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Q1. What is the issue addressed in this clarification?
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The clarification pertains to the availability of Input Tax Credit (ITC) under Section 16(2)(b) of the CGST Act, 2017, for goods delivered under Ex-Works (EXW) contracts, where ownership transfers at the supplier’s factory gate, but physical receipt occurs later.
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Q2. What does Section 16(2)(b) of the CGST Act require for claiming ITC?
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Section 16(2)(b) mandates that ITC can only be claimed if goods are “received” by the registered person. However, the Explanation to this section allows deemed receipt of goods when delivered to the registered person or another person (e.g., transporter) on their instructions.
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Q3. How does this differ from the pre-GST excise regime?
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Under the pre-GST Central Excise regime, CENVAT credit required physical receipt of goods at the manufacturer’s factory to claim the credit. In contrast, under GST, there is no requirement for goods to be physically received at a specific location, and ITC can be claimed based on deemed receipt.
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Q4. Can ITC be claimed under EXW contracts when goods are handed over to a transporter at the supplier’s premises?
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Yes, under EXW contracts, ITC can be claimed when goods are handed over to the transporter at the supplier’s premises, as ownership and risk transfer at this point. This is treated as the “receipt” of goods for ITC purposes.
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Q5. Does this clarification apply only to the automobile sector?
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No, the clarification applies broadly to all EXW contracts where goods are delivered to a transporter or another person on behalf of the recipient at the supplier’s location.
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Q6. What conditions must be met for ITC eligibility under EXW contracts?
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Goods must be used or intended for business purposes. Other conditions under Sections 16 and 17 of the CGST Act, such as proper documentation and no diversion of goods for non-business use, must be fulfilled.
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Q7. Can ITC be denied if goods are lost or diverted after receipt?
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Yes, ITC is disallowed if goods are lost, stolen, destroyed, or written off after deemed receipt, or if they are diverted for non-business purposes.
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Q8. How does this clarification ensure uniformity in implementation?
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Field formations are instructed to consider goods handed over to the transporter under EXW contracts as “received” by the recipient, ensuring uniform ITC treatment. Show cause notices issued for ITC denial in such cases are unwarranted.
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