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8
INPUT TAX CREDIT

For the sake of brevity, input tax credit has been referred to as ITC in this Chapter.
The section numbers referred to in the Chapter pertain to CGST Act, unless
otherwise specified.
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
 explain the concept relating to availing of proportionate ITC when common
inputs or input service or capital goods are used or intended to be used for
exempted and taxable supplies or business and non-business activities
 comprehend the concept of an input service distributor and the manner of
distribution of credit by him
 describe the manner of recovery of credit distributed in excess
 comprehend, analyse and apply all the above provisions as also the provisions
relating to utilization of ITC in problem solving
 compute the GST liability of a registered person, payable in cash.
© The Institute of Chartered Accountants of India

8.2 GOODS AND SERVICES TAX
1. INTRODUCTION
In earlier indirect tax regime, the
credit mechanism for indirect taxes
levied by the Union Government,
(central excise duty and service tax)
was governed by the CENVAT Credit
Rules, 2004; and the credit mechanism for state-level VAT on sale of goods was
governed by the States under their respective VAT laws. The VAT legislations
allowed ITC of VAT on inputs and capital goods in transactions within the state,
but not on inputs and capital goods coming in the State from outside the state,
on which central sales tax was paid. CENVAT Credit Rules, 2004 allowed availing
and utilization of credit of duty/tax paid on both goods (capital goods and inputs)
and services by the manufacturers and the service providers across the country.
The credit across goods and services was integrated vide the CENVAT Credit
Rules, 2004 in the year 2004 to mitigate the cascading effects of central levies
namely, central excise duty and service tax. However, the credit chain remained
fragmented on account of State-Level VAT as the credit of central taxes could not
be set off against a State levy and vice versa. The chain further got distorted as
ITC was not available on inter-State purchases. This resulted in cascading of taxes
leading to increase in costs of goods and services.
The GST regime promises seamless credit on goods and services across the entire
supply chain with some exceptions like supplies charged to tax under
composition scheme 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 49 and rule 88A prescribe the provisions relating to the manner of
utilization of ITC. State GST laws also prescribe identical provisions in relation to
ITC. First the statutory provisions of these sections together with the relevant
rules have been extracted followed by their analysis 1.
1
The provisions of section 19 relating to taking ITC on inputs and capital goods sent for job
work have been discussed in Chapter 16: Job Work in Module 3 of this Study Material.

INPUT TAX CREDIT 8.3
Provisions of ITC under CGST Act have also been made applicable to IGST
Act vide section 20 of the IGST Act.
Scheme of ITC - At a Glance

Given below are the salient features of the scheme of ITC. 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 of a taxable person. The exception is ‘blocked
credit’, where ITC is not available even when these goods or services are
used for 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 for payment of tax on taxable output supply, as a
natural corollary, ITC is not available when tax is not payable on output
supply, i.e. on exempt supply.
 The exception to the above principle is ‘zero rated supply’, 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. Such ITC can be used
either for payment of tax on supplies made with tax or refund of the same
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 full credit of ITC in respect of inputs, input services and capital goods
used exclusively for taxable supply and no credit at all for inputs, input
services and capital goods used exclusively for exempt supply.

 If common inputs, input services and capital goods are used for taxable as
well as exempt supply, only proportionate ITC attributable to the taxable
supply is available. The common ITC is apportioned in the ratio of value of
taxable supply and exempt supply. Elaborate provisions have been made in
the GST law to prescribe the manner of calculation of proportionate ITC.
 ITC can be availed on inputs and capital goods sent for job work; ITC is
available even if the inputs and capital goods are sent directly to the job
worker without being first brought to the place of business of the supplier. 2
 Input services received at head office or branch offices are ultimately
indirectly used for supplies made from manufacturing or trading or business
premises. ITC of such input services can be availed through mechanism of
‘input service distributor’.
Before proceeding to understand the statutory provisions relating to ITC, let us
first go through few relevant definitions.
2. 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);
2
The provisions relating to taking ITC on inputs and capital goods sent for job work have
been discussed in Chapter 16: Job Work in Module 3 of this Study Material.

(c) any activity or transaction in the nature of sub-clause (a), whether or

not there is volume, frequency, continuity or regularity of such
transaction;
(d) supply or acquisition of goods including capital goods and services in
connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a
subscription or any other consideration) of the facilities or benefits to
its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has
been accepted by him in the course or furtherance of his trade,
profession or vocation;
(h) activities of a race club including by way of totalisator or a licence to
book maker or activities of a licenced book maker in such club; and
(i) any activity or transaction undertaken by the Central Government, a
State Government or any local authority in which they are engaged as
public authorities [Section 2(17)].
 Capital goods means goods, the value of which is capitalized in the books
of account of the person claiming the ITC and which are used or intended to
be used in the course or furtherance of business [Section 2(19)].
 Conveyance includes a vessel, an aircraft and a vehicle [Section 2(34)].
 Exempt supply means supply of any goods or services or both which attracts nil
rate of tax or which may be wholly exempt from tax under section 11, or under
section 6 of the IGST Act, and includes non-taxable supply [Section 2(47)].
 Input means any goods other than capital goods used or intended to be
used by a supplier in the course or furtherance of business [Section 2(59)].
 Input service means any service used or intended to be used by a supplier
in the course or furtherance of business [Section 2(60)].
 Input service distributor means an office of the supplier of goods or services or
both which receives tax invoices issued under section 31 towards the receipt of
input services and issues a prescribed document for the purposes of distributing
the credit of central tax, State tax, integrated tax or Union territory tax paid on
the said services to a supplier of taxable goods or services or both having the
same Permanent Account Number as that of the said office [Section 2(61)].

 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)].
 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)].
 Output tax in relation to a taxable person, means the tax chargeable under
this Act on taxable supply of goods or services or both made by him or by his
agent but excludes tax payable by him on reverse charge basis [Section 2(82)].
 Outward supply in relation to a taxable person, means supply of goods or
services or both, whether by sale, transfer, barter, exchange, licence, rental,
lease or disposal or any other mode, made or agreed to be made by such
person in the course or furtherance of business [Section 2(83)].
 Place of business includes––
• a place from where the business is ordinarily carried on, and includes
a warehouse, a godown or any other place where a taxable person
stores his goods, supplies or receives goods or services or both; or
• a place where a taxable person maintains his books of account; or
• a place where a taxable person is engaged in business through an

agent, by whatever name called [Section 2(85)].
 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,
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 [Section 2(105)].
 Taxable person means a person who is registered or liable to be registered
under section 22 or section 24 [Section 2(107)].
 Taxable supply means a supply of goods or services or both which is
leviable to tax under CGST Act [Section 2(108)].
 Turnover in State or turnover in Union territory means the aggregate
value of all taxable supplies (excluding the value of inward supplies on
which tax is payable by a person on reverse charge basis) and exempt
supplies made within a State or Union territory by a taxable person, exports
of goods or services or both and inter-State supplies of goods or services
or both made from the State or Union [Section 2(112)].
 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 to a Special Economic Zone (SEZ)
developer or a Special Economic Zone unit [Section 16(1) of the IGST
Act].

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;
(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
agent or otherwise, before or during movement
of goods, either by way of transfer of documents
of title to goods or otherwise;

(ii) where the services are provided by the supplier

to any person on the direction of and on account
of such registered person.
(c) subject to the provisions of section 41, the tax charged

in respect of such supply has been actually paid to the
Government, either in cash or through utilisation of
input tax credit admissible in respect of the said supply;
and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in

lots or instalments, the registered person shall be entitled to take
credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier

of goods or services or both, other than the supplies on which tax
is payable on reverse charge basis, the amount towards the value
of supply along with tax payable thereon within a period of one
hundred and eighty days from the date of issue of invoice by the
supplier, an amount equal to the input tax credit availed by the
recipient shall be added to his output tax liability, along with
interest thereon, 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 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.
(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 due date of furnishing of the return under section
39 for the month of September following the end of financial year
to which such invoice or debit note pertains or furnishing of the
relevant annual return, whichever is earlier.

Chapter V: Input Tax Credit of the CGST Rules
Rule 36 Documentary requirements and conditions for claiming input

tax credit
Sub-rule Clause Particulars
(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, and the relevant
information, as contained in the said document, is furnished in
FORM GSTR-2 3 by such person.
Provided that if the said document does not contain all the
specified particulars but contains the details of the amount of tax
charged, description of goods or services, total value of supply of
goods or services or both, GSTIN of the supplier and recipient and
3
Filing of GSTR-2 has been deferred by the GST Council.

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.
(4) Input tax credit to be availed by a registered person in respect

of invoices or debit notes, the details of which have not been
furnished by the suppliers under sub-section (1) of section 37
in FORM GSTR-1 or using the invoice furnishing facility (IFF),
shall not exceed 5 per cent of the eligible credit available in
respect of invoices or debit notes the details of which have
been furnished by the suppliers under sub-section (1) of
section 37 in FORM GSTR-1 or using the invoice furnishing
facility.
Rule 37 Reversal of input tax credit in the case of non-payment of

consideration
Sub-rule Particulars
(1) A registered person, who has availed of input tax credit on any
inward supply of goods or services or both, but fails to pay to the
supplier thereof the value of such supply along with the tax
payable thereon within the time limit specified in the second
proviso to sub-section (2) of section 16, shall furnish the details of
such supply, the amount of value not paid and the amount of
input tax credit availed of proportionate to such amount not paid
to the supplier in FORM GSTR-2 for the month 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.
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) The amount of input tax credit referred to in sub-rule (1) shall be
added to the output tax liability of the registered person for the
month in which the details are furnished.
(3) The registered person shall be liable to pay interest at the rate
notified under sub-section (1) of section 50 for the period starting
from the date of availing credit on such supplies till the date when
the amount added to the output tax liability, as mentioned in sub-
rule (2), is paid.
(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.
ANALYSIS
(i) Eligibility for taking ITC [Section 16(1)]
(a) Registration under GST
Every registered person shall be entitled to ITC of GST charged on
inward supply [See definition of inward supply] of goods and / or
services. This is subject to the provisions relating to use of ITC under
section 49 and the conditions and restrictions in the rules. [Section 49
prescribes provisions relating to payment of tax, interest, penalty & other
amounts. The same has been discussed in detail in Chapter 12: Payment
of Tax.]
(b) Goods/services to be used for business purposes
ITC of GST will be available on goods and/or services which are used
in the course or furtherance of the business [See definition of business].
The scope of the definition of ‘business’ is very wide. It is also an
inclusive definition. The relation of inputs and input services with
business can be direct or indirect.

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. ‘Intention to use’ implies that ITC can be
availed as soon as inputs or input services are received, though the
same may be utilised later. However, if finally, the input goods or
services are not utilised for intended purpose, ITC is disallowed, as
provided in section 17(5) of CGST Act. [Section 17(5) specifies the
inputs or input services in respect of which ITC is not allowed.
Provisions of section 17(5) are discussed in the ensuing pages of this
Chapter.]
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 in electronic credit ledger. [Provisions relating to electronic
credit ledger have been discussed in detail in Chapter 12: Payment of
Tax.]
Moulds and dies provided by the original equipment
manufacturer (OEM) to component manufacturer on FOC basis –
when not considered as being in the course or furtherance of
business?
Moulds and dies owned by the original equipment manufacturer
(OEM) which are provided to a component manufacturer (the two not
being related persons or distinct persons) on free on cost (FOC) basis
does not constitute a supply as there is no consideration involved.
Further, since the moulds and dies are provided on FOC basis by the
OEM to the component manufacturer in the course or furtherance of
his business, there is no requirement for reversal of ITC availed on
such moulds and dies by the OEM.
However, where the contract between OEM and component
manufacturer is for supply of components made by using the
moulds/dies belonging to the component manufacturer, but the same
have been supplied by the OEM to the component manufacturer on
FOC basis, the OEM will be required to reverse the credit availed on
such moulds/ dies, as the same will not be considered to be provided
by OEM to the component manufacturer in the course or furtherance

of the former’s business [Circular No. 47/21/2018 GST dated

08.06.2018 4].
(ii) Conditions for taking ITC [Section 16(2)]
The registered person will be entitled to ITC on a supply only if ALL the
following four conditions are fulfilled:
(a) Possession of tax paying document [Section 16(2)(a) read with
rule 36 of the CGST Rules]
ITC can be availed on the basis of any of the following documents:
i) Invoice issued by the supplier of goods and/or services
ii) Invoice issued by the recipient receiving goods and/or services
from unregistered supplier along with proof of payment of tax,
in case of reverse charge
iii) Debit note issued by the supplier
iv) Bill of entry or similar document prescribed under the Customs
Act, 1962
v) Revised invoice
vi) Document issued by the input service distributor
The documents basis which ITC is being taken should contain at least
the following details:
 Amount of tax charged
 Description of goods or services
 Total value of supply of goods and/or services
 GSTIN of the supplier and recipient
 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 cannot be availed as ITC.
4
Circular No. 47/21/2018 GST dated 08.06.2018 also clarifies aspects relating to valuation
of moulds and dies provided by the OEM to component manufacturer on FOC basis. The
same are covered in Chapter 7: Value of Supply in Module 1 of this Study Material.

Restricted ITC on invoices/debit notes not furnished by supplier in

his GSTR-1 5 [Rule 36(4) read with Circular No. 123/42/2019 GST,
dated 11.11.2019]: It is observed that some taxpayers take inflated
or bogus ITC, even if proper tax invoices or debit notes in respect of
inputs or input services are not available. To exercise control over the
malpractice of availing bogus ITC by the taxpayers, certain restrictions
have been placed on availment of ITC.
ITC on all invoices/debit notes which are furnished by the
suppliers in their GSTR-1s or using the invoice furnishing
facility(IFF) can be availed in full. The recipient gets details of tax
invoices and debit notes furnished by the suppliers in their GSTR-
1s or using the IFF, in his (recipient’s) GSTR-2A and GSTR-2B.
GSTR-1 is a monthly/quarterly statement containing details of outward

supplies made by a registered supplier. Such details of outward
supplies furnished by the supplier are communicated and made
available electronically (auto populated) to the respective recipient(s)
in GSTR- 2A5. GSTR-2B is an auto-drafted ITC statement generated
for every registered person based on GSTR-1 filed by supplier.
Invoice Furnishing Facility (IFF) 6 is a facility provided to quarterly
taxpayers who are in QRMP scheme, to file their details of
outward supplies in first two months of the quarter, to pass on the
credit to their recipients.
However, in respect of invoices/debit notes the details of which

are not furnished by the suppliers in their GSTR-1s or using IFF
(and hence cannot be seen in GSTR-2A and GSTR-2B of the
recipient), ITC can be availed only upto 5% of the eligible credit
available in respect of invoices/debit notes the details of which
have been furnished by the suppliers in their GSTR-1s or using
invoice furnishing facility under section 37(1)
In other words, the ITC claimed should not exceed 105% of ITC
reflecting in GSTR-2B on the due date of filing of GSTR-1 of the
suppliers for the said tax period. The taxpayer has to avail the
5
The provisions relating to filing of GSTR-1 and GSTR-2A have been discussed in detail in
Chapter 13: Returns.
6
The provisions relating to invoice furnishing facility and QRMP Scheme have been
discussed in detail in Chapter 10: Returns.

ITC on self-assessment basis as the restriction is not imposed

through the common portal.
The above concept has been illustrated in a diagram given at the
next page.
The balance ITC may be claimed by the taxpayer in any of the
succeeding months provided details of requisite invoices are
furnished by the suppliers. He can claim proportionate ITC as and
when details of some invoices are furnished by the suppliers
provided that ITC on invoices, the details of which are not
furnished in GSTR-1 remains under 5% of the eligible ITC, the
details of which are furnished by the suppliers. In other words,
taxpayer may avail full ITC in respect of a tax period, as and when
the invoices are furnished by the suppliers to the extent eligible
[ITC/ 1.05].
ITC on invoices/debit 100% ITC can be
notes which have claimed on such
been furnished by invoices/debit notes, if
the suppliers in their all other conditions of
GTSR-1s/using IFF availing ITC are fulfilled
ITC on invoice/debit 5% of the eligible ITC

note which have not available on
been furnished by invoices/debit notes
suppliers in their furnished by suppliers
GTSR-1s or using IFF in their GSTR-1s or
using the invoice
furnishing facility (IFF)
can be claimed on such
invoices/debit notes.
✪ Restricted amount of ITC claimed on invoices/debit

notes not furnished by suppliers in their GSTR-1s
should not exceed the actual eligible ITC available in
respect of the invoices not furnished.

✪ Invoices on which ITC is not available under any of the

provisions e.g., under section 17(5), are not to be considered
for calculation of 5% of the eligible credit available.
✪ 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).
✪ Restricted ITC (5%) is calculated on a consolidated basis
on total eligible ITC from all suppliers against all supplies
whose details have been furnished by the suppliers.
(1) Atlas Pvt. Ltd. is a manufacturer of taxable goods. It

has received 50 invoices for inputs and input services
from various suppliers during the month of September. Invoices
involve ITC of ` 5 lakh. Suppliers have furnished in their GSTR-1s
40 invoices involving ITC of ` 3 lakh as on the due date of
furnishing of GSTR-1s. ITC that can be claimed by Atlas Pvt. Ltd.
in its GSTR-3B for the month of September is-
Amount of eligible ITC available as per GSTR-1s of suppliers + 5%
of amount of eligible ITC available as per GSTR-1s of the suppliers
= ` 3,00,000 + ` 15,000 = ` 3,15,000
Atlas Pvt. Ltd. may avail balance ITC of ` 1.85 lakh in case
suppliers upload details of some of the invoices for the month of
September involving ITC of ` 1.762 lakh out of invoices involving
ITC of ` 2 lakh, details of which had not been furnished by the
suppliers [` 3 lakh + ` 1.762 lakh = ` 4.762 lakh (5/1.05)].
(2) In the above example, if suppliers furnish in their

GSTR-1s 40 invoices involving ITC of ` 3.5 lakh as on the
due date of furnishing of GSTR-1s, ITC that can be
claimed by Atlas Pvt. Ltd. in its GSTR-3B for the month of
September will be -
` 3,50,000 + ` 17,500 = ` 3,67,500
Atlas Pvt. Ltd. may avail balance ITC of ` 1.325 lakh in case
suppliers furnish details of some of the invoices involving ITC of `

1.262 lakh out of outstanding invoices involving ` 1.5 lakh [` 3.5

lakh + R` 1.262 lakh = ` 4.762 lakh].
(3) In the Example No. 1, if suppliers furnish in their

GSTR-1s 42 invoices involving ITC of ` 4.8 lakh as on the
due date of furnishing of GSTR-1s, ITC that can be
claimed by Atlas Pvt. Ltd. in its GSTR-3B for the month of
September will be –
` 4,80,000 + ` 20,000* = ` 5,00,000
*Additional ITC availed shall be limited to ensure that the total
ITC availed does not exceed the total eligible ITC.
(b) 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 - ‘Ç’ 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 ‘Ç’ on
direction of ‘B’. In effect, two supplies take place in this scenario viz.,
from ‘A’ to ‘B’ and from ‘B’ to ‘Ç’. Thus, under this model, the
customer (registered person) who purchases such goods does not
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 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.
(4) A is a trader who places an order on B for a consignment
of soda ash. A receives a buying order from C for the same
quantity of soda ash. A instructs B to deliver the goods to C,
and in turn he raises an invoice on C. Though the goods are not
physically received at the premises of A, section 16(2)(b) allows ITC of
such goods to A.
(5) 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.
(c) 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. However, section 41 allows the taxpayer (recipient) to
take ITC provisionally on self-assessment basis. The self-assessed ITC
gets credited to the taxpayer’s electronic credit ledger on provisional
basis in terms of section 49(2).
Thus, even if the recipient has paid the tax to the supplier his claim for
ITC gets confirmed only when the supplier deposits the tax so
collected by him to the Government.
One of the significant features of the Indian GST is the ‘matching
concept’, i.e. ITC claimed by the recipient of supply is matched with
the tax paid by the supplier in relation to that supply. Matching seeks
to ensure that only legit ITC is claimed by the recipient. This was
intended to be achieved through a sophisticated automated return
filing mechanism. Initially, the GST law provided for an elaborate

system of return filing whereby the outward supplies of a supplier

furnished in GSTR-1 were to be auto-populated as inward supplies in
the recipient’s GSTR-2 and ITC could be availed only on such matched
inward supplies. Basis GSTR-1 and GSTR-2 of the taxpayer, the
consolidated return viz, GSTR-3 was to be auto-generated (for most
part), and tax liability paid. However, the envisaged system could not
be operationalized.
Presently, suppliers are required to file GSTR-1 (Statement of details of
outward supplies), the details of which get auto-populated in GSTR-2A
of the recipient for viewing. Further, GSTR-2B, an auto-drafted ITC
statement, is also generated for the taxpayer based on GSTR-1 filed by
the supplier. Basis the details available in GSTR-2A and GSTR-2B, the
taxpayer takes provisional ITC on self-assessment basis in GSTR-3B for
discharging the tax liability.
At present, there is no mechanism by which the recipient would know
whether the supplier of goods and services has actually paid the tax
on goods and services supplied by him. The supplier is required to
furnish details of his tax invoices in his GSTR-1. These details appear in
GSTR-2A and GSTR-2B of recipient. Thus, recipient only knows that he
has disclosed the turnover relating to his supply to Government, but
that is not evidence that he has paid tax on that supply.
(d) Filing of return [Section 16(2)(d)]
The registered person taking the ITC must have filed his return under
section 39. Presently, a summary return in form GSTR-3B is being filed
on monthly basis. Thus, a taxpayer should file GSTR-3B to avail ITC on
eligible inward supplies.
(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.
(6) 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 last instalment 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 of the CGST Rules]
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 added to his output tax liability, with
interest. Interest will be paid @ 18% from the date of availing credit till the
date when the amount added to the output tax liability is paid.
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 [See discussion on time limit for availing credit under point
(vi)]. In case part-payment has been made, proportionate credit would be
allowed.
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
(b) Deemed supplies without consideration
(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
Under situations given in points (b) & (c), the value of supply is deemed to
have been paid.
This provision has been included in the law to ensure that ITC is not taken
on dummy/fake invoices and the supply is made for genuine business
purposes. In some trades, there is a practice of keeping some retention
money for specified period. If such period extends beyond 180 days, ITC
proportionate to amount retained will have to be reversed.

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

machine supplied by a vendor till it could be rectified. Over 180 days
went by in this dispute. The credit taken by PZP on the invoice got
added to the output tax liability of PZP and thus, it had to pay back the credit.
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 laws simultaneously.
(8) A registered supplier purchases a machinery for business
purposes. The value of the machinery is ` 10 lakh and GST paid
thereon is ` 1.80 lakh. ITC of ` 1.80 lakh cannot be availed by the
supplier if he has claimed depreciation on such amount under income-tax law.
(vi) Time limit for availing ITC: Due date of filing of return for the
month of September of succeeding financial year or date of
filing of 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 the due date of filing of the
return for the month of September of the succeeding financial year or
the date of filing of the relevant annual return, whichever is earlier.
With respect to time-limit to avail the ITC, it may be noted that annual
return of a financial year is to be filed by 31st December of the succeeding
financial year in terms of section 45.
So, the upper time limit for taking ITC is the due date of filing the return for
the month of September of the next financial year or the date of filing of
annual return, whichever is earlier. The underlying reasoning for this
restriction is that no change in return is permitted after September of next
financial year. If annual return is filed before the month of September, then
no change can be made after filing of annual return.
Exception
The time limit u/s 16(4) does not apply to claim for re-availing of credit that
had been reversed earlier.

(9) Hercules Machinery delivered a machine to XYZ in the month of

January under Invoice no. 49 dated 28th January 2021 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 2021 for
` 50,000 plus GST. XYZ did not file its annual return till the month of October.
Due date for filing the return for the month of September is 20th October.
The time-limit to avail ITC in respect of tax paid on supply for Invoice No. 49
would be 20th October 2021.
Since the debit note is received in the next financial year, the time limit for
taking ITC available on ` 50,000 is 20th October 2022 , [earlier of the date of
filing the annual return for the preceding financial year or the return for the
month of September.]
(vii) Restriction of ITC in proportion of (i) taxable supplies (ii)
business purposes [Sub-sections (1) and (2) of section 17]
ITC is restricted in proportion of the use of the goods and/or services (i) in
the taxable and / or zero-rated part of the supply (ii) for business purposes.
This is elaborated in heading (4) below.
(viii)ITC not allowed on certain supplies [Section 17(5)]
ITC has been blocked for specified goods and services. This is elaborated in
heading (4) below.
4. APPORTIONMENT OF CREDIT & BLOCKED

CREDITS [SECTION 17]
Section 17 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 those
specified in paragraph 5 of the said Schedule.
(4) A banking company or a financial institution including a non-

banking financial company, engaged in supplying services by
way of accepting deposits, extending loans or advances shall
have the option to either comply with the provisions of sub-
section (2), or avail of, every month, an amount equal to fifty per
cent. of the eligible input tax credit on inputs, capital goods and
input services in that month and the rest shall lapse:
Provided that the option once exercised shall not be withdrawn

during the remaining part of the financial year:
Provided further that the restriction of fifty per cent. shall not
apply to the tax paid on supplies made by one registered person
to another registered person having the same Permanent
Account Number.
(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) the following supply of goods or services or both:—
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
(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.
(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 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;
(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

sections 74, 129 and 130.
(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.
Chapter V: Input Tax Credit of the CGST Rules
Rule 38 Claim of credit by a banking company or a financial institution
A banking company or a financial institution, including a non-

banking financial company, engaged in the supply of services by way
of accepting deposits or extending loans or advances that chooses not
to comply with the provisions of sub-section (2) of section 17, in
accordance with the option permitted under sub-section (4) of that
section, shall follow the following procedure, namely,-
(a) the said company or institution shall not avail the

credit of,-
(i) the tax paid on inputs and input services that

are used for non-business purposes; and
(ii) the credit attributable to the supplies specified in

sub-section (5) of section 17, in FORM GSTR-2;
(b) the said company or institution shall avail the credit of

tax paid on inputs and input services referred to in the
second proviso to sub-section (4) of section 17 and not
covered under clause (a);
(c) fifty per cent. of the remaining amount of input tax shall
be the input tax credit admissible to the company or the
institution and shall be furnished in FORM GSTR-2;
(d) the amount referred to in clauses (b) and (c) shall,

subject to the provisions of sections 41, 42 and 43, be
credited to the electronic credit ledger of the said
company or the institution.
Rule 42 Manner of determination of input tax credit in respect of

inputs or input services and reversal thereof
(1) The input tax credit in respect of inputs or input services, which

attract the provisions of sub-section (1) or sub-section (2) of

section 17, being partly used for the purposes of business and
partly for other purposes, or partly used for effecting taxable
supplies including zero rated supplies and partly for effecting
exempt supplies, shall be attributed to the purposes of business
or for effecting taxable supplies in the following manner,
namely,-
(a) the total input tax involved on inputs and input

services in a tax period, be denoted as ‘T’;
(b) the amount of input tax, out of ‘T’, attributable to inputs

and input services intended to be used exclusively for the
purposes other than business, be denoted as ‘T1’;
(c) the amount of input tax, out of ‘T’, attributable to inputs

and input services intended to be used exclusively for
effecting exempt supplies, be denoted as ‘T2’;
(d) the amount of input tax, out of ‘T’, in respect of inputs

and input services on which credit is not available
under sub-section (5) of section 17, be denoted as ‘T3’;
(e) the amount of input tax credit credited to the

electronic credit ledger of registered person, be denoted
as ‘C1’ and calculated as-
C1 = T- (T1+T2+T3);
(f) the amount of input tax credit attributable to inputs

and input services intended to be used exclusively for
effecting supplies other than exempted but including
zero rated supplies, be denoted as ‘T4’;
(g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared
by the registered person at the invoice level in FORM
GSTR-2 and at summary level in FORM GSTR-3B;
(h) input tax credit left after attribution of input tax credit
under clause (f) shall be called common credit, be
denoted as ‘C2’ and calculated as-
C2 = C1- T4;

(i) the amount of input tax credit attributable towards

exempt supplies, be denoted as ‘D 1’ and calculated as-
D1= (E ÷ F) × C2
where,
‘E’ is the aggregate value of exempt supplies during the
tax period, and
‘F’ is the total turnover in the State of the registered
person during the tax period:
Provided further that where the registered person does

not have any turnover during the said tax period or the
aforesaid information is not available, the value of ‘E/F’
shall be calculated by taking values of ‘E’ and ‘F’ of the
last tax period for which the details of such turnover
are available, previous to the month during which the
said value of ‘E/F’ is to be calculated;
Explanation: For the purposes of this clause, it is hereby

clarified that the aggregate value of exempt supplies
and the total turnover shall exclude the amount of any
duty or tax levied under entry 84 and entry 92A of List
I of the Seventh Schedule to the Constitution and entry
51 and 54 of List II of the said Schedule;
(j) the amount of credit attributable to non-business

purposes if common inputs and input services are used
partly for business and partly for non-business
purposes, be denoted as ‘D 2’, and shall be equal to five
per cent. of C2; and
(k) the remainder of the common credit shall be the

eligible input tax credit attributed to the purposes of
business and for effecting supplies other than
exempted supplies but including zero rated supplies
and shall be denoted as ‘C3’, where,-
C3 = C2 - (D1+D2);
(l) the amount ‘C3’, ‘D1’ and ‘D2’ shall be computed

separately for input tax credit of central tax, State tax,

Union territory tax and integrated tax and declared in

FORM GSTR-3B or through FORM GST DRC-03;
(m) the amount equal to aggregate of ‘D 1’ and ‘D2’ shall be

reversed by the registered person in FORM GSTR-3B or
through FORM GST DRC-03:
Provided that where the amount of input tax relating to inputs or

input services used partly for the purposes other than business
and partly for effecting exempt supplies has been identified and
segregated at the invoice level by the registered person, the same
shall be included in ‘T1’ and ‘T2’ respectively, and the remaining
amount of credit on such inputs or input services shall be
included in ‘T4’.
(2) The input tax credit determined under sub-rule (1) shall be
calculated finally for the financial year before the due date for
furnishing of the return for the month of September following the
end of the financial year to which such credit relates, in the
manner specified in the said sub-rule and,-
(a) where the aggregate of the amounts calculated finally

in respect of ‘D1’ and ‘D2’ exceeds the aggregate of the
amounts determined under sub-rule (1) in respect of
‘D1’ and ‘D2’, such excess shall be reversed by the
registered person in FORM GSTR-3B or through FORM
GST DRC-03 in the month not later than the month of
September following the end of the financial year to
which such credit relates and the said person shall be
liable to pay interest on the said excess amount at the
rate specified in sub-section (1) of section 50 for the
period starting from the first day of April of the
succeeding financial year till the date of payment; or
(b) where the aggregate of the amounts determined under

sub-rule (1) in respect of ‘D1’ and ‘D2’ exceeds the
aggregate of the amounts calculated finally in respect
of ‘D1’ and ‘D2’, such excess amount shall be claimed as
credit by the registered person in his return for a
month not later than the month of September

following the end of the financial year to which such

credit relates.
Rule 43 Manner of determination of input tax credit in respect of

capital goods and reversal thereof in certain cases
(1) Subject to the provisions of sub-section (3) of section 16, the

input tax credit in respect of capital goods, which attract the
provisions of sub-sections (1) and (2) of section 17, being partly
used for the purposes of business and partly for other purposes,
or partly used for effecting taxable supplies including zero rated
supplies and partly for effecting exempt supplies, shall be
attributed to the purposes of business or for effecting taxable
supplies in the following manner, namely,-
(a) the amount of input tax in respect of capital goods

used or intended to be used exclusively for non-
business purposes or used or intended to be used
exclusively for effecting exempt supplies shall be
indicated in FORM GSTR-2 and FORM GSTR-3B and
shall not be credited to his electronic credit ledger;
(b) the amount of input tax in respect of capital goods

used or intended to be used exclusively for effecting
supplies other than exempted supplies but including
zero-rated supplies shall be indicated in FORM GSTR-
2 and FORM GSTR-3B and shall be credited to the
electronic credit ledger;
(c) the amount of input tax in respect of capital goods not

covered under clauses (a) and (b), denoted as ‘A’, shall
be credited to the electronic credit ledger and the
useful life of such goods shall be taken as five years
from the date of the invoice for such goods:
Provided that where any capital goods earlier covered

under clause (a) is subsequently covered under this
clause, input tax in respect of such capital goods denoted
as ‘A’ shall be credited to the electronic credit ledger

subject to the condition that the ineligible credit

attributable to the period during which such capital
goods were covered by clause (a), denoted as ‘Tie’, shall be
calculated at the rate of five percentage points for every
quarter or part thereof and added to the output tax
liability of the tax period in which such credit is claimed;
Provided further that the amount ‘Tie’ shall be

computed separately for input tax credit of central tax,
State tax, Union territory tax and integrated tax and
declared in FORM GSTR-3B.
(d) the aggregate of the amounts of ‘A’ credited to the

electronic credit ledger under clause (c) in respect of
common capital goods whose useful life remains
during the tax period, to be denoted as ‘Tc’, shall be the
common credit in respect of such capital goods:
Provided that where any capital goods earlier covered

under clause (b) are subsequently covered under clause
(c), the input tax credit claimed in respect of such
capital good(s) shall be added to arrive at the
aggregate value ‘Tc’;
(e) the amount of input tax credit attributable to a tax

period on common capital goods during their useful
life, be denoted as ‘Tm’ and calculated as:-
Tm= Tc÷60
Explanation.- For the removal of doubt, it is clarified

that useful life of any capital goods shall be considered
as five years from the date of invoice and the said
formula shall be applicable during the useful life of the
said capital goods.
(f) the amount of input tax credit, at the beginning of a

tax period, on all common capital goods whose useful
life remains during the tax period, be denoted as ‘Tr’
and shall be the aggregate of ‘Tm’ for all such capital
goods.

(g) the amount of common credit attributable towards

exempted supplies, be denoted as ‘Te’, and calculated
as:
Te= (E÷ F) x Tr 7
where,
‘E’ is the aggregate value of exempt supplies, made,
during the tax period, and ‘F’ is the total turnover in
the State of the registered person during the tax period:
Provided further that where the registered person does

not have any turnover during the said tax period or the
aforesaid information is not available, the value of ‘E/F’
shall be calculated by taking values of ‘E’ and ‘F’ of the
last tax period for which the details of such turnover
are available, previous to the month during which the
said value of ‘E/F’ is to be calculated;
Explanation: For the purposes of this clause, it is hereby

clarified that the aggregate value of exempt supplies
and the total turnover shall exclude the amount of any
duty or tax levied under entry 84 and entry 92A of List
I of the Seventh Schedule to the Constitution and entry
51 and 54 of List II of the said Schedule;
(h) the amount Te along with the applicable interest shall,

during every tax period of the useful life of the
concerned capital goods, be added to the output tax
liability of the person making such claim of credit.
(i) The amount Te shall be computed separately for

central tax, State tax, Union territory tax and
integrated tax and declared in FORM GSTR-3B.
Explanation:-For the purposes of rule 42 and this rule, it is hereby clarified that
the aggregate value of exempt supplies shall exclude:-
7
Clause (f) of the rule which contained the provisions for computation of ‘Tr’ has been
omitted vide Notification No. 16/2020 CT dated 23.03.2020. This has rendered the formula
given in clause (g) otiose as the term ‘Tr’ is now nowhere defined in the amended rule.

(b) the value of services by way of accepting deposits, extending

loans or advances in so far as the consideration is represented by
way of interest or discount, except in case of a banking company
or a financial institution including a non-banking financial
company, engaged in supplying services by way of accepting
deposits, extending loans or advances; and
(c) the value of supply of services by way of transportation of goods

by a vessel from the customs station of clearance in India to a
place outside India.
Explanation.- For the purposes of this Chapter,-
(1) the expressions “capital goods” shall include “plant and

machinery” as defined in the Explanation to section 17;
(2) for determining the value of an exempt supply as referred to in

sub-section (3) of section 17-
(a) the value of land and building shall be taken as the

same as adopted for the purpose of paying stamp duty;
and
(b) the value of security shall be taken as one per cent. of

the sale value of such security.
ANALYSIS
Section 17 requires apportionment and concomitant restriction of ITC in two

situations as also blocking of ITC on specified inward supplies.
A. Apportionment of ITC [Sub-sections (1) and (2) of section 17 read with
rule 42 and rule 43 of the CGST Rules]
The fundamental principle of credit scheme under value added tax is that
tax paid on inputs, input services and capital goods can be availed as credit
only when the output is taxable. Thus, when tax is not payable on output,
credit cannot be availed.
Accordingly, ITC under GST can be availed and utilised for payment of tax
on output supply. Consequently, ITC cannot be availed when tax is not

payable on output supply, i.e. on exempt supply. The only exception to the
above principle is ‘zero rated supply, where ITC is available even if no tax is
payable on output supply.
If a taxable person is making both taxable and exempt supply, he is entitled to
full credit of ITC in respect of inputs, input services and capital goods
exclusively used for taxable supply and no credit at all for inputs, input services
and capital goods exclusively used for exempt supply. If common inputs, input
services and capital goods are used for taxable as well as exempt supply, only
proportionate ITC attributable to the taxable supply is available. The common
ITC is apportioned in the ratio of value of taxable supply and exempt supply.
Elaborate provisions have been made in sub-sections (1) and (2) of section 17
and rules 42 and 43 for calculation of such proportionate ITC. Such provisions
are discussed in detail in the ensuing pages.
The situations requiring apportionment are as follows:
(a) when the goods and / or services are used by the registered person
partly for the purpose of business [See the definition of business] and
partly for other purposes [Section 17(1)]; and
(b) when the goods and / or services are used by the registered person
partly for making taxable supplies including zero-rated supplies and
partly for making exempt supplies [See the definition of exempt
supplies] [Section 17(2)].
In both the above situations, full ITC on inward supplies cannot be taken;
only proportionate ITC is allowed in such scenarios. Where goods and/or
services are used partly for non-business purposes and partly for business
purposes, ITC attributable only to business purposes can be taken by the
registered person. Similarly, where goods and/or services are partly used
for making exempt supplies including zero rated supplies and partly for
taxable supplies, ITC attributable to taxable supplies and zero rated supplies
can be taken by the registered person.
Section 16(2) of the IGST Act specifies that ITC may be

availed on inward supplies for making zero-rated
supply, notwithstanding the exempt nature of the zero-
rated supply. Zero-rated supply is an expression that covers two
kinds of supplies: (i) exports, and (ii) supplies 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.

(10) 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.
(11) 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.
(i) Methodology of apportionment of credit on inputs and input
services and reversal thereof [Rule 42 of the CGST Rules]
In many situations, the amount of input tax involved in exempt /non-
business use is not easily discernible, as common goods and/or services
are used for (i) making taxable supplies including zero rated supplies and
exempt supplies and (ii) business and non-business purposes.
Rule 42 of the CGST Rules provides the methodology for
apportionment of ITC on inputs and input services and reversal of
ineligible credit as follows:
Step 1 – Compute common credit
Total input tax involved on inputs & input services in a T

tax period
Less: Input tax on inputs & input services that are (T1)
intended to be used exclusively for non-business
purposes
Less: Input tax on inputs & input services that are (T2)
intended to be used exclusively for exempt supplies
Less: Input tax on inputs & input services which are (T3)
ineligible for credit [blocked credits- See discussion
under point (B)]

ITC credited to Electronic Credit Ledger C1
Less: ITC on inputs & input services that are intended (T4)
to be used exclusively for taxable supplies including
zero rated supplies
Common ITC available for apportionment C2
 T1, T2, T3 and T4 will be determined and declared by the

registered person at the invoice level in GSTR 2 and summary
level in GSTR-3B.
 Where ITC on inputs and input services used partly for non-
business purposes and exempt supplies can be segregated at
invoice level, the same will be added to T1 and T2 respectively
and the balance credit will be added in T4.
 The portion identified as pertaining to taxable supplies in C2 will
be allowed as ITC.
Example on how to arrive at the amount of common credit C 2
Making an assumption that Hawai slippers are exempted, take a case
of Eezee Footwear, manufacturer of two varieties of Hawai slippers
and five varieties of other sandals and shoes. Dyes are used in the
manufacture of all footwear. However, bright pink is used only for
one of the Hawai varieties, and black is used only for the sandals and
shoes. Blue and yellow are used for all the varieties. Brown is used for
non-business purposes.
In inward supplies during the month -
Input tax on brown dye: ` 10,000 (This is T1)
Input tax on bright pink dye: ` 90,000. (This is T2)
Input tax on black dye: ` 40,000. (This is T4)
Input tax on blue dye: ` 1,00,000
Input tax on yellow dye: ` 15,000
Total input tax: ` 2,55,000 (This is T)

Total input tax reduced by (T1 + T2 + T4, i.e., by ` 1,40,000) is

` 1,15,000.
Amount of common credit (C2) is ` 1,15,000. This has to be
apportioned as given below in Step 2.
Step 2 – Compute credit attributable to exempt supplies
(ineligible credit) by apportionment of common credit
 Apportion C2 into credit attributable to exempt supplies D1 as
under:
D1 = (E/F) x C2
Where
E = Aggregate value of exempt supplies during the tax period
F = Total turnover in the State during the tax period
Notes:
(i) If the registered person does not have any turnover during
the said tax period, or the above information is not
available, the values for the last tax period may be used.
(ii) Here, exempt supplies include reverse charge supplies,
transactions in securities, sale of land and sale of building
when entire consideration is received either after issuance of
completion certificate by the competent authority or its first
occupation, whichever is earlier. Thus, ITC attributable to
such supplies will need to be reversed.
(iii) Here, exempt supplies exclude-
(a) transactions/activities specified in Schedule III
except sale of land and sale of building as
specified in point (ii) above.
(b) supply of services by way of accepting deposits,
extending loans or advances where the consideration
is either interest or discount. However, value of such
services is included in the exempt supply when the
same are provided by a banking company or a
financial institution including a NBFC.

(c) transportation of goods by a vessel from the

customs station of clearance in India to a place
outside India.
Thus, ITC attributable to such supplies need not be reversed.
(iv) Aggregate value of exempt supplies and total turnover
excludes the central excise duty, State excise duty, central
sales tax and VAT.
(v) The value of exempt supply in respect of land and building
is the value adopted for paying stamp duty and for security
is 1% of the sale value of such security.
Presently, (i) central excise duty is leviable on

manufacture/production of tobacco, petroleum crude, diesel,
petrol, ATF and natural gas (ii) State excise duty is leviable on
manufacture/production of alcoholic liquor, opium, Indian hemp
and narcotics, and (iii) VAT/CST is leviable on intra-State/inter-
State sale of petroleum crude, diesel, petrol, ATF, natural gas
and alcoholic liquor. Petroleum crude, diesel, petrol, ATF,
natural gas are presently not taxable under GST and alcoholic
liquor is outside the ambit of GST. Thus, supply of both these
products (petrol/petroleum products and alcoholic liquor) being
non-taxable under GST, will be exempt supplies u/s 2(47) and
taxes/duties (as mentioned above) leviable thereon will be
excluded from the value thereof for the purpose of
apportionment of credit.
Example on how to apportion common credit into credit
attributable to exempt supplies
Ezee Footwear, which manufactures two varieties of exempt
Hawai slippers and five varieties of taxable sandals and shoes,
has the following turnover in October and has ` 1,15,000
common credit that has to be apportioned:
Turnover of Hawai 1 plus Hawai 2: ` 3 crores (This is ‘E’)
Turnover of all varieties of taxable shoes and sandals: ` 2 crore
Total turnover of all footwear during the month: ` 5 crores (This
is ‘F’)

No inputs/input services are used for non-business purposes.

(3,00,00,000 /5,00,00,000) x 1,15,000= ` 69,000 is the input tax
that pertains to exempt supply (D1).
 Compute credit attributable to non-business purposes D2 as
under
D2 = 5% of C2 (common credit)
Step 3 – Compute eligible credits
Compute C3 attributable to business purposes and taxable supplies
including zero rated supplies as under:
C3 = C2 - (D1 + D2)
Step 4 – Restrict ineligible credits
Reverse D1 + D2.
 Compute C3 separately for ITC of CGST, SGST/ UTGST and IGST.

 Compute ∑ (D1 + D2) for the whole financial year, by taking
exempted turnover and aggregate turnover for the whole
financial year, before the due date for filing the return for
September in the following financial year.
 If ∑ (D1 + D2) > the amount already reversed every month, the
differential amount has to be reversed in any month till
September in the following financial year and interest @ rate
18% should be paid on such differential amount from 1st April of
succeeding year till the date of payment.
 If the amount reversed every month > ∑ (D1 + D2), the additional
amount paid has to be claimed back as credit in the return of
the month not later than September in the next financial year.
(ii) Methodology of apportionment of credit of capital goods and

reversal thereof [Rule 43 of the CGST Rules]
Rule 43 of the CGST Rules provides the methodology for
apportionment of ITC on capital goods and reversal of ineligible credit
as follows:

Step 1 - Determine common credit ‘Tc’ on capital goods as

under:
(i) Identify input tax on capital goods used/ intended to be used
exclusively for non-business purposes or making exempt
supplies. Such amount will not be credited to electronic credit
ledger [ECrL].
(ii) Identify input tax on capital goods used/ intended to be used
exclusively for making taxable supplies including zero rated
supplies and declare the same in GSTR 2 and GSTR-3B. Such
amount will be credited to ECrL.
(iii) Identify input tax on capital goods not covered under (i) and (ii)
above [i.e. the capital goods which are used/intended to be used
commonly for making taxable and/or zero rated supplies as well
as exempt supplies and/or non-business purposes] and denote
the same as ‘A’. Such amount (as reflected on the invoice) will
be credited to ECrL. The useful life of such capital goods will be
taken as 5 years from the date of invoice.
(iv) Change from exclusive use for non-business
purpose/exempt supplies to common use: Where capital
goods which were initially covered under (i) above get
subsequently covered under (iii), credit input tax in respect of
the same, denoted as ‘A’, in the ECrL.
Simultaneously, compute the ineligible credit attributable to the
period during which such capital goods were used for non-
business purpose/making exempt supplies @ 5% per quarter or
part thereof and denote the same as ‘Tie’. Add such ‘Tie’ to the
output tax liability of the tax period in which credit on such
capital goods is claimed.
(v) Add together the amounts of ‘A’ credited to ECrL in respect of
common capital goods whose useful life remains during the tax
period to arrive at common credit ‘Tc’.
(vi) Change from exclusive use for taxable including zero rated
supplies to common use: Where capital goods which were
initially covered under (ii) above get subsequently covered under
(iii), add input tax claimed in respect of the same to aggregate
value of ‘Tc’.

Step 2 - Determine common credit during the useful life of

capital goods for a tax period as under and denote
the same as ‘Tm’:
Tm = Tc ÷ 60
Step 3 - Apportion common credit attributable to exempt
supplies as under:
Te = (E ÷ F) x T r
Where
E = Aggregate value of exempt supplies made during the tax period
F = Total turnover in the State during the tax period
Notes:
(i) Tm is to be computed during the useful life of capital goods
which is five years from the date of invoice.
(ii) If the registered person does not have any turnover during the
said tax period, or the above information is not available, the
values for the last tax period may be used.
(iii) Here, exempt supplies include reverse charge supplies,
transactions in securities, sale of land and sale of building when
entire consideration is received either after issuance of completion
certificate by the competent authority or its first occupation,
whichever is earlier. Thus, ITC attributable to such supplies will
need to be reversed.
(iv) Here, exempt supplies exclude-
(a) transactions/activities specified in Schedule III except
sale of land and sale of building as specified in point (ii)
above.
(b) supply of services by way of accepting deposits,
extending loans or advances where the
consideration is either interest or discount.
However, value of such services is included in the
exempt supply when the same are provided by a
banking company or a financial institution
including a NBFC.

(c) transportation of goods by a vessel from the

customs station of clearance in India to a place
outside India.
Thus, ITC attributable to such supplies need not be reversed.
(v) Aggregate value of exempt supplies and total turnover excludes
the central excise duty, State excise duty, central sales tax and
VAT.
(vi) Amount of Tie and Te are to be computed separately for CGST,
SGST/UTGST and IGST and declared in GSTR 3B.
(vii) The value of exempt supply in respect of land and building is the
value adopted for paying stamp duty and for security is 1% of the
sale value of such security.
Step 4: Restrict ineligible credit

Add Te to the output tax liability along with applicable interest during
every tax period of the useful life of the capital goods concerned.
(iii) Optional method for banks etc. [Section 17(4) read with rule 38
of the CGST Rules]
 As an alternative to the above method, a banking company or a
financial institution including a NBFC, which accepts deposits, or
extends loans or advances, has the option to limit its availment
of ITC to 50% of the eligible ITC on inputs, capital goods and
input services each month and the remaining ITC shall lapse.
 Credit of tax paid on inputs and input services that are used for
non-business purposes and items mentioned u/s section 17(5)
[blocked credits] cannot be availed.
 The restriction of availing 50% ITC shall not apply to the tax paid
on supplies procured from another registration within the same
entity, i.e. 100% credit of such tax can be availed.
 The option once exercised cannot be changed during the
remaining part of the financial year.
Interest is the main income of banks and NBFCs and the same is
exempt from GST. Thus, if rule 42 and 43 are applied strictly,
significant portion of ITC of banks and NBFCs will have to be
reversed/added to output tax liability. Therefore, banks and NBFCs

have been given the said option of availing 50% of eligible ITC to
possibly encourage them as they are required to finance priority
sectors, MSME, agriculture etc.
B. Blocked credits [Section 17(5)]
ITC of tax paid on almost every inputs and input services 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.
The negative list 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.
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 used
for passenger transportation with certain exceptions. Further, ITC is
also blocked on certain services relating to motor vehicles, vessels and
aircrafts namely, 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 hereunder:
S. Goods and/or Exceptions to Remarks

No. services on goods and/or
which credit services
is blocked mentioned in
column (2) on
which credit is
allowed
(1) (2) (3) (4)
(i) Motor vehicles Ineligible motor • ITC on ineligible

for vehicles when used motor vehicles
transportation for any of the used for any
of persons following eligible purpose other than
with seating purposes - the eligible
capacity ≤ 13 • making further purposes is not
persons taxable supply of allowed.
(including the such motor • ITC on motor
driver) – vehicles; vehicles for
Referred to as • making taxable transportation of
ineligible supply of persons with
motor vehicle transportation of seating capacity >
in this table passengers; 13 persons
• making taxable (including the
supply of driver) used for any
imparting purpose is allowed.
training on • ITC on motor
driving such vehicles other than
motor vehicles. ineligible motor
vehicles (e.g. motor
vehicle used for
transportation of
goods, dumpers,
tippers etc.) used

for any purpose is

allowed.
(ii) Vessels and Vessels and aircraft ITC on vessels and

aircrafts when used for any aircrafts used for any
of the following purpose other than
eligible purposes- the eligible purposes
• making further
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;
• transportation of
goods.
(iii) General • Such services • ITC is not allowed

insurance, relating to on services of
servicing, ineligible motor general insurance,
repair and vehicles, vessels servicing, repair
maintenance or aircraft when and maintenance
relating to: used for eligible relating to motor
• Ineligible purposes vehicles, vessels or
motor • Such services aircraft, ITC on
vehicles when received which is not

• Vessels by- allowed.

• Aircraft o Manufacturer • ITC is allowed on
of ineligible services of general
motor insurance,
vehicles, servicing, repair
vessels or and maintenance
aircraft; or relating to motor
o Supplier of vehicles, vessels or
general aircraft, ITC on
insurance which is allowed.
services in
respect of
ineligible
motor
vehicles,
vessels or
aircraft
insured by
him
(iv) Leasing, • Such services • ITC on leasing,

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

(12) ITC on cars purchased by a manufacturing company

for official use of its employees is blocked.
(13) ITC on cars purchased by a car dealer for sale to
customers is allowed.
(14) ITC on cars purchased by a company engaged in renting out cars
for transportation of passengers, is allowed.
(15) ITC on cars purchased by a car driving school is allowed.
(16) 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.
(17) ITC on trucks purchased by a company for transportation of its
finished goods is allowed.
(18) ITC on aircraft purchased by a manufacturing company for
official use of its CEO is blocked.
(19) ITC on aircraft purchased by an Aviation School providing
training on flying aircrafts, is allowed.
(20) ITC on general insurance taken on a car used by employees of a
manufacturing company for official purposes, is blocked.
(21) ITC on maintenance & repair services availed by a company for a
truck used for transporting its finished goods, is allowed.
(22) ITC on general insurance services taken on cars manufactured by
a car manufacturing company is allowed.
(ii) Food & beverages, outdoor catering, health services and other
services
S. Goods and/or Exceptions to goods Remarks

No. services on and/or services
which credit is mentioned in
blocked column (2) on which
credit is allowed
(1) (2) (3) (4)
(i) • Food and • Such goods and/or • ITC on such

beverages services when goods and/or

• Outdoor used by a services is
catering registered person allowed in the
for making an case of sub-
• Beauty
outward taxable contracting, i.e.
treatment
supply of the same when such
• Health
category of goods goods and/or
services
and/or services or services are
• Cosmetic and as an element of a used by the
plastic taxable composite taxpayer who
surgery or mixed supply is in the same
• Life insurance • Such goods and/or line of
and health services when business, e.g.
insurance provided by an outdoor
employer to its catering
employees under a service availed
statutory by another
obligation outdoor
caterer.
• When such
goods and/or
services are
provided by
the employer
to its
employees
without any
statutory
obligation, ITC
thereon is
blocked.
(ii) Membership of Such services when When such goods

a club, health provided by an and/or services
and fitness employer to its are provided by
centre employees under a the employer to
statutory obligation its employees
without any

statutory
obligation, ITC
thereon is
blocked.
(iii) Travel benefits Such services when When such goods

extended to provided by an and/or services
employees on employer to its are provided by
vacation such as employees under a the employer to
leave or home statutory obligation its employees
travel without any
concession statutory
obligation, ITC
thereon is
blocked.
(23) A manufacturing company purchases food items for

being served to its customers, free of cost. ITC on such
goods is blocked.
(24) 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.
(25) ITC on outdoor catering services availed by a garment exporter
for a marketing event organised for its prospective customers, is
blocked.
(26) 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.
(27) 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
blocked.

(28) 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 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 in
respect of construction services is not available when the expenses are
capitalised in 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 work in relation to
both movable and immovable properties. However, under GST law, the
ambit of works contract has been confined only to immovable
property.
Meaning of 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:
(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.
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.
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
towers, would be 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 providing the works contract
service.
(ii) For construction of plant and machinery. In this case, ITC
is allowed to all recipients irrespective of their line of business.
(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.
(29) ITC on works contracts services availed by a software

company for construction of its office, is blocked.
(30) 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.
(31) 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.

(32) ITC on works contract services availed by a manufacturing

company for construction of pipelines to be laid outside its factory, is
blocked.
(33) 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.
(34) 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.
(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 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 plant and machinery
(ii) When the value of goods and/or services is not capitalized
(iii) When the construction is not on own account
(35) 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.
(36) 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.
(37) 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.
(38) 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.
(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.
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 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 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.
(39) Mr. X owns a retail showroom of tyres and tyre tubes.
He takes 4 tyres from the showroom for his personal car.
Being used for personal consumption, ITC on such 4 tyres is blocked.
(viii) Free samples, gifts, goods lost/stolen etc. [Clause (h) of
section 17(5)]
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 terms 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.
Goods that are disposed of by

way of gift
Clause (h) of section 17(5)
Goods that are disposed of by

way of free samples
blocks ITC on
Lost goods
Stolen goods
Destroyed goods
Goods that are written off

ITC is blocked in respect of the goods mentioned above.

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]:
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 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
supply of goods or services or both on such discounts.
D. Secondary discounts
These are the discounts which are not known at the time of
supply or are offered after the supply is already over. Such
discounts shall not be excluded while determining the value of
supply. There is no impact on availability or otherwise of ITC in
the hands of supplier in this case.
ITC reversal when return of time expired medicines/drugs are
treated as fresh supply
The common trade practice in the pharmaceutical sector is that the
drugs or medicines (hereinafter referred to as “goods”) are sold by the
manufacturer to the wholesaler and by the wholesaler to the retailer
on the basis of an invoice/bill of supply as case may be. Such goods
have a defined life term which is normally referred to as the date of
expiry. Such goods which have crossed their date of expiry are
colloquially referred to as time expired goods and are returned back
to the manufacturer, on account of expiry, through the supply chain.
Circular No. 72/46/2018 GST dated 26.10.2018 has clarified that the
retailer/ wholesaler can return the time expired goods, either by
treating the same as fresh supply or by issuing credit notes 8.
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
8
The procedure for return of time expired drugs or medicines by issuing credit note is
covered in Chapter 10: Tax Invoice, Credit and Debit Note in this Module of the Study
Material.

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.
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.
(40) 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/.
(ix) Tax paid in fraud cases, detention, confiscation etc. [Clause (i)
of section 17(5)]
Tax paid under sections 74, 129 and 130 is 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.

5. CREDIT IN SPECIAL CIRCUMSTANCES

[SECTION 18]
Section 18 Availability of credit in special circumstances
(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;
(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
th to him after the expiry of one year from the date of issue of tax
invoice relating to such supply.
(3) Where there is a change in the constitution of a registered person

on account of sale, merger, demerger, amalgamation, lease or
transfer of the business with the specific provisions for transfer of
liabilities, the said registered person shall be allowed to transfer
the input tax credit which remains unutilised in his electronic
credit ledger to such sold, merged, demerged, amalgamated,
leased or transferred business in such manner as may be
prescribed.
(4) Where any registered person who has availed of input tax credit
opts to pay tax under section 10 or, where the goods or services
or both supplied by him become wholly exempt, he shall pay an
amount, by way of debit in the electronic credit ledger or
electronic cash ledger, equivalent to the credit of input tax in
respect of inputs held in stock and inputs contained in semi-
finished or finished goods held in stock and on capital goods,
reduced by such percentage points as may be prescribed, on the
day immediately preceding the date of exercising of such option
or, as the case may be, the date of such exemption:

Provided that after payment of such amount, the balance of input

tax credit, if any, lying in his electronic credit ledger shall lapse.
(5) The amount of credit under sub-section (1) and the amount
payable under sub-section (4) shall be calculated in such manner
as may be prescribed.
(6) In case of supply of capital goods or plant and machinery, on

which input tax credit has been taken, the registered person shall
pay an amount equal to the input tax credit taken on the said
capital goods or plant and machinery reduced by such
percentage points as may be prescribed or the tax on the
transaction value of such capital goods or plant and machinery
determined under section 15, whichever is higher:
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 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 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
Sub-rule Particulars
(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.
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 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.
ANALYSIS
Section 18 provides for
(1) entitlement of ITC on inputs in stock and contained in finished goods or
work-in-progress and capital goods (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
(2) reversal of ITC on inputs in stock and 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
(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 of the CGST Rules]
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/conditions

No. eligible to
take credit Inputs held As on
in
stock/capital
goods
(1) (2) (3) (4) (5)
1. Person who Inputs held in The day  ITC to be availed

has applied stock and immediately within 1 year from
for inputs preceding the the date of the issue
registration contained in date from of the tax invoice by
within 30 semi-finished which he the supplier.
days from or finished becomes
the date on goods held in liable to pay
which he stock tax
becomes
liable to
registration
and has
been
granted
such
registration
2. Person who Inputs held in The day

is not stock and immediately
required to inputs preceding the
register, but contained in date of
obtains semi-finished registration
voluntary or finished
registration goods held in
stock
3. Registered Inputs held in The day  ITC on capital goods

person who stock and immediately will be reduced by 5%
ceases to inputs preceding the per quarter of a year or
pay contained in date from part of the year from
composition semi-finished which he the date of invoice.
tax and or finished becomes

switches to goods held in liable to pay  ITC claimed shall be

regular stock and tax under verified with the
scheme capital goods regular corresponding details
scheme furnished by the
corresponding
4. Registered Inputs held in The day supplier.
person stock and immediately
 ITC to be availed
whose inputs preceding the
within 1 year from
exempt contained in date from
the date of the issue
supplies semi-finished which such
of the tax invoice by
become or finished supply
the supplier.
taxable goods held in becomes
supplies stock taxable
relatable to
such exempt
supply and
capital goods
exclusively
used for such
exempt
supply
In all the above cases, the registered person has to make an electronic
declaration in the prescribed form on the common portal, clearly specifying
the details relating to the inputs held in stock, inputs contained in semi-
finished or finished goods held in stock and capital goods on the days
mentioned in column (4) of table above. The declaration is to be filed
within 30 days (extendable by Commissioner/Commissioner of State
GST/Commissioner of UTGST) from the date when the registered person
becomes eligible to avail ITC. If the claim of ITC pertaining to CGST,
SGST/UTGST, IGST put together exceeds ` 2,00,000, the declaration needs to
be certified by a practicing Chartered Accountant/Cost Accountant.
(41) ‘Z’ becomes liable to pay tax on 1st August and has obtained
registration on 15th 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.
(42) ‘A’ applies for voluntary registration on 5th June and obtains
registration on 22nd June. ‘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.
(43) ‘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
for ITC on inputs held in stock and inputs contained in semi-finished or
finished goods held in stock and on capital goods as on 30th July. ITC on
capital goods will be reduced by 5% per quarter 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 of the CGST
Rules]
 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.
(44) 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 = 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. [Provisions relating to electronic cash ledger have been
discussed in detail in Chapter 12: Payment of Tax.]

 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
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) and (6) of section 18 (discussed above). Such amount is
then compared with the output tax payable on such goods, and the
higher of the two amounts is finally paid by the registered person.
 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) of the CGST Rules]
 If capital goods or plant and machinery on which ITC has been taken
are supplied outward by the registered person, he must pay an
amount that is the higher of the following:
 ITC taken on such goods reduced by 5% per quarter of a year or
part thereof from the date of issue of invoice for such goods
[i.e., ITC pertaining to remaining useful life of the capital goods
(in quarters)]*, or
 tax on transaction value
 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 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.

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

registered person [Section 18(3) read with rule 41 of the CGST
Rules]
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 in such change
of constitution. Circular No. 96/15/2019 GST dated 28.03.2019 has 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 given
below:
3
ITC remaining unutilized in the
electronic credit ledger will be
transferred to the newly constituted
entity
2 Provision for
transfer of liabilities
1 •Sale
Change in constitution
of registered person •Merger
•Demerger
•Amalgamtion
•Lease
•Transfer of business
In the case of demerger, ITC will be apportioned in the ratio of the value of
assets of the new units as specified in the demerger scheme. Circular No.
133/3/2020 GST dated 23.03.2020 has clarified that the said formula for
apportionment of ITC shall be applicable for all forms of business re-
organization that results in partial transfer of business assets along with
liabilities and not just demerger. Here, “value of assets” means the value of

the entire assets of the business irrespective of whether ITC has been
availed thereon or not.
The registered person should furnish the details of change in constitution in
the prescribed form (ITC - 02) 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 record the inputs and capital goods so
transferred in his books of account.
Circular No. 133/3/2020 GST dated 23.03.2020 has clarified the following in
relation to apportionment of ITC in cases of business reorganization:
(1) For the purpose of apportionment of ITC pursuant to a demerger, the
value of assets of the new units is to be taken at the State level (at the
level of distinct person) and not at the all-India level. The transferor
would be required to file Form GST ITC-02 only in those States where
both transferor and transferee are registered.
(45) A company XYZ is registered in two States of M.P. and
U.P. Its total value of assets is worth ` 100 crore, while its
assets in State of M.P. and U.P are ` 60 crore and ` 40 crore
respectively. It demerges a part of its business to company ABC. As a
part of such demerger, assets of XYZ amounting to ` 30 Crore are
transferred to company ABC in State of M.P, while assets amounting
to ` 10 crore only are transferred to ABC in State of U.P. (Total assets
amounting to ` 40 crore at all-India level are transferred from XYZ to
ABC).
The unutilized ITC of XYZ in State of M.P. shall be transferred to ABC
on the basis of ratio of value of assets in State of M.P., i.e. 30/60 = 0.5
and not on the basis of all-India ratio of value of assets, i.e.
40/100=0.4. Similarly, unutilized ITC of XYZ in State of U.P. will be
transferred to ABC in ratio of value of assets in State of U.P, i.e. 10/40
= 0.25.
(2) The ratio of value of assets shall be applied to the total amount of
unutilized ITC of the transferor, i.e. sum of CGST, SGST/ UTGST and
IGST credit. The said formula need not be applied separately in
respect of each heads of ITC (CGST/ SGST/ IGST). Further, the said

formula shall also be applicable for apportionment of cess between

the transferor and transferee.
(46) The ITC balances of transferor X in the State of
Maharashtra under CGST, SGST and IGST heads are 5 lakh, 5
lakh and 10 lakh respectively. Pursuant to a scheme of
demerger, X transfers 60% of its assets to transferee B.
Accordingly, the amount of ITC to be transferred from A to B shall be
60% of 20 lakh (total sum of CGST, SGST and IGST credit) i.e. 12 lakh.
(3) The total amount of ITC to be transferred to the transferee (i.e. sum of
CGST, SGST/ UTGST and IGST credit) should not exceed the amount of
ITC to be transferred [Refer point (2) above]. However, the transferor
shall be at liberty to determine the amount to be transferred under
each tax head (IGST, CGST, SGST/ UTGST) within this total amount,
subject to the ITC balance available with the transferor under the
concerned tax head.
(47)
(1) (2) (3) (4) (5) (6)
State Asset Tax ITC balance Total ITC balance of

Ratio Heads of Transferor amount of Transferor
of (pre- ITC (post-
Tran- apportionme transferred apportionment)
sferee nt) as on the to the after filing of
date of filing Transferee GST ITC–02)
GST ITC–02) under GST [Col (4) – Col
ITC02 (5)]
Delhi 70% CGST 10,00,000 10,00,000 0
SGST 10,00,000 10,00,000 0
IGST 30,00,000 15,00,000 15,00,000
Total 50,00,000 35,00,000 15,00,000
M.P. 40% CGST 25,00,000 3,00,000 22,00,000

SGST 25,00,000 5,00,000 22,00,000
IGST 20,00,000 20,00,000 0
Total 70,00,000 28,00,000 42,00,000
(4) The apportionment formula shall be applied on the ITC balance of the
transferor as available in electronic credit ledger on the date of filing
of Form GST ITC – 02 by the transferor.
(5) For the purpose of apportionment of ITC, the ratio of the value of
assets should be taken as on the “appointed date of demerger” as
specified in the respective scheme for demerger. Thus, for the
purpose of apportionment of ITC, the ratio of the value of assets taken
as on the “appointed date of demerger” should be applied on the ITC
balance of the transferor on the date of filing Form GST ITC – 02.
(v) Transfer of ITC on obtaining separate registrations for
multiple places of business within a State/ Union Territory
[Rule 41A of the CGST Rules]
Section 25 enables a taxpayer to obtain separate registrations for multiple
places of business in a State/ Union territory [Provisions of section 25 are
discussed under Chapter 9: Registration]. 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.

6. DISTRIBUTION OF CREDIT BY INPUT

SERVICE DISTRIBUTOR [SECTIONS 20 & 21]
Section 20 Manner of distribution of credit by input service

distributor
(1) The inputs service distributor shall distribute the credit of central tax as
central tax or integrated tax and integrated tax as integrated tax or
central tax, by way of issue of a document containing the amount of
input tax credit being distributed in such manner as may be prescribed.
(2) The Input Service Distributor may distribute the credit subject to
the following conditions, namely:–
(a) the credit can be distributed to the recipients of credit

against a document containing such details as may be
prescribed;
(b) the amount of the credit distributed shall not exceed the
amount of credit available for distribution;
(c) the credit of tax paid on input services attributable to a

recipient of credit shall be distributed only to that recipient;
(d) the credit of tax paid on input services attributable to

more than one recipient of credit shall be distributed
amongst such recipients to whom the input service is
attributable and such distribution shall be pro rata on the
basis of the turnover in a State or turnover in a Union
territory of such recipient, during the relevant period, to
the aggregate of the turnover of all such recipients to
whom such input service is attributable and which are
operational in the current year, during the said relevant
period;

(e) the credit of tax paid on input services attributable to all

recipients of credit shall be distributed amongst such
recipients and such distribution shall be pro rata on the
basis of the turnover in a State or turnover in a Union
territory of such recipient, during the relevant period, to
the aggregate of the turnover of all recipients and which
are operational in the current year, during the said
relevant period.
Explanation.––For the purposes of this section,––
(a) the “relevant period” shall be––
(i) if the recipients of credit have turnover in their States or

Union territories in the financial year preceding the year
during which credit is to be distributed, the said financial
year; or
(ii) if some or all recipients of the credit do not have any

turnover in their States or Union territories in the financial
year preceding the year during which the credit is to be
distributed, the last quarter for which details of such turnover
of all the recipients are available, previous to the month
during which credit is to be distributed;
(b) the expression “recipient of credit” means the supplier of goods or

services or both having the same Permanent Account Number as
that of the Input Service Distributor;
(c) the term ‘turnover’, in relation to any registered person engaged in

the supply of taxable goods as well as goods not taxable under this
Act, means the value of turnover, reduced by the amount of any duty
or tax levied under entries 84 and 92A of List I of the Seventh
Schedule to the Constitution and entry 51 and 54 of List II of the said
Schedule.
Section 21 Manner of recovery of credit distributed in excess
Where the input service distributor distributes the credit in

contravention of the provisions contained in section 20 resulting
in excess distribution of credit to one or more recipients of

credit, the excess credit so distributed shall be recovered from

such recipients along with interest, and the provisions of section
73 or section 74, as the case may be, shall, mutatis mutandis,
apply for determination of amount to be recovered.
Chapter V: Input Tax Credit of CGST Rules
Rule 39 Procedure for distribution of input tax credit by Input

Service Distributor
(1) An Input Service Distributor shall distribute input tax credit in the
manner and subject to the following conditions, namely, -
(a) the input tax credit available for distribution in a month

shall be distributed in the same month and the details
thereof shall be furnished in FORM GSTR-6 in accordance
with the provisions of Chapter VIII of these rules;
(b) the input service distributor shall, in accordance with the

provisions of clause (d), separately distribute the amount
of ineligible input tax credit (ineligible under the
provisions of sub-section (5) of section 17 or otherwise)
and the amount of eligible input tax credit;
(c) the input tax credit on account of central tax, State tax,
Union territory tax and integrated tax shall be
distributed separately in accordance with the provisions
of clause (d);
(d) the input tax credit that is required to be distributed in

accordance with the provisions of clause (d) and (e) of
sub-section (2) of section 20 to one of the recipients ‘R1’,
whether registered or not, from amongst the total of all
the recipients to whom input tax credit is attributable,
including the recipient(s) who are engaged in making
exempt supply, or are otherwise not registered for any
reason, shall be the amount, “C1”, to be calculated by
applying the following formula -
C1 = (t1÷T) × C

where,
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in section 20, of person
R1 during the relevant period, and
“T” is the aggregate of the turnover, during the relevant
period, of all recipients to whom the input service is
attributable in accordance with the provisions of section 20;
(e) the input tax credit on account of integrated tax shall be

distributed as input tax credit of integrated tax to every
recipient;
(f) the input tax credit on account of central tax and State
tax or Union territory tax shall-
(i) in respect of a recipient located in the same State

or Union territory in which the input service
distributor is located, be distributed as input tax
credit of central tax and State tax or Union
territory tax respectively;
(ii) in respect of a recipient located in a State or

Union territory other than that of the input
service distributor, be distributed as integrated
tax and the amount to be so distributed shall be
equal to the aggregate of the amount of input
tax credit of central tax and State tax or Union
territory tax that qualifies for distribution to such
recipient in accordance with clause (d);
(g) the input service distributor shall issue an input service

distributor invoice, as prescribed in sub-rule (1) of rule
54, clearly indicating in such invoice that it is issued only
for distribution of input tax credit;
(h) the input service distributor shall issue an input service

distributor credit note, as prescribed in sub-rule (1) of
rule 54, for reduction of credit in case the input tax credit
already distributed gets reduced for any reason;

(i) any additional amount of input tax credit on account of

issuance of a debit note to an input service distributor by
the supplier shall be distributed in the manner and subject
to the conditions specified in clauses (a) to (f) and the
amount attributable to any recipient shall be calculated in
the manner provided in clause (d) and such credit shall be
distributed in the month in which the debit note is
included in the return in FORM GSTR-6;
(j) any input tax credit required to be reduced on account of

issuance of a credit note to the input service distributor
by the supplier shall be apportioned to each recipient in
the same ratio in which the input tax credit contained in
the original invoice was distributed in terms of clause (d),
and the amount so apportioned shall be-
(i) reduced from the amount to be distributed in the

month in which the credit note is included in the
return in FORM GSTR-6; or
(ii) added to the output tax liability of the recipient

where the amount so apportioned is in the
negative by virtue of the amount of credit under
distribution being less than the amount to be
adjusted.
(2) if the amount of input tax credit distributed by an input service

distributor is reduced later on for any other reason for any of the
recipients, including that it was distributed to a wrong recipient by
the input service distributor, the process specified in clause (j) of
sub-rule (1) shall apply, mutatis mutandis, for reduction of credit.
(3) Subject to sub-rule (2), the input service distributor shall, on the
basis of the input service distributor credit note specified in clause
(h) of sub-rule (1), issue an input service distributor invoice to the
recipient entitled to such credit and include the input service
distributor credit note and the input service distributor invoice in
the return in FORM GSTR-6 for the month in which such credit
note and invoice was issued.

ANALYSIS
(i) Role of an input service distributor (ISD)
Companies may have their Head Office at
one place and units at other places which
may be registered separately. The Head ISD is an office of a
Office would be procuring certain services business which receives
which would be for common utilization of tax invoices for input
all units across the country. The bills for services and distributes
such expenses would be raised on the Head available ITC to other
Office but the Head Office itself would not branch offices of the
same business.
be providing any output supply so as to
utilize the credit which gets accumulated on
account of such input services.
Since the common expenditure is meant for the business of all units, it is
but natural that the credit of input services in respect of such common
invoices should be apportioned between all the consuming units. ISD
mechanism enables proportionate distribution of credit of input services
amongst all the consuming units. The concept of ISD under GST is a legacy
carried over from the service tax regime.
Receipt of tax invoices for input services
SGST/UTGST and IGST by issuing ISD

Distribution of credit of CGST,
ISD
invoice
by ISD
SAME PAN
SAME PAN

Thus, the concept of ISD is a facility made available to business having a

large share of common expenditure and where billing/payment is done
from a centralized location. The mechanism is meant to simplify the credit
taking
process for entities and the facility is meant to strengthen the seamless flow
of credit under GST.
It is important to note that the ISD mechanism is meant

only for distributing the credit on common invoices
pertaining to INPUT SERVICES and not goods (inputs or
capital goods).
(ii) Separate registration for an ISD

An ISD is compulsorily required to obtain a Compulsory
separate registration as an ISD even though separate
it may be separately registered. There is no registration for ISD
threshold limit for registration for an ISD.
The other locations may be registered separately. Since the services relate
to other locations the corresponding credit should be transferred to such
locations (having separate registrations) as the output services are being
provided there.
Can a
company have Yes, different offices of a
multiple ISDs? company like marketing
division, security division
etc. may apply for
separate ISD registration.
(iii) Manner of distribution of credit by an ISD [Section 20 read with

rule 39 of the CGST Rules]
The ISD is required to maintain ITC of input services is
arithmetical accuracy and ensure distributed ONLY amongst
that the credit distributed does not those registered persons who
exceed the credit available with it have used the input services in
for distribution. Further, in the course or furtherance of
distributing the credit among business.

different locations of the entity - which are supplying goods and/or services
and have same PAN as that of the ISD (‘recipients’) - it must follow these
principles:
(a) The credit connected to an input service must be distributed only to the
particular recipient to whom that input service is attributable.
(b) If the input service is attributable to more than one recipient, the relevant
ITC is distributed to such recipients in the ratio of turnover of the
recipient in a State / Union Territory [See definition of turnover in State or
turnover in Union Territory] to the aggregate turnover [See definition of
aggregate turnover] of all the recipients to whom the input service is
attributable and which are operational during the current year.
(c) ITC pertaining to input services which are common for all units, is distributed
to all the recipients in the ratio of turnover as described in (b) above.
(d) Both ineligible and eligible ITC are distributed separately.
(e) ITC of CGST, SGST/UTGST and IGST are distributed separately.
Proportionate distribution of credit to more than one recipient/all the
recipients
 For working out such pro rata distribution (as mentioned in (b) and (c)
above), the turnover during the relevant period is to be considered,
both for turnover of the recipient in a State / Union Territory as well as
for aggregate turnover of all recipients.
 “Relevant period” for working out the above distribution is the
previous financial year, if all the recipients of credit had turnover in
their State / Union Territory during that year.
If some or all the recipients did not have turnover in their State / Union
territory during the previous financial year, then the last quarter for which
details of turnover of all the recipients is available, prior to the month for
which credit is to be distributed, will be the “relevant period”.
 If there are two or more locations of a recipient in a State / Union
territory, the sum of their turnover is to be considered in working out
the proportion of the credit that will be distributed to that
registration. (This is because a PAN number will have a single
registration for all its locations within a business vertical in a State /
Union territory – Refer Chapter 9: Registration for more details.)
 The credit attributable to a recipient is distributed even if such
recipient is unregistered or is making exempt supplies.

 Where both taxable and non-taxable goods are supplied, the “turnover”
excludes central excise duty, State excise duty, central sales tax and VAT.
 Formula for distribution of credit
C1 = (t1÷T) × C
where,
“C” is the credit to be distributed,
“t1” is the turnover of the recipient during the relevant period, and
“T” is the aggregate of the turnover, during the relevant period, of all
recipients to whom the input service is attributable
DISTRIBUTION OF CREDIT
ITC
attributable ITC attributable to more ITC attributable to all
to specific than one recipient recipients
recipient
Distributed Pro rata distribution

to such
recipient only
ITC to be distributed =
𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓 𝐨𝐨𝐨𝐨 𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫 (𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡 𝐧𝐧𝐧𝐧𝐧𝐧𝐧𝐧𝐧𝐧 𝐰𝐰𝐰𝐰𝐰𝐰𝐰𝐰 𝐈𝐈𝐈𝐈𝐈𝐈) 𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝 𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫 𝐩𝐩𝐩𝐩𝐩𝐩𝐩𝐩𝐩𝐩𝐩𝐩
𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓𝐓 𝐨𝐨𝐨𝐨 𝐚𝐚𝐚𝐚𝐚𝐚 𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫 (𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡 𝐧𝐧𝐧𝐧𝐧𝐧𝐧𝐧𝐧𝐧 𝐰𝐰𝐰𝐰𝐰𝐰𝐰𝐰 𝐈𝐈𝐈𝐈𝐈𝐈) 𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝 𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫 𝐩𝐩𝐩𝐩𝐩𝐩𝐩𝐩𝐨𝐨𝐝𝐝
Turnover excludes central excise duty, State excise duty,
central sales tax and VAT
Previous financial year

OR
Relevant period = Last quarter prior to the month of
distribution for which turnover of all
recipients is available
Ineligible credit also to be distributed in the above manner

(48) ABC Ltd, a confectionary manufacturer, has paid bills of an

advertising company amounting to ` 24 lakh for advertising
campaigns for two varieties of cakes, which are manufactured at
separate locations in Pune and Bangalore. The company had a total turnover
of ` 112 crores in the previous financial year. The turnover of the Pune unit
was ` 5 crores, and the turnover of the Bangalore unit was ` 10 crores. The
aggregate turnover here is taken as ` 15 crores, as advertising was for cakes,
which are manufactured at these two units only.
The ITC is to be distributed between Pune and Bangalore units in the ratio
1:2. Therefore, Pune unit will be given ITC of ` 8 lakhs, and Bangalore unit
will be given ITC of ` 16 lakhs from the advertising bills.
Distribution of taxes
 ITC of CGST, SGST/UTGST in respect of recipient located in the same
State/Union Territory is distributed as CGST and SGST/UTGST
respectively.
 ITC of CGST and SGST/UTGST, in respect of a recipient located in a
different State/Union territory, is distributed as IGST (total of ITC of
CGST and SGST/UTGST which were to be distributed to such
recipient).
 ITC on account of IGST is distributed as IGST.
Credit of IGST distributed as Credit of IGST
Recipient and distributed Input tax credited

as
Credit of CGST ISD located under same
in same State category of tax
Recipient and distributed

as
Credit of ISD located Input tax credited
SGST/UTGST in different as IGST
States
Note: Section 20 provides that credit of integrated tax be distributed as

“integrated tax or central tax”. However, rule 39 of CGST Rules provides that
“input tax credit on account of integrated tax shall be distributed as input tax credit
of integrated tax to every recipient.” The above diagram is based on the position
as stated in rule 39.

(49) The Corporate office of ABC Ltd. is at Bangalore, with its

business locations of selling and servicing of goods at Bangalore,
Chennai, Mumbai and Kolkata. Software license and maintenance is
used at all the locations, but invoice for these services (indicating CGST and
SGST) are received at Corporate Office. Since the software is used at all the
four locations, the ITC of entire services cannot be claimed at Bangalore. The
same has to be distributed to all the four locations. For that reason, the
Bangalore Corporate office has to act as ISD to distribute the credit.
If the corporate office of ABC Ltd, an ISD situated in Bangalore, receives
invoices indicating ` 4 lakh of CGST, `4 lakh of SGST and ` 7 lakh of IGST, it can
distribute the ITC of CGST, SGST as well as IGST of ` 15 lakh amongst its
locations at Bangalore, Chennai, Mumbai and Kolkata through an ISD invoice
containing the amount of credit distributed.
ILLUSTRATION 1
XYZ Ltd, having its head Office at Mumbai, is registered as ISD. It has three
units in different cities situated in different States namely ‘Mumbai’, ‘Jabalpur’
and ‘Delhi’ which are operational in the current year.
M/s XYZ Ltd furnishes the following information for the month of July:
(i) CGST paid on services used only for Mumbai Unit: ` 3,00,000
(ii) IGST, CGST & SGST paid on services used for all units: ` 12,00,000
Total turnover of the units for the previous financial year are as follows: -
Unit Turnover (`)
Total Turnover of three units ` 10,00,00,000
Turnover of Mumbai unit ` 5,00,00,000
Turnover of Jabalpur unit ` 3,00,00,000
Determine the credit to be distributed by XYZ Ltd. to each of its three units.

Answer
Particulars Credit distributed to all units (`)
Total Mumbai Jabalpur Delhi

credit
available
CGST paid on services used 300000 300000 0 0

only for Mumbai Unit
IGST, CGST & SGST paid on 12,00,000 6,00,000 3,60,000 2,40,000

services used for all units
Distribution on pro rata basis
to all the units which are
operational in the current
year
Total 15,00,000 9,00,000 3,60,000 2,40,000
Note 1: Credit distributed pro rata on the basis of the turnover of all the
units is as under: -
(a) Unit Mumbai: (` 5,00,00,000/ ` 10,00,00,000) * ` 12,00,000 =
` 6,00,000
(b) Unit Jabalpur: (` 3,00,00,000/ ` 10,00,00,000) * ` 12,00,000 =
` 3,60,000
(c) Unit Delhi: (` 2,00,00,000/ `10,00,00,000) * ` 12,00,000 = ` 2,40,000
(iii) Procedural aspects of distribution of credit [Rule 39 of the
CGST Rules]
 The ISD has to issue an ISD invoice, as prescribed in rule 54(1) of the
CGST Rules, for distributing ITC. It should be clearly indicated in such
invoice that it is issued only for distribution of ITC.
 The ISD needs to issue a ISD credit note, as prescribed in rule 54(1) of
the CGST Rules, for reduction in credit if the distributed credit gets
reduced for any reason.

 The ISD invoice and ISD credit note must contain the following
information:
• Name, address and GSTIN of the ISD and recipient of credit;
• A consecutive serial number up to 16 characters, containing

alphabets or numerals or special characters or any combination
thereof, for a financial year;
• Date of issue;
• Amount of the credit distributed;
• Signature of the ISD or his authorized representative.

Relaxation for banks & FIs: If the ISD is a banking company/
financial institution including NBFC, the document for distributing
credit need not be serially numbered.
 ITC available for distribution in a month is to be distributed in the
same month.
 Details of distribution of credit and all ISD invoices issued should be
furnished by ISD in monthly GSTR-6 within 13 days after the end of
the month. The details in the returns are made available to the
respective recipients in their GSTR 2A. An ISD is not required to file
annual return. [Refer Chapter 13: Returns for detailed discussion on
GSTR-6].
 An ISD cannot accept any invoices on which tax is to be discharged
under reverse charge mechanism. This is because the ISD mechanism is
only to facilitate distribution of credit of taxes paid. The ISD itself
cannot discharge any tax liability (as person liable to pay tax) and remit
tax to Government account. If ISD wants to take reverse charge
supplies, then in that case ISD has to separately register as normal
taxpayer.

(iv) Issue of debit note and credit note on ISD [Rule 39 of the
CGST Rules]
Issue of a debit note
 The additional ITC on account of issue of a debit note to the ISD is
distributed by the ISD, in accordance with the provisions discussed
above, in the month in which such debit note is included in GSTR-6.
Issue of a credit note
 If a credit note is issued to the ISD, the ITC to be reduced is
apportioned amongst the relevant recipients in the same ratio in
which the original credit was distributed.
 Such apportioned credit is reduced from the credit to be distributed in
the month in which the credit note is included in GSTR-6. If the
apportioned credit exceeds the credit to be distributed, the same is
added to the output tax liability of the recipient.
 This process is also followed in case of reduction of credit already
distributed for any other reason e.g., when the credit is distributed to
a wrong recipient.
(v) Recovery of excess credit distributed to a recipient [Section 21]
Excess credit distributed can be

recovered along with interest
only from the recipient and not
from ISD.
If the ISD has distributed excess credit to any recipient, the excess will be
recovered from the recipient with interest as if it was tax not paid by
initiating action under section 73 or 74 [Refer Chapter 17 : Demands and
Recovery for detailed discussion on sections 73 and 74]. Penalties may be
applicable depending on the circumstances. Circular No. 71/45/2018 GST
dated 26.10.2018 has clarified that the ISD would also be liable to a general
penalty under section 122(1)(ix).

7. HOW ITC IS UTILISED
Section 49 Payment of tax, interest, penalty and other amounts

(Relevant extract)
(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
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 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 intra-State, inter-State and imported purchases (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
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 payment of
CGST and/or SGST/UTGST in any proportion and in any order subject to the
condition that the entire input tax credit of Integrated tax is completely exhausted
before the input tax credit of Central Tax or State/Union territory tax can be utilized.
If ITC of IGST is used for payment of SGST/UTGST (or vice versa), corresponding
debit/credit is made to respective State Government/Union Territory.
Sections 49(5), 49A, 49B, rule 88A and Circular No. 98/17/2019 GST dated
23.04.2019 together prescribe the sequence of utilisation of ITC. A combined
reading of such provisions shows that the order of utilization of ITC is as per the
order (of numerals) given below:
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:
(I) IGST credit should be first 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 and SGST in that order.
(50) 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
Total 1600 1700

Option 1
ITC of Discharge of Discharge Discharge of Balance

output IGST of output output of ITC (`)
liability (`) CGST SGST/UTGST
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
There can be other options also for utilization of ITC of IGST against CGST and SGST
liabilities. In this example, two options for utilizing ITC of IGST against CGST and
SGST liabilities are shown.
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 on the basis of tax invoices/valid documents -

● issued by a non-existent supplier or by a person not conducting any

business from the registered place of business; or
● without receipt of goods or services or both; or
● the tax in relation to which has not been paid to the Government
(ii) 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/valid
document.
If the ITC is so availed, the restrictions can be imposed by not allowing such ITC to
be used for discharging any liability under section 49 or not allowing refund of any
unutilised amount of such ITC. Such restrictions can be imposed for a period up to
1 year from the date of imposing such restrictions. However, the
Commissioner/officer authorised by him, can withdraw such restriction if he is
satisfied that conditions for imposing the restrictions no longer exist.
Restrictions on the use of amount available in electronic credit ledger [Rule 86B]
Rule 86B limits the use of input tax credit available in the electronic credit ledger
for discharging output tax liability. The aforesaid rule starts with non-obstante
clause and has an over-riding impact on any other provision of the 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 less
than ` 50 lakh, then this restriction would not be applicable.
Nature of restriction imposed
The registered person to whom the said rule is Minimum 1% of
applicable cannot utilize input tax credit in the output liability
excess of 99% of the output tax liability. In shall be discharged
other words, input tax liability shall be utilized using electronic
only to the extent of 99% of the output tax cash ledger
liability while discharging output tax liability.
The above restriction can be explained with the help of numerical
example

(51) The total value of inter-State supply of Aanu & Sons for the
month of February 2021 is ` 100 lakh. Said supply is taxable @
18% IGST. Thus, total output tax liability of Aanu & Sons is `
18 lakh. Amount available in electronic credit ledger is ` 20 lakh (IGST).
In terms of restriction imposed by rule 86B, Aanu & Sons can discharge
99% of its output tax liability, i.e. ` 17,82,000 (99% of ` 18,00,000) from
the amount available in electronic credit ledger. However, it has to
mandatorily discharge the balance 1% of the output tax liability i.e.
` 18,000 (1% of ` 18,00,000) through electronic cash ledger only.
Exceptions to the Rule 86B
Payment of Income Tax more than ` 1 lakh
Rule 86B may not apply in cases whereby person mentioned below have
deposited sum of more than ` 1 lakh as income tax under the Income -
tax Act, 1961) in each of the last 2 financial years for which the time
limit to file return of income under section 139(1) of the said Act has
expired
 The registered person or
 The karta/proprietor/the managing director of the registered
person;
 Any of the two partners, whole-time directors, members of
Managing Committee of Associations or Board of Trustees of the
registered person, as the case may be.
Receipt of refund of input tax credit of more than ` 1 lakh
Rule 86B may not apply whereby registered person has received a refund
amount of more than ` 1 lakh on account of unutilized input tax credit
under the following:
 zero-rated supplies made without payment of tax
 Inverted duty structure
It is pertinent to note that refund should have been received in the

preceding financial year

Payment of total output tax liability through electronic cash ledger in

excess of 1% of total output tax liability
If the registered person has paid more than 1% of total output tax
liability using electronic cash ledger upto the said month in the current
financial year, the restrictions as specified in Rule 86B shall not apply.
(52) Assuming a scenario wherein in the FY 2021-22 upto
August 2021, the total output tax liability payable is ` 30 lakh
and such registered person has deposited ` 1 lakh through
electronic cash ledger and balance through electronic credit ledger, rule
86B would not be applicable in September 2021[if the turnover during
this month exceeds ` 50 lakh], since payment made in cash is more than
1% of total output tax liability. (1% of ` 30 lakhs is ` 30,000).
Interestingly, the aforesaid exception needs to be evaluated in ‘current
financial year’, and hence, for the month of April of any financial year,
the said exception will not be applicable. Accordingly, registered person
would be required to pay minimum 1% of output liability through
electronic cash ledger unless the registered person is covered under any
of the other exceptions or if the taxable turnover in a month is less than
` 50 lakh.
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 person:
Rule 86B would not be 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
Exception to Rule 86B is explained with the help of diagrammatic
representation

Illustration 2
Determine the amount of tax payable through electronic credit ledger /electronic
cash ledger from the given information:-
Taxable turnover of ABC Ltd in the month of February = ` 1,25,00,000 (excluding
zero-rated and exempt supply)
Total amount of input tax credit (as per books) for the month of February -
` 25,00,000
Total amount of input tax credit (as per GSTR-2A/2B for February – ` 22,00,000
 Applicable tax rate: 18%
ANSWER
In the given case, ABC Ltd. would be liable to pay tax of ` 22,50,000 (ie ` 1,25,00,000
X 18%). In terms of Rule 36(4) of CGST Rules, the availment of ITC is restricted to
5% of reported invoices i.e. invoices on unreported invoices auto-populated in
GSTR-2A/2B. Hence, ABC Ltd would be entitled to avail the input tax credit of :
` 22,00,000 (matched ITC) + 5% of 22,00,000
= ` 23,10,000

It can be seen from the above that ABC Ltd. can pay entire tax liability through
utilization of available input tax credit. It is pertinent to note that taxable turnover
of ABC Ltd. for February 2021 is more than ` 50 lakh, hence, rule 86B would be
applicable and accordingly, ABC Ltd. cannot use input tax credit in excess of 99%
of the output tax liability in the instant scenario.
Therefore, liability of ` 22,50,000 would be paid in the following manner:
i) ` 22,27,500 (99% of output liability) to be paid via electronic credit ledger; and
ii) ` 22,500 to be paid via electronic cash ledger.
ILLUSTRATION 3
PQR Company Ltd., a registered supplier of Bengaluru (Karnataka), is a manufacturer
of goods. The company provides the following information pertaining to GST paid
on inward supplies during the month of April (current financial year):
S. No. Items GST paid
in (`)
(i) Life Insurance premium paid by the company for the life 1,50,000
insurance of factory employees as per the policy of the
company. There is no legal obligation for such
insurance for employees.
(ii) Raw materials purchased for which invoice is missing 38,000

but delivery challan is available
(iii) Raw materials purchased which are used for zero rated 50,000
supply
(iv) Works contractor's service used for repair of factory 30,000

building which is debited in the profit and loss account
of company
(v) Company purchased the capital goods for

` 4,00,000 and claimed depreciation of ` 44,800
48,000
(@ 10%) on the full amount of ` 4,48,000 under Income
Tax Act, 1961
Other information:
(1) In the month of September of previous financial year, PQR Company Ltd.
availed ITC of ` 2,40,000 on purchase of raw material which was directly sent
to job worker's premises under a challan on 25th September (previous financial

year). The said raw material has not been received back from the job worker
up to 30th April (current financial year).
(2) All the above inward supplies except at S. No. (iii) above have been used in the
manufacture of taxable goods. Inward supplies at S. No. (iii) above have been
used in the manufacture of exempt goods.
Compute the amount of net ITC available with PQR Company Ltd. for the month of
April with necessary explanations for the treatment of various items as per the
provisions of the CGST Act. Subject to the information given above, assume that all
the other conditions necessary for availing ITC have been fulfilled.
ANSWER
Computation of ITC available with PQR Company Ltd. for the month of April
Particulars ITC (`)
Life Insurance premium paid by the company on the life of Nil

factory employees [Note 1]
Raw materials purchased [Note 2] Nil
Raw materials used for zero rated supply [Note 3] 50,000
Work contractor’s service [Note 4] 30,000
Capital goods purchased in respect of which depreciation is Nil

claimed on the tax component [Note 5]
Goods sent to job worker’s premises [Note 6] -
Total ITC available 80,000
Notes:
(1) ITC on life insurance service is available only when it is obligatory for an
employer to provide said services to its employees under any law for the time
being in force. Since it is not obligatory for the employer in the instant case
and thus, the ITC thereon is blocked [Second proviso to section 17(5)(b)].
(2) ITC cannot be taken since invoice is missing and delivery challan is not a valid
document to avail ITC [Section 16(2)(a)].

(3) ITC can be availed for making zero-rated supplies, notwithstanding that such
supply may be an exempt supply [Section 16(2) of the IGST Act].
(4) ITC is blocked on works contract services when supplied for construction of
an immovable property. However, “construction” includes only that repairs
which are capitalized along with the said immovable property.
In this case, since repairs of building is debited to P & L Account, the same
does not amount to ‘construction’ and hence ITC thereon is available [Section
17(5)(c)].
(5) ITC is not available when depreciation has been claimed on the tax
component of the cost of capital goods under the Income-tax Act [Section
16(3)].
(6) The principal is entitled to take ITC of inputs sent for job work even if the said
inputs are directly sent to job worker. However, where said inputs are not
received back by the principal within a period of 1 year of the date of receipt
of inputs by the job worker, it shall be deemed that such inputs had been
supplied by the principal to the job worker on the day when the said inputs
were received by the job worker [Sub-sections (2) and (3) of section 19].
Hence, the ITC taken by PQR Company Ltd. in the month of September last
year is valid and since one year period has yet not lapsed in April, there will
be no tax liability on such inputs.
ILLUSTRATION 4
Siddhi Ltd. is a registered manufacturer engaged in taxable supply of goods. Siddhi
Ltd. purchased the following goods during the month of January. The following
particulars are provided by the company:
S. Particulars GST (`)

No.
1. Capital goods purchased on which depreciation has been 15,000
taken on full value including GST paid thereon
2. Goods purchased from Ravi Traders (Invoice of Ravi Traders 20,000
is received in month of January but goods were received in
month of March)

3. Car purchased for making further supply of such car. Such 30,000
car is destroyed in accident while being used for test drive
by potential customers.
4. Goods used for setting up telecommunication towers 50,000
5. Truck purchased for delivery of finished products 80,000
Determine the amount of ITC available with Siddhi Ltd. for the month of January by
giving necessary explanations for treatment of various items as per the provisions of
the CGST Act. Subject to the information given above, assume that all the other
conditions necessary for availing ITC have been fulfilled.
ANSWER
Computation of ITC available with Siddhi Ltd. for the month of January
Particulars GST (`)

Capital goods [Note 1] Nil
Goods purchased from Ravi Traders [Note 2] Nil
Cars purchased for making further supply [Note 3] Nil
Goods used for setting telecommunication towers [Note 4] Nil
Trucks purchased for delivery of output goods [Note 5] 80,000
Total ITC available with Siddhi Ltd. 80,000
Notes:
(1) Since depreciation has been claimed on the tax component of the value of
the capital goods, ITC of such tax cannot be availed in terms of section 16(3).
(2) ITC in respect of goods not received cannot be availed in terms of section
16(2)(b).
Since the goods have been received in the month of March, ITC thereon can
be availed in the month of March and not in the month of January even
though the invoice for the same has been received in the month of January.
(3) Though ITC on motor vehicles used for further supply of such vehicles is not
blocked, ITC on goods destroyed for whatever reason is blocked [Clauses (a)
and (h) of section 17(5)].

(4) ITC on goods used by a taxable person for construction of immovable

property (other than plant and machinery) on his own account is blocked even
when such goods are used in the course or furtherance of business [Section
17(5)(d)].
However, explanation to section 17 excludes telecommunication towers from
the purview of plant and machinery. Therefore, ITC thereon will not be
allowed.
(5) Section 17(5)(a) blocks ITC in respect of only those motor vehicles which are
used for transportation of persons albeit with certain exceptions. Thus, ITC
on motor vehicles used for transportation of goods is allowed.

LET US RECAPITULATE
I. Definitions of certain key terms are summarized by way of
diagrams as under:
BUSINESS
includes
Any activity incidental/ancillary
to it
Any trade/commerce, manufacture,
profession, vocation etc. even if
there is no monetary benefit Any activity of same nature even if
no volume/continuity/frequency
Supply/acquisition of goods
in connection with commencement/
including capital goods & services
closure of business
Provision of facilities by
to its members for consideration
club/association/society etc.
for a consideration
Admission to any premises
accepted in course/ furtherance

Services as holder of an office of trade, profession/vocation
Activities of a race club including totalisator or a licence to book

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 Governments

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

goods other than services
capitalized in the books of
capital goods
account of person claiming ITC
used/intended to be
used in the course/
furtherance of business

INPUT TAX
Means Includes Excludes
IGST
Tax payable Tax payable Composition
leviable on
under forward under reverse tax
import of
charge charge
goods
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

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 to

Export of goods and/or services
SEZ developer/ SEZ unit

II. Provisions of section 16 relating to eligibility and

conditions for taking ITC read with relevant rules are
summarized below:
Registered person to take used/ intended to be used in if the following four

credit of tax paid on inward the course or furtherance of conditions are fulfilled:
supplies of goods and/or business
services
He has valid tax

invoice/debit note/
prescribed tax paying
document. ITC
Tax on such supply claimed should not
He has furnished He has received
has been paid either exceed 105% of ITC
return u/s 39 goods and/or
in/by reflecting in his
services
GSTR-2A on the due
date of filing GSTR–1
of the suppliers.
Goods delivered /
Time limit for availing
Utilisation services provided
Cash ITC - ITC pertaining to
of ITC to third person
a particular FY can be
on the direction
availed by due date of
Goods received of the registered
filing the return for the
in lots – ITC person deemed
month of September of
allowed upon If depreciation to be received by
next FY or filing of
receipt of last lot claimed on tax the registered
annual return,
component, ITC not person ⇒ ITC
whichever is earlier.
allowed available to
Exception: Re-
registered person
availment of ITC
[Bill to Ship to
reversed earlier
Model]
• Reverse charge
supplies
• Deemed supplies
 ITC to be added to the output tax liability without
with interest @ 18% if value + tax of goods consideration
and /or services is not paid within 180 days • Additions made to
of the issuance of invoice. value of supplies
EXCEPTIONS on account of
 On payment, the ITC could be re-availed
without any time limit. supplier’s liability
being incurred by
the recipient of the
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
Attributable to
Used partly for business business purposes
and partly for non-
business purposes
Goods and/or
services ITC available
only as
Used partly for making
taxable (including zero
rated supplies) supplies Attributable to taxable
& partly for exempt supplies including zero
supplies rated 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.
B. Special provisions for banking companies and NBFCs
• Remaining 50% ITC

will lapse.
• Restriction of 50%
shall not apply to the
Option 1: Avail Option 2: Avail tax paid on supplies
proportionate 50% of eligible received from
another registration
ITC ITC within the same
entity.
• Option once
exercised cannot be
withdrawn during
remaining part of the
year.

C. Apportionment of common credit in case of inputs and input

services
Total IT on I + IS
T1 T2 T3 C1
IT on I+IS used IT on I+IS used Remaining ITC

exclusively for exclusively for Blocked credits u/s credited to ECrL
non-business exempt supplies 17(5) = T- (T1 + T2 + T3)
purposes
C2 T4
Common credit Credit attributable to I + IS

= C 1 – T4 used exclusively in taxable
supplies including ZRS
D1 D2 C3
Credit attributable to exempt supplies- Remaining

Credit attributable to non- common credit
D1 = x C2
business purpose if common I + = C2 – (D 1 + D2 )
E = Value of ES during tax period IS used partly for business + non
F = Total turnover in the State during tax -business purposes
period D2 = 5% x C2
If no turnover during the tax period/values
Eligible ITC
not available, values for last period may be
attributable to
used.
business &
taxable supplies
Ineligible ITC including ZRS
Total eligible ITC

To be reversed = T4 + C 3

• C3 will be computed separately for ITC of CGST, SGST/ UTGST and IGST.
• ∑ (D1 + D2) will be computed for the whole financial year, by taking
exempted turnover and aggregate turnover for the whole financial year.
If this amount is more than the amount already reversed every month,
the differential amount will be reversed in any of the month till
September of succeeding year along with interest @ 18% from 1st April
of succeeding year till the date of payment.
• If this amount is less than the amount reversed every month, the
additional amount paid has to be claimed back as credit in the return of
any month till September of the succeeding year.
• Exempt supplies include reverse charge supplies & transactions in

securities.
• Exempt supplies exclude (i) activities specified in Schedule III except sale
of land and sale of building when entire consideration is received post
completion certificate/first occupation, whichever is earlier, (ii) services
of accepting deposits, extending loans/advances where the
consideration is interest/discount and the same are provided by persons
other than banking company/financial institution including NBFC, and
(iii) outbound (overseas) transportation of goods by a vessel.
• Aggregate value of exempt supplies and total turnover exclude central
excise duty, state excise duty, central sales tax and VAT.
• Value of exempt supply in respect of land and building is the stamp duty
value and for security is 1% of the sale value of such security.
IT = Input tax
I = Inputs
IS = Input services
ECrl = Electronic Credit Ledger
ZRS = Zero rated supply
ES = Exempt supplies

D. Apportionment of common credit on capital goods
Total input tax (IT) on capital goods (CG)
(a) (b) (c)
IT on CG used exclusively for IT on CG used IT on CG not covered under (a) & (b)
non-business/exempt supplies exclusively for taxable denoted as ‘A’ and useful life of such
supplies including zero CG → 5 years from date of invoice
rated supply (ZRS)
Not credited in Electronic Credited to EcrL

Credit Ledger (ECrL) Credited to ECrL
Tc
Common credit on CG ⇒ T c = ∑ (A of
common CG whose useful life remains
Tm
during the tax period)
⇒ If CG under (a) subsequently gets covered
under (c), then ‘A’ = IT on CG under (a), and ‘A’ to
be credited to ECrL. T ie = 5% of ‘A’ for every
quarter or part thereof when CG was under (a)
and Tie to be added to output tax liability of the
Common credit of CG for a tax
tax period when ‘A’ is claimed.
period during their useful life ⇒ If CG under (b) subsequently gets covered
Tm = Tc/60 under (c), then IT claimed on CG under (b) to be
added to Tc
Te
Common credit towards exempted supplies

Te = x Tr
E → Aggregate value of exempt supplies during the

Added to output tax liability tax period; F → Total turnover in State during the tax
along with interest period. If no turnover during the tax period/values
not available, values for last tax period may be used.

• Tm is to be computed during the useful life of capital goods which is

five years from the date of invoice.
• Tie and Te are to be computed separately for ITC of CGST, SGST/ UTGST
and IGST and declared in GSTR-3B
• Exempt supplies include reverse charge supplies & transactions in

securities.
• Exempt supplies exclude (i) activities specified in Schedule III except sale
of land and sale of building when entire consideration is received post
completion certificate/first occupation, whichever is earlier, (ii) services
of accepting deposits, extending loans/advances where the
consideration is interest/discount and the same are provided by persons
other than banking company/financial institution including NBFC, and
(iii) outbound (overseas) transportation of goods by a vessel.
• Aggregate value of exempt supplies and total turnover exclude central

excise duty, state excise duty, central sales tax and VAT.
• Value of exempt supply in respect of land and building is the stamp

duty value and for security is 1% of the sale value of such security.

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
making (i) making further making an particular category
MV, Ves or AC are
taxable taxable supply of outward taxable of such inward
used for eligible
supplies of- such Ves or AC supply of the supplies is used for
purposes
(i) such MV (ii) passenger same category making an outward
(ii) When received
(ii) trptn of trptn service (sub- taxable supply of
by manufacturer of
passengers (iii) imparting contracting) or the same category
ineligible MV, Ves
(iii) imparting training on as an element of - [Sub-contracting]
or AC
training on navigating/flying a taxable or as an element of
(iii) When received
driving such such Ves/AC composite or a taxable
by a GI service
ineligible MV (iv) trptn of mixed supply. composite or
provider in respect
goods (ii) When mixed supply
of such ineligible
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
Travel benefits to Inward supplies Tax paid u/s 74 (Tax

Membership of club & short / not paid or
employees on vacation received by NRTP
health & fitness Centre erroneously refunded
(LTC/HT)
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

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
Credit available on
EXCEPTIONS
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; Outcat-
property.
Outdoor catering; BT-Beauty treatment; HS- (B) P & M means apparatus, equipment, &
Health services; C&PS-Cosmetic & plastic machinery fixed to earth by foundation or
surgery; LI-Life insurance; HI-Health insurance; structural supports but excludes land,
NRTP-Non-resident taxable person; WCS-Works
building/ other civil structures,
contract service; LTC-Leave Travel Concession;
HT-Home town; trptn-transportation; P & M-
telecommunication towers, and pipelines laid
Plant & machinery outside the factory premises.

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 liable registration
payment of taxes for registration
Credit entitled on
Credit entitled on
• Inputs as such held in stock
• Inputs as such held in stock
• Inputs contained in semi-finished goods held in
• Inputs contained in semi-
stock
finished goods held in stock
• Inputs contained in finished goods held in stock
• Inputs contained in finished
• Capital goods [In case of exempt supply
goods held in stock
becoming taxable Capital Goods used
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

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

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 days
immediately 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 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.

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 resgistered 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.

V. Provisions of section 20 and 21 read with relevant rules

are summarized as under:
ISD is basically an office meant to receive tax invoices towards receipt

of input services and distribute the credit of taxes paid on such input
services to supplier units (having the same PAN) proportionately
An ISD is required to
obtain a separate • ITC of input services is distributed
registration even though only amongst those recipients to
it may be separately whom the input services are
registered. The threshold attributable.
limit of registration is not • ITC is distributed amongst the
applicable to ISD. operational units only and in the
ratio of turnover in a State/UT of
the recipient during the relevant
period to the aggregate of
• ISD should issue an ISD turnover of all recipients during
invoice for distributing ITC. It the relevant period to whom
should be clearly indicated in input service being distributed is
such invoice that it is issued attributable.
only for distribution of ITC. • Relevant period is previous FY or last
• The ISD needs to issue a ISD quarter prior to the month of
credit note, for reduction in distribution for which turnover of all
credit if the distributed credit recipients is available.
gets reduced for any reason. • Distributed ITC should not exceed
• ITC available for distribution the credit available for distribution.
in a month is to be distributed
in the same month.
• Details of distribution of
credit and all ISD invoices If the ISD has distributed excess
issued should be furnished by credit to any recipient, the
ISD in monthly GSTR-6 within excess will be recovered from
13 days after the end of the the recipient with interest as if
month. it was tax not paid.

VI. 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
TEST YOUR KNOWLEDGE

1. Xenon Pvt. Ltd., a registered supplier in Agra is engaged in the manufacture of
taxable goods. Goods valued at ` 10,50,000 were supplied by the company to
Freshbite Pvt. Ltd., a registered supplier located at Ferozabad, without the cover
of an invoice with a fraudulent intent. Since the company evaded tax by not
issuing the invoice for the supply, a show cause notice was issued by the proper
officer under section 74 requiring the company to pay tax @ 12% [` 1,26,000]
and applicable interest and penalty. The company paid the tax, interest and
penalty after the order was passed by the proper officer.
Examine the ITC entitlement of Freshbite Pvt. Ltd. in respect of tax of ` 1,26,000
paid by Xenon Pvt. Ltd.

2. Flamingo Ltd. is an airlines providing passenger transportation services by air.

The company offers meals of premium quality to passengers on board the
aircraft. The value of such meals is compulsorily included in the price of the
air ticket. The company avails outdoor catering services of Dhaniaram Pvt. Ltd.
for providing such meals to its customers.
Examine whether Flamingo Ltd. can avail ITC on such outdoor catering service
availed by it.
3. Jumbo Sales Pvt. Ltd., a supplier of readymade garments, announced ‘Buy One
get Two free’ offer on Men’s T-Shirts on Diwali to boost its sales.
You are required to advise the company on the availability of ITC in respect of
inward supplies used in relation to such supply.
4. A garment factory receives a Government order for making uniforms for a
commando unit. This supply is exempt from tax under a notification issued
under section 11 of the CGST Act. The fabric is exclusively procured for such
supply, but thread and lining material for the collars are the ones which are
used for other taxable products of the factory as well.
The turnover (exclusive of taxes) of the other products of the factory and
exempted uniforms in July is ` 4 crore and ` 1 crore respectively, the ITC on
thread and lining material procured in July is ` 5000 and ` 15000 respectively.
Calculate the amount of eligible ITC in respect of procurement of thread and
lining material.
5. Ceramity Ltd. has following units:
A: Factory in Tumkur, Karnataka; turnover of ` 27 crores in F.Y. 2020-21;
B: Service centre in Hyderabad, Telangana; turnover of ` 1 crore in F.Y.
2020-21;
C: Service centre in Chennai, Tamil Nadu; turnover of 2 crores in F.Y. 2020-21;
Ceramity Ltd.’s corporate office functions as an ISD. It has to distribute ITC of
` 9 lakh for May, 2021. Of this, an invoice involving tax of ` 3 lakh pertains to
technical consultancy for Tumkur unit.
Explain in brief in what manner should the ITC be distributed?
6. A registered supplier of taxable goods supplied goods valued at
` 2,24,000 (inclusive of CGST ` 12,000 and SGST ` 12,000) to Mohan Ltd. under
forward charge on 15th August for which tax invoice was also issued on the
same date. The inputs were received by Mohan Ltd. on 15th August. Mohan

Ltd. availed credit of ` 24,000 on 20th September by filing Form GSTR-3B for
August month. However, Mohan Ltd. did not make any payment towards such
supply along with tax thereon to the supplier. Is Mohan Ltd. eligible to avail
ITC on such supply?
Discuss ITC provisions if Mohan Ltd. makes the payment of
` 2,24,000 to the supplier on 18th March of next calendar year.
7. State the conditions that need to be followed by an input service distributor for
distribution of credit.
8. With reference to the provisions of section 17, examine the availability of ITC
in the following independent cases:
(i) MBF Ltd., an automobile company, has availed works contract service
for construction of a foundation on which a machinery (to be used in
the production process) is to be mounted permanently.
(ii) Shah & Constructions procured cement, paint, iron rods and services of
architects and interior designers for construction of a commercial
complex for one of its clients.
(iii) ABC Ltd. availed maintenance & repair services from “Jaggi Motors” for
a truck used for transporting its finished goods.
9. On 25th August, M/s Agarwal & Agarwal, a registered supplier of taxable goods
located in Bengaluru (Karnataka), purchased one machine for
` 12,39,000 (including IGST) from one supplier of Maharashtra who issued the
invoice on the same date. M/s Agarwal & Agarwal received the machinery on
the same day and availed ITC for the eligible amount.
M/s Agarwal & Agarwal used the machine in the process of manufacture of
taxable goods. However, M/s Agarwal & Agarwal sold this machine to
Mr. Suresh Kumar of Andhra Pradesh on 20 th August of next year for ` 7,50,000
(excluding lGST).
With reference to section 18(6), determine the amount payable, if any, by
M/s Agarwal & Agarwal at the time of sale of the machine.
Note: The applicable rate of IGST is 18%.
10. Krishna Motors is a car dealer selling cars of an international car company. It
also provides maintenance and repair services of the cars sold by it as also of
other cars. It seeks your advice on availability of ITC in respect of the following
expenses incurred by it during the course of its business operations:

(i) Cars purchased from the manufacturer for making further supply of such
cars. Two of such cars are destroyed in accidents while being used for
test drive by potential customers.
(ii) Works contract services availed for constructing a car parking shed in its
premises
11. With the help of information given below in respect of a manufacturer for the
month of September, compute the ITC credited to the Electronic Credit Ledger,
for the month. Also, compute the amount of ITC to be added to the output tax
liability for the month of September. Ignore interest, if any.
Particulars Amount
(`)
Outward supply of taxable goods (exclusive of taxes) 70,000
Outward supply of exempt goods 40,000
Total turnover 1,10,000
Inward supplies GST paid (`)
Capital goods used exclusively for taxable outward supply 2,000
Capital goods used exclusively for exempt outward supply 1,800
Capital goods used for both taxable and exempt outward 4,200
supply
Subject to the information given above, assume that all the other conditions
necessary for availing ITC have been fulfilled.
12. X, a manufacturer of roofing sheets, is having ` 1,60,000 as opening balance
of ITC for June month. He provides the following information pertaining to the
goods and services procured during the month of June:
(1) Input tax on raw materials is ` 40,000. The raw material is used for
making both taxable and exempt supplies.
(2) Input tax on catering services procured from ‘Harvest Caterers’ in
connection with his housewarming ceremony is ` 10,000.
(3) Input tax on raw materials used exclusively in manufacture of exempt
supplies of ` 2 lakh is ` 20,000.

(4) Input tax on cosmetic and plastic surgery of manager of the factory is
` 30,000.
Total taxable turnover for the month of June is ` 60 lakh exclusive of tax.
Compute the ITC credited for the month of June to the Electronic Credit Ledger
and net GST payable from Electronic Cash Ledger by X for the month of June.
Rate of GST is 18% (Ignore CGST, SGST or IGST for the sake of simplicity).
Subject to the information given above, assume that all the other conditions
necessary for availing ITC have been fulfilled. All the purchases are made from
registered suppliers.
13. Sarani Weavers, at Pune, Maharashtra is a registered input service distributor
and intends to distribute ITC for the month of March. The following are the
details available for such distribution:
Branch Turnover of the last ITC specifically

quarter (`) attributable to the branch
(` )
Ganganagar Branch 10,00,000 IGST – ` 12,000

(Rajasthan) CGST – ` 3,000
SGST –` 3,000
Madhugiri Branch 5,00,000 Nil

(Karnataka)
Kosala Branch (UP) 15,00,000 Nil
Mumbai Branch 20,00,000 IGST – ` 1,50,000

(Maharashtra) CGST– ` 15,000
SGST– ` 15,000
lTC available on input services used commonly for all branches is as under:
CGST - ` 60,000
SGST - ` 60,000
IGST - ` 1,20,000
lTC (IGST) of ` 10,000 pertaining to March (last year) was inadvertently not
distributed. Whether the same can be considered for distribution in March this
year?

Madhugiri, Karnataka branch uses input services to manufacture exempted

products. Turnover excludes duties & taxes payable to Central and State
Government.
Determine the manner of input tax distribution.
14. George Pvt. Ltd., a registered supplier of goods at Kerala who pays GST under
regular scheme, has made the following transactions (exclusive of tax) during
a tax period:
Purchases (` ) Sales (` ) Tax Rate
5,00,000 10,00,000 IGST - 18%

[Purchases made from [Sale made to registered CGST – 9%
registered person in New person in New Delhi] SGST- 9%
Delhi]
2,50,000 8,00,000
[Purchases made from [Sales made to registered
registered person in person in Trivandrum]
Trivandrum, Kerala]
The company has complied with all the conditions for availing the ITC. The
following further information regarding various opening balances available
with it for the tax period, is provided by the company:
Source Taxes (`) Interest (`) Penalty (`)
CGST 50,000 1500 500
SGST 30,000 1500 500
IGST 1,00,000 2000 500
Compute the net CGST, SGST and IGST payable from the Electronic Cash Ledger
by George Pvt. Ltd. for the tax period as also ITC to be carried forward to next
tax period, if any.
15. Quanto Enterprises is not required to register under CGST Act. However, it
applied for voluntary registration on 17th September. Registration certificate
has been granted to the firm on 25 th September. The CGST and SGST liability
of the firm for the month of September is ` 24,000 each. The firm is not
engaged in making inter-State outward taxable supplies.

Quanto Enterprises provides the following information regarding capital goods

and inputs held in stock by it as on 24th September:
Particulars Amount (`)

Inputs procured on 2nd September lying in stock
- CGST @ 6% 4,500
- SGST @ 6% 4,500
Input received on 21st July contained in semi-finished goods
held in stock:
- CGST @ 6% 7,500
- SGST @ 6% 7,500
Value of inputs contained in finished goods held in
stock- ` 2,00,000 [Such inputs were procured on 19th
September last year. Invoice for the goods was also issued
on the same day]
- IGST @ 18% 36,000
Inputs valued at ` 50,000 procured on 13 th September lying
in stock:
- IGST @ 18% 9,000
Capital goods procured on 12th September
-CGST @ 6% 12,000
-SGST @ 6% 12,000
You are required to compute the net GST payable from Electronic Cash Ledger
by Quanto Enterprises for the month of September.
You are also required to mention reasons for treatment of all above items.
16. B & D Company, a partnership firm, registered in Nagpur, Maharashtra is a
wholesaler of taxable product ‘P’ and product ‘Q’ exempted by way of a
notification. The firm supplies these products only in the eastern part of
Maharashtra. All the procurements (both goods and services) of the firm are
from the suppliers registered under regular scheme in the State of Maharashtra.
The firm pays tax under composition scheme.

B & D Company has furnished the following details with respect to its turnover
(exclusive of taxes) and stock (exclusive of taxes):
Particulars Turnover for the quarter Turnover for the quarter

ended 30th June (`) ended 30th September (`)
‘P’ 60,00,000 50,00,000
‘Q’ 17,65,000 17,00,000
Particulars Stock as on Stock as on 30th Stock as on 31st

30th June (`) September (`) October (`)
‘P’ 25,00,000 10,00,000 3,60,000
‘Q’ 10,00,000 2,00,000 1,20,000
The entire stock of the products ‘P’ and ‘Q’ available with the firm as on 30th
September is purchased during the said half year except a consignment of
product ‘P’ valuing ` 3,00,000, which was purchased in the April month of the
preceding financial year. The said stock could not be sold during the month of
October. In the current financial year, in the month of October, no purchases
were made, and the products were sold with a profit margin of 20% on sales
[exclusive of taxes].
The extract of the only bill book maintained by the firm showed the following
details-
Bill Date Value of products (exclusive of taxes)

No.
‘P’ (`) ‘Q’ (` ) Total (`)
2306 1st October 2,00,000 3,000 2,03,000
2307 1st October 1,33,000 5,250 1,38,250
2308 2nd October 67000 39,250 1,06,250
2309 3rd October 58,750 33,750 92,500

2310 5th October 1,00,000 - 1,00,000
2311 6th October 94,000 6,000 1,00,000
2312 6th October - 17,000 17,000
2313 8th October 50,000 6,000 56,000
2314 9th October 60,000 9,000 69,000
2315 …………….. …………….. …………….. ……………..
………. …………….. …………….. …………….. ……………..
All the above amounts are exclusive of taxes, wherever applicable

Compute the ITC to be credited to the Electronic Credit Ledger of the B & D
Company, when it exits composition scheme and becomes liable to pay tax
under regular scheme, in accordance with the provisions of section 18(1)(c).
Note: Make suitable assumptions wherever required. Stock is valued at cost
price.
17. XYZ Pvt. Ltd. is a manufacturing company registered under GST in the State of
Uttar Pradesh. It manufactures two taxable products ‘Alpha’ and ‘Beta’ and
one exempt product ‘Gama’. On 1st October, while product ‘Beta’ got exempted
through an exemption notification, exemption available on ‘Gama’ got
withdrawn on the same date. The turnover (exclusive of taxes) of ‘Alpha’, ‘Beta’
and ‘Gama’ in the month of October was ` 9,00,000, ` 10,00,000 and
` 6,00,000.
XYZ Pvt. Ltd. has furnished the following details:
S. Particulars Price (`) GST (`)

No.
(a) Machinery ‘U’ purchased on 1st October for 2,00,000 36,000

being used in manufacturing all the three
products

(b) Machinery ‘V’ purchased on 1st October for 1,00,000 18,000

being used in manufacturing product ‘Alpha’
and ‘Gama’
(c) Machinery ‘W’ purchased on 1st October for 3,00,000 54,000

being exclusively used in manufacturing
product ‘Beta’
(d) Machinery ‘Y’ purchased on 1st October four 4,00,000 72,000

years ago for being exclusively used in
manufacturing product ‘Beta’. From 1 st
October, such machinery will also be used for
manufacturing product ‘Gama’.
(e) Machinery ‘Z’ purchased on 1st October two 3,00,000 54,000

years ago for being used in manufacturing all
the three products
(f) Raw Material used for manufacturing ‘Alpha’ 1,50,000 27,000

purchased on 5th October
(g) Raw Material used for manufacturing ‘Beta’ 2,00,000 36,000

(h) Raw Material used for manufacturing ‘Gama’ 1,00,000 18,000

Compute the following:

(i) Amount of ITC to be credited to Electronic Credit Ledger, for the month
of October
(ii) Amount of aggregate value of common credit (Tc)
(iii) Common credit attributable to exempt supplies, for the month of
October
(iv) GST liability of the company payable through Electronic Cash Ledger,
for the month of October if opening balance of ITC is nil.
Note: Assume that all the procurements made by the company are from States
other than Uttar Pradesh. Similarly, the company sells all its products in States
other than Uttar Pradesh. Rate of IGST is 18%. Subject to the information
given above, assume that all the other conditions necessary for availing ITC

have been fulfilled. Ignore interest, if any and make suitable assumptions
wherever required.
18. ‘All-in-One Store’ is a retail chain of departmental store having presence in
almost all metro cities across India. Both exempted as well as taxable goods
are sold in such Stores. The Stores operate in rented properties. All-in-One
Stores pay GST under regular scheme.
In Mumbai, the Store operates in a rented complex, a part of which is used by
the owner of the Store for personal residential purpose.
All-in-One Store, Mumbai furnishes following details for a month:
(i) Aggregate value of various items sold in the Store:
Taxable items – ` 42,00,000
Items exempted vide a notification – ` 12,00,000
Items not leviable to GST – ` 3,00,000
(ii) Mumbai Store transfers to another All-in-One Store located in Goa
certain taxable items for the purpose of distributing the same as free
samples. The value declared in the invoice for such items is ` 5,00,000.
Such items are sold in the Mumbai Store at ` 8,00,000.
(iii) Aggregate value of various items procured for being sold in the Store:
Taxable items – ` 55,00,000
Items exempted vide a notification – ` 15,00,000
Items not leviable to GST – ` 5,00,000
(iv) Freight paid to goods transport agency (GTA) for inward transportation
of taxable items – ` 1,00,000
(v) Freight paid to GTA for inward transportation of exempted items –
` 80,000
(vi) Freight paid to GTA for inward transportation of non-taxable items -
` 20,000
(vii) Monthly rent payable for the complex – ` 5,50,000 (one third of total
space available is used for personal residential purpose).
(viii) Activity of packing the items and putting the label of the Store along with
the sale price has been outsourced. Amount paid for packing of all the
items – ` 2,50,000

(ix) Salary paid to the regular staff at the Store – ` 2,00,000

(x) GST paid on inputs used for personal purpose – ` 5,000
(xi) GST paid on rent a cab services availed for transportation of employees,
which is not obligatory under any law – ` 4,000
(xii) GST paid on items given as free samples – ` 4,000
Given the above available facts, you are required to compute the following:
A. Input tax credit (ITC) credited to the Electronic Credit Ledger
B. Common Credit
C. ITC attributable towards exempt supplies out of common credit
D. Eligible ITC out of common credit
E. Net GST payable from Electronic Cash Ledger for the month if opening
balance of ITC is nil.
Note:
(1) Wherever applicable, GST under reverse charge is payable @ 5% by All-
in-One Stores. Rate of GST in all other cases is 18% (Ignore CGST, SGST
or IGST for the sake of simplicity).
(2) All the inward supplies are procured from registered suppliers.
(3) Wherever applicable, the amounts given are exclusive of taxes.
(4) Subject to the information given above, assume that all the other
19. Vansh Shoppe is a retail supplier of both taxable and exempted goods,
registered under GST in the State of Rajasthan. Vansh Shoppe has furnished
the following details for a month:
(`)
(1) Details of sales:

Supply of taxable goods 50,00,000
Supply of goods not leviable to GST 10,00,000
(2) Details of goods purchased for being sold in the shop:
Taxable goods 45,00,000

Goods not leviable to GST 4,00,000
(3) Details of expenses:

Monthly rent payable for the shop 3,50,000
Telephone expenses paid 50,000
(` 30,000 for land line phone installed at the shop and
` 20,000 towards mobile phone bills of the employees –
Mobile phones are given to employees for official use)
Audit fees paid to a Chartered Accountant 60,000
(` 35,000 for filing of income tax return & the statutory
audit of preceding financial year and ` 25,000 for filing
of GST return)
Premium paid on health insurance policies taken for 10,000
specified employees of the shop as per company policy.
Freight paid to goods transport agency (GTA) [service 50,000
taxable @ 5%] for inward transportation of goods not
leviable to GST
Freight paid to goods transport agency (GTA) ) [service 1,50,000
taxable @ 5%] for inward transportation of taxable
goods
Goods given as free samples (Not included in Taxable 5,000
goods value of 45,00,000)
All the above amounts are exclusive of all kind of taxes, wherever applicable.
All the inward and outward supplies made by Vansh Shoppe are from/to
registered suppliers within Rajasthan.
Assume, wherever applicable, for purpose of reverse charge payable by Vansh
Shoppe, the CGST, SGST and IGST rates as 2.5%, 2.5% and 5% respectively.
CGST, SGST and IGST rates to be 6%, 6% and 12% respectively in all other
cases.
There is no opening balance in the electronic cash ledger or electronic credit
ledger. Subject to the information given above, assume that all the other

You are required to compute the following:

(1) Input Tax Credit (ITC) credited to Electronic Credit Ledger
(2) Common credit available for apportionment
(3) ITC attributable towards exempt supplies out of common credit
(4) Net GST payable from Electronic Cash Ledger for the month
20. Mr. Rajesh Surana has a proprietorship firm in the name of Surana & Sons in
Jaipur. The firm, registered under GST in the State of Rajasthan, manufactures
three taxable products ‘M’, ‘N’ and ‘O’. Tax on ‘N’ is payable under reverse
charge. The firm also provides taxable consultancy services.
The firm has provided the following details for a tax period:
Particulars (` )
Turnover of ‘M’ (excluding export sales) 14,00,000
Turnover of ‘N’ 6,00,000
Turnover of ‘O’ (excluding export sales) 10,00,000
Export of ‘M’ with payment of IGST (not eligible to avail benefit 2,50,000
of merchant exports under Notification No. 41/2017)
Export of ‘O’ under letter of undertaking 10,00,000
Consultancy services provided to unrelated clients located in 20,00,000

foreign countries. In all cases, the consideration has been
received in convertible foreign exchange
Sale of building (excluding stamp duty of ` 2.50 lakh, being 1,20,00,000

2% of value) [Entire consideration is received post issuance of
completion certificate; building was occupied thereafter]
Interest received on investment in fixed deposits with a bank 4,00,000
Sale of shares (Purchase price ` 2,40,00,000/-) 2,50,00,000
Legal services received from an advocate in relation to product 3,50,000

‘M’

Common inputs and input services used for supply of goods 50,00,000
and services mentioned above [Inputs - ` 35,00,000; Input
services - ` 15,00,000]
With the help of the above-mentioned information, compute the net GST
liability of Surana & Sons, payable from Electronic Credit Ledger and/or
Electronic Cash Ledger, as the case may be, for the tax period.
Note: Assume that rate of GST on goods and services are 12% and 18%
respectively (Ignore CGST, SGST or IGST for the sake of simplicity). Subject to
the information given above, assume that all the other conditions necessary for
availing ITC have been fulfilled. Turnover of Surana & Sons was ` 85,00,000 in
the preceding financial year.
21. M/s XYZ, a registered supplier, supplies the following goods and services for
construction of buildings and complexes -
- excavators for required period at a per hour rate
- manpower for operation of the excavators at a per day rate
- soil-testing and seismic evaluation at a per sample rate.
The excavators are invariably hired out along with operators. Similarly,
excavator operators are supplied only when the excavator is hired out.
M/s XYZ receives the following services:
- Maintenance services for excavators;
- Health insurance for operators of the excavators;
- Scientific and technical consultancy for soil testing and seismic
evaluation.
For a given month, the receipts (exclusive of GST) of M/s XYZ are as follows:
- Hire charges for excavators - ` 18,00,000
- Service charges for supply of manpower for operation of the excavator -
` 20,000
- Service charges for soil testing and seismic evaluation at three sites -
` 2,50,000
The GST paid during the said month on services received by M/s XYZ is as
follows:

- Maintenance for excavators - ` 1,00,000

- Health insurance for excavator operators - ` 11,000
- Scientific and technical consultancy for soil testing and seismic
evaluation - ` 1,00,000
Compute the net GST payable by M/s XYZ from Electronic Cash Ledger for the
given month.
Assume the rates of GST to be as under:
Hiring out of excavators – 12%
Supply of manpower services and soil-testing and seismic evaluation
services – 18%
(Ignore CGST, SGST or IGST for the sake of simplicity).
Note: - Opening balance of ITC of GST is nil.
22. V-Supply Pvt. Ltd. is a registered manufacturer of auto parts in Kolkata, West
Bengal. The company has a manufacturing facility registered under Factories
Act, 1948 in Kolkata. It procures its inputs indigenously from both registered
and unregistered suppliers located within as well as outside West Bengal as
also imports some raw material from China.
The company reports the following details for a tax period:
Payments (`) Receipts (`)

(in lakh) (in lakh)
Raw material 3.5 Sales 15
Consumables 1.25
Transportation charges for bringing 0.70

the raw material to factory
Salary paid to employees on rolls 5.0
Premium paid on life insurance 1.60

policies taken for specified
employees
Audit fee 0.50

Telephone expenses 0.30
Bank charges 0.10

All the above amounts are exclusive of all kinds of taxes, wherever applicable.
However, the applicable taxes have also been paid by the company.
Further, following additional details are furnished by the company in respect of
the payments and receipts reported by it:
(i) Raw material amounting to ` 0.80 lakh is procured from Bihar and
` 1.5 lakh is imported from China. Basic customs duty of ` 0.15 lakh,
social welfare surcharge of ` 0.015 lakh and integrated tax of ` 0.2997
lakh are paid on the imported raw material.
Remaining raw material is procured from suppliers located in West
Bengal. Out of such raw material, raw material worth ` 0.30 lakh is
procured from unregistered suppliers; the remaining raw material is
procured from registered suppliers.
Further, raw material worth ` 0.05 lakh purchased from registered supplier
located in West Bengal has been destroyed due to seepage problem in the
factory and thus, could not be used in the manufacturing process.
(ii) Consumables are procured from registered suppliers located in Kolkata
and include diesel worth ` 0.25 lakh for running the generator in the
factory.
(iii) Transportation charges comprise of ` 0.60 lakh paid to Goods Transport
Agency (GTA) in Kolkata and ` 0.10 lakh paid to horse pulled carts. GST
applicable on the services of GTA is 5%.
(iv) Life insurance policies for specified employees have been taken by the
company to fulfill a statutory obligation in this regard. The life insurance
service provider is registered in West Bengal.
(v) Audit fee is paid to M/s Goyal & Co., a firm of Chartered Accountants
registered in West Bengal, for the statutory audit of the preceding
financial year.
(vi) Telephone expenses pertain to bills for landline phone installed at the
factory and mobile phones given to employees for official use. The
telecom service provider is registered in West Bengal.

(vii) Bank charges are towards company’s current account maintained with a
Private Sector Bank registered in West Bengal.
(viii) The breakup of sales is as under:
Sales in West Bengal – ` 7 lakh
Sales in States other than West Bengal – ` 3 lakh
Export under LUT – ` 5 lakh
(ix) The opening balance of ITC with the company for the tax period is:
CGST - ` 0.15 lakh
SGST - ` 0.08 lakh
IGST - ` 0.09 lakh
Compute (i) Total ITC available with V-Supply Pvt. Ltd. for the tax period; and
(ii) Net GST payable [CGST, SGST or IGST, as the case may be] from Electronic
Cash Ledger by V-Supply Pvt. Ltd. for the tax period.
Note-
(i) CGST, SGST & IGST rates to be 9%, 9% and 18% respectively, wherever
applicable.
(ii) The necessary conditions for availing ITC have been complied with by V-
Supply Pvt. Ltd., wherever applicable.
You are required to make suitable assumptions, wherever necessary.
23. ABC Company Ltd. of Bengaluru is a manufacturer and registered supplier of
machineries. It has provided the following details for a tax period:
Inward supplies GST

paid (`)
Health insurance of factory employees as required by the 20,000
Factories Act, 1948
Raw materials for which invoice has been received and GST has 18,000
also been paid for full amount but only 50% of material has
been received, remaining 50% will be received in next month
Work contractor’s service used for installation of plant and 12,000
machinery

Purchase of manufacturing machine sent directly to job 50,000

worker’s premises under delivery challan
Purchase of car used by director exclusively for the purpose of 25,000
business meetings
Outdoor catering service availed for business meetings 8,000
ABC Company Ltd. also provides service of hiring of machines along with
manpower for operation. As per trade practice, machines are always hired out
along with operators and also operators are supplied only when machines are
hired out.
Outward supply (exclusive of GST) for the tax period are as follows:
Particulars Value (`)

Hiring receipts for machine 5,25,000
Service charges for supply of manpower operators 2,35,000
Assume the rates of GST to be as under:

(i) Service of hiring of machine 12%
(ii) Supply of manpower operator service 18%
(Ignore CGST, SGST or IGST for the sake of simplicity)
Compute the amount of ITC available as also the net GST payable from the
Electronic Cash Ledger for the tax period by giving necessary explanations for
treatment of various items.
Note: Opening balance of ITC is Nil.
24. Pari Ltd. of Jodhpur (Rajasthan) is a registered manufacturer of cosmetic
products. Pari Ltd. has furnished following details for a tax period:
Particulars (`)
Details of Outward supplies

(i) Supplies in Rajasthan 8,75,000
(ii) Supplies in States other than Rajasthan 3,75,000
(iii) Export under LUT 6,25,000

Details of expenses
(i) Raw materials purchased from registered suppliers 1,06,250

located in Rajasthan
(ii) Raw materials purchased from unregistered suppliers 37,500

located in Rajasthan
(iii) Raw materials purchased from Punjab from registered 1,00,000

supplier
(iv) Integrated tax paid on raw materials imported from 22,732

USA
(v) Consumables purchased from registered suppliers 1,56,250

located in Rajasthan including high speed diesel (Excise
and VAT paid) valuing ` 31,250 for running the
machinery in the factory
(vi) Monthly rent for the factory building to the owner in 1,00,000
Rajasthan
(vii) Salary paid to employees on rolls 6,25,000
(viii) Premium paid on life insurance policies taken for 2,00,000

specified employees. Life insurance policies for specified
employees have been taken by Pari Ltd. to fulfill a
statutory obligation in this regard. The life insurance
service provider is registered in Rajasthan.
All the above amounts are exclusive of all kinds of taxes, wherever
applicable. However, the applicable taxes have also been paid by Pari Ltd.
The opening balance of ITC with Pari Ltd. for the given tax period is-
CGST ` 20,000
SGST ` 15,000
IGST ` 15,000
Assume CGST, SGST and lGST rates to be 9%, 9% and 18% respectively,
wherever applicable.

Assume that all the other necessary conditions to avail the ITC have been
complied with by Pari Ltd., wherever applicable.
Compute (i) ITC available with Pari Ltd. for the tax period; and (ii) Net GST
payable [CGST, SGST or IGST, as the case may be] from Electronic Cash Ledger
by Pari Ltd. for the tax period.
25. Flowchem Palanpur (Gujarat) has entered into a contract with R Refinery, Abu
Road (Rajasthan) on 1stJuly to supply 10 valves on FOR basis. The following
information is provided in this regard:
(1) List price per valve is` 1,00,000, exclusive of taxes.
(2) One of the conditions of the contract is that Flowchem should ensure a
two stage third party inspection for the valves during the manufacturing
process. Cost of inspection of ` 15,000 (for 10 valves) is directly paid by
R Refinery to testing agency.
(3) R Refinery requires a special packing for the valves. Cost of special
packing is ` 10,000 (for 10 valves).
(4) Flowchem arranges for erection and testing of the valves supplied by it at
R Refinery’s site. Cost of erection etc. is ` 15,000 (for 10 valves).
(5) Goods are dispatched with tax invoice on 20thJuly and they reach the
destination at Abu-Road on 21stJuly. Lorry freight of` 5,000 has been
paid by R Refinery directly to the lorry driver.
Assume CGST and SGST rates to be 9% each and IGST rate to be 18%. Opening
balance of ITC of IGST is Nil, CGST is ` 20,000 and SGST is ` 20,000. All the
given amounts are exclusive of GST, wherever applicable.
Flowchem has also undertaken following local transactions during the month
of July on which it has paid CGST and SGST as under:
S. Particulars Amount Amount

No. paid paid
CGST SGST
(` ) (` )
1. Availed services of works contractor to erect 5,000 5,000

foundation for fixing the machinery to earth,
in the factory.

2. Laid pipelines (from the water source outside 10,000 10,000

the factory) upto the gate of the factory for the
purpose of production facility.
3. For the purpose of smooth and convenient 5,000 5,000

mobile communication in its factory, it has
installed telecommunication tower of a
mobile company (with due permission)
4. It has entered into an agreement with a travel 2,500 2,500

company to provide home travel facility to its
employees when they are on leave.
5. It has entered into an agreement with a fitness 2,000 2,000

center to provide wellness services to its
employees after office hours
Work out the net GST [CGST, SGST or IGST, as the case may be] payable from
Electronic Cash Ledger of Flowchem, Palanpur (Gujarat) for the month of July
after making suitable assumptions, if any.
ANSWERS
1. As per section 17(5), tax paid under sections 74, 129 and 130 is not available
as ITC. Further, rule 36(3) also lays down that tax paid in pursuance of any
order where any demand has been confirmed on account of any fraud, willful
misstatement or suppression of facts cannot be availed as ITC by a registered
person.
In the given case, Xenon Pvt. Ltd. has paid tax in pursuance of an order issued
under section 74. Therefore, Freshbite Pvt. Ltd. cannot avail ITC of such tax.
2. As per section 17(5)(i)(b), ITC on supply of inter alia food and beverages and
outdoor catering is blocked. However, ITC in respect of such goods or
services or both shall be available where an inward supply of such goods or
services or both is used by a registered person for making an outward taxable
supply of the same category of goods or services or both or as an element of
a taxable composite or mixed supply.
In the given case, Flamingo Ltd. is availing outdoor catering service to provide
outdoor catering (meals) to the passengers on board the aircraft. Since ITC
in respect of outdoor catering is available if the same is used for making an

outward taxable supply as an element of a taxable composite or mixed supply,

Flamingo Ltd. can avail ITC on outdoor catering service procured by it as it
will be considered as supply of an ancillary service to the passenger
transportation services supplied by it (principal supply).
3. It may appear at first glance that in case of offers like “Buy One, Get One
Free”, one item is being “supplied free of cost” without any consideration.
As per clause (a) of section 7(1) read with clause (c) thereof, goods or services
which are supplied free of cost (without any consideration) shall not be
treated as supply except in case of activities mentioned in Schedule I.
Circular No. 92/11/2019 GST dated 07.03.2019 has clarified the entitlement of
ITC in the hands of supplier in respect of sales promotional scheme like ‘buy
one get one free’. Such promotional offers are not individual supplies of free
goods, but a case of two or more individual supplies where a single price is
being charged for the entire supply. It can at best be treated as supplying
two goods for the price of one.
Taxability of such supply will be dependent upon as to whether the supply is
a composite supply or a mixed supply and the rate of tax shall be determined
as per the provisions of section 8.
ITC shall be available to the supplier for the inputs, input services and capital
goods used in relation to supply of goods or services or both as part of such
offers.
Therefore, the given case is not the case of individual supplies of free goods,
but a case of three individual supplies where a single price is being charged
for the entire supply. Thus, Jumbo Sales Pvt. Ltd. will be entitled to avail ITC
on inputs, input services and capital goods used in relation to supply of T-
Shirts as part of such offer.
4. Thread and lining material are inputs which are used for making taxable as
well as exempt supplies. Therefore, credit on such items will be apportioned
and credit attributable to exempt supplies will be reversed in terms of
rule 42.
Credit attributable to exempt supplies = Common credit x (Exempt turnover/
Total turnover)
Common credit = ` 15,000 + ` 5,000 = ` 20,000
Exempt turnover = ` 1 crore

Total turnover = ` 5 crore [` 1 crore + ` 4 crore]

Credit attributable to exempt supplies = (` 1 crore /` 5 crore) x ` 20,000 =
` 4,000.
Ineligible credit of ` 4,000 will be reversed in Form GSTR-3B. Credit of
` 16,000 will be eligible credit for the month of July.
5. As per rule 39(d) relating to ITC, -
• ` 3 lakh is attributable to Tumkur unit, and will be transferred to Tumkur
unit only.
• ` 6 lakh have to be distributed among Tumkur unit and the service
centres in Hyderabad and Chennai in proportion of their turnover in the
previous FY, that is, in 2020-21
o Tumkur unit will get (27 crore / 30 crore) x 6 lakh = ` 5.4 lakh;
o Hyderabad service centre will get (1 crore /30 crore) x 6 lakh =
` 20,000; and
o Chennai service centre will get (2 crore /30 crore) x 6 Lakh =
` 40,000.
Ceramity Ltd. should issue ISD invoices (from GSTN obtained separately for
ISD) for distributing ITC (as calculated above) to its units. It should be clearly
indicated in the invoices that the same are issued only for distribution of
ITC.
6. As per section 16, Mohan Ltd. is eligible to avail ITC of the tax paid on inputs
received by it on the basis of the invoice issued by the supplier provided other
conditions for availing ITC are fulfilled.
Payment of value of the goods along with the tax to the supplier is not a pre-
requisite at the time of availing credit, but Mohan Ltd. has to pay the said
amount within 180 days from the date of issue of invoice. If Mohan Ltd, fails
to do so the ITC of ` 24,000 will be added to its output tax liability with
interest. Such interest will be paid @ 18% p.a. from the date of availing credit
till the date when the amount added to the output tax liability is paid [Second
proviso to section 16(2) read with rule 37].
If Mohan Ltd. makes the payment of ` 2,24,000 (Value + tax) to the supplier
on 18th March of next calendar year, i.e. after the expiry of 180 days from date
of issue of invoice, Mohan Ltd. can avail the credit of ` 24,000 while filing
form GSTR-3B for the month of March.

7. The following conditions need to be followed by an input service distributor

(ISD) for distribution of credit:
(i) The ISD is required to obtain a separate registration for distribution of
credit.
(ii) The credit can be distributed to the recipients of credit against an ISD
invoice containing prescribed details.
(iii) The amount of the credit distributed shall not exceed the amount of
credit available for distribution.
(iv) The credit related to an input service must be distributed only to the
particular recipient to whom that input service is attributable.
(v) If the input service is attributable to more than one recipient, the
relevant ITC is distributed pro rata to such recipients in the ratio of
turnover of the recipient in a State/ Union Territory to the aggregate
turnover of all the recipients to whom the input service is attributable
and which are operational during the current year.
(vi) ITC pertaining to input services which are common for all units, is
distributed to all the recipients in the ratio of turnover in the prescribed
manner.
(vii) ITC available for distribution in a month shall be distributed in the same
month and the details thereof shall be furnished in the prescribed form.
(viii) Both ineligible and eligible ITC are to be distributed separately.
(ix) ITC of CGST, SGST/UTGST and IGST are to be distributed separately.
(x) ITC of CGST, SGST/UTGST in respect of recipient located in the same
State/Union Territory is distributed as CGST and SGST/UTGST
respectively.
(xi) ITC of CGST and SGST/UTGST, in respect of a recipient located in a
different State/Union territory, is distributed as IGST (total of ITC of
CGST and SGST/UTGST which were to be distributed to such recipient).
(xii) ITC on account of IGST is distributed as IGST.
8. (i) Section 17(5)(c) blocks input tax credit in respect of 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.

Further, the term “plant and machinery” means apparatus, equipment

and machinery fixed to earth by foundation or structural support that
are used for making outward supply of goods and/or services and
includes such foundation or structural support but excludes land,
building or other civil structures, telecommunication towers, and
pipelines laid outside the factory premises.
Thus, in view of the above-mentioned provisions, ITC is available in
respect of works contract service availed by MBF Ltd. as the same is
used for construction of plant and machinery which is not blocked
under section 17(5)(c). It is assumed that the expenditure incurred
towards works contract service is capitalised in the books of MBF Ltd.
and no depreciation has been claimed on the tax component.
(ii) Section 17(5)(d) blocks ITC 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 including when 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 notwithstanding the
fact that the immovable property being constructed will be used in the
course or furtherance of his business.
In the given case, Shah & Constructions has used the goods and
services for construction of immovable property for some other person
and not on its own account. Hence, ITC in this case will be allowed.
(iii) On a conjoint reading of section 17(5)(a) and 17(5)(ab), it can be
concluded that ITC is allowed on repair and maintenance services
relating to motor vehicles, which are eligible for input tax credit.
Further, as per section 17(5)(a) ITC is allowed on motor vehicles which
are used for transportation of goods.
Thus, ITC on maintenance & repair services availed from “Jaggi Motors”
for a truck used for transporting its finished goods is allowed to ABC
Ltd.
9. As per section 18(6), if capital goods/ plant and machinery on which ITC has
been taken are supplied (outward) by a registered person, he must pay an
amount that is higher of the following:

(a) ITC taken on such goods reduced by 5% per quarter or part thereof
from the date of issue of invoice for such goods or
(b) tax on transaction value of such outward supply determined under
section 15.
Accordingly, the amount payable on supply of machinery by M/s Agarwal &
Agarwal shall be computed as follows:
ITC taken on the machinery (` 12,39,000 × 18/118) 1,89,000
Less: Input tax credit to be reversed @ 5% per quarter for

the period of use of machine
(i) For the previous year = (` 1,89,000 × 5%) × 3 28,350
quarters
(ii) For the current year = (` 1,89,000 × 5%) × 2 18,900
quarters
Amount required to be paid by adding the reversal 1,41,750

amount to the output tax liability) (A) **
Duty leviable on transaction value (` 7,50,000 × 18%) (B) 1,35,000
Amount payable towards disposal of machine is higher of 1,41,750

(A) and (B)
Thus, M/s Agarwal & Agarwal is required to pay an amount of ` 1,41,750

at the time of sale of machinery by adding the same to the output tax
liability.
** In the above solution, amount payable towards disposal of machine has

been computed on the basis of rule 40(2), i.e. ITC to be reversed for the period
of use of capital goods/machine has been computed @ 5% for every quarter
or part thereof from the date of the issue of invoice.
However, the said amount can also be computed in accordance with rule
44(6), i.e. ITC involved in the remaining useful life (in months) of the capital
goods/ machine can be reversed on pro-rata basis, taking the useful life as 5
years.

10. As per section 16(1), every registered person can take credit of input tax
charged on any supply of goods or services or both to him which are used or
intended to be used in the course or furtherance of his business. However,
section 17(5) specifies certain goods and services on which the input tax
credit is not available.
In the light of the foregoing provisions, the availability of ITC in respect of
the various expenses incurred by Krishna Motors is discussed below:
(i) Section 17(5)(a) specifically blocks ITC on motor vehicles for
transportation of passengers having approved seating capacity of not
more than thirteen persons. However, the same is allowed when the
motor vehicles are used, inter alia, for further supply of such vehicles.
Thus, ITC on cars purchased from the manufacturer for making further
supply of such cars will be allowed.
However, ITC on the cars fully destroyed in accident will not be allowed
as the ITC on goods destroyed for whichever reason is specifically
blocked under section 17(5)(h).
(ii) Section 17(5)(c) specifically blocks ITC on works contract services when
supplied for construction of an immovable property (other than plant
and machinery) except where it is an input service for further supply of
works contract service. Since, in this case the car parking shed is not a
plant and machinery but a civil structure (excluded from “plant and
machinery”)and the works contract service is not used for further supply
of works contract service, ITC thereon will not be allowed.
11. Computation of ITC credited to Electronic Credit Ledger and amount of
ITC to be added to the output tax liability for the month of September
Particulars ` ITC (`)
Capital goods used exclusively for taxable supply 2,000

[Since used exclusively for taxable supply, full ITC is
available under rule 43(1)(b)]
Capital goods used exclusively for exempt supply Nil

[Since used exclusively for exempt supply, ITC is not
available under rule 43(1)(a)]

Capital goods used for both taxable and exempt

supply -Common credit (Tc) 4200
[Commonly used for taxable and exempt supplies –
Rule 43(1)(c)]
Total ITC credited to Electronic Credit Ledger for 6,200

the month of September
Common credit for the month of September (Tm) 70

= Tc ÷ 60 = 4,200 ÷ 60 [Rule 43(1)(e)]
Common credit attributable to exempt supplies in a 25.45

month (Te)
= (E ÷ F) x Tr* where,
‘E’ is the aggregate value of exempt supplies, made,
during the tax period, and
‘F’ is the total turnover in the State of the registered
person during the tax period [Rule 43(1)(g)]
= (40,000/1,10,000) × ` 70 (rounded off)
Amount to be added to the output tax liability for 25.45

the month of September [Rule 43(1)(h)]
Note: *Prior to the amendment vide Notification No. 16/2020 CT dated

23.03.2020 clause (f) of rule 43(1) provided that the amount of ITC, at the
beginning of a tax period, on all common capital goods whose useful life
remains during the tax period, be denoted as ‘Tr‘ and shall be the aggregate of
‘Tm‘ for all such capital goods. However, clause (f) has been omitted vide the
said notification. Consequently, the term “Tr” becomes redundant in the
formula provided in rule 43(1)(g). However, for the sake of computation of
common credit attributable to exempt supply, value of ‘Tm’ has been used here.
It may be noted that as per the erstwhile clause (f) of rule 43(1) value of ‘Tr’ was
the aggregate of ‘Tm.’

12. Computation of ITC available and net GST payable from Electronic Cash
Ledger for the month of June

GST on taxable turnover for the month of June 10,80,000
[` 60,00,000 × 18%]
Less: ITC available for June month in terms of rule 42
Opening balance of ITC available in the ` 1,60,000
Electronic Credit Ledger
Add: ITC credited to the Electronic Credit ` 40,000
Ledger for the month of June [Refer working
note below]
Less: ITC out of common credit attributable (` 1,290) 1,98,710
to exempt supply [Refer working note below]
Net GST payable from Electronic Cash Ledger 8,81,290
Working Note:
Computation of ITC (out of common credit) attributable to exempt
supplies
Particulars Amount
(`)
Input tax on raw materials [Note1] 40,000
Input tax on catering for housewarming [Note 2] Nil
Input tax on inputs contained in exempt supplies [Note 3] Nil
Input tax on cosmetic and plastic surgery of CEO of company Nil

[Note 4]
ITC credited to the Electronic Credit Ledger in terms of rule 40,000

42 in the month of June
Common credit [Note 5] 40,000
ITC attributable towards exempt supplies to be reversed 1,290

[Note 6]

Notes:
(1) Being used in the course or furtherance of business, input tax on raw
materials is available as ITC and is credited to the Electronic Credit
Ledger [Section 16(1)].
(2) ITC on outdoor catering is blocked in terms of section 17(5) if the same
is not used for making an outward supply of outdoor catering or as an
element of a taxable composite/mixed supply. Hence, the same is not
credited to the Electronic Credit Ledger [Rule 42].
(3) Input tax on inputs used exclusively for making exempt supplies is not
available as ITC and thus, not credited to the Electronic Credit Ledger
in terms of rule 42.
(4) ITC on cosmetic and plastic surgery is blocked in terms of section 17(5)
if the same are not used for making the same category of outward
supply or as an element of a taxable composite/ mixed supply. Hence,
the same is not credited to the Electronic Credit Ledger [Rule 42].
(5) Since there are no inputs and input services which are used exclusively
for effecting taxable supplies, the entire ITC credited to Electronic Credit
Ledger, i.e. ` 40,000 will be the common credit [Rule 42].
(6) ITC attributable towards exempt supplies = Common credit x
(Aggregate value of exempt supplies during the tax period / Total
turnover in the State during the tax period)
= ` 40,000 × ` 2,00,000/ ` 62,00,000 - (rounded off)
= ` 1,290 (rounded off)
13. As per section 20 read with rule 39:
(i) Total GST credit (CGST+ SGST + IGST) of ` 18,000 specifically
attributable to Ganganagar Branch, Rajasthan will be distributed as IGST
credit of ` 18,000 only to Ganganagar Branch, Rajasthan [Since recipient
and ISD are located in different states].
(ii) IGST credit of ` 1,50,000, CGST credit of ` 15,000 and SGST credit of
` 15,000 specifically attributable to Mumbai Branch, Maharashtra will
be distributed as IGST credit of ` 1,50,000, CGST credit of ` 15,000 and
SGST credit of ` 15,000 respectively, only to Mumbai Branch,
Maharashtra [Since recipient is located in the same State in which ISD
is located].

(iii) CGST credit of ` 60,000, SGST credit of ` 60,000 and IGST credit of
`1,20,000 have to be distributed among the three branches and
Mumbai Branch, Maharashtra in proportion of their turnover of the last
quarter.
- Ganganagar Branch, Rajasthan will get: ` 48,000 [` 2,40,000 x
(` 10,00,000/ ` 50,00,000)] as IGST credit.
- Madhugiri Branch, Karnataka will get: ` 24,000 [` 2,40,000 x
(` 5,00,000/ ` 50,00,000)] as IGST credit.
- The credit attributable to a recipient is distributed even if such
recipient is making exempt supplies.
- Kosala Branch, UP will get: ` 72,000 [` 2,40,000 x (` 15,00,000/
` 50,00,000)] as IGST credit.
- Mumbai Branch, Maharashtra will get:
` 24,000 [` 60,000 x (` 20,00,000/ ` 50,00,000)] as CGST credit,
`24,000 [` 60,000 x (` 20,00,000/ ` 50,00,000)] as SGST credit and
` 48,000 [` 1,20,000 x (` 20,00,000/ ` 50,00,000)] as IGST credit.
(iv) ITC of ` 10,000 of March (last year) cannot be distributed in March this
year as ITC available for distribution in a month is to be distributed in
the same month.
14. Computation of net CGST, SGST and IGST payable from the electronic
cash ledger by George Pvt. Ltd. for the tax period
Particulars Amount CGST @ SGST @ IGST @

(`) 9% (`) 9% (`) 18% (`)
Sales made outside Kerala 10,00,000 1,80,000
(New Delhi) –
[Being inter-State sale, the
same is liable to IGST]
Sales made in Trivandrum 8,00,000 72,000 72,000
[Being intra-State sale, the
same is liable to CGST &
SGST]

Less: ITC available during (72,000) (10,000) (1,80,000)

the tax period for set off CGST IGST
[Refer Working Note
(52,500)
Below]
SGST
Net tax liability payable Nil 9,500 Nil
in cash
ITC to be carried forward 500 Nil Nil
to next tax period (72,500- (52,500- (1,90,000-
70,000) 52,500) 1,90,000
Working Note:
ITC available during the tax period is computed as under:
Opening balance of ITC 50,000 30,000 1,00,000
Purchases from New Delhi 5,00,000 90,000
[Being inter-State
purchase, IGST would
have been paid on it.]
Purchases from 2,50,000 22,500 22,500
Trivandrum
Total input tax credit 72,500 52,500 1,90,000
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) as credit of
CGST and SGST can be utilized only after IGST credit has been fully utilized.
Interest and penalty paid are not available as credit for payment of output
tax liability under GST. It can be used only against corresponding
interest/penalty under the GST law.
15. Computation of net GST payable from Electronic Cash Ledger by Quanto
Enterprises for the month of September
Particulars CGST (Rs) SGST (Rs)
Output tax liability for the month 24,000 24,000

Less: ITC [Notes 1 & 2] 9,000 12,000

(IGST) (SGST)
12,000 (CGST)
Net GST payable (from electronic cash 3,000 12,000

ledger)
Notes:
1. Credit of IGST is first utilized towards payment of IGST and thereafter
for CGST and SGST in any order and in any proportion. Credit of CGST
and SGST can be utilized only after IGST credit has been fully utilized
[Rule 88A read with sections 49(5), 49A and 49B].
Since Quanto Enterprises does not make any inter-State supply, in the
above answer, entire credit of IGST has been utilized towards payment
of CGST. Credit of IGST can also be utilised against SGST liability or
against both CGST and SGST liabilities in any proportion and thus, the
final answer will change accordingly.
2. As per section 18(1)(b) a person who takes voluntary registration is
entitled to take credit of input tax in respect of inputs held in stock and
inputs contained in semi-finished/ finished goods held in stock on the
day immediately preceding the date of grant of registration.
However, he cannot take ITC in respect of capital goods held on the day
immediately preceding the date of grant of registration.
ITC on inputs needs to be availed within 1 year from the date of issue
of the invoice by the supplier [Section 18(2)].
In this case, since Quanto Enterprises has been granted voluntary
registration on 25th September, it will be entitled to ITC on inputs held in
stock and inputs contained in semi-finished/ finished goods held in stock,
on 24th September. In view of the said provisions, eligible ITC for Quanto
Enterprises is computed as follows:
Particulars CGST SGST (`) IGST

(`) (`)
Inputs held in stock since 2nd September 4,500 4,500

Inputs received on 21st July contained in 7,500 7,500

semi-finished goods held in stock
Inputs contained in finished goods held in Nil
stock which were procured on 19th
September last year [Invoice issued prior
to one year, hence ITC cannot be availed]
Inputs held in stock since 9,000
13 September
th
Capital goods procured on Nil Nil

12 September
th
Total ITC 12,000 12,000 9,000
16. As per section 10(3) read with Notification No.14/2019 CT dated 07.03.2019
as amended, the option availed of by a registered person to pay tax under
composition scheme shall lapse with effect from the day on which his
aggregate turnover during a financial year exceeds ` 1.5 crore [` 75 lakh in
case of Special Category States except Assam, Himachal Pradesh and Jammu
and Kashmir].
As per section 2(6), aggregate turnover means the aggregate value of all
taxable supplies (excluding the value of inward supplies on which tax is
payable by a person on reverse charge basis), exempt supplies, exports of
goods or services or both and inter-State supplies of persons having the same
PAN, to be computed on all India basis but excludes CGST, SGST/UTGST, IGST
and GST Compensation Cess.
In the given case, the firm is registered under the composition scheme in the
State of Maharashtra. The aggregate turnover of the firm exceeds
` 1.5 crore on 3rd October [aggregate of both taxable and exempt turnover
from 1st April to 3rd October, i.e. ` 1,50,05,000 (` 1,44,65,000 +
` 2,03,000 + ` 1,38,250 + ` 1,06,250 + `92,500)].
Thus, the firm will pay tax under regular scheme (Section 9) from 3rd October.
As per section 18(1)(c) read with rule 40, where any registered person ceases
to pay tax under section 10, he shall be entitled to take credit of input tax in
respect of inputs held in stock, inputs contained in semi-finished or finished
goods held in stock and on capital goods on the day immediately preceding
the date from which he becomes liable to pay tax under section 9.

Further, ITC on supplies of inputs and capital goods shall not be available
after the expiry of one year from the date of issue of tax invoice
[Section 18(2)].
In the light of the above-mentioned provisions, the ITC credited to the
Electronic Credit Ledger of the B & D Company on inputs held in on
2nd October will be computed as under:
Particulars Amount
(`)
Stock of taxable inputs as on 30th September 10,00,000
[Since no tax is paid on exempt purchases, there does not
arise any question of availing ITC on the same. Hence, stock
of only taxable inputs is considered]
Add: Purchases Nil
[No purchases are made in October]
Less: Cost of taxable goods sold from 1st October to 3,20,000
2nd October
[(2,00,000 + 1,33,000 + 67,000]) x 80%]
Stock of taxable inputs as on 2nd October 6,80,000
[Since the bill numbers are in continuation, it can be
concluded that no sales are missing from the extract]
Less: Stock with invoice issued prior to one year 3,00,000
Stock of inputs on which ITC can be claimed 3,80,000
ITC of CGST @ 9% [Since all purchases are intra-State 34,200
and from the suppliers registered
ITC of SGST @ 9% 34,200
under regular scheme]
17.
S. No. Particulars ITC (`)
(i) Amount of ITC credited to Electronic Credit Ledger,

for the month of October
Machinery ‘U’ - ‘A’ [Note 1] 36,000

Machinery ‘V’ [Note 2] 18,000
Machinery ‘W’ [Note 3] -
Machinery ‘Y’ [Note 4] -
Machinery ‘Z’ [Note 5] -
Raw Material used for manufacturing ‘Alpha’ [Note 6] 27,000
Raw Material used for manufacturing ‘Beta’ [Note 6] -
Raw Material used for manufacturing ‘Gama’ [Note 6] 18,000
Amount of ITC credited to Electronic Credit Ledger, 99,000

(ii) Aggregate value of common credit (Tc) – Note 7
Value of ‘A’ for Machinery ‘U’ purchased on 1st 36,000

October
Value of ‘A’ for Machinery ‘Z’ purchased on 1st October 54,000

2 years ago for effecting both taxable and exempt
supplies
Input tax claimed on Machinery ‘Y’ purchased on 1st 72,000

October 4 years ago for effecting taxable supplies but
used for effecting both taxable and exempt supplies
from 1st October in the current year [Note 8]
Aggregate value of common credit (Tc) 1,62,000
(iii) Common credit attributable to exempt supplies,

Common credit for the month of October (Tm) [Note 9] 2,700
Common credit attributable to exempt supplies, 1,080

for the month of October (Te) – Note 10

(iv) Computation of GST liability of the company for

October payable through Electronic Cash Ledger
IGST payable on ‘Alpha’ [` 9,00,000 x 18%] 1,62,000
IGST payable on ‘Beta’ [Exempt] Nil
IGST payable on ‘Gama’ [` 6,00,000 x 18%] 1,08,000
Total IGST payable on outward supply 2,70,000
Common credit attributable to exempt supplies for the 1,080

month of October [Note 11]
Total output tax liability of October 2,71,080
Less: ITC available in the Electronic Credit Ledger 99,000
IGST payable from Electronic Cash Ledger 1,72,080
Notes:
(1) ITC in respect of capital goods used commonly for effecting taxable
supplies and exempt supplies denoted as ‘A’ shall be credited to the
electronic credit ledger [Rule 43(1)(c)].
(2) ITC in respect of capital goods used or intended to be used exclusively
for effecting supplies other than exempted supplies but including zero
rated supplies shall be credited to the electronic credit ledger [Rule
43(1)(b)].
(3) ITC in respect of capital goods used or intended to be used exclusively
for effecting exempt supplies shall not be credited to electronic credit
ledger [Rule 43(1)(a)].
(4) Machinery ‘Y’ is being used for effecting both taxable and exempt
supplies from 1st October. Prior to that it was exclusively used for
effecting taxable supplies. Therefore, ITC in respect of such machinery
would have already been credited to the electronic credit ledger.
(5) Machinery ‘Z’ is being used for effecting both taxable and exempt
supplies from 1st October two years ago. Therefore, ITC in respect of
such machinery would have already been credited to the electronic
credit ledger.

(6) ITC in respect of inputs used for effecting taxable supplies will be credited
in Electronic Credit Ledger. ITC in respect of inputs used for effecting
exempt supplies will not be credited in the electronic credit ledger
[Rule 42].
(7) The aggregate of the amounts of ‘A’ credited to the electronic credit
ledger in respect of common capital goods whose useful life remains
during the tax period, to be denoted as ‘Tc’, shall be the common credit
in respect of such capital goods [Rule 43(1)(d)].
(8) Where any capital goods which were used exclusively for effecting
taxable supplies are subsequently also used for effecting exempt
supplies, the ITC claimed in respect of such capital goods shall be added
to arrive at the aggregate value of common credit ‘Tc’ [Proviso to rule
43(1)(d)].
(9) ITC attributable to a month on common capital goods during their
useful life (Tm) shall be computed in accordance with rule 43(1)(e) as
under:
= Tc ÷ 60
= ` 1,62,000 ÷ 60
= ` 2,700
The useful life of any capital goods shall be considered as five years
from the date of invoice and the said formula shall be applicable during
the useful life of the said capital goods
(10) The amount of common credit attributable towards exempted supplies,
be denoted as ‘Te’, and shall be calculated as:
Te= (E÷ F) x Tr* where,
‘E’ is the aggregate value of exempt supplies, made, during the tax
period, and
‘F’ is the total turnover in the State of the registered person during the
tax period [Rule 43(1)(g)].
Turnover of exempt supplies during the month of October
=Tr х
Total turnover of XYZ Pvt. Ltd. during the month of October
10,00,000
= ` 2,700 х = ` 1,080
25,00,000

(11) Common credit attributable to the exempt supplies (Te) along with the
applicable interest (which is to be ignored in this case) shall, during
every tax period of the useful life of the concerned capital goods, be
added to the output tax liability of the person making such claim of
credit [Rule 43(1)(h)].
*Prior to the amendment vide Notification No. 16/2020 CT dated 23.03.2020
clause (f) of rule 43(1) provided that the amount of ITC, at the beginning of a
tax period, on all common capital goods whose useful life remains during the
tax period, be denoted as ‘Tr‘ and shall be the aggregate of ‘Tm‘ for all such
capital goods. However, clause (f) has been omitted vide the said notification.
Consequently, the term “Tr” becomes redundant in the formula provided in rule
43(1)(g). However, for the sake of computation of common credit attributable
to exempt supply, value of ‘Tm’ has been used here. It may be noted that as per
the erstwhile clause (f) of rule 43(1) value of ‘Tr’ was the aggregate of ‘Tm.’
18. A. Computation of ITC credited to Electronic Credit Ledger
As per rule 42, the ITC in respect of inputs or input services being partly
used for the purposes of business and partly for other purposes, or
partly used for effecting taxable supplies and partly for effecting
exempt supplies, shall be attributed to the purposes of business or for
effecting taxable supplies.
ITC credited to the electronic credit ledger of registered person [‘C1’] is
calculated as under-
C1 = T - (T1+T2+T3)
Where,
T = Total input tax involved on inputs and input services in a tax

period.
T1 = Input tax attributable to inputs and input services intended

to be used exclusively for non-business purposes
T2 = Input tax attributable to inputs and input services intended

to be used exclusively for effecting exempt supplies
T3 = Input tax in respect of inputs and input services on which

credit is blocked under section 17(5)

Computation of total input tax involved [T]
Particulars (`)
GST paid on taxable items [` 55,00,000 x 18%] 9,90,000
Items exempted vide a notification [Since exempted, Nil

no GST is paid]
Items not leviable to tax [Since non-taxable, no GST is Nil

paid]
GST paid under reverse charge on freight paid to GTA 5,000

for inward transportation of taxable items - [` 1,00,000
x 5%]

for inward transportation of exempted items -
[` 80,000 x 5%]

for inward transportation of non-taxable items -
[` 20,000 x 5%]
GST paid on monthly rent - [` 5,50,000 x 18%] 99,000
GST paid on packing charges [` 2,50,000 x 18%] 45,000
Salary paid to staff at the Store Nil

[Services by an employee to the employer in the
course of or in relation to his employment is not a
supply in terms of para 1 of the Schedule III and hence,
no GST is payable thereon].
GST paid on inputs used for personal purpose 5,000
GST paid on rent a cab services availed for business 4,000

purpose
GST paid on items given as free samples 4,000
Total input tax involved during the month [T] 11,57,000

Computation of T1, T2, T3
Particulars (`)
GST paid on monthly rent attributable to personal 33,000

purposes [1/3 of ` 99,000]
GST paid on inputs used for personal purpose 5,000
Input tax exclusively attributable to non-business 38,000

purposes [T1]

for inward transportation of exempted items
[As per section 2(47), exempt supply means, inter alia,
supply which may be wholly exempt from tax by way
of a notification issued under section 11. Hence,
input service of inward transportation of exempt
items is exclusively used for effecting exempt
supplies.]

for inward transportation of non-taxable items
[Exempt supply includes non-taxable supply in terms
of section 2(47). Hence, input service of inward
transportation of non-taxable items is exclusively
used for effecting exempt supplies.]
Input tax exclusively attributable to exempt 5,000

supplies [T2]
GST paid on rent a cab services availed for business 4,000

purpose
[ITC on rent a cab service is blocked under section
17(5)(b)(i) as the same is not used by All-in-One Store
for providing the rent a cab service or as part of a
taxable composite or mixed supply.
GST paid on items given as free samples 4,000

[ITC on goods inter alia, disposed of by way of free

samples is blocked under section 17(5)(h)].
Input tax for which credit is blocked under 8,000

section 17(5) [T3] **
**Since GST paid on inputs used for personal purposes has been
considered while computing T1, the same has not been considered again
in computing T3.
ITC credited to the electronic credit ledger
C1 = T - (T1+T2+T3)
= ` 11,57,000 – (` 38,000 + ` 5,000 + ` 8,000) = ` 11,06,000
B. Computation of Common Credit
C2 = C1 - T4
where C2 = Common Credit
T4 = Input tax credit attributable to inputs and input services intended
to be used exclusively for effecting taxable supplies
Computation of T4,
Particulars (`)
GST paid on taxable items 9,90,000

for inward transportation of taxable items
Input tax exclusively attributable to taxable 9,95,000

supplies [T4]
Common Credit C2 = C1 - T4
=` 11,06,000 – ` 9,95,000 = ` 1,11,000
C. Computation of ITC attributable towards exempt supplies out of
common credit
ITC attributable towards exempt supplies is denoted as ‘D1’ and
calculated as-
D1 = (E ÷ F) x C2

where,
‘E’ is the aggregate value of exempt supplies during the tax period, and
‘F’ is the total turnover in the State of the registered person during the
tax period
Aggregate value of exempt supplies during the month
= ` 15,00,000 (` 12,00,000 + `3,00,000)
Total turnover in the State during the tax period
= ` 65,00,000 (` 42,00,000 + ` 12,00,000 + `3,00,000 + ` 8,00,000)
Note: Transfer of items to Store located in Goa is inter-State supply in
terms of section 7 of the IGST Act, 2017 and hence includible in the total
turnover. Such supply is to be valued as per rule 28. However, the value
declared in the invoice cannot be adopted as the value since the
recipient Store at Goa is not entitled for full credit because the goods
are to be distributed as free samples, ITC on which is blocked. Therefore,
open market value of such goods, which is the value of such goods sold
in Mumbai Store, is taken as the value of items transferred to Goa Store.
D1 = (15,00,000 ÷ 65,00,000) x 1,11,000
= ` 25,615 (rounded off)
D. Computation of Eligible ITC out of common credit
Eligible ITC attributed for effecting taxable supplies is denoted as ‘C3’,
where-
C3 = C2 - D1
= ` 1,11,000 - ` 25,615
= ` 85,385
E. Computation of Net GST liability for the month
Particulars GST (`)
GST liability under forward charge
Taxable items sold in the store [` 42,00,000 x 18%] 7,56,000

Taxable items transferred to Goa Store [` 8,00,000 x 1,44,000

18%]
Total output tax liability under forward charge 9,00,000
Less: ITC credited to the electronic ledger 10,80,385
ITC carried forward to the next month (1,80,385)
Net GST payable [A] Nil
GST liability under reverse charge
Freight paid to GTA for inward transportation of 5,000

taxable items [` 1,00,000 x 5%]
Freight paid to GTA for inward transportation of 4,000

exempted items [` 80,000 x 5%]
Freight paid to GTA for inward transportation of non- 1,000

taxable items [` 20,000 x 5%]
Total tax liability under reverse charge [B] 10,000
Net GST liability to be paid in cash [A] + [B] 10,000

As per section 49(4), amount available in the electronic
credit ledger may be used for making payment
towards output tax. However, tax payable under
reverse charge is not an output tax in terms of section
2(82). Therefore, tax payable under reverse charge
cannot be set off against the ITC and thus, will have to
be paid in cash.
Note: While computing net GST liability, ITC credited to the electronic
ledger can alternatively be computed as follows:
Particulars (`)
GST paid on taxable items [` 55,00,000 x 18%] 9,90,000
Items exempted vide a notification [Since exempted, Nil

no GST is paid]

Items not leviable to tax [Since non-taxable, no GST Nil

is paid]

for inward transportation of taxable items [` 1,00,000
x 5%]
GST paid under reverse charge on freight paid to GTA Nil

for inward transportation of exempted items [`
80,000 x 5%]
[As per section 2(47), exempt supply means, inter
alia, supply which may be wholly exempt from tax by
way of a notification issued under section 11. Hence,
input service of inward transportation of exempt
items is exclusively used for effecting exempt
supplies. Input tax exclusively attributable to exempt
supplies is to be excluded]
GST paid under reverse charge on freight paid to GTA Nil

for inward transportation of non-taxable items
[` 20,000 x 5%]
[Exempt supply includes non-taxable supply in terms
of section 2(47). Hence, input service of inward
transportation of non-taxable items is exclusively
used for effecting exempt supplies. Input tax
exclusively attributable to exempt supplies is to be
excluded]
GST paid on monthly rent – for business purposes 66,000

[(` 5,50,000 x 18%) – 1/3 of [(` 5,50,000 x 18%)]
GST paid on packing charges [` 2,50,000 x 18%] 45,000
Salary paid to staff at the Store Nil

[Services by an employee to the employer in the
course of or in relation to his employment is not a
supply in terms of para 1 of the Schedule III to CGST
Act and hence, no GST is payable thereon]

GST paid on inputs used for personal purpose Nil

[ITC on goods or services or both used for personal
consumption is blocked under section 17(5)(g)]
GST paid on rent a cab services availed for business Nil

purpose
[ITC on rent a cab service is blocked under section
17(5)(b)(i) as the same is not used by All-in-One
Store for providing the rent a cab service or as part
of a taxable composite or mixed supply.]
GST paid on items given as free samples Nil

[ITC on goods inter alia, disposed of by way of free
samples is blocked under section 17(5)(h)]
Total ITC credited to the electronic ledger 11,06,000
Less: ITC reversal [ITC of common credit, (25,615)

attributable to exempt supplies]
Net ITC available for credit 10,80,385
19. (1) Computation of ITC credited to Electronic Credit Ledger

ITC of input tax attributable to inputs and input services intended to be
used for business purposes is credited to the electronic credit ledger.
Input tax attributable to inputs and input services intended to be used
exclusively for non-business purposes, for effecting exclusively exempt
supplies and on which credit is blocked under section 17(5) is not
credited to electronic credit ledger [Sections 16 and 17].
In the light of the aforementioned provisions, the ITC credited to
electronic credit ledger of Vansh Shoppe is calculated as under:
Particulars Amount CGST @ SGST @

(`) 6% (`) 6% (`)
GST paid on taxable goods 45,00,000 2,70,000 2,70,000

Goods not leviable to GST 4,00,000 Nil Nil

[Since non-taxable, no GST is
paid]
GST paid on monthly rent for 3,50,000 21,000 21,000
shop
GST paid on telephone 50,000 3,000 3,000
expenses
GST paid on audit fees 60,000 3,600 3,600
GST paid on premium of health 10,000 Nil Nil
insurance policies as per
company policy
[ITC on health insurance service
is allowed only if it is obligatory
for employers to provide such
services to its employees under
any law for the time being in
force-Proviso to section
17(5)(b)].
Taxable Goods given as free 5,000 Nil Nil
samples
[ITC on goods disposed of by
way of free samples is blocked
under section 17(5)(h)]
Particulars Amount CGST @ SGST @

(`) 2.5% (`) 2.5% (`)
Freight paid to GTA for inward 50,000 Nil Nil
transportation of non-taxable
goods under reverse charge
[Since definition of exempt
supply under section 2(47)
specifically includes non-taxable
supply, the input service of
inward transportation of non-

taxable goods is being

exclusively used for effecting
exempt supplies.]
Freight paid to GTA for inward 1,50,000 3,750 3,750
transportation of taxable goods
under reverse charge
ITC credited to the electronic 3,01,350 3,01,350
ledger
Less: ITC reversal [ITC out of (4,600) (4,600)
common credit, attributable to
exempt supplies](Refer point no.
2 & 3 below)
Net ITC available 2,96,750 2,96,750
(2) Computation of common credit available for apportionment

Common Credit = ITC credited to Electronic Credit Ledger – ITC
attributable to inputs and input services intended to be used exclusively
for effecting taxable supplies [Section 17 read with rule 42].
Particulars CGST (`) SGST (`)
ITC credited to Electronic Credit Ledger 3,01,350 3,01,350
Less : ITC on taxable goods 2,70,000 2,70,000
Less: ITC on freight paid to GTA for inward 3,750 3,750

Common credit 27,600 27,600
(3) Computation of ITC attributable towards exempt supplies out of

common credit
ITC attributable towards exempt supplies = Common credit x
(Aggregate value of exempt supplies during the tax period/ Total
turnover during the tax period)[Section 17 read with rule 42].

ITC attributable towards exempt 4,600 4,600

supplies
[` 27,600 x (` 10,00,000/` 60,00,000)]
(4) Computation of net GST liability for the month
GST liability under forward charge
Supply of taxable goods [` 50,00,000 x 6%] 3,00,000 3,00,000
Total output tax liability under forward 3,00,000 3,00,000

charge
Less: ITC 2,96,750 2,96,750
Net GST payable [A] 3,250 3,250
GST liability under reverse charge
Freight paid to GTA for inward 3,750 3,750

[` 1,50,000 x 2.5%]
Freight paid to GTA for inward 1,250 1,250

transportation of non-taxable goods
[` 50,000 x 2.5%]
Total tax liability under reverse charge [B] 5,000 5,000
Net GST liability [A] + [B] 8,250 8,250
Note: Amount available in the electronic credit ledger may be used

for making payment towards output tax [Section 49]. However, tax
payable under reverse charge is not an output tax in terms of
definition of output tax provided under section 2(82). Therefore,
tax payable under reverse charge cannot be set off against the
input tax credit and thus, will have to be paid in cash.

20. Computation of net GST liability of Surana & Sons for the tax period
Particulars (`)
GST payable on outward supply [Refer Working Note 1] 3,18,000
Less: Input tax credit (ITC) [Refer Working Note 3] 2,78,180
GST payable from Electronic Cash Ledger [A] 39,820
Add: GST payable on legal services under reverse charge 63,000

[` 3,50,000 X 18%] [B]
[Tax on legal services provided by an advocate to a business
entity, is payable under reverse charge by the business entity
in terms of Notification No. 13/2017 CT (R) dated 28.06.2017.
Further, such services are not eligible for exemption provided
under Notification No. 12/2017 CT (R) dated 28.06.2017 as the
turnover of the business entity (Surana & Sons) in the
preceding financial year exceeds ` 20 lakh.]
Total GST paid from Electronic Cash Ledger [A] + [B] 1,02,820
[As per section 49(4) amount available in the electronic credit
ledger may be used for making payment towards output tax.
However, tax payable under reverse charge is not an output
tax in terms of section 2(82). Therefore, input tax credit cannot
be used to pay tax payable under reverse charge and thus, tax
payable under reverse charge will have to be paid in cash.]
Working Note 1
Computation of GST payable on outward supply
Particulars Value (`) GST (`)
Turnover of ‘M’ [liable to GST @ 12%] 14,00,000 1,68,000
Turnover of ‘N’ [Tax on ‘N’ is payable under 6,00,000 Nil

reverse charge by the recipient of such goods]
Turnover of ‘O’ [liable to GST @ 12%] 10,00,000 1,20,000
Export of ‘M’ with payment of IGST @ 12% 2,50,000 30,000

Export of ‘O’ under letter of undertaking (LUT) 10,00,000 Nil

[Export of goods is a zero rated supply in terms of
section 16(1)(a) of the IGST Act, 2017. A zero rated
supply can be supplied without payment of tax
under a LUT in terms of section 16(3)(a) of that Act.]
Consultancy services provided to independent 20,00,000 Nil

clients located in foreign countries.
[The activity is an export of service in terms of
section 2(6) of the IGST Act, 2017 as-
• the supplier of service is located in India;
• the recipient of service is located outside
India;
• place of supply of service is outside India (in
terms of section 13(2) of the IGST Act, 2017);
• payment for the service has been received in
convertible foreign exchange or in Indian
rupees wherever permitted by the Reserve
Bank of India; and
• supplier of service and recipient of service are
not merely establishments of distinct person.
[Export of services is a zero rated supply in terms
of section 16(1)(a) of the IGST Act, 2017. A zero
rated supply can be supplied without payment of
tax under a LUT in terms of section 16(3)(a) of that
Act.]
It is assumed that export has been made under
LUT
Sale of building 1,20,00,000 Nil

[Sale of building is neither a supply of goods nor
a supply of services in terms of para 5 of Schedule
III to the CGST Act, provided the entire
consideration has been received after issue of
completion certificate by the competent
authority or after its occupation, whichever is
earlier. Hence, the same is not liable to GST]

Interest received on investment in fixed deposits 4,00,000 Nil

with a bank
[Exempt vide Notification No. 12/2017 CT (R)
dated 28.06.2017]
Sale of shares 2,50,00,000 Nil

[Shares are neither goods nor services in terms of
section 2(52) and 2(102). Hence, sale of shares is
neither a supply of goods nor a supply of services
and hence, is not liable to any tax.]
Total GST payable on outward supply 3,18,000
Working Note 2
Computation of common credit attributable to exempt supplies during
the tax period
Particulars (`)
Common credit on inputs and input services [Tax on inputs - 6,90,000

` 4,20,000 (` 35,00,000 x 12%) + Tax on input services –
` 2,70,000 (` 15,00,000 x 18%)]
Common credit attributable to exempt supplies (rounded off) 4,74,820

= Common credit on inputs and input services x (Exempt
turnover during the period / Total turnover during the period)
= ` 6,90,000 x ` 1,33,50,000/ ` 1,94,00,000
Exempt turnover = ` 1,33,50,000 and total turnover =
`1,94,00,000 [Refer note below]
Note:
As per section 17(3), value of exempt supply includes 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. As per explanation to Chapter V of the CGST Rules, the value of
exempt supply in respect of land and building is the value adopted for paying
stamp duty and for security is 1% of the sale value of such security.

Further, as per explanation to rule 42, the aggregate value of exempt supplies
inter alia excludes the value of services by way of accepting deposits,
extending loans or advances in so far as the consideration is represented by
way of interest or discount, except in case of a banking company or a financial
institution including a non-banking financial company, engaged in supplying
services by way of accepting deposits, extending loans or advances.
Therefore, value of exempt supply in the given case will be the sum of value
of output supply on which tax is payable under reverse charge (` 6,00,000),
value of sale of building (` 2,50,000 / 2 x 100 = ` 1,25,00,000) and value of
sale of shares (1% of ` 2,50,00,000 = ` 2,50,000), which comes out to be
` 1,33,50,000.
Total turnover = ` 1,94,00,000 (` 14,00,000 + ` 6,00,000 + ` 10,00,000 +
` 2,50,000 + ` 10,00,000 + ` 20,00,000 + ` 1,25,00,000 + ` 4,00,000 +
` 2,50,000)
Working Note 3
Computation of ITC available in the Electronic Credit Ledger of the
Surana & Sons for the tax period
Particulars (`)
Common credit on inputs and input services 6,90,000
Legal services used in the manufacture of taxable product ‘M’ 63,000
ITC available in the Electronic Credit Ledger 7,53,000
Less: Common credit attributable to exempt supplies during 4,74,820

the tax period [Refer Working Note 2]
Net ITC available 2,78,180
21. Computation of net GST payable by M/s XYZ
Particulars GST payable

(`)
Gross GST liability [Refer Working Note 1 below] 2,63,400
Less: ITC [Refer Working Note 2 below] 2,00,000
Net GST payable from Electronic Cash Ledger 63,400

Working Notes
(1) Computation of gross GST liability
Particulars Value Rate GST

received of GST payable
(`) (`)
Hiring charges for excavators 18,00,000 12% 2,16,000
Service charges for supply of 20,000 12% 2,400

manpower for operation of
excavators [Refer Note 1]
Service charges for soil testing 2,50,000 18% 45,000

and seismic evaluation [Refer
Note 2]
Gross GST liability 2,63,400
Notes:
(i) Since the excavators are invariably hired out along with operators
and excavator operators are supplied only when the excavator is
hired out, it is a case of composite supply under section 2(30)
wherein the principal supply is the hiring out of the excavator.
As per section 8(a), the composite supply is treated as the supply
of the principal supply. Therefore, the supply of manpower for
operation of the excavators (ancillary supply) will also be taxed at
the rate applicable for hiring out of the excavator (principal
supply), which is 12%.
(ii) Soil testing and seismic evaluation services being independent of
the hiring out of excavator will be taxed at the rate applicable to
them, which is 18%.

(2) Computation of ITC available for set off
Particulars GST ITC

paid available
(`) (`)
Maintenance services for excavators 1,00,000 1,00,000

[Refer Note 1]
Health insurance for excavator 11,000 -

operators [Refer Note 2]
Scientific and technical consultancy 1,00,000 1,00,000

[Refer Note 1]
Total ITC available 2,00,000
Notes:
(i) Section 17(5)(d) blocks credit on goods/ or services received by a
taxable person for construction of an immovable property on his
own account. Here, though the excavators are used for building
projects, the same are not used by M/s. XYZ on its own account
for construction of immovable property instead they are used for
outward taxable supply of hiring out of machinery. Further,
excavators are special purpose vehicles whose credit is not
restricted under section 17(5)(a), therefore, ITC on maintenance
service for excavators shall be allowed.
Therefore, the maintenance service for the excavators does not
get covered by the bar under section 17 and the credit thereon
will be available. The same applies for scientific & technical
consultancy for construction projects because in this case also,
the service is used for providing the outward taxable supply of
soil testing and seismic evaluation service and not for
construction of immovable property.
(ii) Section 17(5)(b)(i) allows input tax credit on health insurance only
where an inward supply of such services is used by a registered
person for making an outward taxable supply of the same
category of goods or services or both or as an element of a
taxable composite or mixed supply or where it is obligatory for an

employer to provide the same to its employees under any law for
the time being in force.
In the given case, it is assumed that it is not obligatory for
employer to provide health insurance to its employees under any
law for the time being in force, therefore the credit thereon will
not be allowed.
22. Computation of ITC available with V-Supply Pvt. Ltd. for the tax period
S. Particulars ITC
No.
CGST* SGST* IGST* Total
` ` ` `
1. Opening balance of ITC 15,000 8,000 9,000 32,000
2. Raw Material
Raw material purchased 14,400 14,400

from Bihar [Refer Note 1(i)]
Raw material imported 29,970 29,970

from China [Refer Note
1(ii)]
Raw material purchased Nil Nil Nil

from unregistered
suppliers within West
Bengal [Refer Note 1(iii)]
Raw material destroyed Nil Nil Nil

due to seepage [Refer
Note 1(iv)]
Remaining raw material 7,650 7,650 15,300

purchased from West
Bengal [Refer Note 1(i)]
[` 3.5 - ` 1.5 – ` 0.80 –
` 0.30 – ` 0.05] = ` 0.85]
Total ITC for raw material 7,650 7,650 44,370 59,670

3. Consumables 9,000 9,000 18,000

[Refer Note 2]
4. Transportation charges for 1,500 1,500 3,000

bringing the raw material
to factory [Refer Note 3]
5. Salary paid to employees Nil Nil Nil Nil

on rolls [Refer Note 4]
6. Premium paid on life 14,400 14,400 - 28,800

insurance policies taken
for specified employees
[Refer Note 5]
7. Audit fee [Refer Note 6] 4,500 4,500 - 9,000
8. Telephone expenses [Refer 2,700 2,700 5,400

Note 6]
9. Bank charges [Refer 900 900 1,800

Note 6]
Total ITC available for the tax 55,650 48,650 53,370 1,57,670
period
Computation of net GST payable
Particulars CGST* SGST* IGST* Total

` ` ` `
On Intra-state sales in West 63,000 63,000 1,26,000

Bengal
On Inter-state sales other 54,000 54,000

than West Bengal
On exports under LUT Nil Nil Nil Nil

[Note 7]
Total output tax liability 63,000 63,000 54,000 1,80,000

Less: ITC available for being (55,650) (48,650) (53,370) (1,57,670)

set off [Note 8 and Note 9]
Net GST payable from 7,350 14,350 630 22,330

Electronic Cash Ledger [A]
GST payable on inward 1,500 1,500 3,000

supply of GTA services under
reverse charge through
Electronic Cash Ledger [Note
3 and 10] [B]
Net GST payable through 8,850 15,850 630 25,330

Electronic Cash Ledger [A]
+ [B]
Notes:
(1) (i) Credit of input tax (CGST & SGST/ IGST) paid on raw materials
used in the course or furtherance of business is available in terms
of section 16(1).
(ii) IGST paid on imported goods qualifies as input tax in terms of
section 2(62)(a). Therefore, credit of IGST paid on imported raw
materials used in the course or furtherance of business is available
in terms of section 16(1).
(iii) Tax on intra-State procurements made by a registered person
from an unregistered supplier is levied only on notified categories
of goods and services. [Section 9(4)].
(iv) ITC is not available on destroyed inputs in terms of section
17(5)(h).
2. Consumables, being inputs used in the course or furtherance of
business, input tax credit is available on the same in terms of section
16(1). However, levy of CGST on diesel has been deferred till such date
as may be notified by the Government on recommendations of the GST
Council [Section 9(2)]. Hence, there being no levy of GST on diesel,
there cannot be any ITC.
3. In respect of intra-State road transportation of goods undertaken by a
GTA, who has not paid CGST @ 6%, for any person registered under the

GST law, CGST is payable under reverse charge by the recipient of

service. The person who pays or is liable to pay freight for the
transportation of goods is treated as the person who receives the
service [Notification No. 13/2017 CT (R) dated 28.06.2017]. Thus, V-
Supply Pvt. Ltd. will pay GST under reverse charge on transportation
service received from GTA.
Further, tax payable under section 9(3) of the CGST/SGST Act qualifies
as input tax in terms of clauses (b) and (d) of section 2(62). Thus, input
tax paid under reverse charge on GTA service will be available as ITC in
terms of section 16(1) as the said service is used in course or furtherance
of business.
Furthermore, intra-State services by way of transportation of goods by
road except the services of a GTA and a courier agency are exempt from
CGST vide Notification No. 12/2017 CT (R) dated 28.06.2017. Therefore,
since no GST is paid on such services, there cannot be any ITC on such
services.
4. Services by employees to employer in the course of or in relation to his
employment is not a supply in terms of section 7 read with para 1 of
Schedule III to the CGST Act. Therefore, since no GST is paid on such
services, there cannot be any ITC on such services
5. ITC on supply of life insurance service is not blocked if it is obligatory
for an employer to provide such service to its employees under any law
for the time being in force. [Proviso to section 17(5)(b)]. Therefore, GST
paid on premium for life insurance policies will be available as ITC in
terms of section 16(1) as the said service is used in the course or
furtherance of business.
6. Audit fee, telephone expenses and bank charges are all services used in
the course or furtherance of business and thus, credit of input tax paid
on such service will be available in terms of section 16(1).
7. Export of goods is a zero rated supply in terms of section 16(1)(a) of the
IGST Act. A zero rated supply under LUT is made without payment of
integrated tax [Section 16(3)(a) of the IGST Act].
8. Since export of goods is a zero rated supply, there will be no
apportionment of ITC and full credit will be available [Section 16 of the
IGST Act read with section 17(2) of the CGST Act].

9. As per section 49(5) read with rule 88A, ITC of-

(i) IGST is utilised towards payment of IGST first and then CGST and
SGST in any proportion and in any order.
(ii) CGST is utilised towards payment of CGST and IGST in that order.
ITC of CGST shall be utilized only after ITC of IGST has been
utilised fully.
(iii) SGST is utilised towards payment of SGST and IGST in that order.
ITC of SGST shall be utilized only after ITC of IGST has been
utilised fully.
10. Section 49(4) lays down that the amount available in the electronic
credit ledger may be used for making payment towards output tax.
However, tax payable under reverse charge is not an output tax in terms
of section 2(82). Therefore, tax payable under reverse charge cannot
be set off against the ITC and thus, will have to be paid in cash.
*11. CGST and SGST are chargeable on intra-State inward and outward
supplies and IGST is chargeable on inter-State inward and outward
supplies.
23. Computation of net GST payable by ABC Company Ltd.
Particulars GST payable

(`)
Gross GST liability [Refer working note (2) below] 91,200
Less: Input tax credit [Refer working note (1) below] 82,000
Net GST payable from Electronic Cash Ledger 9,200
Working Notes:
(1) Computation of ITC available with ABC Company Ltd.
Particulars GST (`)
Health insurance of factory employees [Note – 1] 20,000

Raw material received in factory [Note – 2] Nil
Work’s contractor’s service used for installation of plant 12,000
and machinery [Note -3]

Manufacturing machinery directly sent to job worker’s 50,000

premises under challan [Note -4]
Purchase of car used by director for business meetings Nil
only [Note -5]
Outdoor catering service availed for business meetings Nil
[Note -6]
Total ITC available 82,000
Notes:
1. ITC of health insurance is available in the given case in terms of
proviso to section 17(5)(b) since it is obligatory for employer to
provide health insurance to its employees under the Factories Act,
1948. -
2. Where the goods against an invoice are received in lots/
installments, ITC is allowed upon receipt of the last lot/
installment vide first proviso to section 16(2). Therefore, ABC
Company Ltd. will be entitled to ITC of raw materials on receipt of
second installment in next month.
3. Section 17(5)(c) provides that ITC on works contract services is
blocked when supplied for construction of immovable property
(other than plant and machinery) except when the same is used
for further supply of works contract service.
Though in this case, the works contract service is not used for
supply of works contract service, ITC thereon will be allowed since
such services are being used for installation of plant and
machinery.
4. ITC on capital goods directly sent to job worker’s premises under
challan is allowed in terms of section 19(5) read with rule 45(1).
5. Section 17(5)(a) provides that motor vehicle for transportation of
persons having approved seating capacity of not more than 13
persons (including the driver), except when they are used for
making taxable supply of-
(i) further supply of such vehicles,
(ii) transportation of passengers,

(iii) imparting training on driving, flying, navigating such

vehicles and
Since ABC Company Ltd is a supplier of machine and it does not
use the car for transportation of passengers or any other use as
specified, ITC thereon will not be available.
6. Section 17(5)(b)(i) provides that ITC on outdoor catering is
blocked except where the same is used for making further supply
of outdoor catering or as an element of a taxable composite or
mixed supply.
Since ABC Company Ltd is a supplier of machine, ITC thereon will
not be available.
(2) Computation of gross GST liability
Value Rate GST

received of GST payable
(`) (`)
Hiring receipts for machine 5,25,000 12% 63,000
Service charges for supply of

manpower operators 2,35,000 12% 28,200
Gross GST liability 91,200
Note:
Since machine is always hired out along with operators and operators
are supplied only when the machines are hired out, it is a case of
composite supply, wherein the principal supply is the hiring out of
machines [Section 2(30) read with section 2(90)]. Therefore, service of
supply of manpower operators will also be taxed at the rate applicable
for hiring out of machines (principal supply), which is 12%, in terms of
section 8(a).

24. Computation of ITC available with Pari Ltd.
S. Particulars Eligible input tax credit

No. CGST SGST IGST
(`) (`) (`)
1. Raw Material
Purchased from local 9,562.50 9,562.50
registered suppliers [Note
1(i)] (` 1,06,250 x 9%)
Purchased from local Nil Nil
unregistered suppliers [Note
1(ii)]
Purchased from Punjab from 18,000
registered supplier [Note
1(i)] (` 1,00,000 x 18%)
Raw material imported from 22,732
USA [Note 1(iii)]
2. Consumables [Note 2] 11,250 11,250
(` 1,56,250- ` 31,250) x 9%]
3. Monthly rent for the factory 9,000 9,000
building to the owner in
Rajasthan [Note 3]
4. Salary paid to employees on Nil Nil Nil
rolls [Note 4]
5. Premium paid on life 18,000 18,000 -
insurance policies taken for
specified employees
[Note 5] (` 2,00,000 x 9%)
Total 47,812.50 47,812.50 40,732
Add: Opening balance of ITC 20,000 15,000 15,000
Total ITC [Note 7] 67,812.50 62,812.50 55,732

Computation of net GST payable
Particulars CGST SGST IGST

(`) (`) (`)
Intra-State supply 78,750 78,750
Inter-State supply 67,500
Exports under LUT [Note 6] Nil Nil Nil
Total output tax liability 78,750 78,750 67,500
Less: ITC 67,812.50 62,812.50 55,732
Net GST payable 10,937.50 15,937.50 11,768
Notes:
1. (i) Credit of input tax (CGST & SGST/ IGST) paid on raw materials
used in the course or furtherance of business is available in terms
of section 16.
(ii) Tax on procurements made by a registered person from an
unregistered supplier is levied only in case of notified goods and
services in terms of section 9(4). Therefore, since no GST is paid
on such raw material purchased, there does not arise any question
of ITC on such raw material.
(iii) IGST paid on imported goods qualifies as input tax in terms of
section 2(62). Therefore, credit of IGST paid on imported raw
materials used in the course or furtherance of business is available
in terms of section 16.
2. ITC on consumables, being inputs used in the course or furtherance of
business, is available. However, since levy of GST on high speed diesel
has been deferred till a date to be notified by Government, there cannot
be any ITC of the same.
3. ITC on monthly rent is available as the said service is used in the course
or furtherance of business.
4. Services by employees to employer in the course of or in relation to his
employment is not a supply in terms of section 7 read with Schedule III
to the CGST Act. Therefore, since no GST is paid on such services, there
cannot be any ITC on such services.

5. ITC on life insurance service is available if the same is obligatory for an

employer to provide to its employees under any law for the time being
in force as per proviso to section 17(5)(b).
6. Export of goods is a zero rated supply in terms of section 16(1)(a) of the
IGST Act. A zero rated supply under LUT/bond is made without
payment of IGST in terms of section 16(3)(a).
7. Since export of goods is a zero rated supply, there will be no
apportionment of ITC and full credit will be available as per section 17(2).
25. Computation of net GST payable by Flowchem for the month of July
Particulars CGST @ SGST @ IGST @

9% (`) 9% (`) 18% (`)
Output tax liability [Working Note 1] 1,88,100
Less: ITC of CGST [Working Note 2] (25,000)
Less: ITC of SGST has been utilized (25,000)
only after ITC of CGST has been
utilized fully in terms of proviso to
section 49(5)(c) [Working Note 2]
Net GST payable from Electronic 1,38,100
Cash Ledger
Working Note 1
Computation of output tax liability of Flowchem for the month of July
List price of 10 valves (` 1,00,000 x 10) 10,00,000

Add: Amount paid by R Refinery to testing agency [Note 1] 15,000
Add: Special packing [Note 2] 10,000

Add: Erection and testing at site [Note 2] 15,000
Add: Freight [Note 3] 5,000

Value of taxable supply 10,45,000
IGST @ 18% [Note 4] 1,88,100

Notes:
(1) As per section 15(2), any amount that the supplier is liable to pay in
relation to a supply but which has been incurred by the recipient of the
supply and not included in the price actually paid or payable for the
goods shall be included in the value of supply.
Since, in the given case, arranging inspection was the liability of the
supplier, the same should be included in the value of supply charges for
the same, however, have been paid directly to the third party service
provider by the recipient. Therefore, the value shall be included in
taxable value.
(2) As per section 15(2), any amount charged for anything done by the
supplier in respect of the supply of goods at the time of, or before
delivery of goods shall be included in the value of supply.
(3) As per section 15(2), any amount that the supplier is liable to pay in
relation to a supply but which has been incurred by the recipient of the
supply and not included in the price actually paid or payable for the
goods shall be included in the value of supply.
Since, in the given case, the supply contract is on FOR basis, payment
of freight is the liability of supplier but the same has been paid by the
recipient and thus, should be included in the value of supply.
(4) As per section 10(1) of the IGST Act, 2017, where the supply involves
movement of goods, the place of supply is the location of the goods at
the time at which the movement of goods terminates for delivery to the
recipient, which in the given case is Abu Road (Rajasthan). Since the
location of the supplier (Gujarat) and the place of supply (Rajasthan) are
in two different States, the supply is an inter-State supply liable to IGST.
Working Note 2
Computation of ITC available with Flowchem for the month of July

Opening ITC 20,000 20,000
Wok contract services availed for erecting 5,000 5,000
foundation for fixing the machinery to the earth in
the factory [Note 1]

Laying of pipeline up to the gate of factory from Nil Nil

water source located outside the factory [Note 2]
Installation of telecommunication towers [Note 2] Nil Nil
Services of travel company to provide home travel Nil Nil
facility to employees Note 3]
Services of fitness center to provide wellness
services to employees [Note 3] Nil Nil
Total ITC 25,000 25,000
Notes:
(1) As per section 17(5), ITC on works contract services when supplied for
construction of an immovable property (other than plant and
machinery) except where it is an input service for further supply of
works contract service, is blocked. Further, plant and machinery
includes foundation and structural supports used to fix the machinery
to earth.
(2) As per section 17(5), ITC on goods and/ or services received by a taxable
person for construction of an immovable property (other than plant or
machinery) on his own account including when such and/ or services
are used in course/ furtherance of business, is blocked. However, plant
and machinery excludes pipelines laid outside the factory premises and
telecommunication towers.
(3) As per section 17(5), ITC on travel benefits extended to employees on
home travel concession and membership of health and fitness center is
blocked unless it is obligatory for an employer to provide the same to
its employees under any law for the time being in force.
Examples/Illustrations/Questions and Answers, as the case may be, given in the

Chapter are based on the position of GST law existing as on 31.04.2021.

AMENDMENTS MADE VIDE THE FINANCE ACT, 2021
The Finance Act, 2021 has come into force from 28.03.2021. However, most of the
amendments made in the CGST Act and the IGST Act vide the Finance Act, 2021
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 30.04.2021.
Therefore, the applicability or otherwise of such amendment for May 2022 and/or
November 2022 examinations shall be informed by the ICAI by way of an
announcement.
In the table given below, the existing provisions 1 of section 16(2) of the CGST Act
are compared with the provisions as amended by the Finance Act, 2021.
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 as amended Remarks

No. provisions by the Finance Act, 2021
16(2)(a) Section 16(2) New clause (aa) shall be A new clause (aa) to sub-
of CGST Act inserted following section (2) of the section
prescribes section 16(2)(a): 16 of the CGST Act is being
conditions “the details of the inserted to provide that
for availing invoice or debit note input tax credit on
ITC by a referred to in clause (a) invoice/debit note may be
registered has been furnished by availed only when the
person. the supplier in the details of such
Clause (a) of statement of outward invoice/debit note have
section 16(2) supplies and such details been furnished by the
provides for have been supplier in the statement
availment of communicated to the of outward supplies and
ITC only recipient of such invoice such details have been
when the or debit note in the communicated to the
recipient of manner specified under recipient of such
goods or section 37”. invoice/debit note.
services is in
1
Provisions existing as on 30.04.2021.

possession of
tax invoice or
debit note or
any other tax
paying
document
issued by a
supplier.

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8

INPUT TAX CREDIT

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Scheme of ITC - At a Glance

© The Institute of Chartered Accountants of India

 Agent means a person, including a factor, broker, commission agent,

© The Institute of Chartered Accountants of India

(c) any activity or transaction in the nature of sub-clause (a), whether or

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

 Non-resident taxable person means any person who occasionally

• a place where a taxable person maintains his books of account; or

• a place where a taxable person is engaged in business through an

© The Institute of Chartered Accountants of India

 Registered person means a person who is registered under section 25 of

© The Institute of Chartered Accountants of India

3. ELIGIBILITY AND CONDITIONS FOR TAKING

Section 16 Eligibility and conditions for taking input tax credit

Sub-section Clause Particulars

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

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

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

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

Explanation.—For the purposes of this clause, it shall

(i) where the goods are delivered by the supplier to

© The Institute of Chartered Accountants of India

(ii) where the services are provided by the supplier

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

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

Provided that where the goods against an invoice are received in

Provided further that where a recipient fails to pay to the supplier

© The Institute of Chartered Accountants of India

Chapter V: Input Tax Credit of the CGST Rules

Rule 36 Documentary requirements and conditions for claiming input

Sub-rule Clause Particulars

(1) The input tax credit shall be availed by a registered person,

(a) an invoice issued by the supplier of goods or services or

(b) an invoice issued in accordance with the provisions of

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

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

(e) an input service distributor invoice or input service

© The Institute of Chartered Accountants of India

place of supply in case of inter-State supply, input tax credit may

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

(4) Input tax credit to be availed by a registered person in respect

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

Provided that the value of supplies made without consideration as

Provided further that the value of supplies on account of any

© The Institute of Chartered Accountants of India

sub-section (2) of section 15 shall be deemed to have been paid

© The Institute of Chartered Accountants of India

The “intention to use” the goods and/or services in the course or

© The Institute of Chartered Accountants of India

of the former’s business [Circular No. 47/21/2018 GST dated

© The Institute of Chartered Accountants of India

Restricted ITC on invoices/debit notes not furnished by supplier in

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

However, in respect of invoices/debit notes the details of which