CHAPTER 8

INPUT TAX CREDIT

The section numbers referred to in the Chapter pertain to CGST Act and rule numbers
referred to in the Chapter pertain to CGST Rules, unless otherwise specified. For the
sake of brevity, input tax credit has been referred to as ITC in this Chapter.
Examples/Illustrations/Questions and Answers given in the Chapter are based on the
position of GST law existing as on 30.04.2025.

LEARNING OUTCOMES

After studying this Chapter, you will be able to:

 describe what are inputs, input services, capital goods and other
relevant terms in relation to ITC.
 explain the various conditions, timelines, restrictions and processes
for taking ITC on goods and services in general and special
circumstances.
 identify the items on which ITC is available as also the blocked items
on which ITC is not available.
 comprehend and apply the above provisions as also the provisions
relating to utilization of ITC to compute the GST liability of a
registered person.
 8.2 GOODS AND SERVICES TAX

CHAPTER OVERVIEW

Relevant definitions
Input Tax credit
Eligibility and conditions for
taking ITC

Blocked cedits

Availability of credit in special

circumstances

How ITC is utilised

1. INTRODUCTION
In earlier indirect tax regime, the credit mechanism for indirect taxes levied by the
Union Government, (central excise duty and service tax) was governed by the
CENVAT Credit Rules, 2004; and the
credit mechanism for state-level on
sale of goods was governed by the
States under their respective VAT laws.
The VAT legislations allowed ITC of VAT on inputs and capital goods in transactions
within the State, but not on inputs and capital goods coming in the State from
outside the State, on which central sales tax was paid. CENVAT Credit Rules, 2004
allowed availing and utilizing credit of duty/tax paid on both goods (capital goods
and inputs) and services by the manufacturers and the service providers across the
country.
 INPUT TAX CREDIT 8.3

The credit across goods and services was integrated vide the CENVAT Credit Rules,
2004 in the year 2004 to mitigate the cascading effects of central levies namely,
central excise duty and service tax. However, the credit chain remained fragmented
on account of State-Level VAT as the credit of central taxes could not be set off
against a State levy and vice versa. The chain further got distorted as ITC was not
available on the inter-State purchases. This resulted in cascading of taxes leading
to increase in costs of goods and services.
The GST regime promises seamless credit on goods and services across the entire
supply chain with some exceptions like supplies charged to tax under composition
scheme, blocked credits and supply of exempted goods and/or services. ITC is
considered to be the lifeline of the GST regime. In fact, it is the provisions of ITC,
which essentially make GST - a value added tax i.e., collection of tax at all points of
supply chain after allowing credit of tax paid at earlier points.
Chapter V of the CGST Act [Sections 16 to 21] & Chapter V: Input Tax Credit of the
CGST Rules [Rules 36-45] prescribe the provisions relating to ITC. Further, section
41 contains provisions for availment of ITC, sections 49(5), 49A, 49B and rule 88A
which together prescribe the sequence of utilisation of ITCand rules 86A and 86B
stipulate the conditions of use of amount available in electronic credit ledger and
restrictions on use of amount available in electronic credit ledger. State GST laws
also prescribe identical provisions in relation to ITC. In this Chapter, provisions of
sections 16, 17, 18 and 41 have been discussed; 1 first the statutory provisions of
these sections together with the relevant rules have been extracted followed by
their analysis.

Provisions of ITC under the CGST Act have also been made applicable to
the IGST Act vide section 20 of the IGST Act.

1
Provisions of ITC relating to job work and input service distributor (ISD) [Sections 19, 20 and
21] and provisions relating to ITC claim by banking companies, distribution of ITC by ISD,
determination of ITC on inputs, input services and capital goods and reversal thereof [Rules
38, 39, 42 and 43] will be discussed at the Final level.
 8.4 GOODS AND SERVICES TAX

Scheme of ITC - At a Glance

Given below are the salient features of the scheme of ITC as contained in the
provisions of sections 16, 17 and 18 read with the relevant rules. The scheme has
been discussed in detail in the ensuing pages of this Chapter.
 The scheme is designed to avoid cascading effect of taxes and make GST - a
destination-based tax.
 Broadly, ITC is available on all inputs, input services and capital goods used
for purposes of business by a taxable person. The exception is ‘blocked
credit’, where ITC is not available even when these goods or services are used
for the purposes of business.
 ITC is used for payment of tax on taxable output supply to avoid cascading
effect of taxes.
 GST law does not require ‘one to one’ co-relation between inputs/input
services and final products/services. Any eligible ITC can be used for payment
of tax on any taxable output supply.
 IGST is another core aspect of GST. It is a transitory tax to enable transfer of
ITC when goods or services move from one State to another. This is a unique
feature of Indian GST.
 Since ITC can be availed & utilized for payment of tax on taxable output
supply, as a natural corollary, ITC cannot be availed in respect of exempt
output supply on which tax is not payable.
 The exception to the above principle is ‘zero rated supply’ 2, i.e. exports or
supplies to a special economic zone (SEZ) developer/unit, where ITC is
available even if no tax is payable on output supply as zero-rated supplies are
not exempt supplies. Such ITC can be utilized either for making supplies by
paying tax or refund of the unutilized ITC can be obtained. This simple
mechanism is used to make exports and supplies to SEZ completely tax free.
 If a taxable person is making both taxable and exempt supply, he is entitled to
avail full credit of ITC in respect of inputs, input services and capital goods
exclusively used for taxable supply and no credit at all can be availed for inputs,
input services and capital goods exclusively used for exempt supply.

The concept of zero- rated supply and the refund of ITC will be dealt in detail at the Final level.
2
 INPUT TAX CREDIT 8.5

 If common inputs, input services and capital goods are used for taxable as
well as exempt supply, only proportionate ITC attributable to the taxable
supply is available. The common ITC is apportioned in the ratio of value of
taxable supply and exempt supply. Elaborate provisions have been made in
the GST law to prescribe the manner of calculation of proportionate ITC.
Before proceeding to understand the provisions of sections 16, 17, 18, 41 and the
relevant rules, let us first go through few relevant definitions.

2. RELEVANT DEFINITIONS
 Agent means a person, including a factor, broker, commission agent, arhatia,
del credere agent, an auctioneer or any other mercantile agent, by whatever
name called, who carries on the business of supply or receipt of goods or
services or both on behalf of another [Section 2(5)].
 Business includes
(a) any trade, commerce, manufacture, profession, vocation, adventure,
wager or any other similar activity, whether or not it is for a pecuniary
benefit;
(b) any activity or transaction in connection with or incidental or ancillary
to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or
not there is volume, frequency, continuity or regularity of such
transaction;
(d) supply or acquisition of goods including capital goods and services in
connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a
subscription or any other consideration) of the facilities or benefits to
its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been
accepted by him in the course or furtherance of his trade, profession or
vocation;
 8.6 GOODS AND SERVICES TAX

(h) activities of a race club including by way of totalisator or a licence to

book maker or activities of a licenced book maker in such club; and

(i) any activity or transaction undertaken by the Central Government, a

State Government or any local authority in which they are engaged as
public authorities [Section 2(17)].
 Capital goods means goods, the value of which is capitalized in the books of
account of the person claiming the ITC and which are used or intended to be
used in the course or furtherance of business [Section 2(19)].
 Conveyance includes a vessel, an aircraft and a vehicle [Section 2(34)].
 Exempt supply means supply of any goods or services or both which attracts nil
rate of tax or which may be wholly exempt from tax under section 11, or under
section 6 of the IGST Act, and includes non-taxable supply [Section 2(47)].
 Input means any goods other than capital goods used or intended to be used
by a supplier in the course or furtherance of business [Section 2(59)].
 Input service means any service used or intended to be used by a supplier
in the course or furtherance of business [Section 2(60)].
 Input tax in relation to a registered person, means the central tax, State tax,
integrated tax or Union territory tax charged on any supply of goods or
services or both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of
section 9;
(c) the tax payable under the provisions of sub-section (3) and (4) of
section 5 of the IGST Act;
(d) the tax payable under the provisions of sub-section (3) and sub-section
(4) of section 9 of the respective State Goods and Services Tax Act; or

(e) the tax payable under the provisions of sub-section (3) and sub-section
(4) of section 7 of the Union Territory Goods and Services Tax Act,
but does not include the tax paid under the composition levy[Section 2(62)].
 Input tax credit means the credit of input tax[Section 2(63)].
 INPUT TAX CREDIT 8.7

 Invoice or tax invoice means the tax invoice referred to in Section 31

[Section 2(66)].
 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 [Section 2(67)].
 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(76)].
Motor vehicle or vehicle under the Motor Vehicles Act, 1988 means any
mechanically propelled vehicle adapted for use upon roads whether the power
of propulsion is transmitted thereto from an external or internal source and
includes a chassis to which a body has not been attached and a trailer; but does
not include a vehicle running upon fixed rails or a vehicle of a special type
adapted for use only in a factory or in any other enclosed premises or a vehicle
having less than four wheels fitted with engine capacity of not exceeding
twenty five cubic centimetres. [Section 2(28) of Motor Vehicles Act, 1988].
 Non-resident taxable person means any person who occasionally
undertakes transactions involving supply of goods or services or both,
whether as principal or agent or in any other capacity, but who has no fixed
place of business or residence in India [Section 2(77)].
 Principal means a person on whose behalf an agent carries on the business
of supply or receipt of goods or services or both [Section 2(88)].
 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 [Section 2(92)].
 Recipient of supply of goods or services or both, means—
(a) where a consideration is payable for the supply of goods or services or
both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person
to whom the goods are delivered or made available, or to whom
possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person
to whom the service is rendered,
 8.8 GOODS AND SERVICES TAX

and any reference to a person to whom a supply is made shall be construed

as a reference to the recipient of the supply and shall include an agent acting
as such on behalf of the recipient in relation to the goods or services or both
supplied [Section 2(93)].
 Registered person means a person who is registered under section 25 of
CGST Act but does not include a person having a Unique Identity Number
[Section 2(94)].
 Supplier in relation to any goods or services or both, shall mean the person
supplying the said goods or services or both and shall include an agent acting as
such on behalf of such supplier in relation to the goods or services or both supplied:
Provided that a person who organises or arranges, directly or indirectly,
supply of specified actionable claims, including a person who owns, operates
or manages digital or electronic platform for such supply, shall be deemed to
be a supplier of such actionable claims, whether such actionable claims are
supplied by him or through him and whether consideration in money or
money's worth, including virtual digital assets, for supply of such actionable
claims is paid or conveyed to him or through him or placed at his disposal in
any manner, and all the provisions of this Act shall apply to such supplier of
specified actionable claims, as if he is the supplier liable to pay the tax in
relation to the supply of such actionable claims. [Section 2(105)].
 Taxable supply means a supply of goods or services or both which is leviable
to tax under CGST Act [Section 2(108)].
 Works contract means a contract for building, construction, fabrication,
completion, erection, installation, fitting out, improvement, modification, repair,
maintenance, renovation, alteration or commissioning of any immovable
property wherein transfer of property in goods (whether as goods or in some
other form) is involved in the execution of such contract [Section 2(119)].
 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 for authorised operations to a
Special Economic Zone developer or a Special Economic Zone unit
[Section 16(1) of the IGST Act].
 INPUT TAX CREDIT 8.9

3. ELIGIBILITY AND CONDITIONS FOR TAKING INPUT

TAX CREDIT [SECTION 16]

STATUTORY PROVISIONS

Section 16 Eligibility and conditions for taking input tax credit

Sub-section Clause Particulars

(1) Every registered person shall, subject to such conditions and

restrictions as may be prescribed and in the manner specified in
section 49, be entitled to take credit of input tax charged on any
supply of goods or services or both to him which are used or intended
to be used in the course or furtherance of his business and the said
amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered

person shall be entitled to the credit of any input tax in respect of
any supply of goods or services or both to him unless,–

(a) he is in possession of a tax invoice or debit note issued

by a supplier registered under this Act, or such other tax
paying documents as may be prescribed;

(aa) the details of the invoice or debit note referred to in

clause (a) has been furnished by the supplier in the
statement of outward supplies and such details have
been communicated to the recipient of such invoice or
debit note in the manner specified under section 37;

(b) he has received the goods or services or both.

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
 8.10 GOODS AND SERVICES TAX

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.

(ba) the details of input tax credit in respect of the said

supply communicated to such registered person under
section 38 has not been restricted;

(c) subject to the provisions of section 41, the tax charged in

respect of such supply has been actually paid to the
Government, either in cash or through utilisation of input tax
credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

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 paid by him 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 to the supplier of the amount
towards the value of supply of goods or services or both along with
tax payable thereon.

(3) Where the registered person has claimed depreciation on the tax
component of the cost of capital goods and plant and machinery
under the provisions of the Income-tax Act, 1961, the input tax
credit on the said tax component shall not be allowed.
 INPUT TAX CREDIT 8.11

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

(6) 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,–

(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.

Section 41 Availment of input tax credit

(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
 8.12 GOODS AND SERVICES TAX

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.

Chapter V: Input Tax Credit of the CGST Rules

Rule 36 Documentary requirements and conditions for claiming input

tax credit

(1) 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, 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 in accordance with the provisions of

clause (f) of sub-section (3) of section 31, subject to the
payment of tax;

(c) a debit note issued by a supplier in accordance with the

provisions of section 34;

(d) a bill of entry or any similar document prescribed under

the Customs Act, 1962 or rules made thereunder for the
assessment of integrated tax on imports;

(e) an input service distributor invoice or input service

distributor credit note or any document issued by an
input service distributor in accordance with the
provisions of sub-rule (1) of rule 54.

(2) Input tax credit shall be availed by a registered person only if all the
applicable particulars as specified in the provisions of Chapter VI are
contained in the said document.

Provided that if the said document does not contain all the
specified particulars but contains the details of the amount of tax
charged, description of goods or services, total value of supply of
 INPUT TAX CREDIT 8.13

goods or services or both, GSTIN of the supplier and recipient and

place of supply in case of inter-State supply, input tax credit may
be availed by such registered person.

(3) 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 under section 74.

(4) No input tax credit shall be availed by a registered person in respect

of invoices or debit notes the details of which are required to be
furnished under subsection (1) of section 37 unless,-

(a) the details of such invoices or debit notes have been furnished by
the supplier in the statement of outward supplies in FORM GSTR-1,
as amended in FORM GSTR-1A if any, or using the invoice
furnishing facility; and

(b) the details of input tax credit in respect of such invoices or debit
notes have been communicated to the registered person in FORM
GSTR-2B under sub-rule (7) of rule 60.

Rule 37 Reversal of input tax credit in the case of non-payment of

consideration

(1) A registered person, who has availed of input tax credit on any inward
supply of goods or services or both, other than the supplies on which tax
is payable on reverse charge basis, but fails to pay to the supplier thereof,
the amount towards the value of such supply whether wholly or partly,
along with the tax payable thereon, within the time limit specified in the
second proviso to sub-section (2) of section 16, shall pay or reverse an
amount equal to the input tax credit availed in respect of such supply,
proportionate to the amount not paid to the supplier, along with interest
payable thereon under section 50, while furnishing the return in FORM
GSTR-3B for the tax period immediately following the period of 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.
 8.14 GOODS AND SERVICES TAX

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.

(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).

(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.

Rule 37A Reversal of input tax credit in the case of non-payment of tax
by the supplier and re-availment thereof

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, as amended in FORM GSTR-1A if any, 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 30 th day
of September, following the end of the 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 the 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 registered person along with interest
thereon under section 50.
 INPUT TAX CREDIT 8.15

Provided further that where the said supplier subsequently

furnishes the return in FORM GSTR-3B for the said tax period, the
said registered person may re-avail the amount of such credit in
the return in FORM GSTR-3B for a tax period thereafter.

ANALYSIS
(i) Eligibility for taking ITC [Section 16(1)]
(a) Registration under GST
Every registered person shall be entitled to ITC of GST charged on
inward supply of goods and / or services. This is subject to the
provisions relating to use of ITC under section 49 and the conditions
and restrictions prescribed in the relevant rules. [Section 49 prescribes
provisions relating to payment of tax, interest, penalty & other amounts.
The same has been discussed in detail in Chapter 13: Payment of Tax in
this Module of the Study Material.]
(b) Goods/services to be used for business purposes
ITC of GST will be available on goods and/or services which are used or
intended to be used in the course or furtherance of the business [See
definition of business]. The “intention to use” the goods and/or services
in the course or furtherance of business would also suffice for availing
ITC on such goods and/or services. Thus, tax paid on goods and
or/services which are used or intended to be used for non-business
purposes cannot be availed as credit. ITC will be credited to electronic
credit ledger.

(ii) Conditions for taking ITC [Section 16(2)]

This sub-section starts with a non-obstante clause and hence all the conditions
specified therein must be fulfilled irrespective of fulfillment of any other
conditions given under any other sub-section of section 16 for the purpose of
taking of input tax credit. The registered person will be entitled to ITC on an
inward supply only if ALL the following six conditions are fulfilled:
 8.16 GOODS AND SERVICES TAX

(a) Possession of tax paying document [Section 16(2)(a) read with

rule 36]
ITC can be availed on the basis of any of the following documents:
(i) Invoice or revised invoice 3 issued by the supplier of goods and/or
services

(ii) Invoice issued by the recipient receiving goods and/or services

from unregistered supplier in case of reverse charge, subject to
payment of tax
(iii) Debit note issued by the supplier
(iv) Bill of entry or similar document prescribed under the Customs Act 4
(v) Document issued by input service distributor 5

The documents on the basis of which ITC is being taken should contain
at least the following details:
(i) Amount of tax charged
(ii) Description of goods or services
(iii) Total value of supply of goods and/or services
(iv) GSTIN of the supplier and recipient
(v) Place of supply in case of inter-State supply
No ITC of tax paid towards demands involving fraud [Rule
36(3)]: Tax paid in pursuance of any order
where any demand has been confirmed on
account of any fraud, willful misstatement or
suppression of facts under section 74 6 cannot
be availed as ITC.

3
Provisions relating to revised invoice have been discussed in detailed in Chapter 10: Tax
Invoice: Credit and Debit Notes in this Module of the Study Material.
4
Provisions relating to the Customs Act, 1962 will be dealt with at the Final level.
5
Concept of Input Service Distributor (ISD) will be dealt with at the Final level.
6
Section 74 contains the provisions for determination of tax not paid or short paid or
erroneously refunded or ITC wrongly availed or utilized by reason of fraud or any wilful-
misstatement or suppression of facts, pertaining to the period upto financial year 2023-24.
 INPUT TAX CREDIT 8.17

(b) Details of invoices/debit notes uploaded by the supplier in his

GSTR-1 or using IFF and details communicated in Form GSTR-2B
[Section 16(2)(aa) read with rule 36(4)]
ITC in respect of any supply of goods or services or both can be taken by
a registered person only if the details of the invoice/debit note in respect
of said supply have been furnished by the supplier in the statement of
outward supplies (Form GSTR-1, as amended in FORM GSTR-1A if any, or
using IFF) and such details have been communicated to the recipient of
such invoice/debit note in Form GSTR-2B.

GSTR-1 is a monthly/quarterly statement containing details of outward

supplies made by a registered supplier. In case where GSTR-1 is
furnished quarterly under QRMP (Quarterly Return Monthly Payment)
scheme, supplier can furnish such details for 1st two months of the
quarter using invoice furnishing facility (IFF). This facility is provided to
the taxpayer, to pass on the credit to their recipients.
Such details of outward supplies furnished by the supplier are
communicated and made available electronically (auto populated) to
the respective recipient(s) in GSTR- 2B. GSTR-2B is an auto-generated
ITC statement for every registered person based on details furnished in
GSTR-1/using IFF by the supplier 7.
GSTR-1A is a form wherein a registered person at his own option,
amend or furnish additional details of outward supplies of goods
and/or services after furnishing the details of outward supplies of goods
and/or service in FORM GSTR-1 for a tax period but before filing of
return in FORM GSTR-3B for the said tax period.

Thus, in respect of invoices/debit notes the details of which are not

furnished by the suppliers in their GSTR-1s, as amended in FORM GSTR-
1A if any, or using IFF (and thus they are not visible in GSTR-2B of the
recipient), ITC cannot be availed by such recipient.

7
The provisions relating to QRMP, filing of GSTR-1/IFF, GSTR-1A and GSTR-2B have been
discussed in detail in Chapter 15: Returns in this Module of the Study Material.
 8.18 GOODS AND SERVICES TAX

ITC on such invoices/debit notes, not reflected in GSTR-2B of the

current month, may be claimed by the taxpayer in any of the succeeding
months when the details of said invoices/debit notes are furnished by
the suppliers.

The above concept has been illustrated as follows:

ITC on invoices/debit FULL ITC can be claimed
notes which have been on such invoices/debit
furnished by the notes, if all other
suppliers in their GSTR- conditions of availing ITC
1s/using IFF and are fulfilled
reflected in GSTR-2B of
recipient.

ITC on invoice/debit NO ITC can be claimed in

note which have not respect of such
been furnished by invoices/debit notes.
suppliers in their GSTR-
1s/using IFF and thus,
not reflected in GSTR-2B
of recipient.

✪Invoices on which ITC is not available under any

of the provisions e.g., under section 17(5), are not
to be considered for claiming ITC even though
furnished by the suppliers.

✪ On the other hand, full ITC can be availed in respect of IGST

paid on imports, documents issued under reverse charge, credit
received from ISD etc., which are outside the ambit of
section 37(1).
 INPUT TAX CREDIT 8.19

ILLUSTRATION 1

Vijay Sales, a registered supplier, receives 100 invoices (for inward supply
of goods/ services) involving GST of ` 10 lakh, from various suppliers
during the month of October.

Out of 100 invoices, details of 80 invoices involving GST of ` 6 lakh have

been furnished by the suppliers in their respective GSTR-1s filed on the
prescribed due date therefor and are reflected in GSTR-2B of Vijay Sales.
There was no amendment made in GSTR-1s by such suppliers using
GSTR-1A for the month of October.

Compute the ITC that can be claimed by Vijay Sales in its GSTR-3B for
the month of October to be filed by 20th November assuming that GST of
` 10 lakh is otherwise eligible for ITC.
ANSWER
ITC to be claimed by Vijay Sales in its GSTR-3B for the month of October
to be filed by 20th November will be computed as under-

Invoices Amount of ITC Amount of ITC

involved in the that can be
invoices (`) availed (`)

80 invoices furnished in 6 lakh 6 lakh

GSTR-1
[Refer Note 1]

20 invoices not 4 lakh Nil

furnished in GSTR-1
[Refer Note 2]

Total 10 lakh 6lakh

Notes:
(1) 100% ITC can be availed on invoices furnished by the suppliers in
their GSTR-1s and reflected in GSTR-2B of Vijay Sales.
 8.20 GOODS AND SERVICES TAX

(2) As per rule 36(4), the ITC in respect of invoices not furnished by
the suppliers in their GSTR-1s and thus, not being reflected in
GSTR-2B of recipient, cannot be claimed. Thus, in respect of 20
invoices which are not furnished in GSTR-1s of suppliers and are
not reflected in GSTR-2B of Vijay Sales, no ITC can be availed 8.
(c) Receipt of the goods and / or services [Section 16(2)(b)]
The registered person taking the ITC must have received the goods
and / or services.
“Bill to Ship to” Model: Under this model, the goods are delivered to
a third party - ‘C’ on the direction of the customer (registered person)–
‘B’ who purchases the goods from the vendor (supplier) – ‘A’. In other
words, ‘A’ bills to ‘B’ but ships the goods to ‘C’ on direction of ‘B’. In
effect, two supplies take place in this scenario viz., from ‘A’ to ‘B’ and
from ‘B’ to ‘C’. Thus, under this model, the customer (registered person)
who receives such goods does not actually receive the said goods.

For such cases, by virtue of explanation to section 16(2)(b), it is

deemed that the registered person (customer) has received the goods.
In other words, goods delivered to another person on the direction of
the registered person by way of transfer of documents of title or
otherwise, either before or during the movement, are deemed to have
been received by such registered person. So, ITC will be available to
the registered person, on whose order the goods are delivered to a third
person.
Similarly, services may also be provided to a third party by the service
provider (supplier) on the direction of the service recipient (registered
person). In this case also, though the service recipient (registered
person) does not receive the service, by virtue of explanation to section
16(2)(b) it is deemed that the registered person (service recipient) has
received the service. In other words, service provided to any person on
the direction of and on account of the registered person, is deemed to

8
Let us suppose, subsequently, the suppliers of these 20 invoices furnish the details of said
invoices in their GSTR-1s for the month of November, the details shall be reflected in GSTR-
2B of Vijay Sales of November month and Vijay Sales can take credit of such invoices in its
GSTR-3B for the month of November.
 INPUT TAX CREDIT 8.21

have been received by such registered person. So, ITC will be available
to the registered person, on whose direction the services are provided
to a third person.

Supply by A to B B entitled to avail

A bills to B ITC on the basis of
A B invoice issued by A
as goods/ services
deemed to be
received by B
Supply by B to C
B bills to C

Goods/Services
Goods shipped/Services being received, C
provided directly by A to entitled to avail ITC
C on directions of B C on the basis of the
invoice issued by B

(1) Badri is a trader who places an order on Aatmaram for a

consignment of soda ash. Badri receives a buying order
from Champak for the same quantity of soda ash. Badri
instructs Aatmaram to deliver the goods to Champak, and in turn
Aatmaram raises an invoice on Badri as Badri is the actual buyer of the
goods who have instructed Aatmaram to deliver the goods to Champak.
Though the goods are not physically received at the premises of Badri,
section 16(2)(b) allows ITC of such goods to Badri.

(2) The registered head office (New Delhi) of ABC Pvt. Ltd.
enters into a contract with DEF Pvt. Ltd. of New Delhi for
repair and maintenance of computers systems installed at its
registered branch office in Bengaluru, Karnataka. DEF Pvt. Ltd. issues
an invoice on ABC Pvt. Ltd., New Delhi for the services provided by it.
Though the actual services are received by the branch office and not by
the head office, section 16(2)(b) allows ITC of such repair and
maintenance services to head office.
 8.22 GOODS AND SERVICES TAX

Clarification on availability of ITC in respect of goods delivered

under ex-works contract
In automobile sector, the contract between the automobile dealers
and the Original Equipment Manufacturers (OEMs) is generally an
Ex-Works (EXW) contract, and as per the terms of the contract, the
property in goods (i.e. vehicles) passes to the dealer at the factory
gate of the OEM, when the goods are handed over to the transporter
at the instance of the dealer, and the delivery on the part of the
OEM is complete at his factory gate.
The transport may be arranged by the OEM on behalf of the dealer
and where insurance is arranged, it may also be done on behalf of
the dealer. Any claim in case of loss has to be lodged by the dealer.
The issue which arose for consideration was whether ITC can be
availed by the dealer only after the vehicles are physically received
by automobile dealers at his business premises or ITC can be
availed on the date the vehicles are billed to him and handed over
to the transporter by the OEM at his factory gate.
It has been clarified that in such a scenario, the property in the said
goods can be considered to have been passed on to the dealer by
the OEM upon handing over of the said goods to the transporter at
his factory gate, meaning thereby that the goods can be considered
to have been delivered to the registered person (the dealer),
through the transporter, by the supplier (the OEM) at his factory
gate and the supply of the said goods can be considered to have
fructified at the factory gate of the OEM, even though the goods
may be physically received by the registered person (the dealer)
after the transit period.
 INPUT TAX CREDIT 8.23

Accordingly, it is clarified that as per Explanation to section

16(2)(b), the registered person (the dealer) can be considered to
have “received” the said goods at the time of such handing over of
the goods by the supplier to the transporter, at his factory gate, for
their onward transmission to the said registered person (the
dealer).
The same principle is applicable in respect of supply of other goods
also where the contract between the supplier and recipient is an
EXW (Ex Works) contract, and as per terms of the contract, the
goods are to be delivered by the supplier to the recipient, or to any
other person (including a transporter) on behalf of the recipient, at
his (supplier’s) place of business and the property in the goods
stands transferred to the recipient at the time of such handing over.
In such cases, the said goods can be construed to have been
“received” by the said recipient at the time of handing over the said
goods to the recipient or to the transporter, as the case may be, as
per provisions of section 16(2)(b).
It is also mentioned that as per provisions of section 16(1)
(discussed earlier), a registered person is entitled to ITC only in
respect of supply of goods and/or services, which is used or
intended to be used in the course or furtherance of business.
Thus, if the goods are found to have been diverted for non-business
purposes at any stage, either before physically receiving the said
goods at his business premises or subsequently, the registered
person shall not be entitled to ITC on such goods in terms of section
16(1).
Further, if at any time after “receiving” the goods, such goods are
lost, stolen, destroyed, written off or disposed of by way of gift or
free samples, the registered person would not be entitled to the ITC
in respect of such goods as per provisions of section 17(5)(h)
[Section 17(5) contains the provisions relating to Blocked credit and
will be discussed subsequently in this chapter] 9.

9
Circular No. 241/35/2024 GST dated 31.12.2024
 8.24 GOODS AND SERVICES TAX

(d) Details of ITC in respect of the said supply communicated to the

registered person under section 38 not restricted [Section
16(2)(ba)]
Section 38 stipulates that the details of outward supplies furnished by
the registered suppliers in GSTR-1 (as amended in Form GSTR-1A if
any)/using IFF and an auto-generated statement containing the details
of ITC is made available to the recipients of such supplies every month.
This auto-generated statement is GSTR-2B.
GSTR-2B contains the details of inward supplies (i) on which ITC is
available to the recipient as well as (ii) on which ITC cannot be availed,
whether wholly or partly, by the recipient. Section 38 stipulates that ITC
cannot be availed in case where the details of the outward supplies in
GSTR-1/using IFF have been furnished by specified registered persons.
 Accordingly, ITC will not be available in respect of inward supplies
details of which have been furnished by a registered supplier: who
is a new registrant (within such prescribed period of taking
registration).
 who has defaulted in payment of tax and where such default has
continued for a prescribed period.
 whose output tax payable as per GSTR-1/IFF exceeds the output tax
paid in GSTR-3B for a particular tax period by prescribed limit.
 who has availed ITC of an amount that exceeds the credit that can
be availed by him as per GSTR-2B during prescribed period and
by prescribed limit.
 who has defaulted in discharging his tax liability in accordance
with the provisions of section 49(12) read with rule 86B, i.e. who
has discharged more tax liability from electronic credit ledger
than prescribed under rule 86B 10.
 other specified classes of persons.

10
Rule 86B provides that the registered person shall not utilise the amount available in
electronic credit ledger to discharge his liability towards output tax in excess of 99% of such
tax liability, in cases where the value of taxable supply other than exempt supply and zero-
rated supply, in a month exceeds ` 50 lakh subject to specified exceptions. It has been
discussed subsequently in this chapter.
 INPUT TAX CREDIT 8.25

(e) Tax leviable on supply actually paid to Government [Section

16(2)(c)]

The supplier should have actually paid the tax charged on the goods
and/or services, for which ITC is being taken, either in cash or by
utilizing ITC, subject to the provisions of section 41.

Availment of self-assessed ITC [Section 41]

A registered person can avail the credit of eligible ITC as self-assessed

in his return. Such amount shall be credited to his electronic credit
ledger.

Reversal of ITC in the case of non-payment of tax by the supplier

and re-availment thereof [Section 41 read with rule 37A]

(I) Reversal of ITC: If the tax payable corresponding to such ITC

availed is not paid by the supplier to the Government, ITC so
availed shall be reversed by the said person along with applicable
interest.

A registered person (recipient) can avail ITC in GSTR-3B for a tax

period in respect of such invoice/debit note, the details of which
have been furnished by its supplier in the statement of outward
supplies (in GSTR-1, as amended in Form GSTR-1A if any/using
IFF).

However, if supplier does not furnish return in Form GSTR-3B for

the tax period corresponding to the said statement of outward
supplies till 30th September following the end of FY in which the
ITC in respect of such invoice/ debit note has been availed; the
said amount of ITC shall be reversed by the said recipient, while
furnishing a return in GSTR-3B on or before 30thNovember
following the end of such FY during which such ITC has been
availed.
 8.26 GOODS AND SERVICES TAX

However, where the said amount of ITC is not so reversed by

recipient, such amount shall be payable by the said person along
with interest thereon under section 50.

(II) Re-availment of reversed ITC: 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.

Thus, where the said supplier subsequently furnishes the return in

GSTR-3B for the said tax period, the said registered person may
re-avail the amount of such credit in the return in GSTR-3B for a
tax period thereafter.

(3) Jhamku, a registered supplier, supplies goods to

Chamku valuing ` 10,000 on which he charged CGST and
SGST of ` 900 each in the invoice raised in March, 2024.
Jhamku uploaded the details of the said invoice in his GSTR-1 for the
said month filed before the due date based on which Chamku availed
the said ITC of ` 900 each towards CGST and SGST while filing his GSTR-
3B for March, 2024 as the said ITC was also reflected in his GSTR-2B.
However, Jhamku failed to furnish the corresponding GSTR-3B (for the
month of March, 2024) up to September, 2024.

Accordingly, while filing GSTR-3B for the month of October, 2024 on

20thNovember, 2024, Chamku reversed an amount of ITC earlier availed
by him. Subsequently, suppose if Jhamku files GSTR-3B on
20 December, 2024 and pays the said amount of ` 900 each towards
th

CGST and SGST, Jhamku can now re-avail the said input tax credit of
` 900 towards CGST and SGST which he has reversed earlier.

(f) Filing of return [Section 16(2)(d)]

The registered person taking the ITC must have filed his return in GSTR-
3B under section 39. Thus, a taxpayer should file GSTR-3B to avail ITC
on eligible inward supplies.
 INPUT TAX CREDIT 8.27

(iii) Goods received in lots: ITC available only on receipt of last lot
[First proviso to section 16(2)]
In case the goods covered under an invoice are not received in a single
consignment but are received in lots / instalments, ITC can be taken only upon
receipt of the last lot / instalment.

(4) XYZ enters into a contract with ABC for supply of 10 MT of a

chemical for ` 1,18,000 (inclusive of GST of `18,000) in the month
of August. The chemical is to be delivered in lots over a period of
three months. ABC raises the invoice for the entire amount in August and
XYZ also makes the payment in the same month but the supply is completed
in November. Though XYZ paid the full tax as early as August, it can take the
ITC of the same only on receipt of the last lot of the chemical in the month
of November.

(iv) Payment for the invoice to be made within 180 days [Second
proviso to section 16(2) read with rule 37]
The registered person must pay to the supplier, the value of the goods and/or
services along with the tax within 180 days from the date of issue of invoice
[Second proviso to section 16(2)].
However, where a registered person, who has availed of ITC on any inward
supply fails to pay to the supplier thereof, the amount towards the value of
such supply, whether wholly or partly, along with the tax payable thereon,
within 180 days from the date of issue of invoice by supplier, shall pay or
reverse an amount equal to the ITC availed in respect of such supply,
proportionate to the amount not paid to the supplier, along with interest
payable thereon under section 50, while furnishing the return in Form
GSTR-3B for the tax period immediately following the period of 180 days
from the date of the issue of the invoice.
Exceptions
This condition of payment of value of supply plus tax within 180 days does
not apply in the following situations:
(a) Supplies on which tax is payable under reverse charge
 8.28 GOODS AND SERVICES TAX

(b) Deemed supplies without consideration – Schedule I

(c) Additions made to the value of supplies on account of supplier’s
liability, in relation to such supplies, being incurred by the recipient of
the supply as per section 15(2)(b).
Under situations given in points (b) & (c), the value of supply is deemed to
have been paid.

(5) Due to a quality dispute, PZP Ltd withheld payment on a

machine supplied by a vendor till it could be rectified. More than
180 days went by in this dispute. The credit taken by PZP on the
invoice needs to be paid / reversed along with interest in GSTR-3B furnished
for the month after completion of 180 days. Only after the vendor rectified
the machine and PZP released the payment, could PZP take the credit again.

(v) If depreciation claimed on tax component, ITC not allowed

[Section 16(3)]
If the person taking the ITC on capital goods and plant and machinery has
claimed depreciation on the tax component of the cost of the said items
under the Income-tax Act 1961, the ITC on the said tax component shall not
be allowed. Thus, in respect of the tax paid on such items, dual benefit cannot
be claimed under Income-tax Act, 1961 and GST law simultaneously. In other
words, either depreciation on the tax component can be claimed under
Income Tax Act or ITC of such tax paid can be availed under GST law.

(vi) Time limit for availing ITC: 30th November of succeeding

financial year or date of filing of relevant annual return,
whichever is earlier [Section 16(4)]
ITC on invoices pertaining to a financial year or debit notes issued in a
financial year can be availed any time till 30th November of the succeeding
financial year or the date of filing of the relevant annual return, whichever is
earlier.
 INPUT TAX CREDIT 8.29

Here, in case of debit notes, the date of issuance of debit note and not the
date of underlying invoice is relevant to determine the relevant financial
year 11.

Clarification on time limit under section 16(4) in respect of RCM supplies

received from unregistered persons 12

It is clarified that in cases of supplies received from unregistered suppliers,

where tax has to be paid by the recipient under reverse charge mechanism
(RCM) and where invoice is to be issued by the recipient of the supplies in
accordance with section 31(3)(f) the relevant financial year for calculation
of time limit for availment of input tax credit under the provisions of
section 16(4) will be the financial year in which the invoice has been issued
by the recipient under section 31(3)(f), subject to payment of tax on the said
supply by the recipient and fulfilment of other conditions and restrictions of
sections 16 and 17.

In case, the recipient issues the invoice after the time of supply of the said
supply and pays tax accordingly, he will be required to pay interest on such
delayed payment of tax. Further, in cases of such delayed issuance of invoice
by the recipient, he may also be liable to penal action under the provisions of
section 122 13.

(6) A debit note dated 07.07.2024 is issued in respect of the

original invoice dated 16.03.2024. As the invoice pertains to F.Y.
2023-24, the relevant financial year for availment of ITC in respect
of the said invoice in terms of section 16(4) shall be FY 2023-24. However, as
the debit note has been issued in FY 2024-25, the relevant financial year for
availment of ITC in respect of the said debit note shall be FY 2024-25 in terms
of section 16(4).

11
Circular No. 160/16/2021 GST dated 20.09.2021
12
Circular No. 211/5/2024 GST dated 26.06.2024
13
Section 122 containing the penal provisionss shall be discussed in detail at the Final level.
 8.30 GOODS AND SERVICES TAX

(7) Hercules Machinery delivered a machine to XYZ, a monthly

return filer under GST, in the month of January under Invoice no.
49 dated 28th January 2024 for ` 4,15,000 plus GST and undertook
trial runs and calibration of the machine as per the requirements of XYZ. The
amount chargeable for the post-delivery activities was covered in a debit note
raised in the month of April 2024 for ` 50,000 plus GST. XYZ did not file its
annual return for FY 2023-24 till November, 2024.

The time-limit to avail ITC in respect of tax paid on supply for Invoice No. 49
would be 30th November, 2024.

Since the debit note is received in the next financial year, the time limit for
taking ITC available on ` 50,000 is 30th November 2025, [earlier of the date of
filing the annual return for the preceding financial year or 30th November of
the succeeding year].

Exception

The time limit u/s16(4) does not apply to claim for re-availing of credit that
had been reversed earlier.

(vii) Time limit for taking ITC in case of revoked registration cancellation
[Section 16(6)]

In case where registration of a taxpayer is cancelled and subsequently, it is

revoked, return for the period from date of cancellation/ effective date of
cancellation till the date of revocation of cancellation cannot be filed on the
portal by the taxpayers till their cancellation of registration is revoked. In
such cases, where the recipient has not claimed the ITC in respect of any
invoice/debit note pertaining to that financial year and in the meantime,
time-limit stipulated in section 16(4) lapses, he would not be able to claim
ITC on the said invoice/debit note.

Consequently, relaxation has been given and the time limit to avail ITC under
section 16(4) in respect of any invoice/debit note, is extended till the date of
filing return in cases where the returns for the period from date of
cancellation of registration/effective date of cancellation of registration till
the date of revocation of cancellation of registration are filed within 30 days
 INPUT TAX CREDIT 8.31

of revocation of cancellation of registration, subject to the condition that the

time limit to avail ITC in respect of the said invoice or the debit note under
section 16(4) had not already expired on the date of cancellation of
registration.

(viii)Restriction of ITC in proportion of (i) taxable supplies (ii)

business purposes [Sub-sections (1) and (2) of section 17]

ITC is restricted in proportion of the use of the goods and/or services (i) in
the taxable and / or zero-rated supplies (ii) for business purposes. This is
elaborated in heading (4) below.

(ix) ITC not allowed on certain supplies [Section 17(5)]

ITC has been blocked for specified goods and services. This is elaborated in
heading (4) below.

Quiz
Time!
Following amounts of GST are being reflected in GSTR-2B of
Sukhiya Associates, registered under GST, for the month of April:
1 Raw material purchased ` 20,000
Machinery purchased for manufacturing goods ` 1,00,000
Raw material purchased for construction of ` 5,00,000
immovable property to be capitalised in the books of accounts
Apart from this, an invoice for purchase of raw materials containing GST of
` 30,000 is not reflected in GSTR-2B of April as the supplier has not furnished his
GSTR-1. Moreover, GST of ` 25,000 is paid on GTA services received from Sindhu
Transporters in April for transport of raw materials.
Compute the amount of ITC that Sukhiya Associates is eligble to avail for the
month of April.

(a) ` 1,45,000 (b) ` 6,20,000 (c) ` 6,45,000 (d) ` 6,75,000

 8.32 GOODS AND SERVICES TAX

4. APPORTIONMENT OF CREDIT& BLOCKED CREDITS

[SECTION 17 14]

STATUTORY PROVISIONS

Section 17 Apportionment of credit and blocked credits

Sub-section Clause Apportionment of credit and blocked credits
(1) Where the goods or services or both are used by the registered
person partly for the purpose of any business and partly for other
purposes, the amount of credit shall be restricted to so much of the
input tax as is attributable to the purposes of his business.
(2) Where the goods or services or both are used by the registered
person partly for effecting taxable supplies including zero-rated
supplies under this Act or under the Integrated Goods and Services
Tax Act and partly for effecting exempt supplies under the said Acts,
the amount of credit shall be restricted to so much of the input tax
as is attributable to the said taxable supplies including zero-rated
supplies.
(3) The value of exempt supply under sub-section (2) shall be such as
may be prescribed, and shall include supplies on which the recipient
is liable to pay tax on reverse charge basis, transactions in securities,
sale of land and, subject to clause (b) of paragraph 5 of Schedule II,
sale of building.
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,––
(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;

14
Provisions relating to ITC claim by banking companies and determination of ITC on inputs,
input services and capital goods and reversal thereof [Rules 38, 42 and 43] will be discussed
at the Final level.
 INPUT TAX CREDIT 8.33

(5) Notwithstanding anything contained in sub-section (1) of section 16

and sub- section (1) of section 18, input tax credit shall not be
available in respect of the following, namely:—
(a) motor vehicles for transportation of persons having
approved seating capacity of not more than thirteen
persons (including the driver), except when they are used
for making the following taxable supplies, namely:—
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
(aa) vessels and aircraft except when they are used––
(i) for making the following taxable supplies, namely:—
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels;
or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and
maintenance in so far as they relate to motor vehicles,
vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services
shall be available—
(i) where the motor vehicles, vessels or aircraft referred
to in clause (a) or clause (aa) are used for the
purposes specified therein;
(ii) where received by a taxable person engaged—
(I) in the manufacture of such motor vehicles,
vessels or aircraft; or
 8.34 GOODS AND SERVICES TAX

(II) in the supply of general insurance services in

respect of such motor vehicles, vessels or
aircraft insured by him;
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty
treatment, health services, cosmetic and plastic
surgery, leasing, renting or hiring of motor vehicles,
vessels or aircraft referred to in clause (a) or clause
(aa) except when used for the purposes specified
therein, life insurance and health insurance:
Provided that the input tax credit in respect of such
goods or services or both shall be available where an
inward supply of such goods or services or both is
used by a registered person for making an outward
taxable supply of the same category of goods or
services or both or as an element of a taxable
composite or mixed supply;
(ii) membership of a club, health and fitness centre; and
(iii) travel benefits extended to employees on vacation
such as leave or home travel concession:
Provided that the input tax credit in respect of such goods
or services or both shall be available, where it is obligatory
for an employer to provide the same to its employees under
any law for the time being in force 15.
(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;
(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

15
Circular No. 172/04/2022 GST dated 06.07.2022 clarifies that this proviso is applicable to
the whole of section 17(5)(b).
 INPUT TAX CREDIT 8.35

goods or services or both are used in the course or

furtherance of business.
Explanation.––For the purposes of clauses (c) and (d), the
expression “construction” includes re-construction,
renovation, additions or alterations or repairs, to the extent
of capitalisation, to the said immovable property.
(e) goods or services or both on which tax has been paid under
section 10;
(f) goods or services or both received by a non-resident
taxable person except on goods imported by him;
(fa) 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 or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by
way of gift or free samples; and
(i) any tax paid in accordance with the provisions of section
74 in respect of any period up to Financial Year 2023-
24.
(6) The Government may prescribe the manner in which the credit
referred to in sub-sections (1) and (2) may be attributed.
Explanation.–– For the purposes of this Chapter and Chapter VI, the
expression “plant and machinery” means apparatus, equipment, and
machinery fixed to earth by foundation or structural support that are
used for making outward supply of goods or services or both and
includes such foundation and structural supports but excludes—
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
 8.36 GOODS AND SERVICES TAX

ANALYSIS
Section 17 requires apportionment and concomitant restriction of ITC in two
situations as also blocking of ITC on specified inward supplies.

A. Apportionment of ITC [Sub-sections (1) and (2) of section 17]

(i) The fundamental principle of credit scheme under value added tax is that tax
paid on inputs, input services and capital goods can be availed as credit only
when the output is taxable. Thus, when tax is not payable on output, credit
cannot be availed.

Accordingly, ITC under GST can be availed and utilised for payment of tax on
output supply. Consequently, ITC cannot be availed when tax is not payable
on output supply, i.e. on exempt supply. The only exception to the above
principle is ‘zero rated supply, where ITC is available even if no tax is payable
on output supply as zero rated supply is not an exempted supply.

If a taxable person is making both taxable and exempt supply, he is entitled

to full credit of ITC in respect of inputs, input services and capital goods
exclusively used for taxable supply and no credit at all can be availed for
inputs, input services and capital goods exclusively used for exempt supply.

If common inputs, input services and capital goods are used for taxable as
well as exempt supply, only proportionate ITC attributable to the taxable
supply is available. The common ITC is apportioned in the ratio of value of
taxable supply and exempt supply.

(ii) Also, in case goods and/or services are used by the taxable person partly for
the business purposes and partly for non-business purposes, he is entitled to
full credit of ITC in respect of inputs, input services and capital goods
exclusively used for business purposes and no credit at all can be availed
forgoods and/or servicesexclusively used for non-business purposes.

If common inputs, input services and capital goods are used partly for
business and partly for non-business purposes, only proportionate ITC
attributable to the business purpose is available.
 INPUT TAX CREDIT 8.37

Elaborate provisions have been made in sub-sections (1) and (2) of section 17
and rules 42 and 43 for calculation of such proportionate ITC. Such provisions
will be discussed in detail at the Final level.

Section 16(2) of the IGST Act specifies that ITC may be availed
on inward supplies for making zero-rated supply. Zero-rated
supply is an expression that covers two kinds of supplies: (i)
exports, and (ii) supplies for authorised operations to a SEZ unit or SEZ
developer. Therefore, ITC is available on goods and / or services used for
supplies made in the course of export or to an SEZ unit or SEZ developer 16.

(8) A registered person is in the business of manufacturing shoes.

He gave 50 pairs of shoes to his friends free of cost. ITC on inputs
and input services attributable to such 50 pair of shoes, being used
for non-business purposes will not be available.

(9) A registered person manufactures a product ‘X’ chargeable to

18% GST, a product ‘Y’ chargeable to NIL rate of tax and a product
‘Z’ which is exported without payment of tax under bond. All the
three products are manufactured from common inputs and input services.
ITC on inputs and input services attributable to product ‘Y’ being an exempt
supply, will not be available.
B. Blocked credits [Section 17(5)]
ITC of tax paid on almost every inputs, input
services or capital goods used for supply of
taxable goods and/or services is allowed under
GST except a small list of items provided u/s
17(5). Thus, ITC on such items is not allowed
even though the same may qualify as inputs,
input services or capital goods and are used in
the course or furtherance of business.

Provisions relating to zero-rated supplies have been discussed at the Final level.
16
 8.38 GOODS AND SERVICES TAX

The blocked list of credit covers mainly items of personal consumption, inputs
and input services use of which results into formation of an immovable
property (except plant and machinery), telecommunication towers, pipelines
laid outside the factory premises, etc. and taxes paid as a result of detection
of evasion of taxes, etc.
The various goods and/or services on which credit is blocked are discussed
hereunder:

(i) Motor vehicles and other conveyances and related services

(insurance, servicing and repair and maintenance)

Motor vehicles and conveyances have been defined in the CGST Act[See
definition under the heading Relevant Definitions].

Motor vehicles exclude –

 vehicle running upon fixed rails

 special purpose vehicles for being used in a factory or any

enclosed premises

 vehicle with less than 4 wheels fitted with engine capacity of upto
25cc–(Thus, railways, two/three wheelers with engine capacity of
upto 25cc, bicycle etc. do not fall in the definition of motor
vehicle.)

Broadly, ITC is blocked on motor vehicles, vessels and aircrafts with

certain exceptions. Further, ITC is also blocked on certain services
relating to motor vehicles, vessels and aircrafts namely, general
insurance, servicing and repair and maintenance. The basic principle
here is that the motor vehicles, aircrafts and vessels on which ITC is
blocked, the ITC on services of insurance, servicing and repair and
maintenance pertaining to such motor vehicles, vessels and aircrafts is
also blocked. The blocked credits relating to motor vehicles, vessels,
aircrafts and related services are discussed in the next page:
 INPUT TAX CREDIT 8.39

S. Goods and/or Exceptions to Remarks

No. services on which goods and/or
credit is blocked services
mentioned in
column (2) on
which credit is
allowed

(1) (2) (3) (4)

(i) Motor vehicles for Ineligible motor  ITC on

transportation of vehicles when used ineligible
persons with for any of the motor vehicles
seating capacity ≤ following eligible used for any
13 persons purposes- purpose other
(including the than the
 making further
driver) – Referred eligible
taxable supply
to as ineligible purposes is not
of such motor
motor vehicle in allowed.
vehicles (e.g
this table
traders of motor  ITC on motor
vehicles)* vehicles for
[Refer transportation
discussion on of persons with
availability of seating
ITC on demo capacity > 13
vehicles given persons
below this (including the
table.] driver) used for
any purpose is
 making taxable
allowed.
supply of
transportation  ITC on motor
of passengers vehicles other
(e.g travel than ineligible
operator motor vehicles
offering (e.g. motor
vehicle used for
8.40 GOODS AND SERVICES TAX

transportation transportation
services); of goods,
dumpers,
 Making taxable
tippers etc.)
supply of
used for any
imparting
purpose is
training on
allowed.
driving such
motor vehicles
(e.g motor
vehicle driving
schools).

(ii) Vessels and Vessels and aircraft

ITC on vessels and
aircrafts when used for any aircrafts used for
of the following any purpose other
eligible purposes- than the eligible
 making further purposes is not
allowed.
taxable supply
of such vessels
or aircraft;
 making taxable
supply of
transportation
of passengers;
 making taxable
supply of
imparting
training on
navigating such
vessels;
 making taxable
supply of
imparting
training on
flying such
aircrafts;
 INPUT TAX CREDIT 8.41

 transportation
of goods.

(iii) General insurance,  Such services  ITC is not

servicing, repair relating to allowed on
and maintenance ineligible motor services of
relating to: vehicles, vessels general
or aircraft when insurance,
 Ineligible
used for eligible servicing, repair
motor vehicles
purposes and
 Vessels maintenance
 Such services
relating to
 Aircraft when received
motor vehicles,
by-
vessels or
o Manufacturer aircraft, ITC on
of ineligible which is not
motor allowed.
vehicles,
 ITC is allowed
vessels or
on services of
aircraft; or
general
o Supplier of insurance,
general servicing, repair
insurance and
services in maintenance
respect of relating to
ineligible motor vehicles,
motor vessels or
vehicles, aircraft, ITC on
vessels or which is
aircraft allowed.
insured by
him

(iv) Leasing, renting or  Such services  ITC on leasing,

hiring of motor when used for renting or
vehicles, vessels or making an hiring of motor
outward taxable vehicles,
 8.42 GOODS AND SERVICES TAX

aircraft on which supply of the vessels or

ITC is not allowed same category aircraft on
of services or as which ITC is
an element of a allowed, is also
taxable allowed**.
composite or
 ITC on such
mixed supply
services is
 Such services allowed in the
when provided case of sub-
by an employer contracting, i.e.
to its employees when such
under a services are
statutory used by the
obligation taxpayer who is
in the same line
of business.

**The term “leasing” referred in above table 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 in case of leasing, other
than leasing of motor vehicles, vessels and aircrafts17.

Clarification on availability of input tax credit in respect of demo

vehicles which are motor vehicles for transportation of passengers
having approved seating capacity of not more than 13 persons
(including the driver), in terms of clause(a) of section 17(5) 18
As demo vehicles are used by authorized dealers to provide trial run and
to demonstrate features of the vehicle to potential buyers, it helps the
potential buyers to make a decision to purchase a particular kind of motor
vehicle. Therefore, as demo vehicles promote sale of similar type of motor
vehicles, they can be considered to be used by the dealer for making

17
Circular No. 172/04/2022 GST dated 06.07.2022
18
Circular No. 231/25/2024 GST dated 10.09.2024
 INPUT TAX CREDIT 8.43

‘further supply of such motor vehicles’. Accordingly, input tax credit in

respect of demo vehicles is not blocked under clause (a) of section 17(5)
of CGST Act, as it is excluded from such blockage in terms of sub-clause
(A) of the said clause.
(10) ITC on cars purchased by a manufacturing company for
official use of its employees is blocked.
(11) ITC on cars purchased by a car dealer for sale to customers is
allowed.

(12) ITC on cars purchased by a company engaged in renting out cars

for transportation of passengers is allowed.
(13) ITC on cars purchased by a car driving school for imparting
training on driving is allowed.
(14) ITC on buses (seating capacity for 24 persons) purchased by a
company for transportation of its employees from their residence to
office and back, is allowed.
(15) ITC on trucks purchased by a company for transportation of its
finished goods is allowed.

(16) ITC on aircraft purchased by a manufacturing company for official

use of its CEO is blocked.
(17) ITC on aircraft purchased by an Aviation School providing training
on flying aircrafts, is allowed.
(18) ITC on general insurance taken on a car used by employees of a
manufacturing company for official purposes is blocked.
(19) ITC on maintenance & repair services availed by a company for a
truck used for transporting its finished goods, is allowed.
(20) ITC on general insurance services taken on cars manufactured by
a car manufacturing company is allowed.
(21) A business jet purchased for the official travel of the company’s
directors is blocked.
 8.44 GOODS AND SERVICES TAX

(ii) Food & beverages, outdoor catering, health services and other
services

S. Goods and/or Exceptions to Remarks

No. services on which goods and/ or
credit is blocked services
mentioned in
column (2) on
which credit is
allowed

(1) (2) (3) (4)

(i)  Food and  Such goods  ITC on such

beverages and/or services goods and/or
 Outdoor when used by a services is
catering registered allowed in the
person for case of sub-
 Beauty
making an contracting,
treatment
outward taxable i.e. when such
 Health services supply of the goods and/or
 Cosmetic and same category services are
plastic surgery of goods and/or used by the
 Life insurance services or as an taxpayer who
and health element of a is in the same
insurance taxable line of
composite or business, e.g.
mixed supply outdoor
 Such goods catering
and/or services service availed
when provided by another
by an employer outdoor
to its employees caterer.
under a statutory  When such
obligation goods and/or
services are
provided by
the employer
to its
 INPUT TAX CREDIT 8.45

employees
without any
statutory
obligation, ITC
thereon is
blocked.

(ii) Membership of a Such services when When such

club, health and provided by an goods and/or
fitness centre employer to its services are
employees under a provided by the
(iii) Travel benefits statutory employer to its
extended to obligation employees
employees on without any
vacation such as statutory
leave or home obligation, ITC
travel concession thereon is
blocked.

(22) A manufacturing company purchases food items for

being served to its customers, free of cost on its 10th year of
incorporation. ITC on such goods is blocked.
(23) AB & Co., a caterer of Amritsar, has been awarded a contract for
catering in a marriage to be held at Ludhiana.
The firm has given the contract for supply of snacks, to be served in the
marriage, to CD & Sons, a local caterer of Ludhiana. ITC on such
outdoor catering services availed by AB & Co., is allowed.
(24) ITC on outdoor catering services availed by a garment exporter for
a marketing event organised for its prospective customers, is blocked.

(25) Outdoor catering service is availed by a company to run a free

canteen in its factory. The Factories Act, 1948 requires the company to
set up a canteen in its factory. ITC on such outdoor catering is allowed.

(26) The Managing Director of a company has taken membership of a

club, the fees for which is paid by the company. ITC on such service is
 8.46 GOODS AND SERVICES TAX

blocked.
(27) A company avails services of a travel agency for organizing a free
vacation for its top performing employees. ITC on such services is
blocked.
(iii) Works contract services for construction of immovable property
[Clause (c) of section 17(5)]
One major input service, ITC on which is blocked is input service relating
to construction activity like construction of office building, factory
building etc. (except in case of persons like builders, developers and
contractors who are undertaking construction for others). However, ITC
is available for routine construction related services like repairs,
maintenance, renovation etc. of office and factory building. Thus,
broadly, ITC of construction services is not available when the expenses
are capitalised in the books of account. Here, it needs to be noted that
capitalisation of an expense does not depend on whether the taxpayer
intends to avail ITC, but on the basis of Accounting Standards and
GAAP.
Works contract has been defined in the CGST Act [See definition under
the heading Relevant Definitions]. Essentially, works contract is a
composite supply involving both goods and services. Under the
erstwhile laws, definition of works contract included works in relation
to both movable and immovable properties. However, under GST law,
the ambit of works contract has been confined only to immovable
property.

Meaning of immovable property

Immovable property has not been defined under the GST law. Therefore,
we will have to look for the definition of immovable property in other
laws. Section 3(26) of the General Clauses Act, 1897, defines the term
immovable property to include land, benefits to arise out of land, and
things attached to the earth, or permanently fastened to anything
attached to the earth.
The term “attached to the earth” is defined in section 3 of the Transfer of
Property Act, 1882 to mean:
 INPUT TAX CREDIT 8.47

(a) rooted in the earth, as in the case of trees and shrubs; [However,
the term "immovable property" under the Transfer of Property Act
does not cover standing timber, growing crops or grass.]
(b) embedded in the earth, as in the case of walls or buildings.
(c) attached to what is so embedded for the permanent beneficial
enjoyment of that to which it is attached.

Under GST law, a composite supply of works contract is treated as

supply of services in terms of para 6(a) of Schedule II to the CGST Act.
ITC on works contract services for construction of an immovable
property is blocked EXCEPT WHEN
 It is an input service for further supply of works contract service
(sub-contracting);
[ITC on works contract services can be availed only by that taxpayer
who is in the same line of business, i.e. only a works contractor can
avail ITC on works contract services received by him.]
 Immovable property is plant and machinery
[Plant and machinery affixed permanently to the earth constitutes
an immovable property. However, ITC on works contract services
used for construction of such plant and machinery is allowed as an
exception.]

Meaning of construction
“Construction” includes re-construction, renovation, additions or
alterations or repairs, to the extent of capitalization, to the said
immovable property.
Thus, if re-construction, renovation, additions or alterations or repairs
are not capitalized, it would not tantamount to construction under GST
law. Consequently, ITC on works contract services availed for such
construction, which is not capitalized, whether for any immovable
property or for any plant and machinery, would be allowed to all the
recipients irrespective of their line of business.
 8.48 GOODS AND SERVICES TAX

Meaning of plant and machinery

“Plant and machinery” means apparatus, equipment, and machinery
fixed to earth by foundation or structural supports that are used for
making outward supply of goods and/or services and includes such
foundation or structural support
but excludes
land, building or other civil structures, telecommunication towers, and
pipelines laid outside the factory premises.
Thus, ITC on works contract services availed for construction of eligible
plant and machinery is allowed to the recipient irrespective of the line
of business of such recipient and irrespective of whether expense is
capitalized or not by the recipient.
For instance, ITC on works contract services for construction of
machinery fixed to earth by a foundation, would be allowed. However,
ITC on works contract services for construction of telecommunication
tower(s), would be blocked.

(28) ITC on works contracts services availed by a software

company for construction of its office, is blocked.

(29) CD & Co., a works contractor of Noida, has been

awarded a contract for construction of a commercial complex in
Lucknow. The firm avails services of EF & Co., a local works contractor
of Lucknow, for the construction of complex. ITC on such works
contract services availed by CD & Co., is allowed.
(30) ITC on works contract services availed by an automobile company
for construction of a foundation on which a machinery (to be used in the
production process) is to be mounted permanently, is allowed.
(31) ITC on works contract services availed by a manufacturing company
for construction of pipelines to be laid outside its factory, is blocked.
(32) A consulting firm has availed services of a works contractor for
repair of its office building. The company has booked such expenditure
in its profit and loss account. ITC on such services is allowed.
 INPUT TAX CREDIT 8.49

(33) A telecommunication company has availed services of a works

contractor for repair of its office building. The company has capitalized
such expenditure. ITC on such services is blocked.

ITC on works contract services for construction of

immovable property is available only in the following
three situations:
(i) When the works contract service is availed by a works
contractor for being used in further providing the works
contract service.
(ii) For construction of eligible plant and machinery. In this
case, ITC is allowed to all recipients irrespective of their line of
business and whether expense capitalized or not.
(iii) When the value of works contract service is not capitalized.
In this case, ITC is allowed to all recipients irrespective of their
line of business.

(iv) Self-construction of immovable property [Clause (d) of

section 17(5)]
So now we know that ITC on works contract services availed by a
taxpayer, other than a works contractor, for construction of immovable
property (other than plant and machinery) is not available. But what
happens if a taxpayer procures goods and services and constructs an
immovable property, for being used in the course or furtherance of
business, without availing services of a works contractor? Will ITC be
allowed in such a case?
The answer is No. ITC is not allowed on goods and/or services received
by a taxable person for construction of an immovable property (other
than plant and machinery) on his own account even though such
goods and/or services are used in the course or furtherance of business.
Thus, ITC on goods and/or services used in the construction of an
immovable property is blocked only in those cases where the taxable
person constructs the immovable property for his own use even if the
immovable property being constructed is used in the course or
 8.50 GOODS AND SERVICES TAX

furtherance of his business.

The discussion on terms, ‘construction’ and ‘plant and machinery’

for works contract services [Elaborated in point (iii) above] applies
to construction on own account also.

ITC on goods and/or services used in construction of

immovable property is available only in the
following three situations:
(i) For construction of eligible plant and machinery
(ii) When the value of goods and/or services is not capitalized
(iii) When the construction is not on own account

(34) A company buys cement, tiles etc. and avails the services
of an architect for construction of its office building. ITC on
such goods and services is blocked.
(35) MN & Constructions procures cement, paint, iron rods and services
of architects and interior designers for construction of a commercial
complex for one of its clients. ITC on such goods and services is allowed
to MN & Co.

(36) A company buys cement, tiles etc. and avails the services of an
architect for renovation of its office building. The company has booked
such expenditure in its profit and loss account. ITC on such goods and
services is allowed.
(37) ITC on goods and/or services used by an automobile company for
construction of a foundation on which a machinery (to be used in the
production process) is to be mounted permanently, is allowed.
Clarification on availability of ITC on ducts and manholes used in
network of optical fiber cables (OFCs) in terms of section 17(5) 19

Issue: Whether the input tax credit on the ducts and manholes used in
network of optical fiber cables (OFCs) for providing telecommunication

19
Circular No. 219/13/2024 GST dated 26.06.2024
 INPUT TAX CREDIT 8.51

services is barred in terms of clauses (c) and (d) of section 17(5), read
with Explanation to section 17?

Clarification: Ducts and manholes are basic components for the optical
fiber cable (OFC) network used in providing telecommunication
services. The OFC network is generally laid with the use of PVC
ducts/sheaths in which OFCs are housed and service/connectivity
manholes, which serve as nodes of the network, and are necessary for
not only laying of optical fiber cable but also their upkeep and
maintenance. In view of the Explanation in section 17, it appears that
ducts and manholes are covered under the definition of “plant and
machinery” as they are used as part of the OFC network for making
outward supply of transmission of telecommunication signals from one
point to another.
Moreover, ducts and manholes used in network of optical fiber cables
(OFCs) have not been specifically excluded from the definition of “plant
and machinery” in the Explanation to section 17 as they are neither in
nature of land, building or civil structures nor are in nature of
telecommunication towers or pipelines laid outside the factory
premises.
Accordingly, it is clarified that availment of input tax credit is not
restricted in respect of such ducts and manhole used in network of
optical fiber cables (OFCs), either under clause (c) or under clause (d) of
section 17(5).
(v) Inward supplies charged to tax under composition levy [Clause
(e) of section 17(5)]
A supplier registered under composition scheme cannot collect tax
from its customers. Thus, such supplier issues bill of supply and not a
tax invoice. A composition supplier pays a lumpsum tax at a specified
rate on its quarterly turnover.
Tax paid on goods and/or services under composition scheme is not
available as ITC for the recipient.
Since a composition supplier cannot collect any tax on its supplies, from
the recipient of its supplies, it is obvious that no ITC can be availed in
 8.52 GOODS AND SERVICES TAX

respect of such supplies by the recipients. Nevertheless, section

17(5)(e) specifically blocks the ITC on inward supplies received by a
taxable person from a composition supplier.
(vi) Inward supplies received by a non-resident taxable person
[Clause (f) of section 17(5)]
Non-resident taxable person has been defined in the CGST Act [See the
definition under the heading Relevant Definitions]. Essentially, a non-
resident taxable person has no fixed place of business in India but he
sporadically supplies goods or services in India.

Tax paid on goods and/or services received by such non-resident

taxable person, is not available as ITC. However, tax paid by him on
imported goods is allowed as ITC.

Whereas ITC on goods imported by a non-resident

taxable person is allowed, ITC on services imported by
him is blocked.

(vii) Inward supplies used/intended to be used for purpose of CSR

[Clause (fa) of section 17(5)]
ITC shall not be available in respect of 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 (CSR)
referred to in section 135 of the Companies Act, 2013.
CSR is a strategy undertaken by companies to not just grow profits, but
to take an active and positive social role in the world around them.
Corporate social responsibility programs aim to give structure to a
company's efforts to give back to the community, participate in
philanthropic causes, and provide positive social value. Businesses
increasingly turn to CSR to make a difference and build a positive brand
around their company.
 INPUT TAX CREDIT 8.53

(viii) Inward supplies used for personal consumption [Clause (g) of

section 17(5)]
One of the foremost conditions laid down in section 16 for availing ITC
on goods and/or services is that such goods and/or services should be
used in the course or furtherance of business. Further, where goods
and/or services are used partly for the purpose of any business and
partly for other purposes, section 17(1) restricts the credit to so much
of the ITC as is attributable to business purposes.
Furthermore, section 17(5)(g) also specifically blocks the ITC on goods
and/or service used for personal consumption.
The term ‘personal consumption’ has not been defined in the GST law.
Thus, it may be understood in the general sense which would mean
non-business use.
(38) Mr. X owns a grocery store. He procures rice, wheat and
biscuits for being sold in its store. Out of the inventory so
purchased, he gives 10 kgs each of rice and wheat to his wife
for household use. Being used for personal consumption, ITC on 10 kg
of rice and 10 kg of wheat is blocked.
(ix) Free samples, gifts, goods lost/stolen etc. [Clause (h) of
section 17(5)]

Goods that are disposed of by way of gift

Goods that are disposed of by way of free

Clause (h) of section 17(5)

samples
blocks ITC on

Lost goods

Stolen goods

Destroyed goods

Goods that are written off

 8.54 GOODS AND SERVICES TAX

ITC in respect of goods that are disposed of by way of gift or free

samples is not available. Also, ITC is blocked on lost goods, stolen
goods, destroyed goods and goods that are written off. This is because
principally, ITC is available only for payment of tax on output supply. If
no tax is payable on output supply, ITC on inputs/input services/capital
goods relating to such output supply is not eligible. Hence, ITC on gifts
and free samples is blocked as no tax is payable on its outward supply.
In case of lost/destroyed/stolen written off goods also, ITC is not
available as these goods cannot be said to have been used for making
a taxable supply.
Meaning of ‘gift’

The term gift has not been defined in the GST law. Therefore, we will
have to look for the definition of gift in other laws. Section 122 of the
Transfer of Property Act, 1882, defines gift as transfer of certain existing
moveable or immoveable property made voluntarily and without
consideration, by one person, called the donor, to another, called the
donee, and accepted by or on behalf of the donee.

In common parlance, gift is made without consideration, is voluntary in

nature and is made occasionally. It cannot be demanded as a matter of right.
Meaning of ‘sample’
Sample is also not defined in the GST law. The dictionary meaning of
sample is “a small part or quantity intended to show what the whole is
like”. In commercial parlance, samples are given to prospective customers
to enable them to test the quality of the item before making a decision
to buy the same.

ITC in the hands of the supplier in respect of sales promotional

schemes
Circular No. 92/11/2019 GST dated 07.03.2019 has clarified the
entitlement of ITC in the hands of supplier in respect of various sales
promotional schemes as under [Taxability of such schemes has been
discussed at relevant places in Chapter 2: Supply Under GST and Chapter
7: Value of Supply in Module 1 of the Study Material.]:
 INPUT TAX CREDIT 8.55

A. Samples and free gifts

Samples which are supplied free of cost, without any consideration,
do not qualify as “supply” under GST, except where the activity falls
within the ambit of Schedule I of the CGST Act.
ITC shall not be available to the supplier on the inputs, input
services and capital goods to the extent they are used in relation
to the gifts or free samples distributed without any consideration.
However, where the activity of distribution of gifts or free samples
falls within the scope of “supply” on account of the provisions
contained in Schedule I of the said Act, the supplier would be
eligible to avail the ITC.
B. Buy one get one free offer
This is not an individual supply of free goods, but a case of two or
more individual supplies where a single price is being charged for
the entire supply. It can at best be treated as supplying two goods
for the price of one.
Taxability of such supply will be dependent upon as to whether
the supply is a composite supply or a mixed supply and the rate
of tax shall be determined as per the provisions of section 8.
ITC shall be available to the supplier for the inputs, input services
and capital goods used in relation to supply of goods or services
or both as part of such offers.
C. Discounts including ‘Buy more, save more’ offers

Discounts offered by the suppliers to customers (including

staggered discount under “Buy more, save more” scheme and
post supply / volume discounts established before or at the time
of supply) shall be excluded to determine the value of supply
provided they satisfy the parameters laid down in section 15(3),
including the reversal of ITC by the recipient of the supply as is
attributable to the discount on the basis of document (s) issued
by the supplier.
However, the supplier shall be entitled to avail the ITC for such
inputs, input services and capital goods used in relation to the
 8.56 GOODS AND SERVICES TAX

supply of goods or services or both on such discounts.

D. Secondary discounts
These are the discounts which are not known at the time of supply
or are offered after the supply is already over. Such discounts
shall not be excluded while determining the value of supply.
There is no impact on availability or otherwise of ITC in the hands
of supplier in this case.
ITC reversal when return of time expired medicines/drugs are
treated as fresh supply

The common trade practice in the pharmaceutical sector is that the

drugs or medicines (hereinafter referred to as “goods”) are sold by the
manufacturer to the wholesaler and by the wholesaler to the retailer on
the basis of an invoice/bill of supply as case may be. Such goods have
a defined life term which is normally referred to as the date of expiry.
Such goods which have crossed their date of expiry are colloquially
referred to as time expired goods and are returned to the
manufacturer, on account of expiry, through the supply chain.
Circular No. 72/46/2018 GST dated 26.10.2018 has clarified that the
retailer/ wholesaler can return the time expired goods, either by
treating the same as fresh supply or by issuing credit notes 20.
Return of time-expired goods by treating the same as fresh supply
In case the person returning the time expired goods is a registered
person (other than a composition taxpayer), he may, at his option,
return the said goods by treating it is as a fresh supply and thereby
issuing an invoice for the same (hereinafter referred to as the, “return
supply”). The value of the said goods as shown in the invoice on the
basis of which the goods were supplied earlier may be taken as the
value of such return supply. The wholesaler or manufacturer, as the case
may be, who is the recipient of such return supply, shall be eligible to
avail ITC of the tax levied on the said return supply subject to the
fulfillment of the conditions specified in section 16.

20
The procedure for return of time expired drugs or medicines by issuing credit note is covered
in Chapter 10: Tax Invoice; Credit and Debit Notes in this Module of the Study Material.
 INPUT TAX CREDIT 8.57

In case the person returning the time-expired goods is a composition

taxpayer, he may return the said goods by issuing a bill of supply and
pay tax at the rate applicable to a composition taxpayer. In this scenario
there will not be any availability of ITC to the recipient of return supply.
In case the person returning the time-expired goods is an unregistered
person, he may return the said goods by issuing any commercial
document without charging any tax on the same.

Where the goods returned by the retailer/wholesaler as a fresh supply,

are destroyed by the manufacturer, he/she is required to reverse the
ITC availed on the return supply in terms of section 17(5)(h). It is
pertinent to mention here that the ITC which is required to be reversed
in such scenario is the ITC availed on the return supply and not the ITC
that is attributable to the manufacture of such time expired goods.

The clarification may also be applicable to return of goods for reasons

other than being time expired.

(39) If a manufacturer has availed ITC of `10/- at the time of

manufacture of medicines valued at ` 100/-. 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
wholesaler is ` 15/-. So, when the time expired goods are destroyed by
the manufacturer, he would be required to reverse ITC of ` 15/- and not
of ` 10/.

(x) Tax paid in fraud cases, detention, confiscation etc. [Clause (i)
of section 17(5)]

Tax paid under sections 74, 129 and 130 21is not available as ITC. These
sections prescribe the provisions relating to tax paid as a result of
evasion of taxes, or upon detention of goods or conveyances in transit,
or towards redemption of confiscated goods/conveyances.

21
Declaration is to be filed in Form GST ITC-01 where a registered person ceases to pay
composition tax and switches to regular scheme or his exempt supplies become taxable
supplies.
 8.58 GOODS AND SERVICES TAX

Cheeku Ltd., a registered person, is engaged in manufacturing of

Quiz taxable goods. It provides following details in relation to GST paid
Time! on inward supplies procured by it during the month of January:
Raw material purchased ` 2,00,000
2 (to be received in the month of February)
Capital goods purchased ` 4,80,000
(Invoice for one of the machines is missing.
GST paid on the same is ` 70,000)
Free samples distributed ` 80,000
Trucks used for transport of minerals ` 1,20,000
Determine the amount of ITC that can be availed by Cheeku Ltd. for the
month of January. Subject to the information given above, all the other
conditions necessary for availing ITC have been fulfilled.

(a) ` 7,30,000 (b) ` 5,30,000 (c) ` 6,80,000 (d) ` 7,60,000

Quiz Dheeru Ltd., a registered person, is engaged in manufacturing of

toys. It provides following details in relation to GST paid on
Time!
inward supplies procured by it during the month of October:
Particulars GST (`)
3 Raw material purchased 2,00,000
Construction of pipelines laid outside
the factory premises 3,00,000
Insurance charges paid for trucks used
for transportation of goods 80,000
Determine the amount of ITC that can be availed by Dheeru Ltd. for the month of
October. Subject to the information given above, all the other conditions
necessary for availing ITC have been fulfilled.

(a) ` 5,00,000 (b) ` 2,80,000 (c) ` 3,80,000 (d) ` 5,80,000

 INPUT TAX CREDIT 8.59

5. CREDIT IN SPECIAL CIRCUMSTANCES

[SECTION 18]

STATUTORY PROVISIONS

Section Availability of credit in special circumstances

18

Sub- Clause Particulars

section

(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 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, 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;
 8.60 GOODS AND SERVICES TAX

(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.
 INPUT TAX CREDIT 8.61

(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:

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.

Chapter V: Input Tax Credit of CGST Rules

Rule 40 Manner of claiming credit in special circumstances

(1) The input tax credit claimed in accordance with the provisions of sub-
section (1) of section 18 on the inputs held in stock or inputs contained
in semi-finished or finished goods held in stock, or the credit claimed
on capital goods in accordance with the provisions of clauses (c) and
(d) of the said sub-section, shall be subject to the following conditions,
namely -

(a) the input tax credit on capital goods, in terms of clauses (c) and
(d) of sub-section (1) of section 18, shall be claimed after reducing
the tax paid on such capital goods by five percentage points per
quarter of a year or part thereof from the date of the invoice or
such other documents on which the capital goods were received
by the taxable person.

(b) the registered person shall within a period of thirty days from
the date of becoming eligible to avail the input tax credit
under sub-section (1) of section 18, or within such further
period as may be extended by the Commissioner by a
notification in this behalf, shall make a declaration,
electronically, on the common portal in FORM GST ITC-01
8.62 GOODS AND SERVICES TAX

to the effect that he is eligible to avail the input tax credit as

aforesaid:

Provided that any extension of the time limit notified by the

Commissioner of State tax or the Commissioner of Union
territory tax shall be deemed to be notified by the
Commissioner.

(c) the declaration under clause (b) shall clearly specify the
details relating to the inputs held in stock or inputs contained
in semi-finished or finished goods held in stock, or as the case
may be, capital goods–

(i) on the day immediately preceding the date from which

he becomes liable to pay tax under the provisions of the
Act, in the case of a claim under clause (a) of sub-
section (1) of section 18;

(ii) on the day immediately preceding the date of the grant

of registration, in the case of a claim under clause (b) of
sub-section (1) of section 18;

(iii) on the day immediately preceding the date from which

he becomes liable to pay tax under section 9, in the case
of a claim under clause (c) of sub-section (1) of section
18;

(iv) on the day immediately preceding the date from which

the supplies made by the registered person becomes
taxable, in the case of a claim under clause (d) of sub-
section (1) of section 18;

(d) 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 two lakh rupees;

(e) the input tax credit claimed in accordance with the provisions
of clauses (c) and (d) of sub-section (1) of section 18 shall be
verified with the corresponding details furnished by the
corresponding supplier in FORM GSTR-1 and in FORM GSTR-
 INPUT TAX CREDIT 8.63

1A, if any, or as the case may be, in FORM GSTR- 4, on the

common portal.

(2) The amount of credit in the case of supply of capital goods or plant
and machinery, for the purposes of sub-section (6) of section 18, shall
be calculated by reducing the input tax on the said goods at the rate
of five percentage points for every quarter or part thereof from the
date of the issue of the invoice for such goods.

Rule 41 Transfer of credit on sale, merger, amalgamation, lease or

transfer of a business

(1) A registered person shall, in the event of sale, merger, de-merger,

amalgamation, lease or transfer or change in the ownership of business
for any reason, furnish the details of sale, merger, de-merger,
amalgamation, lease or transfer of business, in FORM GST ITC-02,
electronically on the common portal along with a request for transfer of
unutilized input tax credit lying in his electronic credit ledger to the
transferee:

Provided that in the case of demerger, the input tax credit shall be
apportioned in the ratio of the value of assets of the new units as
specified in the demerger scheme.

Explanation: - For the purpose of this sub-rule, it is hereby clarified

that the “value of assets” means the value of the entire assets of the
business, whether or not input tax credit has been availed thereon.

(2) The transferor shall also submit a copy of a certificate issued by a

practicing chartered accountant or cost accountant certifying that the
sale, merger, de-merger, amalgamation, lease or transfer of business
has been done with a specific provision for the transfer of liabilities.

(3) The transferee shall, on the common portal, accept the details so
furnished by the transferor and, upon such acceptance, the un-utilized
credit specified in FORM GST ITC-02 shall be credited to his electronic
credit ledger.

(4) The inputs and capital goods so transferred shall be duly accounted
for by the transferee in his books of account.
 8.64 GOODS AND SERVICES TAX

Rule 41A Transfer of credit on obtaining separate registration for multiple

places of business within a State or Union territory

(1) A registered person who has obtained separate registration for

multiple places of business in accordance with the provisions of rule
11 and who intends to transfer, either wholly or partly, the unutilised
input tax credit lying in his electronic credit ledger to any or all of the
newly registered place of business, shall furnish within a period of
thirty days from obtaining such separate registrations, the details in
FORM GST ITC-02A electronically on the common portal, either
directly or through a Facilitation Centre notified in this behalf by the
Commissioner:

Provided that the input tax credit shall be transferred to the newly
registered entities in the ratio of the value of assets held by them at
the time of registration.

Explanation.- For the purposes of this sub-rule, it is hereby clarified

that the ‘value of assets’ means the value of the entire assets of the
business whether or not input tax credit has been availed thereon.

(2) The newly registered person (transferee) shall, on the common portal,
accept the details so furnished by the registered person (transferor)
and, upon such acceptance, the unutilised input tax credit specified in
FORM GST ITC-02A shall be credited to his electronic credit ledger.

Rule 44 Manner of reversal of credit under special circumstances

(1) The amount of input tax credit relating to inputs held in stock, inputs
contained in semi-finished and finished goods held in stock, and
capital goods held in stock shall, for the purposes of sub-section (4) of
section 18 or sub-section (5) of section 29, be determined in the
following manner, namely,-

(a) for inputs held in stock and inputs contained in semi-finished

and finished goods held in stock, the input tax credit shall be
calculated proportionately on the basis of the corresponding
 INPUT TAX CREDIT 8.65

invoices on which credit had been availed by the registered

taxable person on such inputs;

(b) for capital goods held in stock, the input tax credit involved in the
remaining useful life in months shall be computed on pro-rata
basis, taking the useful life as five years.

(2) The amount, as specified in sub-rule (1) shall be determined separately

for input tax credit of central tax, State tax, Union territory tax and
integrated tax.

(3) Where the tax invoices related to the inputs held in stock are not
available, the registered person shall estimate the amount under sub-
rule (1) based on the prevailing market price of the goods on the
effective date of the occurrence of any of the events specified in sub-
section(4)of section 18 or, as the case may be, sub-section (5) of section
29.

(4) The amount determined under sub-rule (1) shall form part of the
output tax liability of the registered person and the details of the
amount shall be furnished in FORM GST ITC-03, where such amount
relates to any event specified in sub-section (4) of section 18 and in
FORM GSTR-10, where such amount relates to the cancellation of
registration.

(5) The details furnished in accordance with sub-rule (3) shall be duly
certified by a practicing chartered accountant or cost accountant.

(6) The amount of input tax credit for the purposes of sub-section (6) of
section 18 relating to capital goods shall be determined in the same
manner as specified in clause (b) of sub-rule (1) and the amount shall
be determined separately for input tax credit of central tax, State tax,
Union territory tax and integrated tax:

Provided that where the amount so determined is more than the tax
determined on the transaction value of the capital goods, the amount
determined shall form part of the output tax liability and the same
shall be furnished in FORM GSTR-1.
 8.66 GOODS AND SERVICES TAX

ANALYSIS
Section 18 provides for
(1) entitlement of ITC on inputs in stock and inputs contained in finished goods
or work-in-progress, and in last two cases in respect of capital goods as well
(i) at the time of registration/voluntary registration,(ii) on coming into regular
tax-paying status by exiting composition levy, (iii) on coming into tax-paying
status on account of exempt supply becoming taxable supply for a registered
person
(2) reversal of ITC on inputs in stock and inputs contained in finished goods or
work-in-progress and capital goods (i) at the time of exit from regular tax-
paying status by opting for composition levy, (ii) at the time of exit from tax-
paying status on account of taxable supply becoming exempt supply for a
registered person
(3) amount payable on supply of capital goods or plant and machinery on which
ITC has been taken
(4) transfer of ITC on account of change in constitution of the registered person
(i) Entitlement of ITC at the time of registration/voluntary registration or
switching to regular tax paying status or coming into tax-paying status
[Sub-sections (1) and (2) of section 18 read with rule 40]
The credit on inputs held in stock and contained in semi-finished goods or
finished goods held in stock and capital goods at the time of
registration/voluntary registration or coming into regular tax/tax-paying
status is available in the following manner:

S. Persons Goods entitled to ITC Restriction/

No. eligible to conditions
take credit Inputs held in As on
stock/ capital
goods

(1) (2) (3) (4) (5)

1. Person who Inputs held in The day  ITC to be

has applied stock and immediately availed within
for inputs preceding the 1 year from the
 INPUT TAX CREDIT 8.67

registration contained in date from date of the

within 30 semi-finished which he issue of the tax
days from or finished becomes invoice by the
the date on goods held in liable to pay supplier.
which he stock tax
becomes
liable to
registration
and has been
granted such
registration

2. Person who is Inputs held in The day

not required stock and immediately
to register, inputs preceding the
but obtains contained in date of
voluntary semi-finished registration
registration or finished
goods held in
stock

3. Registered Inputs held in The day  ITC on capital

person who stock and immediately goods will be
ceases to inputs preceding the reduced by 5%
pay contained in date from per quarter of
composition semi-finished which he a year or part
tax and or finished becomes of the year
switches to goods held in liable to pay from the date
regular stock and tax under of invoice.
scheme capital goods regular  ITC claimed
scheme shall be
verified with
4. Registered Inputs held in The day
the
person stock and immediately
corresponding
whose inputs preceding the
details
exempt contained in date from
furnished by
supplies semi-finished which such
the
become or finished supply
corresponding
taxable goods held in becomes
 8.68 GOODS AND SERVICES TAX

supplies stock relatable taxable supplier.

to such exempt  ITC to be
supply and availed within
capital goods 1 year from the
exclusively date of the
used for such issue of the tax
exempt supply invoice by the
supplier.

In all the above cases, the registered person has to make an electronic
declaration in the prescribed form 22on the common portal, clearly specifying
the details relating to the inputs held in stock, inputs contained in semi-
finished or finished goods held in stock and capital goods on the days
mentioned in column (4) of table above. The declaration is to be filed within
30 days(extendable by Commissioner/Commissioner of State
GST/Commissioner of UTGST) from the date when the registered person
becomes eligible to avail ITC. If the claim of ITC pertaining to CGST,
SGST/UTGST, IGST put together exceeds ` 2,00,000, the declaration needs to
be duly certified by a practicing Chartered Accountant/Cost Accountant.
(40) ‘Z’ becomes liable to pay tax on 1st August and has obtained
registration on 15th August w.e.f. 1st August. ‘Z’ is eligible for ITC
on inputs held in stock and as part of semi-finished goods or
finished goods held in stock as on 31st July. ‘Z’ cannot take ITC on capital
goods.

(41) ‘A’ applies for voluntary registration on 5th June and obtains
registration w.e.f.22ndJune. ‘A’ is eligible for ITC on inputs held in
stock and as part of semi-finished goods or finished goods held in
stock as on 21st June. ‘A’ cannot take ITC on capital goods.

(42) ‘B’, a registered taxable person, was paying tax under

composition scheme upto 30th July. However, w.e.f. 31st July, ‘B’
becomes liable to pay tax under regular scheme. ‘B’ will be eligible

22
Declaration is to be filed in Form GST ITC-01 where a registered person ceases to pay
composition tax and switches to regular scheme or his exempt supplies become taxable
supplies.
 INPUT TAX CREDIT 8.69

for ITC on inputs held in stock and inputs contained in semi-finished or

finished goods held in stock and capital goods as on 30thJuly. ITC on capital
goods will be reduced by 5% per quarter or part thereof from the date of the
invoice.
(ii) Reversal of ITC on switching to composition levy or exit from tax-
paying status [Section 18(4) read with rule 44]

 Section 18(4) requires reversal of ITC when a registered person who has
availed ITC switches to composition levy or when his supplies get wholly
exempted from tax.
 ITC on inputs should be reversed proportionately on the basis of
corresponding invoices on which credit had been availed on such
inputs. If invoices are not available, ITC can be reversed on the basis of
the prevailing market price of such goods on the date of switch
over/exemption. The details furnished on the basis of prevailing market
value need to be duly certified by a practicing Chartered Accountant/
Cost Accountant.
 ITC involved in the remaining useful life (in months) of the capital goods
should be reversed on pro-rata basis, taking the useful life as 5 years.
(43) 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.
ITC taken on such capital goods = C
ITC attributable to remaining useful life that should be reversed
= C x 5/60
 The registered person has to debit the electronic credit or cash ledger
by the reversal amount in respect of inputs held in stock and inputs
contained in semi-finished or finished goods held in stock and capital
goods on the day immediately preceding the date of switch over/ date
of exemption.
 Balance of ITC, if any, lying in the electronic credit ledger lapses.
 Cancellation of registration also requires reversal of ITC on inputs held
in stock/ contained in semi-finished goods or finished goods held in
 8.70 GOODS AND SERVICES TAX

stock, capital goods or plant and machinery on the day immediately

preceding the cancellation date. The amount to be reversed on inputs
and capital goods is computed in the manner as applicable for sub-
sections (4) of section 18 (discussed above).
 ITC to be reversed on inputs and capital goods is calculated separately
for ITC of CGST, SGST/UTGST and IGST.
 The reversal amount is added to the output tax liability of the registered
person.

(iii) Amount payable on supply of capital goods or plant and machinery

on which ITC has been taken [Section 18(6) read with rule 40(2) & rule
44(6)]

 If capital goods or plant and machinery on which ITC has been taken
are supplied outward by the registered person, he must pay an amount
that is the higher of the following:
 ITC taken on such goods reduced by 5% per quarter of a year or
part thereof from the date of issue of invoice for such goods (i.e.,
ITC pertaining to remaining useful life of the capital goods), or
 tax on transaction value of such capital goods/plant & machinery
 ITC pertaining to remaining useful life of the capital goods should be
computed separately for ITC of CGST, SGST/UTGST and IGST.
 Where the amount of ITC remaining so determined exceeds the tax
payable on the transaction value of the capital goods, such amount
need to be paid and thus, should be added to the output tax liability.
 If refractory bricks, moulds and dies, jigs and fixtures are supplied as
scrap, the taxable person may pay tax on the transaction value.
*Note: Under rule 44(6), ITC involved in the remaining useful life (in months)
of the capital goods is reversed on pro rata basis, taking the useful life as 5
years.
 INPUT TAX CREDIT 8.71

(iv) Transfer of ITC on account of change in constitution of registered

person [Section 18(3) read with rule 41]

In case of sale, merger, demerger, amalgamation, lease, transfer or change in

ownership of business etc., the ITC that remains unutilized in the electronic
credit ledger of the registered person can be transferred to the new entity,
provided there is a specific provision for transfer of liabilities in such change
of constitution. Circular No. 96/15/2019 GST dated 28.03.2019has clarified
that transfer or change in the ownership of business includes transfer or
change in the ownership due to death of the sole proprietor.

The above provisions have been explained with the help of the diagram on
next page:

ITC remaining unutilized in the

electronic credit ledger is transferred to
the newly constituted entity
2

Provision for transfer

1 of liabilities

•Sale
Change in constitution of •Merger
registered person •Demerger
•Amalgamtion
•Lease
•Transfer or change in ownership of
business

In the case of demerger, ITC will be apportioned in the ratio of the value of
assets of the new units as specified in the demerger scheme. Here, “value of
assets” means the value of the entire assets of the business irrespective of
whether ITC has been availed thereon or not.
 8.72 GOODS AND SERVICES TAX

The registered person should furnish the details of change in constitution on

the common portal and submit a certificate from practicing Chartered
Account/Cost Accountant certifying that the change in constitution has been
done with a specific provision for transfer of liabilities. Upon acceptance of
such details by the transferee on the common portal, the unutilized ITC gets
credited to his electronic credit ledger. The transferee should duly record the
inputs and capital goods so transferred in his books of account.
(v) Transfer of ITC on obtaining separate registrations for multiple
places of business within a State/ Union Territory [Rule 41A]
Section 25 enables a taxpayer to obtain separate registrations for multiple
places of business within a State/ Union territory [Provisions of section 25 are
discussed under Chapter 9: Registration in this Module of the Study Material].
The registered person (transferor), having separate registrations for multiple
places of business within a State/Union Territory, can transfer the unutilised
ITC (wholly or partly) lying in his electronic credit ledger to any or all of the
newly registered place(s) of business in the ratio of the value of assets held
by them at the time of registration. Here, the ‘value of assets’ means the
value of the entire assets of the business irrespective of whether ITC has been
availed thereon or not.
The registered person should furnish the prescribed details on the common
portal within a period of 30 days from obtaining such separate registrations.
Upon acceptance of such details by the newly registered person (transferee)
on the common portal, the unutilised ITC gets credited to his electronic credit
ledger.

Quiz Vrinda Enterprises is a trader of electronic items in Haryana. It

Time! opted for the composition scheme on 1st April of current
financial year. However, with effect from 1st July, it switched to
regular scheme of paying the tax since its aggregate turnover
4 crossed ` 150 lakh. The stock of goods (purchased during last 6
months) and machinery (purchased on 3rd May) on 30th June is
` 16,00,000 and ` 6,20,000 respectively. Compute the amount of
ITC that can be availed by Vrinda Enterprises assuming the
applicable rate of GST to be 18%.
(a) Nil (b) ` 3,94,020 (c) ` 3,96,000 (d) ` 2,88,000
 INPUT TAX CREDIT 8.73

6. HOW ITC IS UTILISED

STATUTORY PROVISIONS

Section 49 Payment of tax, interest, penalty and other amounts

(Relevant extract)

Sub-section Clause Particulars

(5) The amount of input tax credit available in the electronic credit
ledger of the registered person on account of––

(a) integrated tax shall first be utilised towards payment of

integrated tax and the amount remaining, if any, may be
utilised towards the payment of central tax and State tax,
or as the case may be, Union territory tax, in that order;

(b) the central tax shall first be utilised towards payment of

central tax and the amount remaining, if any, may be
utilised towards the payment of integrated tax;

(c) the State tax shall first be utilised towards payment of

State tax and the amount remaining, if any, may be
utilised towards payment of integrated tax;

Provided that the input tax credit on account of State

tax shall be utilised towards payment of integrated tax
only where the balance of the input tax credit on
account of central tax is not available for payment of
integrated tax;

(d) the Union territory tax shall first be utilised towards

payment of Union territory tax and the amount
remaining, if any, may be utilised towards payment of
integrated tax;

Provided that the input tax credit on account of Union

territory tax shall be utilised towards payment of
integrated tax only where the balance of the input tax
 8.74 GOODS AND SERVICES TAX

credit on account of central tax is not available for

payment of integrated tax;

(e) the central tax shall not be utilised towards payment of

State tax or Union territory tax; and

(f) the State tax or Union territory tax shall not be utilised
towards payment of central tax.

Section 49A 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.

Section 49B Order of utilisation of input tax credit

Notwithstanding anything contained in this Chapter and subject to

the provisions of clause (e) and clause (f) of sub-section (5) of
section 49, the Government may, on the recommendations of the
Council, prescribe the order and manner of utilisation of the input
tax credit on account of integrated tax, central tax, State tax or
Union territory tax, as the case may be, towards payment of any
such tax.

Chapter IX: Payment of Tax of the CGST Rules

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-
 INPUT TAX CREDIT 8.75

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) he 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.

Rule 86B Restrictions on use of amount available in electronic credit

ledger

Notwithstanding anything contained in these rules, the registered

person shall not use the amount available in electronic credit
ledger to discharge his liability towards output tax in excess of
8.76 GOODS AND SERVICES TAX

ninety-nine per cent. of such tax liability, in cases where the value
of taxable supply other than exempt supply and zero-rated supply,
in a month exceeds fifty lakh rupees:

Provided that the said restriction shall not apply where -

(a) the said person or the proprietor or karta or the managing

director or any of its two partners, whole-time Directors,
Members of Managing Committee of Associations or Board
of Trustees, as the case may be, have paid more than one
lakh rupees as income tax under the Income-tax Act,
1961(43 of 1961) in each of the last two financial years for
which the time limit to file return of income under
subsection (1) of section 139 of the said Act has expired; or

(b) the registered person has received a refund amount of more

than one lakh rupees in the preceding financial year on
account of unutilised input tax credit under clause (i) of first
proviso of sub-section (3) of section 54; or

(c) the registered person has received a refund amount of more

than one lakh rupees in the preceding financial year on
account of unutilised input tax credit under clause (ii) of
first proviso of sub-section (3) of section 54; or

(d) the registered person has discharged his liability towards

output tax through the electronic cash ledger for an amount
which is in excess of 1% of the total output tax liability,
applied cumulatively, upto the said month in the current
financial year; or

(e) the registered person is -

(i) Government Department; or

(ii) a Public Sector Undertaking; or

(iii) a local authority; or

(iv) a statutory body:

 INPUT TAX CREDIT 8.77

Provided further that the Commissioner or an officer authorised by

him in this behalf may remove the said restriction after such
verifications and such safeguards as he may deem fit

Rule 88A Order of utilization of input tax credit

Input tax credit on account of integrated tax shall first be utilised

towards payment of integrated tax, and the amount remaining, if
any, may be utilised towards the payment of central tax and State
tax or Union territory tax, as the case may be, in any order.

Provided that the input tax credit on account of central tax, State
tax or Union territory tax shall be utilised towards payment of
integrated tax, central tax, State tax or Union territory tax, as the
case may be, only after the input tax credit available on account of
integrated tax has first been utilised fully.

ANALYSIS
ITC is credited to a registered person’s electronic credit ledger. A taxable person is
entitled for ITC of CGST, SGST/UTGST and IGST depending upon the nature of
supplies received by him.
To illustrate, a supplier making purchases intra-State, inter-State and via import (of
goods) is eligible for ITC as under:

Intra-State purchases Inter-State purchases Import of goods

Taxes paid Taxes paid Taxes paid

CGST BCD
IGST
SGST IGST

ITC ITC ITC

CGST
IGST IGST
SGST
 8.78 GOODS AND SERVICES TAX

The person may use the ITC to pay his output tax liability. As we know that Indian
GST is a dual GST wherein two taxes viz, CGST and SGST/UTGST are levied
concurrently on a supply transaction. While the CGST revenue accrues to Central
Government, SGST and UTGST revenue accrue to respective State Government and
Union Territory, respectively. Hence, ITC of CGST and SGST/UTGST is not inter-
changeable and thus, cross utilisation of CGST and SGST/UTGST is not
permissible.
IGST is a transitory tax. IGST paid by taxpayer initially goes to the Central Clearing
Authority. ITC of IGST can be utilised for payment of CGST or SGST/UTGST (or vice
versa). Thus, cross utilization of IGST and CGST, SGST/UTGST is permissible.
Flexibility has been provided to the taxpayer to utilise ITC of IGST for first payment
of IGST and then towards payment of CGST and/or SGST/UTGST in any proportion
and in any order subject to the condition that the entire input tax credit on account
of Integrated tax is completely exhausted before the input tax credit on account of
Central Tax or State/Union territory tax can be utilized. If ITC of IGST is used for
payment of SGST/UTGST (or vice versa), corresponding debit/credit is made to
respective State Government/Union Territory.
Sections 49(5), 49A, 49B, rule 88A and Circular No. 98/17/2019 GST dated
23.04.2019 together prescribe the sequence of utilisation of ITC. A combined
reading of such provisions shows that the order of utilization of ITC is as per the
order (of numerals) given below:

ITC of Output IGST Output CGST Output SGST/ UTGST

liability liability liability

IGST (I) (II) – In any order and in any proportion

(III) ITC of IGST to be completely exhausted mandatorily

CGST (V) (IV) Not permitted

SGST/UTGST (VII) Not permitted (VI)

Only after ITC
of CGST has
been utilized
fully

The numerals given above can be further explained in the following manner:
 INPUT TAX CREDIT 8.79

(I) IGST credit should first be utilized towards payment of IGST.

(II) Remaining IGST credit, if any, can be utilized towards payment of

CGST and SGST/UTGST in any order and in any proportion, i.e.
remaining ITC of IGST can be utilized –
• first towards payment of CGST and then towards payment of
SGST; or
• first towards payment of SGST and then towards payment of
CGST; or
• towards payment of CGST and SGST simultaneously in any
proportion e.g. 50: 50, 30: 70, 40: 60 and so on.

(III) Entire ITC of IGST should be fully utilized before utilizing the ITC
of CGST or SGST/UTGST.

(IV) & (V) ITC of CGST should be utilized for payment of CGST and IGST in
that order. ITC of CGST cannot be utilized for payment of
SGST/UTGST

(VI) & (VII) ITC of SGST /UTGST should be utilized for payment of
SGST/UTGST and IGST in that order. However, ITC of
SGST/UTGST should be utilized for payment of IGST, only after
ITC of CGST has been utilized fully. ITC of SGST/UTGST cannot
be utilized for payment of CGST.

• Cross-utilization of credit is available only between CGST - IGST and,

SGST/UTGST - IGST.
• CGST credit cannot be utilized for payment of SGST/UTGST and
SGST/UTGST credit cannot be utilized for payment of CGST.
• ITC of IGST need to be exhausted fully before proceeding to utilize the ITC
of CGST, SGST/UTGST.

(44) Amount of ITC available and output tax liability under different tax
heads
Head Output tax liability (`) ITC (`)
IGST 1000 1300
CGST 300 200
SGST/UTGST 300 200
 8.80 GOODS AND SERVICES TAX

Total 1600 1700

Option 1

ITC of Discharge of Discharge of Discharge of output Balance

output IGST output CGST SGST/UTGST of ITC
liability (`) liability (`) liability (`) (`)
IGST 1000 200 100 0
ITC of IGST has been completely exhausted
CGST 0 100 - 100
SGST/UTGST 0 - 200 0
Total 1000 300 300 100
Option 2
ITC of Discharge of Discharge Discharge of Balance
output IGST of output output of
liability (`) CGST SGST/UTGST ITC (`)
liability (`) liability (`)
IGST 1000 100 200 0
ITC of IGST has been completely exhausted
CGST 0 200 - 0
SGST/UTGST 0 - 100 100
Total 1000 300 300 100
Option 3
ITC of Discharge of Discharge Discharge of Balance
output IGST of output output of
liability (`) CGST SGST/UTGST ITC (`)
liability (`) liability (`)
IGST 1000 150 150 0
ITC of IGST has been completely exhausted
CGST 0 150 - 50
SGST/UTGST 0 - 150 50
Total 1000 300 300 100
There can be other options also for utilization of ITC of IGST against CGST and SGST
liabilities. In this example, three options for utilizing ITC of IGST against CGST and
SGST liabilities are shown.
 INPUT TAX CREDIT 8.81

Restrictions on utilisation of ITC [Rule 86A]

The Commissioner/ an officer (not below the rank of an Assistant Commissioner)

authorised by him is empowered 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 by the registered person on the basis of tax
invoices/debit notes/prescribed documents -

● issued by a non-existent registered person (supplier) or by a supplier

not conducting any business from the place declared in registration; or

● without actual receipt of goods or services or both; or

● in respect of any supply the tax in respect of which has not been paid
to the Government

(ii) the registered person availing ITC has been found non-existent or not to be
conducting any business from the registered place of business; or

(iii) the registered person availing ITC is not in possession of tax invoice/debit
note or any other prescribed valid document for it.

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.
 8.82 GOODS AND SERVICES TAX

Restrictions on the use of amount available in electronic credit ledger [Rule

86B]

Rule 86B restricts the use of ITC available in the electronic credit ledger for
discharging output tax liability. The aforesaid rule starts with a non-obstante clause
and thus, has an over-riding effect on any other provisions of the CGST Rules.

 Applicability of rule 86B

 Rule 86B is applicable to the registered person having value of taxable

supply (other than exempt supply and zero-rated supply) in a month
exceeding ` 50 lakh.

 Therefore, in cases wherein value of taxable supply in a month is upto

` 50 lakh, then this restriction would not be applicable.
 Nature of restriction imposed
The registered person to whom the said rule is
applicable cannot use ITC to discharge the
Minimum 1% of
output tax liability in excess of 99% of such tax
the output tax
liability. In other words, amount available in
liability be
electronic credit ledger shall be utilized only to
discharged using
the extent of 99% of the output tax liability while
electronic cash
discharging such tax liability. Balance 1% of the
ledger
output tax liability needs to be discharged from
electronic cash ledger.
The above restriction can be explained with the help of numerical example:
(45) The total value of inter-State supply of Raman & Sons for the
month of February is of ` 100 lakh. Said supply is taxable @ 18%
IGST. Thus, total output tax liability of Raman & Sons is ` 18 lakh.
Amount available in electronic credit ledger is ` 20 lakh (IGST).
In terms of restriction imposed by rule 86B, Raman & Sons can discharge 99%
of its output tax liability, i.e. ` 17,82,000 (99% of ` 18,00,000) from the amount
available in electronic credit ledger. However, it has to mandatorily discharge
the balance 1% of the output tax liability i.e. ` 18,000 (1% of ` 18,00,000)
through electronic cash ledger only.
 INPUT TAX CREDIT 8.83

 Exceptions to rule 86B

In order to strike a balance between restricting potential misuse of ITC and

providing relief to compliant taxpayers, few exceptions to rule 86B have been
carved out. They take into account different circumstances and ensure that
taxpayers who have fulfilled certain criteria are not unduly burdened by the
restrictions imposed by rule 86B.
 Payment of income tax of more than ` 1 lakh

Restriction under rule 86B is not applicable in cases where the below
mentioned person(s) have paid a sum of more than ` 1 lakh as income
tax (under the Income -tax Act, 1961) in each of the last 2 FYs for which
the time limit to file return of income under section 139(1) of the
Income-tax Act has expired:
 Registered person /proprietor/Karta/managing director/any of its
two partners
 Whole-time directors,

 Members of Managing Committee of Associations

 Board of Trustees
 Receipt of refund of input tax credit of more than ` 1 lakh

Rule 86B is not applicable where the registered person has received a
refund amount of more than ` 1 lakh on account of unutilized ITC under:
 zero-rated supplies made without payment of tax

 inverted duty structure

It is pertinent to note that refund should have been received in
preceding FY.

 Payment of output tax liability through electronic cash ledger in

excess of 1% of total output tax liability in current FY
If the registered person has discharged his output tax liability through
the electronic cash ledger for an amount in excess of 1% of the total
output tax liability, applied cumulatively, upto the said month in the
 8.84 GOODS AND SERVICES TAX

current financial year, the restrictions under rule 86B shall not apply.
This exception provides relief to registered persons who have
consistently made substantial cash payments towards their GST
liabilities. The total cash payment of GST made by the registered person
is considered cumulatively for all preceding months of the current FY.
The cumulative approach ensures that the registered person is given
credit for its consistent cash payments throughout the year, rather than
assessing each month in isolation.
(46) Assuming a scenario wherein in the current FY upto
September month, the value of outward supply is ` 80 lakh.
Output tax liability discharged through electronic cash ledger till
August month is ` 1 lakh. Rule 86B would not be applicable in the
September month even though the value of supply during this month
exceeds ` 50 lakh, since cumulative payment of tax made in cash is more
than 1% of total output tax liability (1% of ` 80 lakh is ` 80,000).
It is pertinent to note that GST liability paid under reverse charge
mechanism should not be taken into account while calculating the total
output liability paid through electronic cash ledger.
 Specified registered persons
Rule 86B is not applicable in case of below-mentioned registered
person:
 Government Department; or
 a Public Sector Undertaking; or

 a local authority; or
 a statutory body.
However, Commissioner or an officer authorised by him in this behalf
may remove the said restriction after such verifications and such
safeguards as he may deem fit.
 INPUT TAX CREDIT 8.85

Quiz
Time!
Dua & Co made an outward inter-State supply of ` 80 lakh in the
month of March. During the month, it purchased raw material worth
` 70 lakh and procured cement of ` 5 lakh for making foundation and
structural support to a plant and machinery. Assuming that the
opening balance of ITC for IGST for the relevant period is ` 2 lakh and
5 all inward and outward supplies undertaken in the month of March are
inter-State, compute the amount of net IGST payable in cash, if any, for
the month of March. Rate of GST applicable is 18%. Subject to the
information given above, all the other conditions necessary for availing
ITC have been fulfilled.

(a) ` 14,400 (b) Nil (c) ` 14.40 lakh (d) ` 9,000

ILLUSTRATION 2

ABC Ltd., registered under GST, is engaged in the manufacture of heavy machinery.
It procured the following items during the month of July.

S. No. Items GST (`)

(i) Electrical transformers to be used in the 5,20,000

manufacturing process

(ii) Trucks used for the transport of raw material 1,00,000

(iii) Raw material 2,00,000

(iv) Confectionery items. These items were supplied free 25,000

of cost to the customers in a customer meet organized
by the company

Determine the amount of ITC that can be availed by ABC Co. Ltd., for the month of
July by giving necessary explanations for treatment of various items. Subject to the
information given above, assume that all the other conditions necessary for availing
ITC have been fulfilled.
 8.86 GOODS AND SERVICES TAX

ANSWER

Computation of ITC that can be availed by with ABC Co. Ltd. for the
month of July

S. No. Items ITC (`)

(i) Electrical transformers 5,20,000

[Being goods used in the course or furtherance of
business, ITC thereon is available in terms of section
16(1)]

(ii) Trucks used for the transport of raw material 1,00,000

[ITC on motor vehicles used for transportation of goods
is not blocked under section 17(5)(a)]

(iii) Raw material 2,00,000

[Being goods used in the course or furtherance of business,
ITC thereon is available in terms of section 16(1)]

(iv) Confectionery items for consumption of customers at Nil

customers meet
[ITC on food or beverages is specifically disallowed unless
the same is used for making outward taxable supply of
the same category or as an element of the taxable
composite or mixed supply-Section 17(5)(b)(i)]

Total ITC 8,20,000

ILLUSTRATION 3

XYZ Ltd., registered under GST, is engaged in manufacture of taxable goods. Compute
the ITC that can be availed by XYZ Ltd. for the month of October from the following
particulars:-

S. No. Inward supplies GST (`) Remarks

(i) Inputs ‘A’ 1,00,000 One invoice on which GST payable

was ` 10,000, is missing
 INPUT TAX CREDIT 8.87

(ii) Inputs ‘B’ 50,000 Inputs are to be received in two lots.

First lot has been received in October

(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 20th January on

which GST payable was ` 50,000 was
missing and has been found in
October

Note:
(i) Subject to the information given above, assume that all the other conditions
necessary for availing ITC have been fulfilled.
(ii) The annual return for the previous financial year was filed on 15th September.
ANSWER
Computation of ITC that can be availed by XYZ Ltd. for the month of
October

S. No. Inward supplies ITC (`)

(i) Inputs ‘A’ 90,000

[ITC cannot be taken on missing invoice. The registered
person should have the invoice in its possession to claim
ITC-Section 16(2)(a)]

(ii) Inputs ‘B’ Nil

[When inputs are received in lots, ITC can be availed only
on receipt of last lot-First proviso to section 16(2)]

(iii) Capital goods Nil

[Input tax paid on capital goods cannot be availed as ITC,
if depreciation has been claimed on such tax component
– Section 16(3)]

(iv) Input services 1,75,000

 8.88 GOODS AND SERVICES TAX

[As per section 16(4), ITC on an invoice cannot be availed

after 30th November following the end of financial year
to which such invoice pertains or the date of filing
annual return, whichever is earlier.
Since the annual return for the previous financial year
has been filed on 15th September (prior to 30th
November), ITC on the invoice pertaining to previous
financial year cannot be availed after 15th September]

Total ITC 2,65,000

ILLUSTRATION 4
XT Pvt. Ltd., a supplier of goods, pays GST under regular scheme. It has made the
following outward taxable supplies in a tax period:

Particulars Amount (`)

Intra-State supply of goods 8,00,000

Inter-State supply of goods 3,00,000

It has also furnished the following information in respect of purchases made by it in

that tax period:

Particulars Amount (`)

Intra-State purchases of goods 2,00,000

Inter-State purchases of goods 50,000

The company has following opening balance of ITCs for the tax period:

Particulars Amount (`)

CGST 57,000

SGST Nil

IGST 70,000

Note:
 INPUT TAX CREDIT 8.89

(i) Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively.
(ii) Both inward and outward supplies are exclusive of taxes, wherever applicable.
(iii) All the conditions necessary for availing the ITC have been fulfilled.
Compute the minimum GST, payable in cash, by XT Pvt. Ltd. for the tax period. Make
suitable assumptions as required.

ANSWER
Computation of GST payable on outward supplies

[Link]. Particulars CGST @ SGST @ IGST @ Total (`)

9% (`) 9% (`) 18% (`)

(i) Intra-State supply of 72,000 72,000 1,44,000

goods for ` 8,00,000

(ii) Inter-State supply of 54,000 54,000

goods for ` 3,00,000

Total GST payable 1,98,000

Computation of total ITC

Particulars CGST @ 9% SGST @ 9% (`) IGST @ 18% (`)

(`)

Opening ITC 57,000 Nil 70,000

Add: ITC on Intra- 18,000 18,000 Nil

State purchases of
goods valuing
` 2,00,000

Add: ITC on Inter- Nil Nil 9,000

State purchases of
goods valuing
` 50,000

Total ITC 75,000 18,000 79,000

Computation of minimum GST payable from electronic cash ledger

 8.90 GOODS AND SERVICES TAX

Particulars CGST @ SGST @ IGST @ Total

9% (`) 9% (`) 18% (`) (`)

GST payable 72,000 72,000 54,000 1,98,000

Less: ITC [First ITC of IGST (Nil) (25,000) (54,000) 79,000

should be utilized in full - first IGST IGST IGST
against IGST liability and then
against CGST and SGST liabilities
in a manner to minimize cash
outflow]

ITC of CGST and SGST set off (72,000) (18,000) 90,000

against CGST and SGST CGST SGST
respectively

Minimum GST payable in cash Nil 29,000 Nil 29,000

Note : Since sufficient balance of ITC of CGST is available for paying CGST liability
and cross utilization of ITC of CGST and SGST is not allowed, ITC of IGST has been
used to pay SGST (after paying IGST liability) to minimize cash outflow.
 INPUT TAX CREDIT 8.91

LET US RECAPITULATE

I. Definitions of certain key terms are summarized by way of

diagrams as under:

BUSINESS

includes
Any activity incidental/ancillary
to it
Any trade/commerce,
manufacture, profession, vocation
etc. even if there is no monetary Any activity of same nature even
benefit if no volume/ continuity/
frequency

Supply/acquisition of goods
in connection with
including capital goods &
commencement/ closure of
services
business

Provision of facilities by to its members for

club/association/society etc. consideration

for a consideration
Admission to any premises

accepted in course/
Services as holder of an office furtherance of trade,
profession/vocation

Activities of a race club totalisator or a licence to book

including by way of maker or activities of a licensed
book maker in such club

Any activity by Government /local

authority as public authorities Government includes both
Central and State Government
 8.92 GOODS AND SERVICES TAX

EXEMPT SUPPLY

means includes

Non-taxable
supply
Supply attracting NIL rate of Supply wholly exempt
tax from

CGST IGST

Goods Services

CAPITAL GOODS INPUTS INPUT SERVICES

means means means

goods value of which is capitalized

goods other than services
in the books of account of person
capital goods
claiming ITC

used/intended to be used in
the course/furtherance of
business
 INPUT TAX CREDIT 8.93

INPUT TAX

Means Includes Excludes

IGST
Tax payable Tax payable
leviable on
under forward under reverse
import of Composition
charge in respect charge
goods tax
of supplies made
to recipient

CGST SGST UTGST IGST

NON-RESIDENT TAXABLE PERSON

Principal
means

Agent

any person supplying goods and/or as

services occasionally
In any other
capacity

having NO fixed place of

business/residence in India
 8.94 GOODS AND SERVICES TAX

INWARD SUPPLY

means

receipt of goods and/or services by

purchase acquisition any other means

with/without consideration

ZERO-RATED SUPPLY

Supply of goods and /or services for

Export of goods and/or services authorised operations to SEZ
developer/ SEZ unit
 INPUT TAX CREDIT 8.95

II. Provisions of section 16 relating to eligibility and

conditions for taking ITC read with relevant rules are
summarized below:

Registered He has valid tax

used/ if these invoice/debit
person to take
intended to SIX note/prescribed tax
credit of tax
be used in conditions paying document.
paid on inward
the course or are
supplies of
furtherance fulfilled:
goods and/or
services of business

Details of He has
Tax on Details of ITC in
invoices/debit received
such respect of the said
notes uploaded by goods
supply supply
the supplier in his and/or
has communicated to the
GSTR-1 (as services.
been registered person
amended in GSTR- paid under section 38 not
1A, if any) or using
restricted
IFF and details
communicated in
Form GSTR-2B

Goods delivered / services

provided to third person on the
direction of the registered person
deemed to be received by the
By registered person ⇒ITC available
He has In OR
utilisation to registered person [Bill to Ship
furnished cash
of ITC to Model]
return u/s 39
 8.96 GOODS AND SERVICES TAX

If depreciation Time limit for availing ITC - ITC pertaining to

Goods received
claimed on tax a particular FY can be availed by 30th November
in lots ITC
component, ITC of next FY or filing of annual return, whichever
allowed upon
not allowed. is earlier.
receipt of last lot
Exception: Re-availment of ITC reversed earlier

• Reverse charge
 Proportionate ITC to be
supplies
reversed/paid with interest if • Deemed supplies
whole/part of value + tax of goods without consideration
and /or services is not paid within EXCEPTIONS • Additions made to
180 days of the issuance of invoice. value of supplies on
account of supplier’
 On payment to supplier, the ITC
sliability being incurred
could be re-availed without any time bythe recipient of the
limit. supply

III. Provisions of section 17 relating to apportionment of

credit and blocked credits read with relevant rules are
summarized as under:
A. Apportionment of credit
Used partly for Attributable to
business and partly for business purposes
non-business
Goods purposes
and/or ITC available
services only as

Used partly for making

taxable (including zero Attributable to
rated supplies) supplies taxable supplies
& partly for exempt including zero rated
supplies supplies

Exempt supplies include reverse charge supplies & transactions in securities and exclude
activities specified in Schedule III except sale of land and sale of building when entire consideration
is received post completion certificate/first occupation, whichever is earlier and the value of such
activities/transactions as may be prescribed in respect of clause (a) of paragraph 8 of the said
Schedule.
 INPUT TAX CREDIT 8.97

BLOCKED CREDITS PART-A

GI, Servicing, R&M Leasing/renting/hiring F&B, Outcat,

Ineligible Ves & AC relating to ineligible of MV, Ves or AC on BT, HS, C&PS,
MV
MV, Ves, AC which ITC is disallowed LI & HI

EXCEPTIONS EXCEPTIONS EXCEPTIONS EXCEPTIONS EXCEPTIONS

When used for When used for- (i) When used for (i) Where a
(i) When ineligible
– (i) making further making an particular category
MV, Ves or AC are
(i) making taxable supply of outward taxable of such inward
used for eligible
further such Ves or AC supply of the supplies is used for
purposes
taxable (ii) passenger same category making an outward
(ii) When received
supplies of trptn service (sub- taxable supply of
by manufacturer of
such MV (iii) imparting contracting) or the same category
ineligible MV, Ves
(ii) trptn of training on as an element of - [Sub-contracting]
or AC
passengers navigating/flying a taxable or as an element of
(iii) When received
(iii) imparting such Ves/AC composite or a taxable
by a GI service
training on (iv) trptn of mixed supply. composite or
provider in respect
driving such goods (ii) When mixed supply
of such ineligible
ineligible MV provided by an (ii) When provided
MV, Ves or AC
employer to its by an employer to
insured by it
employees its employees
under statutory under a statutory
obligation obligation

Credit available on the above exceptions

Membership of club Travel benefits to Inward supplies Tax paid u/s 74 (Tax
&health &fitness employees on vacation received by NRTP short / not paid or
Centre (LTC/HT) erroneously refunded
due to fraud etc.,) 129
EXCEPTION (Amount paid for release
EXCEPTION EXCEPTION
of goods and
conveyances in transit
Goods which are detained) and
When provided by an When provided by an
imported 130 (Fine paid in lieu of
employer to its employer to its
by him confiscation)
employees under a employees under a
statutory obligation statutory obligation
 8.98 GOODS AND SERVICES TAX

BLOCKED CREDITS PART-B

WCS for construction of Inward supplies received by taxable person for

immovable property construction of immovable property on his own
account including when such supplies are used in the
course or furtherance of business
EXCEPTIONS
EXCEPTIONS

Credit available on
such exceptions
(A) WCS for P & M
(B) WCS availed by a works (A) Construction of P & M
contractor for further supply of (B) Construction of
WCS [Sub-contracting] immovable property for
(C) Where value of WCS is not others
capitalized (C) Value of construction
is not capitalised

Inward supplies charged to Goods lost/ stolen/ destroyed/ Inward supplies

composition levy written off or disposed of by used for personal
way of gift or free samples consumption

Ineligible MV-Motor vehicle for transportation of (A) Construction includes re-construction/

persons with seating capacity of ≤ 13 persons renovation/ addition/ alterations/ repairs to
(including driver); Ves & AC-Vessel & Aircraft;
the extent of capitalisation to said immovable
GI-General insurance; R&M-Repairs &
maintenance; F&B-Food & beverages; Outdoor
property.
catering; BT-Beauty treatment; HS-Health (B) P & M means apparatus, equipment, &
services; C&PS-Cosmetic & plastic surgery; LI- machinery fixed to earth by foundation or
Life insurance; HI-Health insurance; NRTP-Non- structural supports but excludes land,
resident taxable person; WCS-Works contract
building/ other civil structures,
service; LTC-Leave Travel Concession; HT-Home
town; trptn-transportation; P & M-Plant &
telecommunication towers, and pipelines laid
machinery outside the factory premises.
 INPUT TAX CREDIT 8.99

IV. Provisions of section 18 read with relevant rules are

summarized as under:
A. Special circumstances enabling availing of credit

Special circumstances enabling availing of credit

Registered person
switching from Registered person's Person applying for Person obtaining
composition levy to exempt supplies registration within 30 voluntary
regular scheme of becoming taxable days of becoming registration
payment of taxes liable for registration

Credit entitled on
• Inputs as such held in stock Credit entitled on
• Inputs contained in semi-finished goods held in • Inputs as such held in stock
stock • Inputs contained in semi-
• Inputs contained in finished goods held in stock finished goods held in stock
• Capital goods [In case of exempt supply • Inputs contained in finished
becoming taxable, capital goods used goods held in stock
exclusively for such exempt supply] reduced
by 5% per quarter or part thereof from the
date of invoice
Note: ITC claimed shall be verified with the
corresponding details furnished by the corresponding
supplier.

On the day On the day

On the day immediately On the day immediately immediately immediately
preceding the date from preceding the date preceding the preceding the
which he becomes from which such supply date from which date of
liable to pay tax under becomes taxable he becomes registration
regular scheme liable to pay tax

ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice
by the supplier.
 8.100 GOODS AND SERVICES TAX

Conditions for availing above credit:

(i) Filing of electronic declaration giving details of inputs held in stock/contained in
semi-finished goods and finished goods held in stock and capital goods on the
daysimmediately preceding the day on which credit becomes eligible.
(ii) Declaration has to be filed within 30 days from becoming eligible to avail credit.
(iii) Details in (i) above to be certified by a practising CA/ Cost Accountant if aggregate
claim of CGST, SGST/ IGST credit is more than ` 2,00,000.

B. Special circumstances leading to reversal of credit/payment of amount

Special circumstances leading to reversal
of credit /payment of amount

Registered person (who has Supplies of registered Cancellation of Supply of capital goods
availed ITC) switching from person getting wholly registration (CG)/ plant and machinery
regular scheme of payment exempted from tax (P& M) on which ITC has
of tax to composition levy been taken

Amount to be paid is
Amount to be reversed is equivalent to ITC on: equivalent to higher of
• Inputs held in stock/ inputs contained in semi-finished or finished goods the following:
held in stock (i) ITC on CG or P&M
• Capital goods less 5% per quarter or
on the day immediately preceding the date of switch over/ date of part thereof from the
exemption/date of cancellation of registration date of invoice
(ii) Tax on transaction
value of such CG or P &
M
• If amount at (i)
Manner of reversal of credit on inputs and capital goods & other exceeds (ii), then
conditions reversal amount will
(i)Inputs⇒ Proportionate reversal based on corresponding invoices. If such be added to output
invoices not available, prevailing market price on the effective date of switch tax liability.
over/ exemption/cancellation of registration should be used with due • Separate ITC reversal
certification by a practicing CA/ Cost Accountant is to be done for
(ii)Capital goods ⇒ Reversal on pro rata basis pertaining to remaining useful CGST, SGST/UTGST
life (in months), taking useful life as 5 years. and IGST
(iii) ITC to be reversed will be calculated separately for ITC of CGST, • Tax to be paid on
SGST/UTGST and IGST. transaction value
(iv) Reversal amount will be added to output tax liability of the registered when refractory
person. bricks, moulds, dies,
(v) Electronic credit/cash ledger will be debited with such amount. Balance jigs & fixtures are
ITC, if any, will lapse. supplied as scrap.
 INPUT TAX CREDIT 8.101

Transfer of unutilised ITC on account of change in

In case of sale, merger, amalgamation, lease or transfer of business,
unutilised ITC can be transferred to the new entity if there is a specific
provision for transfer of liabilities to the new entity. The inputs and
capital goods so transferred should be duly accounted for by the
transferee in his books of accounts.

In case of demerger, ITC is apportioned in the ratio of value of entire

assets (including assets on which ITC has not been taken) of the new
constitution of registered person

units as per the demerger scheme.

Details of change in constitution are to be furnished on common

portal along with request to transfer unutilised ITC. CA/Cost
Accountant certificate is to be submitted certifying that change in
constitution has been done with specific provision for transfer of
liabilities.

Upon acceptance of such details by the transferee on the common

portal, the unutilized ITC is credited to his Electronic Credit Ledger.
Transfer of unutilised ITC on obtaining separate
registrations for multiple places of business

Registered person having separate registrations for multiple places of

business can transfer the unutilised ITC to any or all of the newly
registered place(s) of business in the ratio of the value of assets held
by them at the time of registration.

Value of assets means the value of the entire assets of the business
irrespective of whether ITC has been availed thereon or not.

The registered person should furnish the prescribed details on the

common portal within a period of 30 days from obtaining such
separate registrations.
within a State/UT

Upon acceptance of such details by the newly registered person

(transferee) on the common portal, the unutilised ITC is credited to
his electronic credit ledger.
 8.102 GOODS AND SERVICES TAX

V. Provisions relating to utilization of ITC are

summarized as under:

I. II.
III.
ITC of ITC of
IGST ITC of
CGST
IGST CGST SGST
SGST

CGST/SGST in
any order & in IGST
IGST, only
any proportion when ITC of
CGST = NIL

ITC of IGST =
NIL

ITC of ITC of
CGST SGST/
SGST/ UTGST
CGST
UTGST
 INPUT TAX CREDIT 8.103

TEST YOUR KNOWLEDGE

1. What is input tax?

2. What are the conditions necessary for availing ITC?
3. Can a person take ITC without payment of consideration for the supply along
with tax?
4. What is the time limit for taking ITC and reasons therefor?
5. What is the ITC entitlement of a newly registered person?
6. What is the tax implication of supply of capital goods by a registered person
who had taken ITC on such capital goods?
7. A registered person transfers its business to another person.
Is such registered person allowed to transfer the unutilized ITC lying in its
electronic credit ledger to such transferred business? Discuss.
8. Swastik Pvt. Ltd. is a manufacturer of taxable goods. It purchased a machinery
for ` 8,00,000 on which IGST of ` 14,400 is paid. The company has claimed
depreciation under the Income-tax Act, 1961 on the full value of the machine,
i.e. including the IGST component as also availed ITC of
` 14,400 paid by it as IGST.
Examine if the stand taken by the company is correct in law.
9. A taxable person is in the business of information technology. He buys a car
(maximum seating capacity – 5 persons) for use of his Executive Directors.
Can he avail the ITC in respect of GST paid on purchase of such car?
10. A technical testing agency tests and certifies each batch of machine tools before
dispatch by BMT Ltd. Some of these tools are dispatched to a unit in a SEZ for
authorised operations without payment of GST as these supplies are not
taxable.
The finance personnel of BMT Ltd. want to know whether they need to carry out
reversal of ITC on the testing agency’s services to the extent attributable to the
SEZ supplies. Give your comments.
 8.104 GOODS AND SERVICES TAX

11. ‘AB’, a registered person, was paying tax under composition scheme up to
30th July. However, w.e.f. 31st July, ‘AB’ becomes liable to pay tax under regular
scheme.
Is ‘AB’ eligible for any ITC?
12. Babla Enterprises is exclusively engaged in making exempt supply of goods and
is thus, not registered under GST. On 1st October, the exemption available on
its goods gets withdrawn. On that day, the turnover of Babla Enterprises was `
45 lakh.
Examine the eligibility of Babla Enterprises for availing ITC, if any.
13. Mamta Trade Links trades in exempt goods and provides taxable services. It is
registered under GST. On 1st October, the exemption available on its goods
gets withdrawn.
Analyze the scenario and determine the eligibility of Mamta Trade Links for
availing ITC, if any, on inputs and/or capital goods used in the supply of exempt
goods.
14. Harshgeet Pvt. Ltd., a registered supplier, is engaged in the manufacture of
taxable goods. The company provides the following information pertaining to
purchases made/services availed by it during the month of July:

S. No Particulars GST (`)

(1) Raw materials (to be received in the month of 2,50,000

September)

(2) Membership of a club availed for employees working in 1,45,000

the factory (not obligatory to be provided under any
law)

(3) Inputs to be received in 5 lots, out of which 3rd lot was 80,000
received during the month

(4) Trucks used for transport of raw material 40,000

(5) Capital goods (out of 3 items, invoice for 2 items is 1,50,000

missing and GST paid on those items is ` 80,000)

Determine the amount of ITC that can be availed by Harshgeet Pvt. Ltd. for the
month of July by giving the necessary explanation for the treatment of various
 INPUT TAX CREDIT 8.105

items. Subject to the information given above, all the other conditions necessary
for availing ITC have been fulfilled.
15. Jamku Ltd., a registered person, is engaged in the business of spices. It provides
following details in relation to GST paid on inward supplies procured by it
during the month of October.

[Link]. Particulars GST (`)

(1) Raw spices purchase
- Raw spices sold to customers 50,000
- Raw spices used for personal use of directors 20,000
(2) Electric machinery purchased for being used in the 25,000
manufacturing process
(3) A 6 seater motor vehicle used for transportation of 55,000
employees
(4) Payment made to a contractor for construction of staff 1,25,000
quarters

Determine the amount of ITC that can be availed by Jamku Ltd. for the month
of October by giving the necessary explanation for treatment of various items.
Subject to the information given above, all the other conditions necessary for
availing ITC have been fulfilled.
16. Dina Ltd., a registered supplier from Maharashtra, is engaged in the
manufacture of passenger autos. The company provides the following details
of purchases made/services availed by it during the month of March:

S. No. Particulars GST (` )

(1) Purchase of iron which is used as a raw material 2,50,000

[Goods were received in two lots - first in March
and the second in April]

(2) Purchase of accessories which were delivered 90,000

directly to the dealers of the company on the
direction of Dina Ltd.
[Only invoice was received by Dina Ltd.]
 8.106 GOODS AND SERVICES TAX

(3) Purchase of bus (seating capacity 15) for the 1,97,000

transportation of employees from their residence
to company and back

(4) General insurance taken on a car (seating capacity 5,200

5) used by executives of the company for official
purposes

You are required to determine the ITC that can be availed by Dina Ltd. for the
month of March, by giving brief explanations for treatment of various items.
Subject to the information given above, all the other conditions necessary for
availing ITC have been fulfilled.
17. Comfortable (P) Ltd. is registered under GST in the State of Odisha. It is
engaged in the business of manufacturing of iron and steel products. It has
received IT engineering services from High-Fi Infotech (P) Ltd. for
` 11,00,000/- (excluding GST @ 18%) on 28th October. Invoice for service
rendered was issued on 5th November.
Comfortable (P) Ltd. made part payment of ` 4,20,000/- on 30th November.
Being unhappy with service provided by High-fi Infotech (P) Ltd., it did not make
the balance payment. Deficiency in service rendered was made good by High-
Fi Infotech (P) Ltd. by 15th April of next financial year. Comfortable (P) Ltd. made
the balance payment on 6th July of next financial year.
Examine the availability of ITC with Comfortable (P) Ltd. in respect of IT
engineering services received by it from High-Fi Infotech (P) Ltd.
18. M/s. Diwan & Sons of New Delhi, has placed an order for 250 kg of plastic
granules @ ` 50 per kg (exclusive of GST) on M/s. Karim & Bros. of Noida, U.P.
M/s. Karim & Bros. has agreed to deliver the goods at the warehouse of M/s.
Diwan & Sons at New Delhi.
While the order was getting packed at the factory of M/s. Karim & Bros., M/s.
Diwan & Sons got an order from Shubhkamna Sales of Hapur, U.P., for 250 kg
of plastic granules @ ` 60 per kg (exclusive of GST). In order to save on
transportation cost, M/s. Diwan & Sons asks M/s. Karim & Bros. to directly
deliver the plastic granules to Shubhkamna Sales at its godown located in
Hapur. Accordingly, M/s. Karim & Bros. has delivered the plastic granules at
the godown of Shubhkamna Sales at Hapur.
 INPUT TAX CREDIT 8.107

Examine the availability of ITC with M/s. Diwan & Sons & M/s. Karim & Bros.
Note: All the parties are registered under GST and rate of GST is 18%.
19. Paritosh& Co., a supplier of goods, pays GST under regular scheme. It has made
the following outward taxable supplies in a tax period:

Particulars Amount (`)

Intra-State supply of goods 10,00,000

Inter-State supply of goods 8,00,000

It has also furnished the following information in respect of purchases made by

it in that tax period:

Particulars Amount (`)

Intra-State purchases of goods 3,00,000

Inter-State purchases of goods 2,50,000

Paritosh & Co. has following opening balance of ITCs for the tax period:

Particulars Amount (`)

CGST 57,000

SGST 60,000

IGST 1,40,000

Note:
(i) Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively.
(ii) Both inward and outward supplies are exclusive of taxes, wherever
applicable.
(iii) All the conditions necessary for availing ITC have been fulfilled.
Compute the minimum GST, payable in cash, by Paritosh & Co. for the tax
period and the ITC to be carried forward to the next month. Make suitable
assumptions as required.
 8.108 GOODS AND SERVICES TAX

ANSWERS

1. Input tax means the central tax (CGST), State tax (SGST), integrated tax (IGST)
or Union territory tax (UTGST) charged on supply of goods or services or both
made to a registered person. It also includes tax paid on reverse charge basis
and integrated goods and services tax charged on import of goods. It does
not include tax paid under composition levy.
2. Following conditions are to be satisfied by the registered taxable person for
obtaining ITC:
(a) he is in possession of tax invoice or debit note or such other tax paying
documents as may be prescribed;
(aa) the details of the invoice or debit note referred above has been
furnished by the supplier in the statement of outward supplies and such
details have been communicated to the recipient of such invoice or
debit note in the manner specified under section 37;
(b) he has received the goods or services or both;
(ba) the details of input tax credit in respect of the said supply
communicated to such registered person under section 38 has not been
restricted
(c) subject to section 41, the supplier has actually paid the tax charged in
respect of the supply to the Government; and
(d) he has furnished the return under section 39.
3. Yes, the recipient can take ITC. However, he is required to pay the amount
towards value of supply along with tax within 180 days from the date of issue
of invoice. This condition is not applicable where tax is payable on reverse
charge basis.
4. Refer point (vi) “Time limit for availing ITC: 30th November of succeeding
financial year to which such invoice or debit note pertains or date of filing of
relevant annual return, whichever is earlier” under Heading No. 3 “Eligibility
and Conditions for Taking Input Tax Credit [Section 16]”.
5. (i) A person who has applied for registration within 30 days from the date
 INPUT TAX CREDIT 8.109

on which he became liable to registration, can take ITC of inputs held

in stock and inputs contained in semi-finished or finished goods held
in stock on the day immediately preceding the date on which he
became liable to pay tax can be taken.
(ii) In case of voluntary registration, ITC 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 registration can be taken.
6. In case of supply of capital goods or plant and machinery on which ITC has
been taken, the registered person shall pay an amount equal to the ITC taken
on the said capital goods or plant and machinery reduced by 5% per quarter
or part thereof from the date of invoice or the tax on the transaction value of
such capital goods or plant and machinery, whichever is higher.
However, in case of refractory bricks, moulds and dies, jigs and fixtures when
these are supplied as scrap, the person can pay tax on the transaction value.
7. As per section 18(3), in case of sale, merger, demerger, amalgamation,
transfer or change in ownership of business etc., the ITC that remains
unutilized in the electronic credit ledger of the registered person can be
transferred to the new entity, provided there is a specific provision for transfer
of liabilities to the new entity.
The registered person should furnish the details of change in constitution on
the common portal and submit a certificate from practicing Chartered
Account/Cost Accountant certifying that the change in constitution has been
done with a specific provision for transfer of liabilities. Upon acceptance of
such details by the transferee on the common portal, the unutilized ITC gets
credited to his electronic credit ledger. The transferee should duly account
for the inputs and capital goods so transferred in his books of account.

8. As per section 16(3), if the person taking the ITC on capital goods and plant
and machinery has claimed depreciation on the tax component of the cost of
the said items under the Income-tax Act 1961, the ITC on the said tax
component shall not be allowed.
Since in the given case, Swastik Pvt. Ltd. has claimed depreciation on the tax
component of the cost of the machine, it cannot claim ITC of IGST of
` 14,400 paid by it on the machine. It can either claim depreciation on the
 8.110 GOODS AND SERVICES TAX

tax component or avail ITC of such tax but cannot avail both the benefits
simultaneously.

9. No. ITC on motor vehicles for transportation of persons with approved

seating capacity of up to 13 persons (including driver), can be availed only if
the taxable person is in the business of transport of passengers or is providing
the services of imparting training on driving such motor vehicles or is in the
business of further supply of such motor vehicles. Also, ITC can be availed on
motor vehicles used for transportation of goods.

10. ITC is disallowed only to the extent it pertains to supplies used for non-
business purposes or supplies other than taxable and zero-rated supplies.
Supplies to SEZ units for authorised operations are zero rated supplies in
terms of section 16(1) of the IGST Act. Thus, full ITC is allowed on inward
supplies of BMT Ltd. used for effecting supplies to the unit in the SEZ for
authorised operations.
11. ‘AB’ is eligible for ITC on inputs held in stock and inputs contained in semi-
finished or finished goods held in stock and capital goods as on 30th July. ITC
on capital goods will be reduced by 5% per quarter or part thereof from the
date of invoice.
12. Since the exemption available on goods being supplied by Babla Enterprises,
an unregistered person, gets withdrawn, it becomes liable to registration as
its turnover had crossed the threshold limit on the day when the exemption
is withdrawn.
Assuming that Babla Enterprises applies for registration within 30 days of
1st October and it obtains such registration, it will 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 it becomes liable to pay tax, i.e. 30th September [Section 18(1)(a)]. Input
tax paid on capital goods will not be available as ITC in this case.
13. If the exempt supply made by a registered person becomes a taxable supply,
provisions of section 18(1)(d) become applicable. In the given case, since
Mamta Trade Links is a registered person, section 18(1)(d) will be applicable.
As per section 18(1)(d), Mamta Trade Links will 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
 INPUT TAX CREDIT 8.111

on capital goods exclusively used for such exempt supply on the day
immediately preceding the date from which such supply becomes taxable, i.e.
30th September. ITC on capital goods will be reduced by 5% per quarter or
part thereof from the date of invoice.
14. Computation of ITC that can be availed by Harshgeet Pvt. Ltd. for the
month of July:

Particulars ITC (`)

Raw Material Nil

[ITC not available as raw material is not received in July]

Membership of a club availed for employees working in the Nil

factory (not obligatory to be provided under any law)
[Blocked credit in terms of section 17(5)]

Inputs to be received in 5 lots, out of which 3rdlot was received Nil

during the month
[In case of goods received in lots, ITC can be taken only upon
receipt of the last lot]

Trucks used for transport of raw material 40,000

[ITC of GST paid on motor vehicles used for transportation of
goods is allowed unconditionally]

Capital goods 70,000

[ITC can be availed only on the basis of a valid document
(invoice). Thus, GST paid on items for which invoice is missing,
i.e. ` 80,000, is not available.]

Total ITC 1,10,000

 8.112 GOODS AND SERVICES TAX

15. Computation of ITC that can be availed by Jamku Ltd. for the month of
October

Particulars ITC (`)

Purchase of raw spices which are sold to customers 50,000
[Every registered person is entitled to take credit of input tax
charged on any supply of goods to him which are used or
intended to be used in the course or furtherance of his
business.]
Purchase of raw spices for personal use of directors Nil
[ITC is not available on goods used for personal consumption.]
Electric machinery purchased for being used in the 25,000
manufacturing process
[Every registered person is entitled to take credit of input tax
charged on any supply of goods to him which are used or
intended to be used in the course or furtherance of his business.]
Motor vehicle used for transportation of employee Nil
[ITC on motor vehicles for transportation of persons with
seating capacity ≤ 13 persons (including the driver) is blocked
except when the same are used for (i) making further taxable
supply of such motor vehicles (ii) making taxable supply of
transportation of passengers (iii) making taxable supply of
imparting training on driving such motor vehicles.
In the given case, since the supplier is in the business of spices,
ITC on a 6 seater motor vehicle used for transportation of
employees is blocked credit. ]
Payment made to a contractor for construction of staff Nil
quarters
[ITC is not available for 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]
Total ITC 75,000

16. Computation of ITC that can be availed by Dina Ltd. for the month of
March:
 INPUT TAX CREDIT 8.113

Particulars ITC (`)

Purchase of iron used as a raw material Nil

[When inputs are received in lots, ITC can be availed only on
the receipt of last lot. Hence, since last lot is received in April,
ITC cannot be availed in March.]

Purchase of accessories delivered directly to the dealers of the 90,000

company
[Goods delivered to another person on the direction of the
registered person by way of transfer of documents of title or
otherwise, either before or during the movement, are deemed
to have been received by such registered person. Thus, ITC is
available to the registered person, on whose order/direction
the goods are delivered to a third person.]

Bus for the transportation of employees 1,97,000

[ITC on motor vehicles for transportation of persons with
seating capacity > 13 persons (including the driver) used for
any purpose is allowed.

General insurance taken on car (seating capacity 5) used by Nil

executives of the company for official purpose
[ITC on motor vehicles for transportation of persons with
seating capacity ≤ 13 persons (including the driver) is blocked
except when the same are used for (i) making further taxable
supply of such motor vehicles (ii) making taxable supply of
transportation of passengers (iii) making taxable supply of
imparting training on driving such motor vehicles. Further,
ITC is not allowed on services of general insurance relating to
such ineligible motor vehicles.
Since, the car is not used for any of the eligible purposes, ITC
thereon is blocked and thus, ITC on general insurance taken
on such car is also blocked.]

Total ITC 2,87,000

 8.114 GOODS AND SERVICES TAX

17. Every registered person is entitled to take credit of input tax charged on any
supply of goods and/or services which are used or intended to be used in the
course or furtherance of his business if, inter alia, he is in possession of a tax
invoice issued by a supplier and he has received the goods and/or services.
The registered person must pay to the supplier, the value of the goods and/or
services along with the tax within 180 days from the date of issue of invoice.
In the event of failure to do so, the corresponding credits availed by the
registered person would be required to be reversed or paid by such person
alongwith interest. However, once the recipient makes the payment of value
of goods and/or services along with tax, he will be entitled to avail the credit
again without any time limit. In case part-payment has been made,
proportionate credit would be allowed.
In the given case, High-fi Infotech (P) Ltd. provides the service in the month
of October and Comfortable (P) Ltd. receives the invoice in the month of
November. Therefore, in view of the above provisions and assuming all other
conditions required for availing ITC having been fulfilled, ITC of ` 1,98,000
(` 11,00,000 x 18%) will be availed by Comfortable (P) Ltd. for the month of
November when it receives the invoice issued by High-fi Infotech (P) Ltd.
However, proportionate ITC amounting to `1,33,932⇒[(` 12,98,000 -
` 4,20,000)/118] x 18] will be reversed in GSTR-3B of Comfortable (P) Ltd. for
May month, to be paid along with interest thereon, as full payment has not
been made within 180 days of issuance of the invoice, i.e. by 4thMay of next
F.Y. ITC of ` 1,33,932 can, however, be availed again by Comfortable (P) Ltd.
for the month of July next F.Y. when it makes the balance payment to High-
Fi Infotech (P) Ltd.
18. One of the conditions for availing ITC is that the registered person taking the
ITC must have received the goods and / or services. However, goods
delivered to a third person on the direction of the registered person by way
of transfer of documents of title or otherwise, either before or during the
movement, are deemed to have been received by such registered person. So,
ITC is available to the registered person, on whose direction the goods are
delivered to a third person even though the registered person does not
receive the goods by itself.
In the given case, goods have been delivered by M/s. Karim & Bros. (supplier)
to Shubhkamna Sales (third person) on the direction of M/s. Diwan & Sons
(registered person). Therefore, in view of the above provisions, ITC of ` 2,250
 INPUT TAX CREDIT 8.115

(`50 x 250 x 18%) will be available to M/s. Diwan & Sons (registered person)
on the purchase of 250 kg of plastic granules @ 50 per kg.
Further, in this case there is another supply between Diwan & Sons (supplier)
and Shubhkamna Sales (recipient). Therefore, Shubhkamna Sales can avail
ITC of ` 2,700 (` 60 x 250 x 18%) on the purchase of 250 kg of plastic granules
@ 60 per kg.
19. Computation of GST payable on outward supplies

S. Particulars CGST @ SGST @ IGST @ Total (`)

No. 9% (`) 9% (`) 18% (`)
(i) Intra-State supply of 90,000 90,000 1,80,000
goods for
` 10,00,000
(ii) Inter-State supply of 1,44,000 1,44,000
goods for
` 8,00,000
Total GST payable 3,24,000
Computation of total ITC
Particulars CGST @ 9% SGST @ 9% (`) IGST @
(`) 18% (`)
Opening ITC 57,000 60,000 1,40,000
Add: ITC on Intra-State 27,000 27,000 Nil
purchases of goods valuing
` 3,00,000
Add: ITC on Inter-State Nil Nil 45,000
purchases of goods valuing
` 2,50,000
Total ITC 84,000 87,000 1,85,000
 8.116 GOODS AND SERVICES TAX

Computation of minimum GST payable from electronic cash ledger

Particulars CGST @ 9% SGST @ 9% IGST @ 18% Total (`)

(`) (`) (`)

GST payable 90,000 90,000 1,44,000 3,24,000

Less: ITC [First (22,000) (19,000) (1,44,000) 1,85,000

ITC of IGST
IGST IGST IGST
should be
utilized in full -
first against
IGST liability
and then
against CGST or
SGST liabilities
in any order to
minimize cash
outflow]

CGST and SGST (68,000) (71,000) 1,39,000

ITC utilized
CGST SGST
against CGST
and SGST
output Tax
liability
respectively

Minimum GST Nil Nil Nil Nil

payable in cash

ITC balance to 16,000 16,000 Nil 32,000

be carried
forward next
month
 INPUT TAX CREDIT 8.117

Note : The above computation is one of the many ways to set off the ITC of
IGST (` 41,000-after set off against IGST liability) against CGST and SGST
liability to compute minimum GST payable in cash and carry forward both
CGST and SGST ITC equally. To illustrate, IGST of ` 10,000 can be set off
against SGST payable and IGST of `31,000 can be set off against CGST
payable. In this situation also, the net GST payable will be nil but the ITC of
CGST and SGST to be carried forward will be `25,000and `7,000 (totaling to
` 32,000), respectively. However, if the entire ITC of ` 41,000 is set off against
CGST payable, then SGST of ` 3,000 will be payable in cash thus, increasing
the cash outflow. Therefore, such a set-off would not be advisable for
computing the minimum GST payable.
 8.118 GOODS AND SERVICES TAX

C R S S W O R D

ACROSS

3. Plant and machinery _____pipelines laid outside the factory premises.

6. ITC on capital goods is reduced by ____% per quarter of a year or part of the
year from the date of invoice in case a registered person who ceases to pay
composition tax and switches to regular scheme.
7. A registered person is not entitled to take ITC in respect of any invoice after
30th ___ following the end of financial year to which such invoice pertains or
furnishing of the relevant annual return, whichever is earlier.
10. ITC on _____supplies received by a taxable person from a composition supplier
is blocked.
11. ITC on cars purchased by a car dealer for sale to customers is _____.
 INPUT TAX CREDIT 8.119

13. Where the goods against an invoice are received in lots, the registered person
is entitled to take credit upon receipt of the __lot.

DOWNWARDS

1. For availment of credit by registered person, services should have been

actually ______.
2. ______ percent ITC can be claimed on invoices furnished by the suppliers in
their GSTR-1s and reflected in GSTR-2B of recipient.
4. Motor vehicles exclude ___ purpose vehicles for being used in a factory.
5. ITC on works contract services availed by a manufacturing company for
construction of pipelines to be laid outside its factory, is _______.
8. Where the value of taxable supply of a registered person exceeds ` _________
lakh in a month, he shall have to pay at least 1% of his output tax liability in
cash.
9. ITC is not available in case of ____ goods.
12. Either depreciation on the ____component can be claimed under Income-tax
Act or ITC can be availed under GST law.

Scan the following QR code for accessing the answers to MCQs in Quiz Time
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 8.120 GOODS AND SERVICES TAX

AMENDMENTS MADE VIDE THE FINANCE ACT, 2025

The Finance Act, 2025 has come into force from 29.03.2025. However, most of the
amendments made under the CGST Act and the IGST Act vide the Finance Act, 2025
would become effective only from a date to be notified by the Central Government
in the Official Gazette. Such a notification has not been issued till 30.04.2025.
Therefore, the applicability or otherwise of such amendment for May 2026,
September 2026 and/or, January 2027 examinations shall be informed by the ICAI
by way of an announcement.

In the table given below, the existing provisions of section 17(5)(d) is compared
with the provisions as amended by the Finance Act, 2025.

Once the announcement for applicability of such amendments for examination(s)

is made by the ICAI, students should read the amended provisions given hereunder
in place of the related provisions discussed in the chapter.

Section Existing provisions Provisions as Remarks

No. amended by the
Finance Act, 2025

17(5)(d) goods or services or goods or services or Clause (d) of sub-

both received by a both received by a section (5) of
taxable person for taxable person for section 17 is being
construction of an construction of an amended to
immovable immovable property
substitute the
property (other (other than plant and
words "plant or
than plant or machinery) on his own
machinery" with
machinery) on his account including when
words "plant and
own account such goods or services
including when or both are used in the machinery".
such goods or course or furtherance
services or both are of business.
used in the course
Explanation 1 — For
or furtherance of
the purposes of clauses
business.
(c) and (d), the
expression
 INPUT TAX CREDIT 8.121

Explanation — For "construction" includes

the purposes of re-construction,
clauses (c) and renovation, additions
(d), the expression or alterations or
"construction" repairs, to the extent of
includes re- capitalisation, to the
construction, said immovable
renovation, property.
additions or
Explanation 2- For the
alterations or
purposes of clause (d),
repairs, to the
it is hereby clarified
extent of
that notwithstanding
capitalisation, to the
anything to the
said immovable
contrary contained in
property.
any judgment, decree
or order of any court,
tribunal, or other
authority, any
reference to "plant or
machinery" shall be
construed and shall
always be deemed to
have been construed
as a reference to
"plant and
machinery".