Clarification on the availability of Input Tax Credit (ITC) under clause (b) of subsection (2) of Section 16 of the Central Goods and Services Tax (CGST) Act, 2017, for goods delivered under Ex-Works (EXW) contracts.

02Jan 2025 by admin

Circular No. 241/35/2024-GST dated 31.12.2024

Key Points:

Context and Issue:

  • Scenario: Automobile sector contracts between dealers and Original Equipment Manufacturers (OEMs) are often Ex-Works (EXW) contracts. Goods are considered delivered when handed over to the transporter at the OEM’s factory gate.
  • Issue: Field formations questioned the eligibility of dealers to claim ITC before physically receiving goods at their business premises. Show cause notices were issued for alleged wrongful ITC claims

Legal Background:

  • Section 16(2)(b), CGST Act, 2017: A registered person can claim ITC only if goods or services have been “received.”
  • Explanation in the Act: Goods are deemed “received” if delivered to the recipient or their agent (e.g., transporter) before or during movement, either through transfer of documents of title or otherwise.

Clarifications Provided:

  1. No Physical Receipt Requirement:
  • The Act does not mandate physical receipt of goods at a specific location for ITC eligibility.
  • This differs from prior laws like the Central Excise regime, which required physical receipt for credit.

2. EXW Contract Context:

  • When goods are handed over to a transporter at the OEM’s factory gate:
  • Ownership transfers to the dealer.
  • ITC can be claimed based on deemed receipt, as per the Explanation in Section 16(2)(b).

3. Applicability to Other Contracts:

  • Similar principles apply to other goods supplied under EXW contracts or arrangements where delivery occurs at the supplier’s location, and ownership transfers to the recipient.

Conditions for ITC:

  • ITC is allowed only if goods are used for business purposes, as per Section 16(1).
  • ITC is not available if:
    • Goods are diverted for non-business purposes.
    • Goods are lost, destroyed, stolen, or given away (as per Section 17(5)(h)).

Conclusion:

This circular reinforces that ITC claims are valid if goods are deemed “received” based on contractual terms like EXW. It also highlights the importance of adhering to conditions for ITC eligibility and addresses operational inconsistencies in interpreting the CGST provisions.