form GST ITC-04 is required to be furnished
during the immediately preceding FY
More than `5 crore On half year basis
25th October and 25th April
Upto `5 crore On annual basis
25th April
(v) CGST Commissioner or SGST/UTGST Commissioner to grant extension of time period for furnishing of the
said details. Thus, now the said details may be furnished on or before the 25th day of the month succeeding
the said quarter or within such further period as may be extended by the Commissioner by a notification in
this behalf [Notification No. 51/2017-CT, dated 28.10.2017]

The due of furnishing of FORM ITC-04 for the quarter ending March, 2020 stands extended upto 30-6-2020
(vide CBIC Circular No. 138/08/2020-GST, dated 6-5-2020).

CBIC has notified that the due dates to furnish ITC-04 for the January-March 2020 and April-June 2020
quarters (falling due between 20th March, 2020 to 30th August, 2020) stands extended till 31st August,
2020.

The due of furnishing of FORM ITC-04 for the quarter ending September 2020 stands extended upto 30-11-
2020 (vide Notification No. 87/2020-CT, dated 10-11-2020).

Place of supply in case of job work:

Example 15

The principal is located in State A, the job worker in State B and the recipient in State C. In case the supply
is made from the job worker’s place of business/premises, the invoice will be issued by the supplier (principal)
located in State A to the recipient located in State C. The said transaction will be an inter-State supply. In case the
recipient is also located in State A, it will be an intra-State supply.

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Commissioner empowered to extend the time period for submission of quarterly details of challans relating
to job work under rule 45(3) of CGST Rules
Rule 45(3) of the CGST Rules lays down that the details of challans in respect of goods dispatched to a job
worker or received from a job worker or sent from one job worker to another during a quarter shall be furnished for
that period on or before the due date.
Rule 45(3) has been amended to empower the CGST Commissioner or SGST/UTGST Commissioner to grant
extension of time period for furnishing of the said details. Thus, now the said details may be furnished on or before
the due date or within such further period as may be extended by the Commissioner by a notification in this
behalf [Notification No. 51/2017-CT, dated 28.10.2017].

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Manner of distribution of credit by Input Service Distributor [Section 20 of the CGST Act, 2017]
(1) The Input 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:––
(a) the credit can be distributed to the recipients of credit against a document containing such details as may
be prescribed;
(b) the amount of the credit distributed shall not exceed the amount of credit available for distribution;
(c) the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that
recipient;
(d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed
amongst such recipients to whom the input service is attributable and such distribution shall be pro rata
on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the
relevant period, to the aggregate of the turnover of all such recipients to whom such input service is
attributable and which are operational in the current year, during the said relevant period;
(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst
such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover
in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all
recipients and which are operational in the current year, during the said relevant period.

Explanation: For the purposes of this section,––

(a) the “relevant period” shall be––
(i) if the recipients of credit have turnover in their States or Union territories in the financial year preceding
the year during which credit is to be distributed, the said financial year; or
(ii) if some or all recipients of the credit do not have any turnover in their States or Union territories in the
financial year preceding the year during which the credit is to be distributed, the last quarter for which
details of such turnover of all the recipients are available, previous to the month during which credit is
to be distributed;
(b) the expression “recipient of credit” means the supplier of goods or services or both having the same
Permanent Account Number as that of the Input Service Distributor;
(c) w.e.f. 1-2-2019, the term “turnover”, in relation to any registered person engaged in the supply of taxable
goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any
duty or tax levied (under entry 84 and 92A) of List I of the Seventh Schedule to the Constitution and entries
51 and 54 of List II of the said Schedule.

Manner of distribution of credit by Input Service Distributor Section 20 of the CGST Act, 2017 [Notifi-
cation No. 3/2018-CT, dated 23.01.2018]
Provisions introduced for issuance of invoice/debit note/credit note by registered taxable person (having same
PAN and State code as ISD) to ISD to transfer the credit of common input services
A new sub-rule (1A) has been inserted in rule 54 of CGST Rules. The new sub-rule provides as under:
(a) A registered person, having the same PAN and State code as an input service distributor (ISD), may issue an
invoice/credit note/debit note to transfer the credit of common input services to the ISD, which shall contain
the following details:—

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(i) name, address and GSTIN of the registered person having the same PAN and same State code as the
ISD;
(ii) a consecutive serial number not exceeding 16 characters, in one or multiple series, containing alphabets
or numerals or special characters - hyphen or dash and slash symbolised as “-” and “/” respectively, and
any combination thereof, unique for a financial year;
(iii) date of its issue;
(iv) GSTIN of supplier of common service and original invoice number whose credit is sought to be
transferred to the ISD;
(v) name, address and GSTIN of the ISD;
(vi) taxable value, rate and amount of the credit to be transferred; and
(vii) signature or digital signature of the registered person or his authorised representative.
(b) The taxable value in the invoice issued under clause (a) shall be the same as the value of the common
services.

Manner of recovery of credit distributed in excess [Section 21 of the CGST Act, 2017]
Where the Input Service Distributor distributes the credit in contravention of the provisions contained in section
20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall
be recovered from such recipients along with interest, and the provisions of section 73 or section 74, as the case
may be, shall, mutatis mutandis, apply for determination of amount to be recovered.
Amendment of section 21. (w.e.f 1-11-2024, F.A. 2024, dated 16-8-2024):
In section 21 of the Central Goods and Services Tax Act, after the words and figures “section 73 or section 74”, the
words, figures and letter “or section 74A” shall be inserted.
w.e.f 1-4-2025 (vide Notification No. 16/2024–CT Dated: 6th August, 2024):
Section 2(61) “Input Service Distributor” means an office of the supplier of goods or services or both which
receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax
under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25,
and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20;
w.e.f 1-4-2025 (vide Notification No. 16/2024–CT Dated: 6th August, 2024):
Substitution of section 20. For section 20 of the Central Goods and Services Tax Act, the following section shall
be substituted, namely:–
“Section 20. Manner of distribution of credit by Input Service Distributor.
(1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of
input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4)
of section 9, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as
Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of
such invoices.
(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices
received by him, including the credit of central or integrated tax in respect of services subject to levy of tax
under sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the
said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions
as may be prescribed.

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(3) The credit of central tax shall be distributed 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, in such manner as may
be prescribed.”.
Rule 39 - Procedure for distribution of input tax credit by Input Service Distributor (vide Notification No.
12/2024 CT dt. 10-7-2024, w.e.f. the date yet to be notified):
Numerical Example: Distribution of Input Tax Credit by an Input Service Distributor (as per revised Rule 39)
Scenario Setup:
1. Input Service Distributor (ISD): XYZ Pvt. Ltd. (Located in Delhi).
2. Input Tax Credit (ITC) Available:
• Integrated Tax (IGST): ₹1,20,000.
• Central Tax (CGST): ₹60,000.
• State Tax (SGST): ₹60,000.
3. Recipients of Services:
• R1: Recipient in Delhi (same state as ISD), turnover: ₹50 lakhs.
• R2: Recipient in Maharashtra (different state), turnover: ₹30 lakhs.
• R3: Recipient in Karnataka (different state), turnover: ₹20 lakhs.
4. Aggregate Turnover of Recipients (T): ₹1 crore (₹50 lakhs + ₹30 lakhs + ₹20 lakhs).
Step 1: Distribution Formula for Each Recipient
The ITC to be distributed is determined using the formula:
Where:
• = Total ITC to be distributed.
• = Turnover of the recipient.
• = Aggregate turnover of all recipients.
Step 2: ITC Distribution for Integrated Tax (IGST)
Total IGST: ₹1,20,000.
• For R1 (Delhi):
• For R2 (Maharashtra):
• For R3 (Karnataka):
Step 3: ITC Distribution for Central Tax (CGST) and State Tax (SGST)
Total CGST and SGST: ₹60,000 each.
For R1 (Delhi):
Since R1 is in the same state as the ISD, the ITC is distributed as CGST and SGST directly:
• CGST: ₹30,000 (50% of ₹60,000).
• SGST: ₹30,000 (50% of ₹60,000).

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For R2 (Maharashtra) and R3 (Karnataka):

Since R2 and R3 are in different states, the ITC for CGST and SGST is combined and distributed as IGST:
• For R2: (converted to IGST).
• For R3: (converted to IGST).
Step 4: Summary of ITC Distribution

Recipient CGST (₹) SGST (₹) IGST (₹) Total ITC (₹)
R1 (Delhi) 30,000 30,000 60,000 1,20,000
R2 (Maharashtra) - - 54,000 54,000
R3 (Karnataka) - - 36,000 36,000
Step 5: Issuance of ISD Invoice
• ISD issues separate invoices to each recipient, specifying the type and amount of ITC distributed.
• These invoices are included in the monthly FORM GSTR-6 return.
Adjustments for Debit/Credit Notes
• If a debit note is issued to the ISD, the additional ITC is distributed as per the above method in the same month.
• If a credit note reduces the ITC, the reduction is apportioned among the recipients based on the original
distribution ratio.
This example demonstrates how ITC is calculated and distributed according to Rule 39, ensuring accurate allocation
across multiple recipients.
Rule 39(1A) For the distribution of credit in respect of input services, attributable to one or more distinct persons,
subject to levy of tax under sub-section (3) or (4) of section 9, a registered person, having the same PAN and State
code as an Input Service Distributor, may issue an invoice or, as the case may be, a credit or debit note as per the
provisions of sub-rule(1A) of rule 54 to transfer the credit of such common input services to the Input Service
Distributor, and such credit shall be distributed by the said Input Service Distributor in the manner as provided in
sub-rule (1);
Explanation. — For the purpose of this rule, – (i) the term ―relevant period‖ shall be—
(a) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the
year during which credit isto be distributed, the said financial year; or
(b) if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial
year preceding the year during which the credit is to be distributed, the last quarter for which details of such
turnover of all the recipients are available, previous to the month during which credit is to be distributed;
(ii) the expression ―recipient of credit‖ means the supplier of goods or services or both having the same Permanent
Account Number as that of the Input Service Distributor;
(iii) the term -- turnover‘‘, in relation to any registered person engaged in the supply of taxable goods as well as
goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied
under entries 84 and 92A of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of
the said Schedule.

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Claim of input tax credit and provisional acceptance thereof [Section 41 of the CGST Act, 2017]
Availment of ITC [Section 41 of the CGST Act, 2017] w.e.f. 01-10-2022:
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled
to avail the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited to his
electronic credit ledger.
(2) The credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of
goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with
applicable interest, by the said person in such manner as may be prescribed:
Provided that where the said supplier makes payment of the tax payable in respect of the aforesaid supplies, the
said registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed.”.

The new section 41 provides that the taxpayer shall self-assess and claim ITC in GSTR 3B. It further provides
that in case the taxpayer has claimed ITC of GST which is not paid/ deposited by the corresponding supplier, than
the taxpayer/recipient shall reverse the ITC along with interest. The recipient shall be eligible to re-claim the ITC
reversed, on payment of GST by the supplier.
Note: Provisional ITC and Matching Concept under Section 41 of CGST Act, 2017 is now overruled w.e.f.
01.10.2022.
W.e.f. 01-10-2022, sections 42 (OMITTED): Matching, Reversal and Reclaim of ITC.
W.e.f. 01-10-2022, Section 43 of CGST Act 2017 (OMITTED): Matching, Reversal and Reclaim of Reduction
in Output Tax Liability.
W.e.f. 01-10-2022, section 43A (OMITTED): Procedure for furnishing return and availing input tax credit.
The registered person who receives the information in Form GSTR-2B shall accept, reject or keep it pending.
CBIC Circular No. 195/07/2023-GST dated 17th July 2023, Clarification on availability of ITC in respect of
warranty replacement of parts and repair services during warranty period.

S.No. Issue Clarification

1. There are cases where the original The value of original supply of goods (provided along with
equipment manufacturer offers warranty) by the manufacturer to the customer includes the likely
warranty for the goods supplied by cost of replacement of parts and / or repair services to be incurred
him to the customer and provides during the warranty period, on which tax would have already
replacement of parts and/ or repair been paid at the time of original supply of goods.
services to the customer during the
As such, where the manufacturer provides replacement of
warranty period, without separately
parts and/ or repair services to the customer during the warranty
charging any consideration at the
period, without separately charging any consideration at the time
time of such replacement/ repair
of such replacement/ repair services, no further GST is chargeable
services.
on such replacement of parts and/ or repair service during warranty
Whether GST would be payable period. However, if any additional consideration is charged by
on such replacement of parts or the manufacturer from the customer, either for replacement of
supply of repair services, without any part or for any service, then GST will be payable on such
any consideration from the supply with respect to such additional consideration.
customer, as part of warranty?

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2. Whether in such cases, the In such cases, the value of original supply of goods (provided
manufacturer is required to reverse along with warranty) by the manufacturer to the customer
the input tax credit in respect of includes the likely cost of replacement of parts and/ or repair
such replacement of parts or services to be incurred during the warranty period.
supply of repair services as part of
Therefore, these supplies cannot be considered as exempt supply
warranty, in respect of which no
and accordingly, the manufacturer, who provides replacement of
additional consideration is charged
parts and/ or repair services to the customer during the warranty
from the customer?
period, is not required to reverse the input tax credit in respect
of the said replacement parts or on the repair services provided.
3. Whether GST would be payable on There may be instances where a distributor of a company provides
replacement of parts and/ or repair replacement of parts and/ or repair services to the customer as part
services provided by a distributor of warranty on behalf of the manufacturer and no separate
without any consideration from the consideration is charged by such distributor in respect of the
customer, as part of warranty on said replacement and/ or repair services from the customer.
behalf of the manufacturer?
In such cases, as no consideration is being charged by the
distributor from the customer, no GST would be payable by the
distributor on the said activity of providing replacement of parts
and/ or repair services to the customer.
However, if any additional consideration is charged by the
distributor from the customer, either for replacement of any
part or for any service, then GST will be payable on such supply
with respect to such additional consideration.
4. the above scenario where the (a) There may be cases where the distributor replaces the
distributor provides replacement part(s) to the customer under warranty either by using his stock or
of parts to the customer as part by purchasing from a third party and charges the consideration for
of warranty on behalf of the the part(s) so replaced from the manufacturer, by issuance of a
manufacturer, whether any supply tax invoice, for the said supply made by him to the manufacturer.
is involved between the distributor In such a case, GST would be payable by the distributor on the
and the manufacturer and whether said supply by him to the manufacturer and the manufacturer
the distributor would be required would be entitled to avail the input tax credit of the same, subject
to reverse the input tax credit in to other conditions of CGST Act. In such case, no reversal of input
respect of such replacement of tax credit by the distributor is required in respect of the same.
parts?
(b) There may be cases where the distributor raises a requisition
to the manufacturer for the part(s) to be replaced by him under
warranty and the manufacturer then provides the said part(s) to
the distributor for the purpose of such replacement to the customer
as part of warranty.
In such a case, where the manufacturer is providing such
part(s) to the distributor for replacement to the customer
during the warranty period, without separately charging any
consideration at the time of such replacement, no GST is payable
on such replacement of parts by the manufacturer. Further, no
reversal of ITC is required to be made by the manufacturer in
respect of the parts so replaced by the distributor under warranty.

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(c) There may be cases where the distributor replaces the part(s)
to the customer under warranty out of the supply already received
by him from the manufacturer and the manufacturer issues a credit
note in respect of the parts so replaced subject to provisions of
sub-section (2) of section 34 of the CGST Act. Accordingly, the
tax liability may be adjusted by the manufacturer, subject to
the condition that the said distributor has reversed the ITC availed
against the parts so replaced.
5. Where the distributor provides In such scenario, there is a supply of service by the distributor and
repair service, in addition to the manufacturer is the recipient of such supply of repair services
replacement of parts or otherwise, in accordance with the provisions of sub-clause (a) of clause (93)
to the customer without any to section 2 of the CGST Act, 2017.
consideration, as part of warranty,
Hence, GST would be payable on such provision of service by
on behalf of the manufacturer but
the distributor to the manufacturer and the manufacturer would
charges the manufacturer for such
be entitled to avail the input tax credit of the same, subject to
repair services either by way of
other conditions of CGST Act.
issue of tax invoice or a debit note,
whether GST would be payable on
such activity by the distributor?
6. Some times companies provide (a) If a customer enters in to an agreement of extended
offers of Extended warranty to the warranty with the manufacturer at the time of original supply, then
customers which can be availed at the consideration for such extended warranty becomes part of the
the time of original supply or just value of the composite supply, the principal supply being the
before the expiry of the standard supply of goods, and GST would be payable accordingly.
warranty period. Whether GST
(b) However, in case where a consumer enters into an agreement
would be payable in both the cases?
of extended warranty at any time after the original supply, then
the same is a separate contract and GST would be payable by the
service provider, whether manufacturer or the distributor or any
third party, depending on the nature of the contract (i.e. whether
the extended warranty is only for goods or for services or for
composite supply involving goods and services)
Circular No. 216/10/2024-GST dated 26 June 2024 - Under warranty replacements and extended warranties:
Circular 195/07/2023-GST dated 17 July 20234 had clarified that if the manufacturer replaces any parts free of
cost during the warranty period, they are neither liable to pay any GST thereon, nor any ITC availed on such parts
needs to be reversed.
The present circular is further clarifying the following –
• The clarification via the previous circular will be equally applicable, even when the entire goods are supplied
or replaced completely (instead of only parts) during warranty.
• If the distributor replaces the parts or goods during warranty, from his own stock on the behalf of the
manufacturer and gets replenishment of the same from the manufacturer, the same treatment will apply, i.e. the
manufacturer is neither liable to charge any GST nor liable to reverse any ITC.
• If extended warranty against payment is provided by the supplier of the goods itself at the time of original
supply, it will be a composite supply, but if the supplier of goods (dealer or distributor) and the supplier of
extended warranty (manufacturer) are different, the supply of extended warranty would be a distinct supply of
service and the supplier of extended warranty will be liable to discharge
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Examples for Warranty Replacements and Extended Warranties

Example 1: Manufacturer Replaces Goods Entirely During Warranty
• Scenario:
• Manufacturer: ABC Electronics Ltd.
• Product: Refrigerator under a 1-year standard warranty.
• Issue: The refrigerator malfunctions during the warranty period, and ABC Electronics replaces the entire
refrigerator free of cost.
• GST Treatment:
• Since the replacement occurs during the warranty period:
• No GST is applicable on the replacement.
• No ITC reversal is required for the replacement goods provided by the manufacturer.
Example 2: Distributor Replaces Goods During Warranty
• Scenario:
• Manufacturer: XYZ Appliances Pvt. Ltd.
• Distributor: Retail World (sells products on behalf of the manufacturer).
• Product: Washing machine under warranty.
• Issue: The distributor replaces a faulty washing machine from its own stock during the warranty period.
• Replenishment: XYZ Appliances Pvt. Ltd. replenishes the replaced washing machine to Retail World free
of cost.
• GST Treatment:
• Replacement during warranty:
• The manufacturer (XYZ Appliances) does not charge GST on the replenished goods sent to Retail World.
• No ITC reversal is required for the replacement washing machine provided by the manufacturer.
Example 3: Extended Warranty Provided by the Manufacturer
• Scenario:
• Supplier: DEF Motors Ltd.
• Product: Car with an extended warranty of 2 years offered at the time of purchase for an additional ₹10,000.
• GST Treatment:
• The extended warranty is treated as part of the composite supply of the car.
• GST is charged on the entire value (car price + extended warranty price) at the applicable rate for the car.
Example 4: Extended Warranty Provided by a Third Party
• Scenario:
• Dealer: Auto World Ltd. (sells cars).

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• Warranty Provider: GHI Warranties Pvt. Ltd. (offers extended warranties).

• Product: Car sold by Auto World with an optional extended warranty for 2 years offered by GHI Warranties
at ₹15,000.
• GST Treatment:
• The supply of the car and the supply of extended warranty are distinct supplies:
• Auto World Ltd. charges GST on the car at the applicable rate.
• GHI Warranties Pvt. Ltd. charges GST on the extended warranty as a supply of service at the applicable
rate for warranties.
Circular No. 217/11/2024-GST dated 26 June 2024 - Entitlement of ITC by insurance companies on expenses
incurred for the repair of motor vehicles in the case of reimbursement mode of an insurance claim settlement:
ITC is available to insurance companies for the motor vehicle repair expenses incurred by them in the case of the
reimbursement mode of claim settlement. This is because the insurance company qualifies as a recipient and the
consideration includes payment made by third person.
Some scenarios may exist where the amount of repair services is more than the approved claim cost and the insurance
company only reimburses the approved claim cost to the garage after considering the standard deductions. The
remaining amount is to be paid by the insured to the garage. Here, the circular clarified on following two scenarios
• The garage issues 2 separate invoices to the – (1) insurance company regarding the approved claim cost; and
(2) customer for the amount of repair service in excess of the approved claim cost: ITC is available to the
insurance company on the said invoice subject to the reimbursement of the said amount by the insurance
company to the customer.
• The garage issues an invoice for the full amount for repair services to the insurance company while the latter
makes a reimbursement to the insured only for the approved claim cost: ITC is available to the insurance
company only to the extent of the reimbursement of approved claim cost to the insured, and not on full invoice
value.
ITC is available to the insurer only when the invoice for the repair of the vehicle is in the name of the insurance
company to satisfy the conditions laid down in section 16(2)(a) and (aa) of the CGST Act.
Examples for ITC on Motor Vehicle Repairs in Insurance Claim Settlements
Example 1: Separate Invoices Issued by the Garage
1. Scenario:
• Insured Person: Mr. Sharma.
• Insurance Company: ABC Insurance Ltd.
• Garage: XYZ Auto Repairs.
• Repair Cost: ₹50,000.
• Approved Claim by Insurance Company: ₹40,000.
• Balance Amount Paid by Mr. Sharma: ₹10,000 (due to standard deductions).

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2. Invoicing:
• XYZ Auto Repairs issues:
1. Invoice 1: ₹40,000 to ABC Insurance Ltd. for the approved claim cost.
2. Invoice 2: ₹10,000 to Mr. Sharma for the excess amount.
3. GST Implications and ITC for ABC Insurance Ltd.:
• ITC Eligibility:
• ABC Insurance Ltd. is entitled to claim ITC on the ₹40,000 invoice if it reimburses the same amount
to XYZ Auto Repairs.
• Conditions Fulfilled:
• The invoice for ₹40,000 is in the name of ABC Insurance Ltd., satisfying Section 16(2)(a) and (aa) of
the CGST Act.
Example 2: Single Invoice Issued for Full Repair Cost
1. Scenario:
• Insured Person: Ms. Priya.
• Insurance Company: XYZ Insurance Pvt. Ltd.
• Garage: ABC Auto Services.
• Repair Cost: ₹60,000.
• Approved Claim by Insurance Company: ₹45,000.
• Balance Paid by Ms. Priya: ₹15,000.
2. Invoicing:
• ABC Auto Services issues a single invoice for ₹60,000 in the name of XYZ Insurance Pvt. Ltd.
3. Payment:
• XYZ Insurance Pvt. Ltd. reimburses ₹45,000 (approved claim cost) to ABC Auto Services.
• Ms. Priya pays the remaining ₹15,000 to ABC Auto Services.
4. GST Implications and ITC for XYZ Insurance Pvt. Ltd.:
• ITC Eligibility:
• XYZ Insurance Pvt. Ltd. can claim ITC only on ₹45,000, the amount reimbursed for the approved claim.
• ITC cannot be claimed on the ₹15,000 balance paid by Ms. Priya since it was not reimbursed by the
insurance company.
• Conditions Fulfilled:
• The invoice is in the name of XYZ Insurance Pvt. Ltd., satisfying Section 16(2)(a) and (aa) of the
CGST Act.

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Key Points to Remember

1. Separate Invoices:
• If the garage issues separate invoices for the insurance company and the insured person, ITC is available
only on the amount reimbursed by the insurance company.
2. Single Invoice:
• If the garage issues a single invoice for the full repair cost, ITC is limited to the approved claim cost
reimbursed by the insurance company.
3. Invoice in the Name of the Insurance Company:
• ITC eligibility requires the invoice to be issued in the name of the insurance company as per Section 16(2)
(a) and (aa) of the CGST Act.
Clarification regarding taxability of services provided by an office of an organisation in one State to the
office of that organisation in another State, both being distinct persons (vide CBIC Circular No. 199/11/2023-GST
dated 17th July 2023):

S.No. Issues Clarification

1. Whether HO can avail the input It is clarified that in respect of common input services procured
tax credit (hereinafter referred to by the HO from a third party but attributable to both HO and BOs
as ‘ITC’) in respect of common or exclusively to one or more BOs, HO has an option to distribute
input services procured from a ITC in respect of such common input services by following ISD
third party but attributable to mechanism laid down in Section 20 of CGST Act read with rule 39 of
both HO and BOs or exclusively the Central Goods and Services Tax Rules, 2017 (hereinafter referred
to one or more BOs, issue tax to as ‘the CGST Rules’). However, as per the present provisions of
invoices under section 31 to the CGST Act and CGST Rules, it is not mandatory for the HO to
the said BOs for the said input distribute such input tax credit by ISD mechanism. HO can also
services and the BOs can then issue tax invoices under section 31 of CGST Act to the concerned
avail the ITC for the same or BOs in respect of common input services procured from a third party
whether is it mandatory for the by HO but attributable to the said BOs and the BOs can then avail
HO to follow the Input Service ITC on the same subject to the provisions of section 16 and 17 of
Distributor (hereinafter referred CGST Act.
to as ‘ISD’) mechanism for
In case, the HO distributes or wishes to distribute ITC to BOs
distribution of ITC in respect of
in respect of such common input services through the ISD
common input services procured
mechanism as per the provisions of section 20 of CGST Act read with
by them from a third party but
rule 39 of the CGST Rules, HO is required to get itself registered
attributable to both HO and BOs
mandatorily as an ISD in accordance with Section 24(viii) of the
or exclusively to one or more
CGST Act.
BOs?
Further, such distribution of the ITC in respect a common input
services procured from a third party can be made by the HO to a BO
through ISD mechanism only if the said input services are attributable
to the said BO or have actually been provided to the said BO. Similarly,
the HO can issue tax invoices under section 31 of CGST Act to the
concerned BOs, in respect of any input services, procured by HO
from a third party for on or behalf of a BO, only if the said services
have actually been provided to the concerned BOs.

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2. In respect of internally The value of supply of services made by a registered person to a

generated services, there may distinct person needs to be determined as per rule 28 of CGST Rules,
be cases where HO is providing read with sub-section (4) of section 15 of CGST Act. As per
certain services to the BOs clause (a) of rule 28, the value of supply of goods or services or both
for which full input tax credit between distinct persons shall be the open market value of
is available to the concerned such supply. The second proviso to rule 28of CGST Rules provides
BOs. However, HO may not that where the recipient is eligible for full input tax credit, the value
be issuing tax invoice to the declared in the invoice shall be deemed to be the open market value of
concerned BOs with respect to the goods or services. Accordingly, in respect of supply of services
such services, or the HO may by HO to BOs, the value of the said supply of services declared
not be including the cost of in the invoice by HO shall be deemed to be open market value of such
a particular component such services, if the recipient BO is eligible for full input tax credit.
as salary cost of employees
Accordingly, in cases where full input tax credit is available to a BO,
involved in providing said
the value declared on the invoice by HO to the said BO in respect of a
services while issuing tax
supply of services shall be deemed to be the open market value of
invoice to BOs for the
such services, irrespective of the fact whether cost of any particular
services provided by HO to BOs.
component of such services, like employee cost etc., has been
Whether the HO is mandatorily
included or not in the value of the services in the invoice.
required to issue invoice to BOs
under section 31 of CGST Act Further, in such cases where full input tax credit is available to the
for such internally generated recipient, if HO has not issued a tax invoice to the BO in respect
services, and/ or whether the of any particular services being rendered by HO to the said BO, the
cost of all components including value of such services may be deemed to be declared as Nil by HO
salary cost of HO employees to BO, and may be deemed as open market value in terms of second
involved in providing the said proviso to rule 28 of CGST Rules.
services has to be included in
the computation of value of
services provided by HO to
BOs when full input tax credit is
available to the concerned Bos.
3. In respect of internally In respect of internally generated services provided by the HO
generated services provided to BOs, the cost of salary of employees of the HO, involved in
by the HO to BOs, in cases providing the said services to the BOs, is not mandatorily required to
where full input tax credit is not be included while computing the taxable value of the supply of such
available to the concerned BOs, services, even in cases where full input tax credit is not available to
whether the cost of salary of the concerned BO.
employees of the HO involved
in providing said services to the
BOs, is mandatorily required to
be included while computing the
taxable value of the said supply
of services provided by HO to
BOs.
Utilization of input tax credit:
The amount of tax, interest, penalty etc. payable by the person is required to pay either by utilizing balance
available in electronic cash ledger or electronic credit ledger. The amount utilized for payment from the balance in

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electronic credit or cash ledger will be shown in GST PMT-1.

Payment of tax, interest, penalty and other amounts [Section 49 of the CGST Act, 2017]
Section 49(1) of the CGST Act, 2017 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.
Section 49(2) of the CGST Act, 2017 the input tax credit as self-assessed in the return of a registered person
shall be credited to his electronic credit ledger, in accordance with section 41, to be maintained in such manner as
may be prescribed.
Electronic Ledgers in GST
There are three types of Ledgers maintained to discharge tax liability under CGST Act, 2017 which are as
follows:

S.
Ledger name Amount to be credited Amount Utilization
No.
(1) Electronic cash Every deposit made towards— As per Section 49(3) of the CGST Act,
ledger ● tax, 2017:
● interest, The amount available in the electronic
cash ledger may be used for making any
● penalty,
payment towards
● fee or any other amount
● tax,
by a person by internet banking or by ● interest,
using credit or debit cards or National
Electronic Fund Transfer or Real Time ● penalty,
Gross Settlement or by such other ● fees or any other amount
mode and subject to such conditions
payable under the provisions of this
and restrictions as may be prescribed,
Act or the rules made there under
shall be credited to the electronic cash
in such manner and subject to such
ledger of such person to be maintained
conditions and within such time as may
in such manner as may be prescribed.
be prescribed.
(2) Electronic credit The input tax credit as self-assessed in As per Section 49(4) of the CGST Act,
ledger the return of a registered person shall 2017:
be credited to his electronic credit The amount available in the electronic
ledger, in accordance with section 41, credit ledger may be used for making
to be maintained in such manner as any payment towards—
may be prescribed. ● output tax under this Act or
● under the Integrated Goods and
Services Tax Act
in such manner and subject to such
conditions and within such time as may
be prescribed.

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S.
Ledger name Amount to be credited Amount Utilization
No.
(3) Electronic Liability All liabilities of a taxable person under
ledger this Act shall be recorded and main-
tained in an electronic liability register
in such manner as may be prescribed.

Section 49(5) of the CGST Act, 2017

Section Offset option available
Input Not available Order of Set off
49(5) against
(a) IGST ● IGST - W.e.f. 1-4-2019 section 49A of
● CGST CGST Act, 2017 read with Rule
88A of CGST Rules, 2017:
● SGST
IGST credit can be adjusted
● UTGST
equally between CGST and
SGST or any other proportion
at the option of the assessee.
(b) CGST ● CGST ● SGST 1. CGST
● IGST ● UTGST 2. IGST
(c) SGST ● SGST ● CGST 1. SGST
● IGST ● UTGST 2. IGST
(d) UTGST ● UTGST ● CGST 1. UTGST
● IGST ● SGST 2. IGST
Section 49(5)(e) of the CGST Act, 2017 the central tax shall not be utilised towards payment of State tax or
Union territory tax; and
Section 49(5)(f) of the CGST Act, 2017 the State tax or Union territory tax shall not be utilised towards payment
of central tax.

Section 49A of CGST (w.e.f. 1-2-2019) read with rule 88A of CGST Rules, 2017:
Utilisation of Input tax credit subject to certain conditions:
Notwithstanding anything contained in section 49, 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
towards such payment.
w.e.f. 1-4-2019, The Central Government vide N No. 16/2019-CT, dated 29th March, 2019 has amended Central
Goods and Services Tax Rules, 2017. Amendments made are explained below:

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 Input Tax Credit (Advanced)

Insertion of Input tax credit on account of integrated tax shall first Comment: As per Section 49 ITC can
Rule 88A be utilised towards payment of integrated tax, and the be utilised in a particular series and
(Order of amount remaining, if any, may be utilised towards the 49A provides that credit of CGST/
utilization payment of central tax and State tax or Union territory SGST/UTGST can be utilised only
of input tax tax, as the case may be, in any order: after IGST ITC has been utilised
credit) Provided that the input tax credit on account of fully. Therefore, combine reading
central tax, State tax or Union territory tax shall be of sec 49 and 49 A, IGST shall be
utilised towards payment of integrated tax, central utilised in a given series only.
tax, State tax or Union territory tax, as the case may However, with this rule it has been
be, only after the input tax credit available on account provided that IGST shall be utilised
of integrated tax has first been utilised fully. for IGST first than in any order
convenient to taxpayer.

Note: As per amendment act the order of utilization after the setoff of IGST liability was compulsory CGST and
then SGST/UGST. Now the order has been relaxed wherein either of CGST or SGST/UGST liability can be set off.

Outward supply
Inward supply Remarks
CGST SGST IGST
ITC of CGST Allowed Not allowed Allowed 1st CGST next IGST in that order
ITC of SGST Not allowed Allowed Allowed 1st SGST next IGST in that order
ITC of IGST Allowed Allowed Allowed W.e.f. 1-4-2019 section 49A of CGST
Act, 2017 read with Rule 88A of CGST
Rules, 2017:
IGST credit can be adjusted equally
between CGST and SGST or any other
proportion at the option of the assessee.

Illustration 59
M/s X Ltd. being a registered person supplying taxable goods in the following manner:

Particulars (`)
Intra-State supply of goods 18,00,000
Inter-State supply of goods 13,00,000
Intra-State purchases 13,00,000
Inter-State purchases 1,50,000
ITC at the beginning of the relevant tax period:
CGST 1,30,000
SGST 1,30,000
IGST 1,70,000
(i) Rate of CGST, SGST and IGST to be 9%, 9% and 18% respectively.

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Indirect Tax Laws and Practice

(ii) Inward and outward supplies are exclusive of taxes.

(iii) All the conditions necessary for availing the input tax credit have been fulfilled.
Compute the net GST payable by M/s X Ltd during the tax period. Make suitable assumptions.

Solution:
Statement showing input tax credit (i.e. Electronic Credit Ledger)

Particulars CGST (`) SGST (`) IGST (`)

Opening balance 1,30,000 1,30,000 1,70,000
Add: ITC for the tax period 1,17,000 1,17,000 27,000
Total credit 2,47,000 2,47,000 1,97,000
Statement showing Net GST payable by M/s X Ltd for the tax period

Particulars CGST (`) SGST (`) IGST (`)

Output tax 1,62,000 1,62,000 2,34,000
Less: ITC allowed -2,47,000 -2,47,000 -1,97,000
Sub-total -85,000 -85,000 37,000
Less: CGST credit adjusted against IGST 37,000 Nil -37,000
Net GST liability Nil Nil Nil
Excess ITC c/f 48,000 85,000 Nil

Illustration 60
Mr. A has output Tax Liability of `1,00,000/- towards CGST & SGST/UGST and `20,000 towards IGST and
also interest payable of `1800/-. Explain the manner of discharge tax liability by Mr. A in the following two
independent cases:
1. Input tax credit available of CGST & SGST is `25,000/- each & IGST is `25,000/-
2. Input tax credit not available.
Solution:
Case 1: In case Input Tax credit available-

Interest
Ledger Particulars CGST SGST IGST Total
payable
Electronic Output tax payable 50,000 50,000 20,000 1,800 1,21,800
liability ledger
Electronic credit Input Tax Credit 25,000 25,000 25,000 75,000
ledger
Net output tax 25,000 25,000 - 50,000
liability

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Interest
Ledger Particulars CGST SGST IGST Total
payable
IGST Credit set off 5,000 - - 5,000
(Note-1)
Electronic cash Cash to be deposited 20,000 25,000 - 1800 46,800
ledger (Note-2)
Note:
1. IGST Credit can be adjusted against CGST or SGST in any proportion.
2. Interest cannot be adjusted with Input Tax credit
Case 2: In case Input Tax credit is not available-
Interest
Ledger Particulars CGST SGST IGST Total
payable
Electronic liability ledger Output tax payable 50,000 50,000 20,000 1,800 1,21,800
Electronic Cash ledger Amount to be deposited 50,000 50,000 20,000 1,800 1,21,800

Order of claiming input tax credit is as follows-

Illustration 61
Y Ltd is operating in two states Andhra Pradesh and Tamil Nadu. The tax liability for the month of August 20XX
is as follows—

S. No. Tax Liability Andhra Pradesh (`) Tamil Nadu (`)

1. Output CGST Payable 25,000 10,000
2. Output SGST Payable 10,000 5,000
3. Output IGST payable 3,000 2,500
4. Input CGST 8,000 13,000
5. Input SGST 15,000 1,500
6. Input IGST 12,000 16,000
Calculate the tax payable for the month of August 20XX.

Solution:
Net Tax payable for the month of August is as follows—

Andhra Pradesh Tamil Nadu

Particulars
CGST SGST IGST CGST SGST IGST
Output tax 25,000 10,000 3,000 10,000 5,000 2,500
Less: ITC of IGST (9,000) Nil (3,000) (8,500) (5,000) (2,500)

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Indirect Tax Laws and Practice

Out tax after adjustment of IGST ITC 16,000 10,000 Nil 1,500 Nil Nil
Less: ITC of CGST & SGST (8,000) (15,000) nil (13,000) (1,500) nil
Net tax payable by E-cash ledger 8,000 nil nil nil nil nil
Input credit carry forwarded to next - 5,000 - (11,500) (1,500) nil
month
Notes:
1. IGST Input tax credit should be adjusted against Output tax of liability of IGST. Excess of IGST credit after
payment of IGST can be adjusted against payment of CGST or SGST/UTGST in any proportion as decided
by the assessee.
2. SGST Input tax credit cannot be adjusted against output CGST & Vice-Versa.
3. CGST & SGST Input tax credit of one State cannot be adjusted against Output CGST & SGST of other state
(same principle is applicable to IGST credit also).
As per section 49(6) of the CGST Act, 2017 the balance in the electronic cash ledger or electronic credit ledger
after payment of tax, interest, penalty, fee or any other amount payable under this Act or the rules made thereunder
may be refunded in accordance with the provisions of section 54.
As per section 49(7) of the CGST Act, 2017 all liabilities of a taxable person under this Act shall be recorded and
maintained in an electronic liability register in such manner as may be prescribed.
As per section 49(8) of the CGST Act, 2017 every taxable person shall discharge his tax and other dues under
this Act or the rules made thereunder in the following order, namely:—
The following order shall be maintained while settling the tax liability:

Step 1 First self-assessed tax, and other dues related to returns of previous tax periods;
Step 2 Self-assessed tax, and other dues related to the return of the current tax period;
Step 3 Any other amount payable under this Act or the rules made thereunder including the demand
determined under section 73 or section 74 (“or section 74A” shall be inserted w.e.f. 1-11-2024 F.A.
2024 dated 16-8-2024).

As per section 49(9) of the CGST Act, 2017 Every person who has paid the tax on goods or services or both under
this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to
the recipient of such goods or services or both.

Explanation: For the purposes of this section,—

(a) the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of
deposit in the electronic cash ledger;

(b) the expression, —

(i) “tax dues” means the tax payable under this Act and does not include interest, fee and penalty; and
(ii) “other dues” means interest, penalty, fee or any other amount payable under this Act or the rules made
thereunder.

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Illustration 62
X Ltd has following tax liabilities under the provisions of Act—

S. Amount
Particulars
No. (`)
1. Tax liability of CGST, SGST/UGST, IGST for supplies made during August 2024 1,00,000
2. Interest & Penalty on delayed payment and filing of returns belonging to August 2024 20,000
3. Tax liability of CGST, SGST/UGST, IGST for supplies made during September 2024 1,20,000
4. Interest & Penalty on delayed payment and filing of returns belonging to September 2024 20,000
5. Demand raised as per section 73 or section 74 under CGST Act, 2017 belonging to July 8,00,000
2024
6. Demand raised as per the old provisions of Indirect Taxes 1,00,000
X Ltd has `5,00,000 in Electronic cash ledger. Suggest X Ltd in discharging the tax liability.

Solution:
Balance in Electronic cash ledger can be used in the following manner to discharge tax liability by X Ltd—

Particulars Amount
Balance available in Electronic cash ledger 5,00,000
Less-
Tax liability of CGST, SGST/UGST, IGST for supplies made during August 2024 (1,00,000)
Interest & Penalty on delayed payment and filing of returns belonging to August 2024 (20,000)
Tax liability of CGST, SGST/UGST, IGST for supplies made during September 2024 (1,20,000)
Interest & Penalty on delayed payment and filing of returns belonging to September 2024 (20,000)
Demand raised as per section 73 or section 74 under CGST Act, 2017 (2,40,000)
Balance in electronic cash ledger Nil
The balance amount of `5,60,000 towards demand raised under section 73 or section 74 under CGST Act, 2017
to be discharged before discharging liability of demand rose under old provisions of Indirect Taxes.

As per Finance Act, 2019, w.e.f. 1-8-2019:

As per Section 49(10) of the CGST Act, 2019, A registered person may, on the common portal, transfer any
amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under this Act, to
the electronic cash ledger for integrated tax, central tax, State tax, Union territory tax or cess, in such form and
manner and subject to such conditions and restrictions as may be prescribed and such transfer shall be deemed to
be a refund from the electronic cash ledger under this Act.
As per Section 49(11) of the CGST Act, 2019, Where any amount has been transferred to the electronic cash
ledger under this Act, the same shall be deemed to be deposited in the said ledger as provided in sub-section (1).”

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W.e.f. 5th July 2022, Section 49(10) of the CGST Act, 2017 w.e.f. Notification No. 9/2022-CT, dated 5th July,
2022:
“A registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other
amount available in the electronic cash ledger under this Act, to the electronic cash ledger for,––
(a) integrated tax, central tax, State tax, Union territory tax or cess; or
(b) integrated tax or central tax of a distinct person as specified in sub-section (4) or, as the case may be, sub-
section (5) of section 25,
in such form and manner and subject to such conditions and restrictions as may be prescribed and such transfer
shall be deemed to be a refund from the electronic cash ledger under this Act:
Provided that no such transfer under clause (b) shall be allowed if the said registered person has any unpaid
liability in his electronic liability register.”
w.e.f. 1st October 2023 Substitution of second proviso to rule 87(3): Consequential amendment made to provide
that a person supplying online money gaming from a place outside India to a person in India may generate challan
in Form GST PMT-06 through International Money Transfer through SWIFT (Society for Worldwide Interbank
Financial Telecommunication) payment network. This type of payment process is already in place where a person
supplying OIDAR services from a place outside India to a non-taxable online recipient located in in India.
Electronic Cash Ledger to be updated on the basis of e-Scroll of the RBI in case of failure of bank to communicate
details of Challan Identification Number to the common portal (Rule 87(8) amended vide Notification No. 26/2022
CT dated 26.12.2022):
A new proviso has been inserted in sub-rule (8) which lays down that where the bank fails to communicate details
of Challan Identification Number to the Common Portal, the Electronic Cash Ledger may be updated on the basis
of e-Scroll of the Reserve Bank of India in cases where the details of the said e-Scroll are in conformity with the
details in challan generated in FORM GST PMT-06 on the Common Portal.
“Rule 87(14) of CGST Rules, 2017 Electronic Cash Ledger (Vide Notification No. 14/2022-CT, dated 5th July,
2022):
A registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other
amount available in the electronic cash ledger under the Act to the electronic cash ledger for central tax or integrated
tax of a distinct person as specified in sub-section (4) or, as the case may be, sub-section (5) of section 25, in FORM
GST PMT-09:
Provided that no such transfer shall be allowed if the said registered person has any unpaid liability in his
electronic liability register.”
Further Form GST PMT-09 (i.e. Transfer of amount from one account head to another in electronic cash ledger)
has been amended.
Thus, now the refund of any balance in the electronic cash ledger in accordance with the provisions of sub-
section (6) of section 49 shall be filed electronically in Form RFD-01 instead of the respective return forms as
provided earlier (rule 89(1)).
W.e.f. 01-10-2022, Restriction for utilizing the amount available in electronic credit ledger:

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 Input Tax Credit (Advanced)

As per 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, in accordance with [section 41 (OMITTED w.e.f. 01-10-2022 “or section 43A”], to be
maintained in such manner as may be prescribed.
Section 49(4), The amount available in the electronic credit ledger may be used for making any payment towards
output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such
conditions (inserted w.e.f. 01-10-2022, “and restrictions”) and within such time as may be prescribed.
Section 49(4) is being amended so as to provide for prescribing restrictions for utilizing the amount available in
the electronic credit ledger. Under the said provisions, Rule 86A of the CGST Rules 2017 can directly fall. This
may also be the enabling provisions for providing further restrictions in the utilization of balance in the electronic
credit ledger
W.e.f. 01-10-2022 Section 49(12), Maximum payment of output taxes allowed from electronic credit ledger:
The Government may specify the maximum proportion of output tax liability which may be discharged through
the electronic credit ledger for specified class of persons. The balance has to be paid through the electronic cash
ledger. Currently, Rule 86B provides for such restriction of utilization from electronic credit ledger only upto 99%
of output taxes for certain taxpayers. This may also be the enabling provisions for providing further restrictions in
the utilization of balance in the electronic credit ledger.
Amendments in rule 87 (Electronic Cash ledger):
Clause (ia) inserted in rule 87(3): The amount of tax, interest, penalty, fee or any other amount may also be
deposited through Unified payment interface (UPI) or Immediate Payment Services (IMPS) from any bank, on the
GST portal. Sub-rule (3) has been added for this purpose and consequential amendment has been made in sub-rule
(5).
Insertion of sub-rule (4B) in rule 86 (Electronic Credit Ledger):
(vide NT 14/2022-CT, dated 5th July, 2022)
If the registered person deposits the amount of erroneous refund sanctioned to him u/s 54(3) or under rule 96(3)
[in contravention to rule 96(10), omitted w.e.f. 1-11-2024, Notification No. 20/2024 CT dt. 8-10-2024], along with
interest and penalty, if any, through Form GST DRC-03 by debiting the electronic cash ledger either on his own or
being pointed out by the officer, then the same shall be re- credited to the electronic credit ledger by an order passed
by the proper officer in a newly introduced Form GST PMT-03A.
Categories of refunds where re-credit can be done using FORM GST PMT-03A:
(a) Refund of IGST obtained in contravention of sub-rule (10) of rule 96.
(b) Refund of unutilised ITC on account of export of goods/services without payment of tax.
(c) Refund of unutilised ITC on account of zero-rated supply of goods/services to SEZ developer/Unit without
payment of tax.
(d) Refund of unutilised ITC due to inverted tax structure.
Procedure for re-credit of amount in electronic credit ledger:
(Circular No. 174/06/2022-GST, dated 6th July, 2022)

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Illustration 63
Miss Nitya has following balances in her Electronic Cash Ledger as on 28/02/20XX as per GST portal.

Major Heads Minor Heads Amount (`)

Tax 40,000
CGST Interest 1,000
Penalty 800
Tax 80,000
Interest 400
SGST
Penalty 1,200
Fee 2,000
Tax 45,000
IGST Interest 200
Penalty Nil

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 Input Tax Credit (Advanced)

Her tax liability for the month of February, 20XX for CGST and SGST was `75,000 each. She failed to pay the
tax and contacted you as legal advisor on 12/04/2018 to advise her as to how much amount of tax or interest she
is required to pay, if any, by utilizing the available balance to the maximum extent possible as per GST Laws. She
wants to pay the tax on 20-04-20XX.
Other Information:—
(i) Date of collection of GST was 18th February, 20XX.
(ii) No other transaction after this up to 20th April 20XX.
(iii) Ignore penalty for this transaction.
(iv) No other balance is available.
You are required to advise her with reference to legal provisions with brief notes on the legal provisions
applicable. 5

Solution:
Statement showing GST and Interest liability:

CGST SGST Interest Interest IGST

Particulars Remarks
(`) (`) CGST SGST (`)
Output tax liability 75,000 75,000 1147 1147 Nil 75,000 × 18% ×
31/365= 1147
Less: Electronic Cash -40,000 -80,000 -1,000 -400
ledger of CGST/ SGST
Less: transfer from -35,000 Nil -147 -747
e-cash ledger of IGST
Major head
Excess balance in Nil 5,000 Nil NIL 9,106 45000-35000-147-747
electronic cash ledger
c/f

Note:

(1) Major head refers to – Integrated tax, Central tax, State/UT tax and Cess.

(2) Minor head refers to – tax, interest, penalty, fee and others.

(3) Section 49(10) of CGST Act, 2019 permits if amount from one major/minor head is intended to be transferred
to another major/minor head. Minor head for transfer of amount may be same or different.

(4) The amount from one minor head can also be transferred to another minor head under the same major head.

(5) Amount can be transferred from the head only if balance under that head is available at the time of transfer.

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Illustration 64
Mr. NY, a supplier of goods pays GST under regular scheme. Mr. NY is not eligible for any threshold exemption.
He has made the following outward taxable supplies during April 2024:

Rate of Tax
Particulars Amount (`)
CGST SGST IGST
Intra State supply of goods
Product A 6% 6% - 8,00,000
Product B 9% 9% - 2,00,000
Inter State supply of goods
Product A - - 12% 3,00,000
Product B - - 18% 1,50,000
He has also furnished the following information in respect of supplies received by him during April 2024:

Rate of Tax
Particulars Amount (`)
CGST SGST IGST
Intra State supply of goods
Product A 6% 6% - 2,00,000
Product B 9% 9% - 1,00,000
Inter State supply of goods
Product A - - 12% 1,50,000
Product B - - 18% 80,000
Mr. NY has following ITCs with him at the beginning of April 2024:

Particulars (`)
CGST 40,000
SGST 28,000
IGST 44,600

Note:

(i) Both inward and outward supplies are exclusive of taxes, wherever applicable.

(ii) All the conditions necessary for availing the ITC have been fulfilled.

Compute net GST payable by Mr. NY for the month of April 2024.

Make suitable assumptions wherever required.

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 Input Tax Credit (Advanced)

Solution:
Statement showing Net GST liability of Mr. NY for the month of April 2024:

Particulars CGST SGST IGST

Output Tax liability 66,000 66,000 63,000
Less: ITC of IGST Nil Nil (77,000)
Excess IGST credit Nil Nil (14,000)
Less: IGST credit set off first CGST (14,000) Nil 14,000
Less: CGST credit set off (61,000) Nil Nil
Less: SGST credit set off Nil 49,000
Excess of CGST credit c/f (9,000) Nil Nil
Net GST liability payable by cash ledger Nil 17,000 Nil
Working Note:
(1) Statement showing ITC on inward supplies

Particulars CGST SGST IGST

Opening Balance 40,000 28,000 44,600
Intra State supply of goods
Product A (6% + 6%) 12,000 12,000 Nil
Product B (9% + 9%) 9,000 9,000 Nil
Inter State supply of goods
Product A (12%) Nil Nil 18,000
Product B (18%) Nil Nil 14,400
Total 61,000 49,000 77,000
(2) Statement showing output tax:

Particulars CGST SGST IGST

Intra State supply of goods
Product A (6% + 6%) 48,000 48,000 Nil
Product B (9% + 9%) 18,000 18,000
Inter State supply of goods
Product A (12%) Nil Nil 36,000
Product B (18%) Nil Nil 27,000
Total 66,000 66,000 63,000

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Indirect Tax Laws and Practice

Alternatively:

Solution:
Statement showing Net GST liability of Mr. NY for the month of April 2024:

Particulars CGST SGST IGST

Output Tax liability 66,000 66,000 63,000
Less: ITC of IGST Nil Nil (77,000)
Excess IGST credit Nil Nil (14,000)
Less: IGST credit set off first SGST Nil (14,000) 14,000
Less: CGST credit set off (61,000) Nil Nil
Less: SGST credit set off Nil (49,000)
Net GST liability payable by cash ledger 5,000 3,000 Nil
Form PMT-09: Importance and Use in the Electronic Cash Ledger:
w.e.f. 21 April, 2020, The CBIC has recently introduced Form PMT-09 (i.e. a challan) for shifting wrongly paid
amount from one head to another head. This enables a registered taxpayer to transfer any amount of tax, interest,
penalty, etc. that is available in the electronic cash ledger, to the appropriate tax or cess head under IGST, CGST
and SGST in the electronic cash ledger.
Hence, if a taxpayer has wrongly paid CGST instead of SGST, he can now rectify the same using Form PMT-09
by reallocating the amount from the CGST head to the SGST head.

Key points to note about Form GST PMT-09:

1. If the wrong tax has already been utilized for making any payment, then this challan is not useful. This
challan only allows shifting of the amounts that are available in the electronic cash ledger.
For instance, in case an amount has been misreported in the GSTR-3B, there is no way to rectify the same as the
GSTR-3B is non-editable. In such case, only and adjustment in the next month’s return can be made.
2. The amount once utilized and removed from cash ledger cannot be reallocated.
3. Major head refers to- Integrated tax, Central tax, State/UT tax, and Cess.
4. Minor head refers to- Tax, Interest, Penalty, Fee and Others.
Illustration 65
Mr. A. had to pay `100 as Central Tax under the major head and `50 as interest under the minor head and he has
wrongly paid `50 under Central tax head and `100 as interest under the minor head. What will be the consequences?

Solution:
In this case, he can file PMT-09 to shift the amount from the major head (i.e. Central tax) to the minor head (i.e.
interest). This shifting of the amount can be done from minor head to major head as well.
An amount can also be transferred from one minor head to another minor head under the same major head.
For example, in the case of interchange of interest and penalty amount under Central Tax can also be rectified
by filing PMT-09.

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Rule 86A Conditions of use of amount available in electronic credit ledger

(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant
Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has
been fraudulently availed or is ineligible in as much as—
(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—
(i) issued by a registered person who has been found non-existent or not to be conducting any business from
any place for which registration has been obtained; or
(ii) without receipt of goods or services or both; or
(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, may, for reasons to be recorded in writing, not allow debit
of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under
section 49 or for claim of any refund of any unutilised amount.
(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that
conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.
(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing
such restriction.
(vide Notification No. 75/2019-CT, dated 26.12.2019)
Amendments in rule 87 of the CGST Rules prescribing provisions relating to electronic cash ledger—
(i) The second proviso to sub-rule (2) which gave an option to a person supplying OIDAR services from a place
outside India to a non-taxable online recipient, to generate challan through the Board’s payment system
namely, Electronic Accounting System in Excise and Service Tax has been omitted.
(ii) Sub-rule (9) provided that any amount deducted under section 51 or collected under section 52 and claimed
in Form GSTR-02 by the registered taxable person from whom the said amount was deducted or, as the case
may be, collected shall be credited to his electronic cash ledger in accordance with the provisions of rule 87.
The words, letters and figures “in Form GSTR-02” and words and figures “in accordance with the provisions of
rule 87” have been omitted from sub-rule (9).
[Notification No. 31/2019-CT, dated 28.06.2019]

Refund of tax that has been paid wrongly or in excess by utilising ITC [Rule 86]
A new sub rule (4A) has been inserted in rule 86 of the CGST Rules to provide that where a registered person has
claimed refund of any tax that has been paid wrongly or in excess through electronic credit ledger, the said refund,
if found admissible, will be credited to the electronic credit ledger.
[Notification No. 16/2020-CT, dated 23.03.2020]

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Indirect Tax Laws and Practice

CBIC Circular No. 172/04/2022-GST, 6th July, 2022:

Question 1:

Whether the amount available in the electronic credit ledger can be used for making payment of any tax under
the GST Laws?

Answer:

CBIC clarified that any payment towards output tax, whether self-assessed in the return or payable as a
consequence of any proceeding instituted under the provisions of GST Laws, can be made by utilization of the
amount available in the electronic credit ledger of a registered person.

It is further reiterated that as output tax does not include tax payable under reverse charge mechanism, implying
thereby that the electronic credit ledger cannot be used for making payment of any tax without hich is payable
under reverse charge mechanism.

Question 2:

Whether the amount available in the electronic credit ledger can be used for making payment of any liability
other than tax under the GST Laws?

Answer:

As per sub-section (4) of section 49, the electronic credit ledger can be used for making payment of output tax
only under the CGST Act or the IGST Act. It cannot be used for making payment of any interest, penalty, fees or
any other amount payable under the said acts. Similarly, electronic credit ledger cannot be used for payment of
erroneous refund sanctioned to the taxpayer, where such refund was sanctioned in cash.

Question 3:

Whether the amount available in the electronic cash ledger can be used for making payment of any liability under
the GST Laws?

Answer:

As per sub-section (3) of section 49 of the CGST Act, the amount available in the electronic cash ledger may be
used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions
of the GST Laws.

Interest on late payment of tax by taxpayer [Section 50 of the CGST Act, 2017]

The two scenarios where a taxpayer will be liable to pay interest are:

1. Delayed payment of tax

2. credit has been claimed in excess or where it was not eligible to be claimed/ Tax liability has been shown to
be less than the actual

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As per Section 50(2) of the CGST Act, 2017 the interest under sub-section 50(1) shall be calculated, in such
manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid. Payments
even made after 8 pm will be credited on the same day to the taxpayer’s account. While there will be no physical
challan accepted for the GST payment while the challans will be generated from the gst.gov.in only for all the
payments of taxes, fees, penalty, interest.
For the payment of challan under the 10000 rupees limit, it can be done over the counter with cash, cheques,
demand draft through authorised banks while for the payments exceeding the amount of `10000 will be collected
through digital mode only.
Example:
M/s Rajendra Dyeing Pvt Ltd. supplied goods worth `10,00,000 to M/s Y Ltd in the month of September 2024
plus GST 12%. M/s Rajendra Dyeing Pvt Ltd. paid the GST on 5th December 2024. The amount of input tax credit
is 70,000 is available in the books. Find the interest payment if any under section 50 of the CGST Act, 2017.
Answer:
Tax = `1,20,000
Less: ITC = `(70,000)
Tax payable = ` 50,000
Interest shall be calculated from the next day of the due date of payment from 21st October 2024 to the actual
date of payment i.e. 5th December 2024.
Interest is `50,000*18%*46/365= `1,134/-

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Section 50(2) of the CGST Act, 2017 “the interest payable shall be calculated, in such manner as may be
prescribed, from the day succeeding the day on which such tax was due to be paid”.
Section 2(87) of the CGST Act defines the term ‘prescribed’ to mean prescribed by the Rules made under the Act
on the recommendation of the Council.
Now, the Central Government on the recommendation of the GST Council has introduced Rule 88B vide
Notification No. 14/2022-Central Tax, dated 5 July 2022 with retrospective effect from 1st July 2017. The said
Rule prescribes the manner of computing interest on delayed payment of tax.
Rule 88B can be classified into the following 3 categories:-

Period for Amount on which

Rule Scenario which interest is interest liability has
payable to be calculated
88B(1) If tax has been belatedly paid through credit balance on Interest to be paid Tax paid by debiting
account of delayed filing of return, before commencement for the period of the electronic cash
of proceedings under Section 73 or 74 [or section 74A, delay in filing the ledger
inserted w.e.f. 1-11-2024] of the CGST Act [proviso to said return beyond
Section 50(1)] the due date upto
date of filing
In the said rules, in rule 88B, after sub-rule (1), the
GSTR-3B
following proviso shall be inserted (w.e.f. 10-7-2024],
namely: – ―Provided that where any amount has been
credited in the Electronic Cash Ledger as per provisions
of sub-section (1) of section 49 on or before the due
date of filing the said return, but is debited from the said
ledger for payment of tax while filing the said return
after the due date, the said amount shall not be taken
into consideration while calculating such interest if the
said amount is lying in the said ledger from the due date
till the date of its debit at the time of filing return [vide
Notification No. 12/2024 dated 10-7-2024].
88B(2) In all other cases where interest is payable on delay in Period starting Amount of tax which
payment of tax covered by Section 50(1) from the date on remains unpaid (i.e.
which such tax Gross liability without
was due to be paid deducting ITC)
till the date such
tax is paid.
88B(3) Where interest is payable on the amounts of ITC wrongly Period starting Amount of input tax
availed and utilised covered by Section 50(3) from the date of credit wrongly availed
utilisation of such and utilised
wrongly availed
input tax credit till
the date of reversal
of such credit or
payment of tax
in respect of such
amount

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Date of the utilization of input tax credit means as under –

Cases, wherein, return in Form GSTR-3B is Date of the utilization of input tax credit = Earlier of the
to be furnished ▪ due date of the return or
▪ actual date of filing return.
In any other case Date of debit in the electronic credit ledger
w.e.f. 10-7-2024, The proviso to Section 50(1) of the CGST Act, effective from July 10, 2024, provides relief to
taxpayers regarding interest on delayed tax payments. If a taxpayer deposits the tax amount into their Electronic
Cash Ledger (ECL) on or before the due date but files the GSTR-3B return after the due date, interest will not be
charged on the amount that was timely deposited in the ECL. Interest will apply only to any tax amount that was
not deposited by the due date.
Illustrative Example:
• Tax Liability for July 2024: ₹100,000
• Due Date for GSTR-3B Filing: August 20, 2024
• Date of Tax Deposit into ECL: August 20, 2024
• Date of GSTR-3B Filing: August 25, 2024
• Days of Delay in Filing: 5 days
• Interest Rate: 18% per annum
Scenario Analysis:
1. Full Tax Amount Deposited on Due Date:
• Since the entire tax liability of ₹100,000 was deposited into the ECL on or before the due date (August
20, 2024), and remained there until it was debited at the time of filing the return on August 25, 2024, no
interest is payable on this amount.
2. Partial Tax Amount Deposited on Due Date:
• Amount Deposited on Due Date: ₹70,000
• Remaining Amount Deposited on: August 22, 2024
• Interest Calculation:
• Interest applies only to the delayed amount of ₹30,000 for 2 days (from August 21 to August 22).
• Interest Amount: ₹30,000 × (18% ÷ 365) × 2 = ₹29.59
• Therefore, an interest of ₹30 (rounded off) is payable due to the delay in depositing ₹30,000.
Key Takeaways:
• Timely depositing the tax amount into the ECL by the due date ensures that no interest is charged, even if the
GSTR-3B filing is delayed.
• Interest is levied only on the portion of tax not deposited into the ECL by the due date.
Amendment of Section 50(1) of the CGST Act, 2017, Interest on delayed payment of tax.-
(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder,
but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for

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which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per
cent., as may be notified by the Government on the recommendations of the Council:
[Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return
for the said period furnished after the due date in accordance with the provisions of section 39, except where such
return is furnished after commencement of any proceedings under section 73 or section 74 [or section 74A inserted
w.e.f. 1-11-2024, F.A. 2024 dt. 16-8-2024] in respect of the said period, shall be levied on that portion of the tax
that is paid by debiting the electronic cash ledger.]
As per CBIC Circular No. 192/04/2023-GST dated 17th July 2023, Clarification on charging of interest under
section 50(3), in cases of wrong availment of IGST credit and reversal thereof:
 Where IGST credit has been wrongly availed and subsequently reversed on a certain date, there will not be
any
interest liability under section 50(3) if, during the time period starting from such availment and up to such
reversal, the balance of ITC in the electronic credit ledger (ECL), under the heads of IGST, CGST and SGST
taken together, has never fallen below the amount of such wrongly availed ITC, even if available balance
of IGST credit in electronic credit ledger individually falls below the amount of such wrongly availed IGST
credit.
 Credit of Compensation Cess available in ECL cannot be taken into account while considering the balance
of ECL for the purpose of calculation of interest u/r 88B(3) in respect of wrongly availed and utilized IGST,
CGST or SGST credit.
Rule 88B(1) of CGST Rules, 2017:
Example 1:
Tax liability Input Tax Credit Net GST liability paid after due date Liability on which interest is applicable
10,00,000 6,00,000 4,00,000 4,00,000
10,00,000 2,00,000 8,00,000 8,00,000
10,00,000 12,00,000 Nil Nil

Rule 88B(2) of CGST Rules, 2017:

Example 2:
M/s Raj & Co., has made a supply of goods/service in the month of Feb for `1,00,000 and GST collected on such
supply is 5% which is ` (1,00,000*5%)= `5,000. Assuming E-Credit Ledger balance is `2,000.
let’s suppose the due date for the GSTR-3B for Feb Month is 20-March M/s Raj & Co., filed his GSTR-3B
against show cause notice issued by Proper Officer under section 73 of CGST Act, 2017 on 20th April. Calculate
Interest amount.
Solution:
Due date for payment of tax collected by M/s Raj & Co., in the month of Feb is 20-Mar. Interest @ 18% p.a is
payable for the period for which the tax remains unpaid in terms of Sec-50(1) of CGST Act, 2017. Calculation of
interest amount is as follows:
= `(5,000*18%*31/365) = `76/- (Calculated on Gross GST Liability).
Rule 88B(3) of CGST Rules 2017:
Input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit
ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax
credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax
credit wrongly availed.

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Interest will be applicable on the amount, by which the balance in the electronic credit ledger falls below the
amount of input tax credit wrongly availed. Let’s consider a situation:
Example 3:
Closing
Opening Date of
Balance Amount
Balance ITC Total Output Utilization of
in on which Due Filing
in Eligible wrongly ITC (D) tax ITC wrongly
Month e-credit interest Date Date
e-credit ITC(B) availed =A+B liability (G) or (H)
ledger is (G) (H)
ledger (C) +C ` (E) whichever is
(F) = payable
(A) earlier
D–E
April Nil 3,50,000 25,000 3,75,000 3,50,000 25,000 Nil 20th 20th NA
May May
May 25,000 2,50,000 Nil 2,75,000 2,50,000 25,000 Nil 20th 18th NA
June June
June 25,000 1,50,000 Nil 1,75,000 1,65,000 10,000 15,000 20th 19th 19 July
July July
July 10,000 3,00,000 Nil 3,10,000 3,10,000 Nil 10,000 20th 28th 20th Aug.
Aug. Aug.
Section 75(9) of CGST Act, 2017: Interest on the tax short paid or not paid shall be payable whether or not
specified in the order determining the tax liability.
Case laws:
(1) Jeevan Diesels & Electricals Ltd. v Commissioner of Central Excise, Pondicherry (2016) 68 taxmann.com
325 (Chennai-CESTAT):
Hon’ble Tribunal held that interest under Section 50 of the CGST Act, 2017 should be computed in accordance
with interest rate in force during the period of delay.
(2) Interest payable for actual period of delay, not for whole month (BPL Mobile CCE (2005) 1 STT 140
(CESTAT).
(3) Interest is payable even if duty is paid before issue of show cause notice [(CCE v Toyota Kirloskar Motors
(2015) 52 GST 1208 (SC)]
Interest is not applicable in the following cases
(1) No interest is payable if excise duty is paid voluntarily by assessee before show cause notice, even when
demand was time barred [CCE v Gujarat Narmada Fertilizers Co. Ltd. (2012) 285 ELT 336 (Guj HC DB)]
(2) No interest is payable if there was delay in payment of duty by one department of Government to other,
because it is only adjustment from one account to other [CCE v General Manager, Telecom (2012) 37 STT
433 (CESTAT)]
Interest to be paid by the department.
The three scenarios where the Department is liable to pay interest on delayed payment to a taxpayer are—
1. Section 54(12) of the CGST Act, 2017: Refund of tax has been withheld from a person on account of an
appeal or proceeding but which is later found to be eligible to be paid.
2. Section 56 of the CGST Act, 2017: Refund of tax has not been given to a person within 60 days from the date
of receipt of application for refund

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3. Provision to section 56 of the CGST Act, 2017: Refund ordered by an adjudicating authority or Appellate
Authority or Appellate Tribunal or court has not been paid to a person within 60 days from the date of receipt
of application for refund.
Interest rates
Interest rate
Section Scenario
per annum
Section 54(12) of Refund of tax has been withheld from a person on account of an appeal or 6%
the CGST Act, 2017 proceeding but which is later found to be eligible to be paid.
Section 56(1) of the Refund of tax has not been given to a person within 60 days from the date 6%
CGST Act, 2017 of receipt of application for refund.
(w.e.f. 1st October 2023, the words “for the period of delay beyond 60 days
from the date of recipt of such application till the date of refund of such
tax, to be computed in such manner and subject to such conditions and
restrictions as may be prescribed (i.e. refer Rule 94)” shall be substituted).
Proviso to section Refund ordered by an adjudicating authority or Appellate Authority or 9%
56 of the CGST Appellate Tribunal or court has not been paid to a person within 60 days
Act, 2017 from the date of receipt of application for refund till the date of refund.
Note: As per Section 54(14) of the CGST Act, 2017 no refund shall be granted if refund amount is less than
`1,000/-. Since, no refund is granted under section 54(14) of the CGST Act, 2017, no interest is payable by the
Department.
Interest on refund
Example 1:
X Ltd. manufactured and cleared taxable goods on 1st August 2023 for `20,00,000 plus GST 12%. After payment
of GST on or before the due date, it is noticed that these goods are exempted from GST and applied for want refund
of GST on 15th November 2023. Department acknowledged the receipt on 15th November 2023. Department
granted the refund on 23rd January 2024.
Find the interest if any on delay refund.
Note: X Ltd. not passed ITC to recipient of supply.
Answer:
From 15th November 2023 to 22nd January 2024 = 69 days
Less: from 15th November 2017 to 13th Jan 2018 = (60) days
No. of days delay = 9 days
Interest = `355/- (i.e. 2,40,000 x 6% x 9/365)

Case laws:
Kanyaka Parameshwari Engineering Ltd. v Comm. of Cus. & Cx 2012 (26) STR 380 (AP)
Facts of the case:
Whether the interest on delayed refund under section 56 of the CGST Act, 2017 would be payable from the date
of deposit of duty or after expiry of 60 days from the date of receipt of application for refund?

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Decision:
The interest shall be paid on such tax from the date immediately after expiry of 60 days from the date of receipt
of such application till the date of the refund of such tax.
Case law:
Ranbaxy Laboratories Ltd. v UOI 2011 (273) ELT 3 (SC)
Facts of the case:
Whether the interest on delayed refund under section 56 of the CGST Act, 2017 would be payable from the date
on which order of refund is made by the judiciary or after expiry of 60 days from the date of receipt of application
for refund?
Decision:
Section 54of the CGST Act, 2017 (i.e. refund of tax) comes into play only after an order for refund has been
made under section 54(12) of the CGST Act, 2017. However, the liability to pay interest under proviso to Section
56 commences from the date of expiry of 60 days from the date of receipt of application for refund and not on the
expiry of the said period from the date on which order of refund is made.
Illustration 66
ABC Co. Ltd. is engaged in the manufacture of heavy machinery. It procured the following items during the
month of July.
S. No. Items GST paid (`)
(i) Electrical transformers to be used in the manufacturing process 5,20,000
(ii) Trucks used for the transport of raw material 1,00,000
(iii) Raw material 2,00,000
(iv) Confectionery items for consumption of employees working in the factory 25,000
Determine the amount of ITC available with ABC Co. Ltd., for the month of July by giving necessary explanations
for treatment of various items.
Note:
(i) All the conditions necessary for availing the ITC have been fulfilled.
(ii) ABC Co. Ltd. is not eligible for any threshold exemption.
Solution:
Computation of ITC available with ABC Co. Ltd. for the month of July
S. No. Particulars ITC (`)
(i) Electrical transformers 5,20,000
(ii) Trucks used for the transport of raw material 1,00,000
(iii) Raw material 2,00,000
(iv) Confectionery items for consumption of employees working in the factory nil
Total ITC allowed 8,20,000

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Illustration 67

XYZ Ltd., is engaged in manufacture of taxable goods. Compute the ITC available with XYZ Ltd. for the month
of May 2025 from the following particulars:—

S. Inward GST
Remarks
No. supplies (`)
(i) Inputs ‘A’ 1,00,000 One invoice on which GST payable was `10,000, is missing
(ii) Inputs ‘B’ 50,000 Inputs are to be received in two instalments. First instalment has been
received in May 2025.
(iii) Capital goods 1,20,000 XYZ Ltd. has capitalised the capital goods at full invoice value inclusive
of GST as it will avail depreciation on the full invoice value.
(iv) Input services 2,25,000 One invoice dated 20.01.2023 on which GST payable was `50,000 has
been received in May 2025.

Note:

(i) All the conditions necessary for availing the ITC have been fulfilled.

(ii) ABC Co. Ltd. is not eligible for any threshold exemption.

(iii) The annual return for the financial year 2025-26 was filed on 15th September 2026.

Solution:

Computation of ITC available with XYZ Ltd. for the month of May, 2025

S. Inward GST
Working note
No. supplies (`)
(i) Inputs ‘A’ 90,000 `1,00,000 – `10,000 = `90,000

(ii) Inputs ‘B’ Nil ITC allowed only when all instalments received
(iii) Capital goods Nil ITC not allowed. Since, GST paid on such C.G. claimed depreciation
[Sec. 16(3)]
(iv) Input services 1,75,000 `2,25,000 - `50,000 = `1,75,000

Total ITC allowed 2,65,000

Illustration 68
Shipra Traders is a registered supplier of goods in Assam. It purchased goods valued at ` 10,000 from Kartik
Suppliers located within the same State. Kartik Suppliers charged CGST & SGST separately in its invoice.
Subsequently, Shipra Traders sold goods valuing ` 9,500 to Rabina Manufacturers located in Assam. 20% of the
inputs purchased are still lying in stock and there was no opening stock of goods. Rate of CGST and SGST on
supply and purchase of goods is 9% each. Calculate the net GST payable by Shipra Traders and input tax credit
(ITC) to be carried forward, if any.

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Solution:

Statement showing GST payable or ITC carried forward:

Particulars CGST 9% SGST 9%

Outward supply 855 855
Less: ITC (900) (900)
Excess ITC c/f (45) (45)

Illustration 69
Sundar 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 input tax credit 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 washing shed in its premises
Solution:
The availability of input tax credit (ITC) in respect of the various expenses incurred by Sundar Motors is
discussed below:
(i) ITC on cars purchased from the manufacturer for making further supply of such cars will be allowed (i.e.
exception to section 17(5)(a) of CGST Act, 2017).
However, ITC on the cars destroyed in accident will not be allowed as the ITC on goods destroyed for
whichever reason is specifically blocked under section 17(5)(h) of CGST Act.
(ii) the car washing shed is not a plant and machinery and the works contract service is not used for further
supply of works contract service, ITC thereon will not be allowed (Section 17(5)(c) of CGST Act, 2017).
Illustration 70
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
~ manpower for operation of the excavators at a per day rate
~ soil-testing and seismic evaluation at a per sample rate.
The excavators are invariably hired out along with operators. Similarly, excavator operators are supplied only
when the excavator is hired out.
M/s XYZ receives the following services:
~ Annual maintenance services for excavators;
~ Health insurance for operators of the excavators;
~ Scientific and technical consultancy for soil testing and seismic evaluation.
For a given month, the receipts (exclusive of GST) of M/s XYZ are as follows:
~ Hire charges for excavators - ` 18,00,000

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Indirect Tax Laws and Practice

~ Service charges for supply of manpower for operation of the excavator - ` 20,000
~ Service charges for soil testing and seismic evaluation at three sites - ` 2,50,000
The GST paid during the said month on services received by M/s XYZ is as follows:
~ Annual maintenance for excavators - ` 1,00,000
~ Health insurance for excavator operators - ` 2,11,000
~ Scientific and technical consultancy for soil testing and seismic evaluation - ` 1,00,000
Compute the net GST payable by M/s XYZ for the given month.
Assume the rates of GST to be as under:
Hiring out of excavators – 12% Supply of manpower services and soil-testing and seismic evaluation services
– 18%
Note: Opening balance of input tax credit of GST is nil.

Solution:

Computation of net GST payable by M/s XYZ

Particulars GST payable (`)
Gross GST liability 2,63,400
Less: Input tax credit 2,00,000
Net GST liability 63,400

Working note:
Value received Rate of GST payable
Particulars
(`) GST (`)
Hiring charges for excavators 18,00,000 12% 2,16,000
Service charges for supply of manpower for operation of 20,000 12% 2,400
excavators
Service charges for soil testing and seismic evaluation 2,50,000 18% 45,000
Gross GST liability 2,63,400
Computation of input tax credit available for set off

Particulars GST paid (`) ITC available (`)

Annual maintenance services for excavators 1,00,000 1,00,000
Health insurance for excavator operators 2,11,000 Not allowed
Scientific and technical consultancy 1,00,000 1,00,000
Total input tax credit available 2,00,000

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Case Law
(1) CCEx. v Stelko Strips Ltd. 2010 (255) ELT 397 (P&H)
Decision: The ITC could be taken on the strength of private challans as the same were not found fake and
there was proper certification that duty has been paid.

(2) CCus. & CEx. v Sachin Malhotra 2015 (37) STR 684 (Uttarakhand)

Rent-a-cab Hiring of cab

Under rent-a-cab scheme, the hirer is When a person chooses to hire a car, which is offered
endowed with the freedom to take the on the strength of a permit issued by the Motor Vehicles
vehicle wherever he wishes, and he is only Department, then the owner of the vehicle, who may or
obliged to keep the holder of the license may not be the driver, will offer his service while retaining
informed of his movements from time to the control and possession of the vehicle with him-.
time. The customer is merely enabled to make use of the vehicle
by travelling in the vehicle.
In the case of a passenger, he is expected to pay the metered
charges, which is usually collected on the basis of the
number of kilometers Travelled.

(3) Sri Desikanathar Textiles Pvt. Ltd. vs Union of India 2022 (62) GSTL 449 (Mad.)
Input Tax Credit – Transitional Credit – Mistake while filing of Form GST TRAN-1 – Revision of Form
GST TRAN-1 – Provisions of CGST Act, 2017 do not provide for lapsing of credit, which could not be
successfully transitioned under new regime while filing form correctly in TRAN-1 – Assessee having
indefeasible right to utilize such credit – Several communication indicating that assessee was in continuous
touch with Authorities to ensure that transition of credit was successful – Direction given to Authorities to
allow input tax credit, after verification by competent officer that such credit could be transitioned but for
wrong declaration in Form TRAN-1 – If credit available to be transitioned, it cannot be denied. Authorities
either to allow assessee to file either a revised TRAN-1 or directly make credit entry in assessee’s electronic
cash register. Rule 117 of CGST Rules, 2017 read with section 140 of the CGST Act, 2017 along with Article
226 of Constitution of India.

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(4) No GST ITC on Input Services Using Products’ Promotional Scheme: TN AAAR in case of GRB Dairy
Foods (2022):
The appellant, M/s GRB Dairy Foods Pvt. Ltd is involved in the business of making and supplying
ghee, masalas, instant mixes, and sweets. With the goal of expanding the market share, the appellant has
incorporated a sales promotional offer buy and fly, to expand the product sales. According to the scheme
the petitioner furnishes the rewards such as Dubai Trip, Gold Voucher, Television, and Air Cooler for those
retailers whose target will be achieved.
GRB Dairy Foods submitted that it procured the reward items “in the course of its business” and it has
a direct nexus with the business carried on by the company. “Marketing and business expansion is an
indispensable activity of every company’s operation,” it stated.
The AAR Bench factored in a 2018 ruling given by the Maharashtra Bench in the case of Biostadt India
(2019 (22) GST L 551 (AAR – GST)), where ITC was held to be not available on procurement of gold coins
offered under a sales promotion scheme to tis customers. “the credit of taxes paid on goods/services for
personal consumption is explicitly restricted. The (reward) goods and services are used by the retailers and
hence are for personal consumption. Thus, the applicant company is ineligible to take Input Tax Credit on
the inward supply of these goods and services,” held the AAR Bench.
“The appellant submitted that AAR completely ignored the fact that there was a contractual obligation that
was based on a scheme that was circulated to the trade-in in advance.”
After coming to the contractual obligation, the provided promotional materials cannot be treated as a gift.
AAR sees that the promotional materials were said to be the gifts that were provided voluntarily and thus
will come beneath eh provisions of section 17(5)(h) and therefore credit has to be restricted.
AAAR sees that the petitioner furnished the rewards through the method of goods and indeed foreign tours
via furnishing valid air tickets and that is the cause they coined the reward policy as buying and fly. Hence
what they furnished in the policy were the goods and services. The provisions of clause (h) said that the
ITC will not be available for the goods lost, stolen, demolished, written off, or disposed of via gift or free
samples. Hence this clause is only subjected to goods.
AAAR ruled that under the provision of the CGST act more precisely section 17(5) of the act, the gifts or
rewards provided excluding the acknowledgement despite they are provided for the sales promotion do
not entitle as inputs for the objectives of Credit, since no GST is furnished upon its disposal. Hence we
mentioned that the ITC on the inputs and the input services engaged in the goods and services used towards
the goal of the reward is not available for the petitioner and as per that the ruling provided via the Advance
Ruling Authority of Tamil Nadu needs no interruption and the appeal is dismissed.
(5) GST ITC not allowable to BMW on demo car or vehicle: The Haryana Appellate Authority of Advance
Ruling (AAAR) (2022)
BMW has sought an advance ruling on the issue of whether the unit of BMW is entitled to avail the Input
Tax Credit (ITC) of IGST and Compensation Cess paid on receipt of cars (on stock transfer basis) for use in
relation to business activities and onwards supply to dealers after use for a limited period of time.
The Authority of Advance Ruling (AAR) ruled that in the motor vehicle industry, demonstration vehicles are

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an indispensable tool for the promotion of sales by providing trial runs to customers. These demo cars are
used for demonstration purposes for prospective customers, and after a specific period of time, they are sold
off for their book value, paying the applicable taxes at that point of time.
The AAR observed that the specific provisions regarding the admissibility of the input tax credit on motor
vehicles for transportation of persons up to a seating capacity of not more than 13 persons are contained in
Section 17(5) of the CGST Act 2017.
The appellant has challenged the order of the AAR and stated that the ruling was vague or cryptic. BMW
was entitled to take ITC as the vehicles were further used for specified taxable supply under section 17(5)(a)
(i)(A) of CGST Act.
The appellant further added that vehicles were always intended to be further supplied by the appellant after
specified use. No time limit has been prescribed under the CGST Act for further supply of vehicles. The
appellant added that the authorities has failed to adhere to the provisions of Section 98(6) of the CGST Act.
The AAAR observed that if the argument of the party is allowed, then in that case, all motor vehicles,
irrespective of the nature of supply, will be eligible for ITC across the industries. It will no longer be a
restrictive clause for car dealers, but will be an open-clause for all the trade and industry to avail of the ITC
on all the vehicles purchased by them. This has never been the intent of Parliament.
The AAAR ruled that in the very first demonstration run, demo cars lose the character of the new motor
vehicle, and demo vehicles are sold akin to second-hand goods, which are different from new vehicles and
accordingly treated differently under GST law, so the demo car is not an input.
“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’. The Input Tax Credit on these vehicles,
therefore, cannot be allowed,” the AAAR added.

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Exercise
A. Theoritical Questions
~ Multiple Choice Questions

1. Input tax credit is available only when the purchase made is used in the course or furtherance of—
(a) other than business
(b) business
(c) Other than business expenses
(d) Both (a) & (b)
2. Availability of Input Tax Credit shall be considered only:
(a) On receipt of goods or services as well as on payment of taxes by supplier to Govt.
(b) Only on payment of taxes paid by supplier to Govt.
(c) Taken to manufacturing site or availed services
(d) Both (b) & (c)
Ans. (a) On receipt of goods or services as well as on payment of taxes by supplier to Govt.
3. The time limit to pay the value of supply with taxes to the supplier to avail the input tax credit is ....….:
(a) 3 months
(b) 6 months
(c) 180 Days
(d) Till the date of filling of annual return.
4. Can a registered person under composition scheme claim input tax credit?
(a) Yes
(b) No
(c) Input tax credit on inward supply of goods only can be claimed
(d) Input tax credit on inward supply of services only can be claimed
5. Exempted supply for the purpose of proportionate common credit includes
(a) Sale land and building
(b) Sale of securities
(c) Supply on which GST apply under RCM
(d) All the above
6. As per Rule 42(2) of the CGST Rules, 2017 where the aggregate of the amount calculated finally in
respect of ineligible credit exceeds the aggregate of the amounts determined under rule 42(1)(i) and (j),
such excess shall be added to the output tax liability of the registered person in the month not later than
the month of_____
(a) September following the end of the financial year to which such credit relates
(b) March following the end of the financial year to which such credit relates
(c) June following the end of the financial year to which such credit relates
(d) None of the above

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7. As per Rule 42(2) of the CGST Rules, 2017 where the aggregate of the amount calculated finally in
respect of ineligible credit exceeds the aggregate of the amounts determined under rule 42(1)(i) and (j),
such excess shall be added to the output tax liability of the registered person in the month not later than
the month of September following the end of the financial year to which such credit relates and the said
person shall be liable to pay _______on the said excess amount at the rate specified in sub-section (1) of
Section 50 for the period starting from the1st day of April of the succeeding financial year till the date
of payment
(a) interest 24% p.a.
(b) interest 18% p.a.
(c) interest 28% p.a.
(d) interest 12% p.a.
8. Is it mandatory to capitalize the capital goods in books of Accounts?
(a) Yes
(b) No
(c) Optional
(d) None of the above
9. The term “used in the course or furtherance of business” means?
(a) It should be directly co-related to output supply
(b) It is planned to use in the course of business
(c) It is used or intended to be used in the course of business
(d) It is used in the course of business for making outward supply
10. Can the recipient avail the Input tax credit for the part payment of the amount to the supplier within one
hundred and eighty days?
(a) Yes, on full tax amount and partly value amount
(b) No, he can’t until full amount is paid to supplier
(c) Yes, but proportionately to the extent of value and tax paid
(d) Not applicable is eligible to claim refund in respect of exports of goods le
11. Banking company or Financial Institution have an option of claiming:
(a) Eligible Credit or 50% credit
(b) Only 50% Credit
(c) Only Eligible credit
(d) Eligible credit and 50% credit
12. Where a supplier of goods or services pays tax under sections 74, 129 and 130 (fraud, willful misstatement
etc.), then receiver of goods can avail its credit:
(a) Yes
(b) No
(c) Yes, after receipt of goods or services
(d) Yes, after receipt of invoice for goods or services

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13. An assessee obtains new registration, voluntary registration, change of scheme from composition to
regular scheme and from exempted goods/services to taxable goods/services. It can avail credit on
inputs lying in stock. What is the time limit for taking said credit?
(a) 1 year from the date of invoice
(b) 3 years from the date of invoice
(c) 5 years from the date of invoice
(d) None of the above
14. The time limit beyond which if goods are not returned, the inputs sent for job work shall be treated as
supply
(a) One year
(b) Five years
(c) Six months
(d) Seven years
15. The time limit beyond which if goods are not returned, the capital goods sent for job work shall be
treated as supply
(a) One year
(b) Five years
(c) Six months
(d) Three years
16. Provisional Input tax credit can be utilized against
(a) Any Tax liability
(b) Self-Assessed Output Tax liability
(c) Interest and Penalty
(d) Fine
17. The details of challans in respect of goods dispatched to a job worker or received from a job worker or
sent from one job worker to another during a half year shall be included in FORM______?
(a) Form GST ITC-03
(b) Form GST ITC-04
(c) Form GSTR-2B
(d) Form GST REG-01
18. Maximum time limit for availing ITC is
(a) The date of filing of annual return
(b) 30th November of the following financial year
(c) Earliest of above two
(d) Later of above two.

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19. In case of supply of plant & machinery on which ITC is taken, tax to be paid on is
(a) Amount equal to ITC availed less 5% for every quarter or part thereof
(b) Tax on transaction value
(c) Higher of above two
(d) Lower of above two
20. Mr. X placed an order with Mr. Y of 20,000 pcs on 1st January 20XX & the same order is to be received
on last day of every month i.e. 2,000 pcs per month shall be received in next 10 months. When can Mr.
X book the credit in his books and electronic ledger?:
(a) 28th February 20XX
(b) 31st October 20XX
(c) 3lst March 20XX
(d) Proportionately with receipt of every installment
21. As per the recent amendments in the CGST Act, ITC on Motor vehicles having the approved seating
capacity of …………………….. shall be allowed except in few cases:
(a) 13 persons or less including driver
(b) 13 persons or less excluding driver
(c) 12 persons
(d) Either (a) or (b)
22. Mr. C, a practicing Cost Accountant purchased 3 laptops each having tax element of `1,25,000 in his
firm name. Two laptops he utilized in his office whereas one laptop he gifted to his sister. What is the
amount of ineligible ITC?
(a) `1,25,000
(b) `2,50,000
(c) `2,75,000
(d) None of the
23. Mr. Ajay purchased goods from Mr. Chethan, a composition dealer worth `100,000. Since Mr. Chethan
was trader so he was supposed to pay only 1% of his turnover as his tax. The item so purchased was
otherwise taxable at 12%. What is the amount of credit which Mr. Ajay is eligible to take?
(a) `990
(b) `12,000
(c) `1,000
(d) Not eligible to claim credit

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24. ABC Pvt Ltd. purchased a machinery on 15th July 2023 for `10 lacs on which IGST was paid @
18%. He availed the ITC & utilized the capital goods. On 16th October 2024 he sold the machinery as
secondhand goods for `7,50,000. Calculate the amount of ITC that needs to be paid.
(a) `1,26,000
(b) `1,35,000
(c) Lower of (a) or (b)
(d) Higher of (a) or (b)
25. C Pvt Ltd. merges into X Pvt Ltd Can the unutilized balance of ITC in C Pvt Ltd. of `80 lacs be
transferred to the electronic ledger of X Pvt Ltd.?
(a) Yes
(b) No
(c) Not applicable
(d) Discretion of X Pvt Ltd.
26. M/s XYZ Industries is engaged in the business of refining and marketing of petroleum products. It has one
refinery each in the States of Tamil Nadu, West Bengal & Maharashtra and numerous administrative and
marketing offices spread across the country. The Company has separate marketing cum administrative
offices for every major State and common administrative cum marketing offices for a group of small
States e.g., all north-eastern States are covered under one marketing cum administrative office. The
Company also blends lubricants in its blending plants located in the States of Maharashtra and Tamil
Nadu.
As a policy, all the places of business of the Company in a State are registered under one registration.
Imported crude is used as input in the refinery and following major products are extracted after refining
process:

Products chargeable to GST (Group A) Products not chargeable to GST (Group B)

Base oil (An input for blending lubricants) Petrol
Furnace oil Diesel
Bitumen (Used for road construction) Air turbine fuel
LPG (Domestic and Industrial)
Base oils are further sent to blending plants where they are blended with additives to produce lubricants.
The Company provides the following particulars for States of Tamil Nadu, Maharashtra and Kerala for
the month of January 20XX:
(Amount in thousands)_ (Amount in

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Tamil Nadu Maharashtra Kerala

Particulars
(`) (`) (`)
Value of supply inclusive of all taxes/duties (Group 1,650 3,400 1,575
B products)
Value of supply (Group A products) before all 100 200 20
taxes/duties
Excise duty leviable on supply of Group B products 500 1,000 110
VAT on supply of Group B products 250 600 65
Tax paid on inputs and input services procured at 5 6 0
the blending plant
Tax paid on spares procured at the 3 8 0
refinery (Spares are booked in revenue account)
Tax paid on inputs and input services procured at 2 3 1
the marketing cum administrative office
Tax paid capital asset procured at the blending 0 5 0
plant
Tax paid capital asset procured at the refinery 12 0 0
Assume that all of the Group A products are chargeable to GST @ 18% (including both CGST and SGST
or IGST, as the case may be)
The Finance department of M/s XYZ Industries seeks your professional advice on following questions:
(i) The value of company’s supply in the Union Territory of Puducherry is ` 32,34,000 (Group A
products) and in the State of Goa is ` 18,38,000 (Group A and Group B products) for the year ending
March 20XX. GST registration is—
(a) Not required for both Puducherry and Goa

(b) Not required for Goa but required for Puducherry

(c) Required for both Puducherry and Goa

(d) Not required for Puducherry but required for Goa

(ii) The eligible ITC available at marketing cum administrative office located in the State of Maharashtra,
for the month of January 20XX, is—

(a) `3,000

(b) `300

(c) `166.67

(d) `1,500

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(iii) The eligible ITC in respect of the capital asset procured in the State of Tamil Nadu, for the month of
January 20XX:

(a) `12,000

(b) `200

(c) `11,811.11

(d) `11,820

(iv) Lubricant valued at ` 10,000 has been stock transferred from the blending plant located in the State
of Tamil Nadu to the refinery located in the same State, in the month of January 20XX. The GST
(CGST and SGST) payable on such transaction is?

(a) Nil as the transaction is not a supply

(b) `900

(c) `1,800

(d) Nil as such supply is exempted from GST

(v) Due to sudden fire in the store room of the refinery located in Maharashtra on January 28th 20XX,
the entire quantity of spares procured in the month of January 20XX gets destroyed. What action is
required from ABC Petroleum Limited?

(a) No action is required on the part of M/s XYZ Industries under GST Law.

(b) M/s XYZ Industries should report to jurisdictional GST Department for verification of the loss
of inputs on account of fire.

(c) M/s XYZ Industries should not avail ITC of tax paid on the spares.

(d) M/s XYZ Industries should avail ITC and reverse the same.

Answer:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
b a c b d a b a c c
11. 12. 13. 14. 15. 16. 17. 18. 19. 20
a b a a d b b c c b
21. 22. 23. 24. 25. 26.(i) 26.(ii) 26.(iii) 26.(iv) 26. (v)
a a d d a c b d a c

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