17.1 Apportionment of ITC

Question-1 [ICSI-P-D19-3a-5]

Briefly explain about apportionment of credit and blocked credits under section 17 of the CGST Act.

17.1.1 Proportionate ITC is available on inward supplies used for both business & other purpose

Question-1 [FAQ-22/12/2018-Ch10-37]

Where goods or services received by a registered person are used partly for the purpose of business and partly for other purposes, whether the input tax credit is available to the person?

Ans.

The input tax credit of goods or services or both attributable only to the purpose of business can be taken by registered person. The manner of calculation of eligible credit is provided in rule 42 of the CGST rules.

17.1.2 Proportionate ITC is available on inward supplies used for Taxable & zero rated supplies and also for Exempt supplies

Question-1 [FAQ-22/12/2018-Ch10-25]

Where goods or services or both received by a taxable person are used for effecting both taxable and non-taxable supplies, whether the input tax credit is available to the registered taxable person?

Ans.

The input tax credit of goods or services or both attributable only to taxable supplies can be taken by registered person. The manner of calculation of eligible credit is provided in Rule 42.

Question-2 [FAQ-22/12/2018-Ch10-26]

If input tax credit is allowed only in respect of goods or services or both for effecting taxable supplies, would it not lead to loss of input tax credit on exempt supplies when exported?

Ans.

No. Zero-rated supplies have been covered within taxable supplies for the purpose of allowing input tax credit. Moreover, IGST Act specifically allows availment of input tax credit for making zero rated supplies, notwithstanding that such supply may be exempt.

17.1.2.1 Meaning of Exempt supplies for Section 17(2)

Question-1 [FAQ-22/12/2018-Ch10-45]

Whether Schedule III activities (Activities considered as neither supply of goods nor supply of services) be considered as exempt supplies in terms of section 17(2) of the CGST Act, 2017?

Ans.

No. An explanation clause has been inserted in section 17(3) of the CGST Act, 2017 explaining that 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.

17.1.2.2 Exclusion from Aggregate value of exempt supplies

Question-1

Ram & Co., being a registered person under GST supplied the following in the month of Jan 20XX

Calculate Aggregate Value of Exempt Supply for Section 17(2).

Answer

WN-1

Calculation of Exempt Supply for section 17(2)

17.1.2.3 ITC is available on inward supplies used for zero rated supplies

Question-1 [ICAI-F-Ch8-8] [ICAI_I-Ch6-15]

A technical testing agency tests and certifies each batch of machine tools before dispatch by BMT Ltd. Some of these tools are dispatched to a unit in a SEZ without payment of GST as these supplies are not taxable. The finance personnel of BMT Ltd. want to know whether they need to carry out reversal of ITC on the testing agency’s services to the extent attributable to the SEZ supplies. Give your comments.

Answer

Statutory Provision

a) Section 16(2) of IGSTA, 2017 provides that Subject to sub-section 17(5) of CGSTA, ITC may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

b) Section 17(2) provides that when supplies are used partly for taxable & zero-rated supplies + partly for exempt supplies, ITC shall be restricted to input tax attributable to taxable & zero-rated supplies.

Thus, full ITC is allowed on inward supplies of BMT Ltd. used for effecting supplies to the unit in the SEZ.

17.2.1.1 Determination of common ITC for each tax period

Question-1 [ICMAI-F-Ch7-16] [ICMAI-I-Ch4-16] [Rule 42(1)(h) to (m)]****

M/s Lips Ltd., manufactures four types of ‘Nail Polishes’, namely Sweety, Pretty, Beauty, Tweety.

The Company has taken ITC of Rs.3,00,000 on the common inputs used in the manufacture of ‘Nail Polishes’. Common inputs also used partly for non-business purposes.

During FY 2017-18 (w.e.f 1-7-2017) company manufactured 1000 liters of each type of ‘Nail Polishes’. The Company was not in a position to maintain separate set of records with regards to inputs used for final products. GST payable on final goods @12%. You are required to calculate the net GST payable by M/s Lips Ltd. for FY 2017-18 from the following data.

Answer

WN-1 Nos. of 20ml. Bottles = 1,000 ltr*1,000 ml/20ml = 50,000 bottle

WN-2 Calculation of Output Tax, E & F

WN-3 Calculation of D1 & D2

Output Tax Payable

Position in 3B

Question-1A [ICMAI-F-Ch7-15] [ICMAI-I-Ch4-15] [ICAI-F-Ch8-9] [ICAI-I-Ch6-16] [Calculation of D1 & C3]

M/s X Ltd manufacturer of textile products. Company received order from Government to supply goods to defense (exempted supply).

The turnover of the other taxable goods and exempted goods Rs.4 cr and Rs.1 cr respectively.

Common inputs on which GST paid Rs.20,000. Calculate the eligible ITC on common inputs?

Answer

Question-2 [ICMAI-F-Ch7-18] [ICMAI-I-Ch4-18] [Rule 42(1)]****

Y Ltd. manufactures taxable and exempted goods. Y Ltd. also simultaneously provides taxable as well as exempted output services.

Raw material 10,000 units were purchased @ Rs.100 per unit used commonly during the month of Jan 2018 to produce all final products. GST paid on inputs 12%.

Input services commonly used for all goods and services in the month of Jan 2018.

Total ITC on inputs and input services taken into books of account in the relevant tax period is Rs.1,74,000.

Turnover for the month of January 2018 (excluding all taxes)

You are required to compute the amount of reversal of ITC as per rule 42(1)(i) of the month of Jan 2018.

Note: Each unit of exempted final product needs 2 units of raw materials. Assumed that there is no process loss

Answer

WN-1

a) GST paid on per unit of RM = Rs.100*12% = Rs.12

b) No of Units of Exempted goods produced = Rs.1,00,000/80 = 2,500 units

c) No of units of RM used in exempted goods = 2500*2 = 5,000 units

d) Calculation of E & F

Calculation of D1 & D2

Question-3

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

Common inputs for the relevant tax period is Rs.2,00,000.

GST applicable rate on outward supply of goods @28%. Find the GST liability?

Answer

WN-1

a) Calculation of E & F

b) Output Tax Payable = Rs.20,00,000*28% = Rs.5,60,000

c) Calculation of D1 & D2

Output Tax Payable

Position in 3B

Question-4 [ICMAI-I-D19-4b-10] [Rule 42(1)(i) to (m)]

M/s. Abishek Industries Ltd., has given the following information pertaining to the month of October, 2019

You are required to calculate the amount of common input tax credit to be reversed in respect of exempt supplies as per rule 42 of CGST Rules, 2017.

Answer

17.2.2 Determination of ITC on Capital Goods (CG)

Question-1 [ICSI-E-J21-69-1] [CG use changed from Exempt to Taxable]

Chand & Co. bought a machine for Rs.3 lakhs on 01.04.2019 plus GST @ 18% was charged on it. The goods manufactured became chargeable w.e.f. 01.08.2020. How much of input tax credit on such machinery purchase could be availed after the goods manufactured by it became taxable under GST?

(A) Rs.40,500; (B) Rs.27,000; (C) Rs.54,000; (D) Rs.37,800

Answer

Cost of Machine = Rs.3,00,000

Tax charged on machine = Rs.3,00,000*18% = Rs.54,000

Date of Purchase of machine = 01/04/2019

Period when machine used for exempt supply = 01/04/2019 to 31/07/2020 = 6 Qtr

Remaining life of Machine = 20qtr – 6qtr = 14 qtr

ITC that shall be credited to Ecrl on 01/08/2020 = Rs.54,000 – Rs.54,000*6/20 = Rs.37,800

Question-1A [ICSI-E-J21-69-1]

Chandra Prakash acquired a capital asset on 1st April, 2019 which was used for manufacturing and production of goods/ supplies which are exempt under CGST Act, 2017. However, the Government, by the notification issued in Nov, 2020 made the supplies so manufactured as taxable. Cost of the capital asset was Rs.5,00,000 on which GST @ 18% was charged. Amount of input tax credit (ITC) on such capital asset available for the reason of asset now being used in the production of taxable supplies shall be ....

(A) Rs.90,000; (B) Rs.63,000; (C) Rs.58,500; (D) Rs.54,000

Answer

Cost of Machine = Rs.5,00,000

Tax charged on machine = Rs.5,00,000*18% = Rs.90,000

Date of Purchase of machine = 01/04/2019

Period when machine used for exempt supply = 01/04/2019 to 31/10/2020 = 7 Qtr

Remaining life of Machine = 20qtr – 7qtr = 13 qtr

ITC that shall be credited to Ecrl on 01/11/2020 = Rs.90,000 – Rs.90,000*7/20 = Rs.58,500

Question-1B [ICSI-E-D20-79-1]

Chetan Prasad purchased a machine of value of Rs.2,50,000 on which GST at the rate of 18% was charged in invoice dated 03-04-2018. This machine was used by him in manufacturing of exempted supplies. However, the supplies manufactured by him become taxable from 01-11-2019. He claims that he is entitled for ITC on this machine because being used in manufacturing of taxable supplies. Find the amount of ITC available to him if any, relating to this machine as per rule 40(2) of the CGST Rules, 2017.

(A) Rs.29,250; (B) Rs.45,000; (C) Rs.31,500; (D) Rs.22,500

Answer

Cost of Machine = Rs.2,50,000

Tax charged on machine = Rs.2,50,000*18% = Rs.45,000

Date of Purchase of machine = 03/04/2018

Period when machine used for exempt supply = 03/04/2018 to 31/10/2019 = 7 Qtr

Remaining life of Machine = 20qtr – 7qtr = 13 qtr

ITC that shall be credited to Ecrl on 01/11/2019 = Rs.45,000 – Rs.45,000*7/20 = Rs.29,250

Question-2 [ICAI-F-N18-O-2a-7]

With the help of information given below in respect of a manufacturer for the month of Sep, 2017, calculate eligible input tax credit for the month and also calculate the amount of ITC to be reversed in Sep, 2017 and Oct, 2017. There is no carry forward credit or reversal requirement. Only the current month's information is to be considered for calculation purposes.

Answer

Statement showing eligible ITC for the tax period is as follows:

The amount ITC not allowed of Rs.26 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 as per Rule 43(1)(h) of CGST Rules, 2017.

Question-3 [ICAI-F-M18-O-2a-7]

Soren Enterprises is in possession of certain capital goods and purchases more of them as per the following particulars:

Useful life of all the above capital goods is considered as 5 years.

Apportion the ITC of capital goods, while being informed that aggregate value of exempt supplies during the tax period being Rs.6,00,000 and total turnover during the tax period being Rs.12,00,000.

Answer

Statement showing eligible ITC for the tax period is as follows:

WN

1. A = ITC on CG – 5% p.q. = 1,20,000-5%*8 = Rs.72,000

2. A = ITC on CG – 5% p.q. = 1,80,000-5%*12 = Rs.72,000

3. T_M= T_C÷60 = 2,04,000/60 = Rs.3,400

4. Te= (E÷ F) x Tr = 3,400*1/2 = Rs.1,700

The amount ITC not allowed of Rs.1,700 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 as per Rule 43(1)(h) of CGST Rules, 2017.

Question-3A

Oberoi Industries is a manufacturing company registered under GST. It manufactures two taxable products ‘X’ and ‘Y’ and one exempt product ‘Z’. The turnover of ‘X’, ‘Y’ and ‘Z’ in the month of April, 20XX was Rs.2,00,000, Rs.10,00,000 and Rs.12,00,000. Oberoi Industries is in possession of certain machines and purchases more of them. Useful life of all the machines is considered as 5 years.

From the following particulars furnished by it, compute the amount to be credited to the electronic credit ledger of Oberoi Industries and amount of common credit attributable towards exempted supplies, if any, for the month of April, 20XX.

Solution

Statement showing eligible ITC for the tax period is as follows:

WN

1. A = ITC on CG – 5% p.q. = 1,92,000-(8*5%) = Rs.1,15,200

2. A = ITC on CG – 5% p.q. = 2,88,000- (12*5%) = Rs.1,15,200

3. T_M= T_C÷60 = 3,26,400/60 = Rs.5,440

4. Te= (E÷ F) x Tr = 5,440*1/2 = Rs.2,720

The amount ITC not allowed of Rs.1,700 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 as per Rule 43(1)(h) of CGST Rules, 2017.

Question-4 [ICSI-P-J19-O-6b-7]

Vivitha Chemicals Ltd. is a manufacturing company registered under GST in the State of Tamil Nadu. It manufactures two taxable products “Supreme” and “Maroon”, and one exempt product “Delight”.

All purchases are from outside the State from registered suppliers.

On 1st Oct, 2018, product “Delight” got withdrawn from the exemption notification and product “Maroon” got exempted through an exemption notification.

The supplier furnishes the under-mentioned details (Amounts are excluding GST at 12% for Raw materials and 18% for Capital goods)

Compute the amount of input tax credit credited to Electronic Credit Ledger for the month of Oct, 2018.

Answer

Statement showing ITC to be credited to EcrL on Capital Goods for the tax period is as follows:

ITC is not availed on Raw material used for Exempt Supply (Maroon)

Question-4A [ICSI-P-J19-2b-5]

Parthiv Chemicals Pvt. Ltd. is a manufacturing company registered under GST in the State of Maharashtra. It manufactures two taxable products ‘‘Sun’’ and ‘‘Moon’’, and one exempt product ‘‘Jupiter’’. On 1st October, 2018, product ‘‘Moon’’ got exempted through an exemption notification and the exemption available on product ‘‘Jupiter’’ got withdrawn on the same date (1st October,2018) under the same notification.

The above registered supplier has furnished the following details (amounts are excluding GST) chargeable at 18% GST

All purchases are from outside the State from registered suppliers.

Compute the amount of input tax credit (ITC) to be credited to Electronic Credit Ledger for the month of October, 2018.

17.4.1 Bank may avail ITC as per Section 17(2) or 50% of Eligible ITC

Question-1 [ICSI-E-J21-O-85-1]

Section 17 of CGST Act, 2017 where 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 advance shall have the option to either comply with the provision of sub section (2), or avail of, every month, an amount equal to________ of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse.

(A) 30%; (B) 40%; (C) 50%; (D) 60%

Question-2 [ICSI-E-J21-66-1]

A banking company has Rs.52,000 by way of input tax credit for the month of January, 2021. How much of input tax credit it can avail and how much would lapse ?

(A) Rs.26,000 and balance 50% of ITC would lapse

(B) Rs.13,000 and balance 75% of ITC would lapse

(C) Rs.39,000 and balance 25% of ITC would lapse

(D) Rs.52,000 and nothing would lapse

Question-3 [ICSI-E-J22-58-1]

As per Section 17 of CGST Act, 2017, for banking companies using inputs and input services partly for taxable supplies and partly for exempt supplies, which of the following statement is true?

(A) ITC shall be compulsorily restricted to credit attributable to taxable supplies including zero rated supplies

(B) 50% of eligible ITC on inputs, Capital goods and input service shall be mandatorily taken in a month and rest shall lapse

(C) Either (a) or (b) at the option of banking company

(D) None of the above

Question-4 [ICMAI-F-Ch7-19] [ICMAI-I-Ch7-19] [2^nd Proviso to section 17(4)]

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

Answer

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

17.4.2 Procedure for claiming 50% of Eligible ITC

Question-1 [ICMAI-F-Ch7-20] [ICMAI-I-Ch4-20]

OK Bank has availed credit of Rs.25,00,000 lacs in the month of Dec 2017. Total credit, out of which Rs.5,00,000 pertains to non-business purpose and Rs.7,00,000 pertains to credit availed under 2nd proviso of section 17(4).

Find the total ITC eligible to OK Bank.

Note: OK Bank opted to avail ITC an amount equal to 50% of eligible credit.

Answer

Statement showing eligible ITC to OK Bank for the month of December 2017:

17.5 Blocked ITC u/s 17(5)

Question-1 [FAQ-22/12/2018-Ch10-19]

Is credit of tax paid on every input used for supply of taxable goods or services or both is allowed under GST?

Answer

Yes, except a small list of items provided u/s 17(5) of the CGST Act, 2017), the credit is admissible on all items.

Question-2 [ICMAI-F-J18-6b-6]

Which are the input goods and services on which a registered dealer cannot claim Input Tax credit u/s 17(5) of CGST Act, 2017. Give any six points/items.

17.5.1 ITC on motor vehicle

Question-1 [FAQ-22/12/2018-20] [ICAI-F-Ch8-7] [Car used by Directors]

A taxable person is in the business of information technology. He buys a car (maximum seating capacity – 5 persons) for use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such car?

Answer

Section 17(5)(a) -  ITC on motor vehicles for transportation of persons of seating capacity =< 13 persons (including driver) shall not be available.

However, ITC on motor vehicles shall be allowed when they are used for following taxable supplies:

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

Since car is to be used for his Executive Directors and not for above exception, ITC shall not be available on it’s purchase.

Question-2 [ICMAI-F-Ch7-23] [Cars used for transportation of employees]

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

Answer

Section 17(5)(a) -  ITC on motor vehicles for transportation of persons of seating capacity =< 13 persons (including driver) shall not be available.

However, ITC on motor vehicles shall be allowed when they are used for following taxable supplies:

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

Since M/s MR Ltd. is not in the business of transporting passengers, ITC shall not be available on it’s purchase.

Question-3 [ICMAI-F-D19-6b(ii)-3] [ICMA-F-Ch7-Ex-27] [Cars purchased for imparting training on driving]

M/s Maruti Driving School Pvt. Ltd. supplied taxable services in the month of October 2017 for Rs.15 lacs (plus GST 18%) to provide training on driving. Company purchased two vehicles for this purpose namely passenger vehicle for Rs.20 lacs plus GST 28% and goods vehicle for Rs.33 lacs plus GST 28%.

Find the net GST liability of M/s Maruti Driving School Pvt. Ltd.

Answer

Section 17(5)(a) -  ITC on motor vehicles for transportation of persons of seating capacity =< 13 persons (including driver) shall not be available.

However, ITC on motor vehicles shall be allowed when they are used for following taxable supplies:

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

Since M/s Maruti Driving School Pvt. Ltd. is providing driving training which is covered under exception, hence ITC shall be available on it.

On goods vehicle ITC is not denied u/s 17(5), hence ITC is also available on it.

Calculation of GST liability

Question-4 [ICMAI-F-Ch7-26] [Van Purchased for transportation of School Children]

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

Answer

Section 17(5)(a) -  ITC on motor vehicles for transportation of persons of seating capacity =< 13 persons (including driver) shall not be available.

However, ITC on motor vehicles shall be allowed when they are used for following taxable supplies:

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

Since Mr Ram is providing service of transportation of passengers which is covered under exception, hence ITC shall be available on it.

Question-5 [ICMAI-F-D19-6b(i)-3] [Dealer]

M/s Ace Ltd is a registered person under GST law and purchased 10 cars for Rs.45 lakh plus 28% GST. M/s Ace Ltd sold 8 cars for Rs.55 lakh plus 28% GST.

Find the GST liability in the following two independent cases:

(i) M/s Ace Ltd is dealer of motor vehicles.

(ii)  M/s Ace Ltd is not a dealer of motor vehicles.

Answer

Section 17(5)(a) -  ITC on motor vehicles for transportation of persons of seating capacity =< 13 persons (including driver) shall not be available.

However, ITC on motor vehicles shall be allowed when they are used for following taxable supplies:

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

(i) Since M/s Ace Ltd is dealer of motor vehicle which is covered under exception, ITC shall be available on 10 cars.

(ii) Since M/s Ace Ltd is not a dealer of motor vehicle, ITC shall not be available on 10 cars.

Net GST Liability

Question-6 [ICSI-E-D22-69-1]

As per Section l7(5) of CGST Act, 2017, ITC of motor vehicles is allowed for following :

(i) Vehicle used for Transportation of goods

(ii) Vehicle used for Transportation of passengers having seating capacity of l5 persons

(iii) Vehicle used for Taxable supplies of imparting training on driving

(A) (i) and (iii)

(B) (ii) and (iii)

(C) (i), (ii) and (iii)

(D) Only (ii)

17.5.2 ITC on Vessels and Aircraft

Question-1 [ICSI-E-J22-94-1]

Shakthi limited purchases an aircraft for the purpose of transportation of goods manufactured by it. ITC shall be ............. for the GST paid on the aircraft.

(A) allowed

(B) blocked under Section 17(5)

(C) allowed to the extent of 50%

(D) blocked under section 17(5) to the extent of 50%

Question-2 [ICMAI-F-Ch7-28] [Imparting Training on Flying]

Course completion certificate/training offered M/s Sky Ltd. (Flying Training Institute) purchased aircraft for Rs.22 cr plus GST 28%. Whether the flying institute is eligible for ITC on purchase of air craft.

Answer

Section 17(5)(aa) - ITC is not available on vessels and aircraft. However ITC is available 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

Since M/s Sky Ltd. (Flying Training Institute) is imparting training on flying such aircraft, he is eligible to avail ITC on such vessel aircraft.

17.5.3 ITC on general insurance, servicing, repair and maintenance relating to motor vehicles, vessels or aircraft

Question-1 [FAQ-22/12/2018-Ch-41]

Whether tax paid on repairs, maintenance and insurance of Motor Vehicles used for the purpose of business is eligible for ITC?

Answer

The ITC on repairs, maintenance and general insurance of those motor vehicles is blocked if the ITC is blocked under Section 17(5)(a) of the CGST Act 2017.

Motor Vehicles for transportation of Goods: ITC on repairing, maintenance and insurance of motor vehicles for transportation of goods is admissible with no restrictions.

Motor Vehicles for transportation of persons: Thus, ITC on repairing, maintenance and insurance of motor vehicles for transportation of persons carrying more than 13 persons will be admissible.

However, for motor vehicles for transportation of persons carrying up to 13 persons will be admissible only if it is used for transportation of passengers, further supply of such motor vehicles and imparting training on driving. [Section 17(5) (ab) as substituted vide the CGST (Amendment) Act, 2018.

17.5.4 ITC on supplies generally used for Personal Consumption

Question-1 [ICMAI-F-Ch7-29] [Catering services availed by Academy]

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

Answer

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

Question-2 [ICMAI-F-Ch7-30] [Catering services availed by another caterer]

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

Find the Net GST liability of Annapoorna caterings.

Answer

Section 17(5)(b)(i) - ITC is not available on

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 (aa) except when used for the purposes specified therein,

life insurance and health insurance

Provided that the ITC on such goods or/and services shall be available where above inward supplies are used for making an outward taxable supply of the same category of goods or/and services or as an element of a taxable composite or mixed supply.

In the given case, Annapoorna caterings has given sub contract of outdoor catering for further supply of same category of goods and services, hence ITC shall be available to him.

Statement showing net GST liability of Annapoorna caterings:

Question-3 [ICMAI-F-Ch7-31] [Composite & Mixed Supply]

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

Answer

Section 17(5)(b)(i) - ITC is not available on

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 (aa) except when used for the purposes specified therein,

life insurance and health insurance

Provided that the ITC on such goods or/and services shall be available where above inward supplies are used for making an outward taxable supply of the same category of goods or/and services or as an element of a taxable composite or mixed supply.

Advise: In the given case, Sky Ltd. will be entitled to avail the ITC of the GST paid to M/s Anna Caterers since outdoor catering services forms part of taxable composite supply of passengers by air services.

Question-4 [ICMA-F-Ch7-Ex-34] [Composite & Mixed Supply]

Hotel King Pvt Ltd. provider of short-term accommodation services and also provides picking up guest from airport. Accordingly, Hotel King Pvt. Ltd availed rent-a-cab services from M/s X & Co. Rent-a-cab services during Nov 2017 for Rs.2,00,000 plus GST 18%. Hotel King Pvt Ltd. provided short-term accommodation services to its customers (i.e. guests) during Nov 2017 for Rs.15,75,250 plus GST 18%.

Find the Net GST liability of Hotel King Pvt Ltd. during the month of November 2017.

Answer

Section 17(5)(b)(i) - ITC is not available on

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 (aa) except when used for the purposes specified therein,

life insurance and health insurance

Provided that the ITC on such goods or/and services shall be available where above inward supplies are used for making an outward taxable supply of the same category of goods or/and services or as an element of a taxable composite or mixed supply.

Advice: In the given case Hotel King Pvt. Ltd. providing a composite supply of rent-a-cab and accommodation service. The principal supply of service is accommodation service. Hence, GST paid on rent-a-cab will be available as a credit to Hotel King Pvt. Ltd

Statement showing Net GST liability of Hotel King Pvt. Ltd for the month of Nov 2017

Question-5 [ICMAI-F-Ch7-35] [Life insurance and health insurance]

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

Answer

Section 17(5)(b)(i) - ITC is not available on

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 (aa) except when used for the purposes specified therein,

life insurance and health insurance

Advice: Infosys Ltd cannot avail the ITC benefit in the given case.

Question-6 [ICMAI-F-Ch7-36] [Insurance of Stock]

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

Answer:

Section 17(5)(b)(i) - ITC is not available on

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 (aa) except when used for the purposes specified therein,

life insurance and health insurance

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

17.5.7 ITC for construction of an immovable property

Question-1 [FAQ-22/12/2018-Ch10-47] [Construction of IP]

Whether input tax credit of tax paid on ‘works contract service’ or on goods or services used for construction of immoveable property (other than plant and machinery)? If yes, to what extent?

Answer

Yes, subject to the condition that such construction of immovable property is not capitalised. [Explanation to section 17(5)(d) of CGST Act]

Question-1A [FAQ-22/12/2018-Ch10-22] [Construction of building for business purpose]

Can a registered person get ITC with respect of goods or services used for construction of a building for business purposes?

Answer

No. ITC on goods or services by a person for construction of immovable property, other than plant and machinery, is not allowed. Plant and machinery cover only apparatus, equipment, and machinery fixed to earth by foundation or structural support, and excludes land and building, among other things.

Question-1B [ICSI-P-D19-1d(v)-1] True or False

Expenditure incurred on construction of factory building is Rs.18,40,000 including GST of Rs.2,80,000. The GST amount is not eligible for input tax credit.

Answer

True. As per Section 17(5)(c) or (d) of the CGST Act, tax charged on works contract service or goods or services used for construction of immovable property on its own account shall not be eligible for input tax credit.

Question-2 [ICMAI-F-Ch7-38] [WCA for IP & Sub works contract]

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

Answer

M/s A Ltd being a manufacture is not eligible to avail ITC on works contract service to M/s C Ltd.

M/s B Ltd being main contractor received works contract service from sub-contractor by paying GST which is allowed as ITC to the main contractor 

Question-3 [ICMAI-F-CH7-44] [WCS for IM]

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

Answer

GST paid on works contract services which is used for land, building or any other civil structures specifically excluded from availing input tax credit under section 17(5)(c) of the CGST Act, 2017.

Therefore, in the given case M/s A Ltd is not eligible for input tax credit.

Question-4 [ICMAI-F-CH7-43] [Construction of P&M]

M/s X Ltd manufacturer of taxable goods and registered under GST Law. M/s X Ltd assigned the contract in the month of Jan 2018, for Rs.5,00,000 plus GST 18% to M/s Y Ltd. for constructing structural support of Hot Mix Plant, which is used for making taxable supply of goods.

Accordingly M/s Y Ltd used cement, steel, Iron, water, chemicals and labour to complete the job. Entire work has been completed and payment also be received in the month of Jan 2018.

M/s X Ltd further provides the following information to find net GST liability of M/s X Ltd. for the month of January 2018

Note: There is a process loss @ 1% while converting raw materials into finished goods.

Answer

Section 17(5)(d) - ITC is not available on goods or services used for construction of an immovable property (other than P&M) on his own account including when such goods or services are used in the course or furtherance of business.

Hence ITC shall be available on inward supplies used for construction of P&M.

Statement showing net GST liability for the month of January 2018 of M/s X Ltd                                           

Question-5 [ICMAI-F-CH7-48] [Laying of Pipe Line inside the factory]

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

Answer

The credit of GST paid on pipelines inside the factory will be available. Since, pipelines laid inside the factory premises are in the course or furtherance of business (i.e. capital goods). Therefore, input tax credit allowed is Rs.1,20,000.

GST paid on works contract services, which are used for laying of pipelines resulting into movable property, is also qualify for claiming input tax credit of Rs.36,000.

Therefore, total eligible input tax credit is Rs.1,56,000

Question-6 [ICSI-P-D19-1d(i)-1] [Repair of furniture]

While doing repair of furniture of a company, GST was paid on wood, board, mica, paint etc.; the amounts so paid are eligible for input tax credit. [T/F]

Answer

True. As per Section 16 of the CGST Act, the tax charged in respect of goods which are used or intended to be used in the course or furtherance of his business shall be eligible for input tax credit. Thus, materials purchased for repairs of existing furniture is eligible for ITC.

17.5.9 ITC on tax supplies received by Non Resident taxable Person

Question-1 [FAQ-22/12/2018-Ch10-48] [Supplies procured locally]

Whether a non-resident taxable person can take input tax credit of tax paid on goods and services, procured by him locally?

Answer

No. He can take input tax credit of tax paid only on goods imported by him.

Question-2 [ICMAI-F-CH7-52]

Mr. A of USA being technician came to India to assemble parts of machinery. He also imported goods worth Rs.10,00,000 and paid following customs duties:

(i) Basic customs duty is Rs. 1,00,000.

(ii) Education Cess 2% plus 1% Secondary and Higher Education Cess together it is Rs. 3,000.

(iii) Integrated Goods and Services Tax (IGST) of Rs. 1,98,540.

In India Mr. A wants to register as non-resident taxable person and his estimated liability is Rs.2,50,000. How much Mr. A is liable to pay as advance tax?

Answer

Mr. A of USA is liable to pay advance tax of Rs. 51,460. (i.e Rs. 2,50,000 – 1,98,540)

17.5.10 ITC denied on goods or services used for Personal Consumption

Question-1 [ICMAI-F-CH7-55]

M/s Info Ltd. providing various facilities to their employees like club, sports facilities etc. to ensure that the employees stay comfortably in the colony. It increases the efficiency of employee. Examine the credit applicability in this case.

Answer

Expenses incurred in colony are in the course or furtherance of business. Hence, credit of GST paid on such services will also be available to the taxable person.

17.5.11 ITC denied on goods lost, stolen, destroyed, written off, Free Sample etc

Question-1 [FAQ-22/12/2018-Ch10-21]

Sometimes goods are destroyed or lost due to various reasons? Can a person take ITC to the extent of such goods?

Ans.

No, a person cannot take ITC with respect to goods lost, stolen, destroyed or written off. In addition, ITC with respect of goods given as gifts or free samples are also not allowed. [Section 17(5)(h) of CGST Act]

Question-2 [ICMAI-F-D18-1(iii)-2]

Under GST input tax credit cannot be claimed on goods and services used as inputs if

(a) Goods are purchased on credit.

(b) Goods are received and utilized, the invoice is received after two weeks from the supplier.

(c) Good are destroyed by fire.

(d) Services are provided by a law firm on which GST has been paid under RCM.

Question-3 [ICMAI-F-J19-1(vii)-2]

A manufacturer who is a registered person under GST has purchased 10,000 kgs of raw material during Feb, 2019, on which IGST of Rs.1,00,000 has been paid. He has taken 100 kgs for personal use. 200 kgs were stolen from the factory. Only 80% of the raw materials were consumed during the month for production. The input tax credit available to him for Feb, 2019 is

(A) Rs.99,000; (B) Rs.97,000; (C) Rs.98,000; (D) Rs.1,00,000

Question-4 [ICAI-F-N18-O-4a-4] [Destroyed]

A company has entered to an agreement with a customer for the manufacture and supply of cement pipes for their exclusive use. A company manufactured the product but before receiving the inspection certificate, their customer rejected some quantity of goods on the grounds of quality. As per agreement, the rejected quantity will be destroyed in front of the customer and shall not be sold. Examine the issue in the light of statutory provisions and suggest future course of action to the assessee as to whether any liability arises as per the provisions of GST law.              

Answer

Section 17(5)(h) - ITC is not available on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

since in the given case the cement pipes have been destroyed, ITC attributable to such pipes will not be allowed. Thus, in the given case, if the credit has already been availed, the same will need to be reversed.

Question-5 [ICSI-E-D21-56-1] [Gift]

Bharath Ltd is engaged in making Sweets. The Company on Diwali, distributed the same sweets to its employees. Can the company claim ITC in respect to the inputs used in making such gifts to its employees?

(A) Yes; (B) No; (C) Yes, after approval from GST Commissioner; (D) Yes, to the extent of 50% of Inputs

Answer

Section 17(5)(h) - ITC is not available on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

Question-6 [ICMA-I-D19-1(c)(iii)-1]

ITC is allowed if the goods are destroyed by fire. [T/F]

17.5.12 ITC on tax paid on account of Fraud, Detention

Question-1 [ICMAI-F-CH7-57]

M/s X Ltd. sold goods to M/s Y Ltd. for Rs.2,00,000 plus GST Rs.36,000. M/s X Ltd. remitted the GST on or before the due date. During the audit of M/s X Ltd. books by the Central Tax Department quantified the GST liability Rs. 72,000 and demanded to pay differential duty of Rs.36,000 u/s 74 of the CGST Act, 2017. Finally, M/s X Ltd. paid the differential GST of Rs.36,000.

M/s Y Ltd. wants to avail the input tax credit of differential amount of GST, advise.

Answer

Since, the differential GST paid by M/s X Ltd. against show cause notice u/s 74 of the CGST Act, 2017, will not be available as credit to M/s Y Ltd. in view of clause (i) of section 17(5) of the CGST Act, 2017.