Input Tax Credit – CA Final IDT Study Material

Input Tax Credit – CA Final IDT Study Material is designed strictly as per the latest syllabus and exam pattern.

Input Tax Credit – CA Final IDT Study Material

Question 1.
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 the forward charge on 15-08-2020 for which tax invoice was also issued on the same date. The inputs were received by Mohan Ltd. on 15-08-2020. Mohan Ltd. availed credit of ₹ 24,000 on 18-08-2020. But Mohan Ltd. did not make any payment towards such supply along with tax thereon to the supplier. Is Mohan Ltd. eligible to avail input tax credit on such supply? What are the consequences of such non-payment by Mohan Ltd.?
Discuss input tax credit provisions if Mohan Ltd. makes the payment of ₹ 2,24,000 to the supplier on 18-03-2021. [Nov. 2018, Old, 5 Marks]
Answer:
Statutory Provisions:

As per section 16 of the CGST Act, 2017, Mohan Ltd. is eligible to avail input tax credit (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.

In the given case:
(1) If Mohan Ltd. did not make any payment towards such supply along with tax thereon to the supplier, it has to report the fact of non-payment in the ITC return [GSTR – 2 (GSTR-2 is not operational, reporting is done in GSTR 3B.)] for the month immediately following the period of 180 days from the date of the issue of the invoice. When such report is made, ITC of ₹ 24,000 will be added to his output tax liability. Mohan Ltd will be required discharge this liability with interest @ 18% p.a. from the date of availing credit till the date when the amount added to the output tax liability [Second proviso to section 16(2) of the CGST Act, 2017 read with rule 37 of the CGST Rules, 2017],

(2) If Mohan Ltd. does not pay the supplier as mentioned above, subject to the provisions of section 126 of the CGST Act, 2017, a general penalty which may extend to ₹ 25,000 may also be levied for such contravention by Mohan Ltd. [under section 125 of the CGST Act, 2017]?

(3) If Mohan Ltd. makes the payment of ₹ 2,24,000 (Value + tax) to the supplier on 18.03.2021 i.e., after the expiry of 180 days from date of issue of invoice, Mohan Ltd. will have to report the default in the monthly report, add the amount of ITC to his output tax liability and when the payment is made to the supplier, take the credit of ₹ 24,000. The output tax liability added will have to be paid with interest @18% for the period from the date of availment of credit till the date of addition of the amount to the output tax liability.

Examiner’s Comment
A large number of examinees correctly wrote that in case of non-payment towards a supply along with tax thereon to the supplier, ITC will be added to its output tax liability. However, most of them did not mention that the fact of non-payment also needs to be reported in the ITC return for the month immediately following the period of 180 days from the date of the issue of the invoice.

Question 2.
ABC company Ltd. of Bengaluru is manufacturing and registered supplier of machine. It has provide the following details for the month of November 2020
Detail of GST paid on inward supplies during the months:

Item	GST Paid (₹)
Health insurance of factory employees.	20,000
Raw material for which invoice has been received and GST has also been paid for full amount but only 50% of material has been received, remaining 50% will be received in next month	18,000
Work contractor’s services used for installation of plant and machinery	12,000
Purchase of manufacturing machine directly send to job worker’s prem­ises under challan.	50,000
Purchase of car used by director for the business meeting only	25,000
Outdoor catering service availed for business meeting.	8,000

ABC Company Ltd. provided service of hiring of machines along with man power for oper-ation. As per the trade practice machines are always hired out along with operators and also operators are supply only when machine are hired out.
Receipt on outward supplied (exclusive of GST) for the month of November 2020 are also followed:

Items	Amounts
Hiring receipt for machine	5,25,000
Service charged for supply of man power operators	2,35,000

Assumed all the transactions are inter-State and the rates of IGST to be as under:

i. Sales of machine 5%
ii. Services of hiring of machine 12%
iii. Supply of man power operator service 18%

Compute the amount of input tax credit available and also the net GST payable for the month of November 2020 by giving necessary explanations for treatment of variable items.
Note – Opening balance of input tax credit is nil. [MTP, May/Nov 2018, 10 Marks]
Answer:
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]	62,000
Net GST liability	29,200

Working Notes:
(1) Computation of Input Tax Credit (ITC) available with ABC Company Ltd. in the month of November 2020.

Particulars	GST (₹)
Health insurance of factory employees (As per section 17(5)(6)(m) of the CGST Act, 2017 ITC of health insurance is blocked in the given case since said services are not notified by Government as obligatory for employer to provide to its employees under any law.)	Nil
Raw material received in factory (Where the goods against an invoice are received in lots/instalments, ITC is allowed upon receipt of the last lot/instalment vide first proviso to section 16(2) of the CGST Act, 2017. Therefore, ABC Company Ltd. will be entitled to ITC of raw materials on receipt of second instalment in December, 2017.)	Nil
Work’s contractor’s service used for installation of plant and machinery (As per Section 17(5)(c) of CGST Act, 2017 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.)	12,000
Manufacturing machinery directly sent to job worker’s premises under challan (As per Section 19(5) of CGST Act, 2017 ITC on capital goods directly sent to job worker’s premises under challan is allowed)	50,000
Purchase of car used by director for business meetings only 1. (Section 17(5)(a) of CGST Act, 2017 ITC on motor vehicles is allowed only when the same are used: (1) for making taxable supply of – further supply of such vehicles, transportation of passengers, imparting training on driving, flying, navigating such vehicles and motor vehicle having seating capacity >13 persons (2) for transportation of goods. Since ABC Company Ltd is a supplier of machine and it does not use the car for transportation of goods, ITC thereon will not be available.)	Nil
Outdoor catering service availed for business meetings (Section 17(5)(6)(z) of CGST Act, 2017 ITC on outdoor catering is blocked except where the same is used for making further supply of outdoor catering or an element of a taxable composite or mixed supply. Since ABC Company Ltd is a supplier of machine, ITC thereon will not be available.)	Nil
Total ITC available	62,000

(2) Computation of gross GST liability

	Value re­ceived (₹)	Rate of GST	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

Notes:
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) of the CGST Act, 2017 read with section 2(90) of that Act], 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) of the CGST Act, 2017.

In the above answer, the amounts given in the second table of the question have been taken as “Receipts on outward supply”. If the same are taken as GST paid, the gross GST liability will be ₹ 7,60,000 (5,25,000 + 2,35,000) and the same can be directly set off against input tax credit available. Thus, net GST liability will work out to ₹ 6,98,000 (7,60,000 – 62,000).

Question 3.
With reference to the provisions of section 17 of the CGST Act, 2017, examine the availability of input tax credit under the CGST Act, 2017 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. [Nov. 2018]
Answer:

Statutory Provision	In the given case
(i) Section 17(5)(c) of the CGST Act, 2017 :- Input tax credit is blocked 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.	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) of the CGST Act, 2017.
(ii) Section 17(5)(d) of the CGST Act, 2017:- Input tax credit is blocked 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.	The taxable person 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) As per section 17(5) of the CGST Act, 2017 :- 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.	ITC on maintenance & repair services availed from “Jaggi Motors” for a truck used for transporting its finished goods is allowed to ABC Ltd.

Question 4.
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. [Nov 2018, Old, 4 Marks]
Answer:
Section 17 of the CGST Act, 2017 blocks ITC in respect of destroyed goods.
Accordingly, since in the given case the cement pipes have been destroyed, ITC attributable to such pipes will not be allowed [Section 17(5)(h) of the CGST Act, 2017].
Thus, in the given case, if the credit has already been availed, the same will need to be reversed.

Question 5.
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 input supplies during the month of April, 2020:

Items	GST paid in (₹)
(i) Life Insurance premium paid by the company on the life of factory employees as per the policy of the company	1,50,000
(ii) Raw materials purchased for which invoice is missing but delivery challan is available.	38,000
(iii) Raw materials purchased which are used for zero rated outward supply.	50,000
(iv) Works contractor’s service used for repair of factory building which is debited in the profit and loss account of company.	30,000
(v) Company purchased the capital goods for ₹ 4,00,000 and claimed de­preciation of ₹ 44,800 (@ 10%) on the full amount of ₹ 4,48,000 under Income Tax Act, 1961.	48,000

Other Information:-

(i) In the month of September, 2019, PQR Company Ltd. availed input tax credit of ₹ 2,40,000 on purchase of raw material which was directly sent to job worker’s premises under a challan on 25-09-2019. The said raw material has not been received back from the Job worker up to 30-04-2020.
(ii) All the above input supplies except (ii) above have been used in the manufacture of taxable goods.

Compute the amount of net Input Tax Credit available for the month of April, 2020 with necessary explanations for your conclusion for each item. You may assume that all the other conditions necessary for availing the eligible input tax credits have been fulfilled. [Nov. 2018, 7 Marks]
Answer:
(a) Computation of Input Tax Credit (ITC) available with PQR Ltd. for the month of April, 2020

Particulars	₹
Life Insurance premium paid by the company on the life of factory employ­ees [Note 1]	Nil
Raw materials purchased [Note 2]	Nil
Raw materials used for zero rated outward supply [Note 3]	50,000
work contractor’s service[Note 4]	30,000
Capital goods purchased wherein the depreciation is claimed on the tax component [Note 5]	Nil
Total ITC available	80,000

Notes:

(1) As per Section 17(5) of the CGST Act, 2017:- ITC on life insurance service is available only when the same is notified by the Government as being obligatory for an employer to provide to its employees under any law for the time being in force. In the absence of any information, it is assumed that such services have not been notified in the instant case and thus, the ITC thereon is blocked.

(2) As per Section 16 of the CGST Act, 2017:- ITC cannot be taken since invoice is missing and delivery challan is not a valid document to avail ITC.

(3) As per Section 16 of the IGST Act, 2017 :- ITC can be availed for making zero-rated supplies, notwithstanding that such supply ma be an exempt supply.

(4) As per Section 17(5) of the CGST Act, 2017:- ITC is blocked on works contract services for construction of an immovable property except when

• It is input service for further supply of works contract service
• Immovable property is plant and machinery

Construction includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.
ITC on expenses incurred on re-construction, renovation, additions or alterations and repairs would he allowed in case such expenses are charged to revenue and not capitalized.

(5) As per Section 16(3) of the CGST Act, 2017:- ITC is not available when depreciation has been claimed on the tax component of the cost of capital goods under the Income-tax Act.

(6) As per Section 19 of the CGSTAct, 2017:- 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.

Hence, the ITC taken by PQR Company Ltd. in September, 2019 is valid and since 1 year period has yet not lapsed in April, 2020, there will be no tax liability on such inputs.

Examiner’s Comment
Some examinees were unaware that the input tax credit in respect of raw materials used for zero rated outward supply can be availed in terms of section 16 of IGST Act, 2017. They also wrongly disallowed input tax credit in respect of work contractor’s service, which is allowed in the given case vide section 17(5) of CGST Act, 2017 as the repair of building is debited to P & L Account and not capitalized along with the immovable property.

Question 6.
Siddhi Ltd. is a registered manufacturer engaged in taxable supply of goods. Slddhi Ltd. purchased the following goods during the month of January, 2020. The following particulars are provided:

Particulars	Input tax (₹)
1. Capital goods purchased on which depreciation has been taken on full value including input tax thereon	15,000
2. Goods purchased from Ravi Traders (Invoice of Ravi Traders is received in month of January, 2020, but goods were received in month of March, 2020)	20,000
3. Car purchased for making further supply of such car. Such car is destroyed in accident while being used for test drive by potential customers	30,000
4. Goods used for setting up telecommunication towers being immovable property	50,000
5. Goods purchased from Pooja Ltd. (Full payment is made by Siddhi Ltd. to Pooja Ltd. against such supply, but tax has not been deposited by Pooja Ltd.	10,000
6. Truck purchased for delivery of output goods	80,000

Determine the amount of input tax credit (ITC) available by giving necessary explanations for treatment of various items as per the provisions of the CGST Act, 2017. You may assume that all the necessary conditions for availing the ITC have been complied with by SIddhi Ltd. [May 2019, Old, 5 Marks]
Answer:
Computation of ITC available with Siddhi Ltd.

Particulars	Input tax (₹)
1. Capital goods [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 of the CGST Act, 2017.]	Nil
2. Goods purchased from Ravi Traders [ITC in respect of goods not received cannot be availed (Section 16 of the CGST Act, 2017). Since the goods have been received in the month of March 2020, ITC thereon can be availed in March 2019 and not January 2020 even though the invoice for the same has been received in January 2020]	Nil
3. Cars purchased for making further supply [Though ITC on motor vehicles used for further supply of such vehicles is not blocked, ITC on goods destroyed for whichever reason is blocked (Section 17(5) of the CGST Act, 2017).]	Nil
4. Goods used for setting telecommunication towers [ITC on goods used by a taxable person for construction of immovable property on his own account is blocked even when such goods are used in the course or furtherance of business (Section 17 of the CGST Act, 2017).]	Nil
5. Goods purchased from Pooja Ltd. [ITC can be claimed provisionally in Jan­uary 2020 since all the conditions necessary for availing the same have been complied with (Section 16 of the CGST Act, 2017).	10,000
However, the claim will get confirmed only when the tax charged in respect of such supply has been actually paid to the Government.]
6. Trucks purchased for delivery of output goods [ITC on motor vehicles used for transportation of goods is not blocked (Section 17(5) of the CGST Act, 2017).]	80,000
Total ITC available with Siddhi Ltd.	90,000

Note: The above answer is based on the assumption that the ITC available is to be computed for the month of January, 2020. However, since the question does not specify the period for which ITC available is to be computed, the question may also be answered without referring to any particular period.

Question 7.
Pari Ltd. of Jodhpur (Rajasthan) Is a registered manufacturer of cosmetic products. Pari Ltd.’ has furnished following details for the month of April, 2020:

Particulars	₹
(A) Receipts (Details of Sales)
(i) Sales in Rajasthan	8,75,000
(ii) Sales in States other than Rajasthan	3,75,000
(iii) Export under bond	6,25,000
(B) Payments
(1) Raw materials
(i) Purchased from registered suppliers located in Rajasthan	1,06,250
(ii) Purchased from unregistered suppliers located in Rajasthan	37,500
(iii) Purchased from Punjab from registered supplier	1,00,000
(iv) Integrated tax paid on Import from USA	22,732
(2) Consumables purchased from registered suppliers located in Rajasthan in­cluding high speed diesel (Excise and VAT paid) worth ₹ 31,250 for running the machinery in the factory	1,56,250
(3) Monthly rent for the factory building to the owner in Rajasthan	1,00,000
(4) Salary paid to employees on rolls	6,25,000
(5) Premium paid on life insurance policies taken for specified employees. Life insurance policies for specified employees have been taken by Pari Ltd. to fulfil a statutory obligation in this regard. The Government has notified such life insurance service under section 17(5)(b)(iii)(A). The life insurance service provider is registered in Rajasthan.	2,00,000

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 balance of Input Tax Credit (ITC) with Pari Ltd. as on 1^st April, 2020 is

CGST ₹ 20,000

SGST ₹ 15,000

IGST ₹ 15,000

Assume CGST, SGST and IGST rates to be 9%, 9% and 18% respectively, wherever applicable.
Assume that all the other necessary conditions to avail the eligible input tax credit have been compiled with by Pari Ltd., wherever applicable.
Compute eligible input tax credit and net GST payable (CGST and SGST or IGST as the case may be) by Pari Ltd. for the month of April, 2020. [Nov. 2018, 10 Marks]
Answer:
(a) Computation of eligible input tax credit available with Pari Ltd. in the month of April, 2020

Particulars	Eligible input tax credit
	CGST ₹	SGST ₹	IGST ₹
1. Raw Material:
Purchased from local registered suppliers [Note 1(i)] (₹ 1,06,250 × 996)	9,562.50	9,562.50
Purchased from local unregistered suppliers [Note 1(ii)]	Nil	Nil
Purchased from Punjab from registered supplier [Note 1(i)] (₹ 1,00,000 × 18%)			18,000
Raw material imported from USA [Note 1(iii)]			22,732
2. Consumables [Note 2] [(1,56,250-31,250) × 996]	11,250	11,250
3. Monthly rent for the factory building to the owner in Rajasthan [Note 3]	9,000	9,000
4. Salary paid to employees on rolls [Note 4]	Nil	Nil	Nil
5. Premium paid on life insurance policies taken for specified employees [Note 5] (₹ 2,00,000 × 996)	18,000	18,000	–
Total	47,812.50	47,812.50	40,732
Add: Opening balance of ITC on 01.04.2020	20,000	15,000	15,000
Eligible ITC [Note 7]	67,812.50	62,812.50	55,732

Computation of net GST payable for the month of April, 2020

Particulars	CGST ₹	SGST ₹	IGST ₹
Intra-State sales	78,750	78,750
Inter-State sales			67,500
Exports under bond [Note 6]	Nil	Nil	Nil
Total output tax liability	78,750	78,750	67,500
Less: Eligible ITC	67,812.50	62,812.50	55,732
Net GST payable	10,937.50	15,937.50	11,768

Notes:
1.

(i) As per section 16 of the CGST ActCredit of GST paid on raw materials used in the course or furtherance of business is available.

(ii) All intra-State procurements made by a registered person from an unregistered supplier have been exempted from GST. Therefore, since no GST is paid on such raw material purchased, there does not arise any question of input tax credit (ITC) on such raw material.

(iii) As per section 16 of the CGSTAct: – IGST paid on imported goods qualifies as input tax in terms of section 2(62) of CGST Act, 2017. Therefore, credit of IGST paid on imported raw materials used in the course or furtherance of business is available.

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. As per section 7 read with Schedule III to the CGST Act :- Services by employees to employer in the course of or in relation to his employment is not a supply. Therefore, since no GST is paid on such services, there cannot be any ITC on such services.

5. As per section 17(5) of the CGST Act, 2017ITC on life insurance service is available only when the same is notified by the Government as being obligatory for an employer to provide to its employees under any law for the time being in force.

6. As per section 16 of the IGST ActExport of goods is a zero rated supply. A zero rated supply under bond is made without payment of IGST, supplies includes zero rated supply.

7. Since export of goods is a zero rated supply, there will be no apportionment of ITC and full credit will be available.

Question 8.
State whether input tax credit is available in the following cases :

(i) Motor car purchased by driving school for imparting training to the customers. Whether your answer would be different if the motor car is purchased by a manufacturing company to be used by its Managing Director for official purposes (sitting capacity is 5 persons)?
(ii) Amount spent for construction of factory building.
(iii) Gift articles purchased on the occasion of Diwali to be distributed among the employees.
Answer:
(i) As per Section 17(5) of CGST Act, 2017:- Motor car purchased by driving school for imparting training to the customers is an exception to the blocked credit item. Hence, ITC is available.
Yes, motor car purchased by a manufacturing company to be used by its managing director is a blocked credit item as per Section 17(5)(a) of CGST Act, 2017. Hence, ITC is not available.

(ii) As per Section 17(5) of CGST Act, 2017 :- Amount spent for construction of factory building is an item for which input tax credit is not available.

(iii) As per Section 17(5) of CGST Act, 2017:- Input tax credit shall not be available for goods disposed of by way of gift or free samples.

Question 9.
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 pro-cures 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 the month of November, 20XX:

Payments	₹ (in lakh)	Receipts	₹ (in lakh)
Raw material	3.5	Sales	15
Consumables	1.25
Transportation charges for bringing the raw material to factory	0.70
Salary paid to employees on rolls	5.0
Premium paid on life insurance policies taken for specified employees	1.60
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, education cesses of ₹ 0.0045 lakh and integrated tax of ₹ 0.29781 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 see page 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 fulfil a statutory obligation in this regard. The Government has notified such life insurance service under section 17(5)(b)(iii)(A). 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 break up of sales is as under:
Sales in West Bengal – ₹ 7 lakh
Sales in States other than West Bengal – ₹ 3 lakh
Export under bond – ₹ 5 lakh
The balance of input tax credit with the company as on 1.11.20XX is:
CGST – ₹ 0.15 lakh
SGST – ₹ 0.08 lakh
IGST – ₹ 0.10 lakh

Compute eligible input tax credit and net GST payable [CGST, SGST or IGST, as the case may be] by V-Supply Pvt. Ltd. for the month of November 20XX.

Note-
(i) CGST, SGST & IGST rates to be 9%, 9% and 18% respectively, wherever applicable.
(ii) The necessary conditions for availing input tax credit have been complied with by V-Supply Pvt. Ltd., wherever applicable.

You are required to make suitable assumptions, wherever necessary. [MTP, May 2018, 10 Marks]
Answer:
Computation of input tax credit available with V-Supply Pvt. Ltd. in the month of November 20XX

Particulars	Eligible input tax credit
	CGST*₹	SGST*₹	IGST*₹	Total ₹
1. Raw Material
Raw material purchased from Bihar [Refer Note 1(i)			14,400	14,400
Raw material imported from China [Refer Note 1(ii)]			29,781	29,781
Raw material purchased from unregistered suppliers within West Bengal [Refer Note 1 (iv)]	Nil	Nil		Nil
Raw material destroyed due to see page [Refer Note 1 (iv)]	Nil	Nil		Nil
Remaining raw material purchased from West Bengal [Refer Note 1(f)]	7,650	7,650		15,300
Total	7,650	7,650	44,181	59,481
2. Consumables [Refer Note 2]	9,000	9,000		18,000
3. Transportation charges for bringing the raw material to factory [Refer Note 3]	1,500	1,500		3,000
4. Salary paid to employees on rolls [Refer Note 4]	Nil	Nil	Nil	Nil
5. Premium paid on life insurance policies taken for specified employees [Refer Note 5]	14,400	14,400	–	28,800
6. Audit fee [Refer Note 6]	4,500	4,500	–	9,000
7. Telephone expenses [Refer Note 6]	2,700	2,700		5,400
8. Bank charges [Refer Note 6]	900	900		1,800
	40,650	40,650	44,181	1,25,481

Computation of net GST payable

Particulars	CGST* ₹	SGST* ₹	IGST* ₹	Total ₹
On Intra-State sales in West Bengal	63,000	63,000		1,26,000
On Inter-State sales other than West Bengal			54,000	54,000
On exports under bond [Note 7]	Nil	Nil	Nil	Nil
On inward supply of GTA services under reverse charge [Note 3]	1,500	1,500		3,000
Total output tax liability	64,500	64,500	54,000	1,83,000
Less: Cash paid towards tax payable under reverse charge [Note 10]	(1,500)	(1,500)		(3,000)
Less: Input tax credit [Note 8]
Opening balance of input tax credit on 01.11.20XX	(15,000)	(8,000)	(10,000)	(33,000)
Input tax credit availed during the month	(40,650)	(40,650)	(44,181)	(1,25,481)
IGST Utilized for payment of CGST	181 (IGST)
Net GST payable	7,169	14,350	Nil	21,519

Notes:

(1)

(i) As per section 16(1) of the CGST ActCredit of input tax (CGST & SGST/IGST) paid on raw materials used in the course or furtherance of business is available.
(ii) As per section 2(62)(a) of the CGST Act IGST paid on imported goods qualifies as input tax. 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) of the CGST Act.
(iii) No GST is paid on such raw material(because purchase from unregistered person), there does not arise any question of input tax credit on such raw material.
(iv) As per section 17(5)(h) of the CGST ActInput tax credit is not available on destroyed inputs.

(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) of the CGST Act. 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) of the CGST Act], Hence, there being no levy of GST on diesel, there cannot be any input tax credit of the same.

(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. Thus, V-Supply Pvt. Ltd. will pay GST under reverse charge on transportation service received from GTA.

Input tax paid under reverse charge on GTA service will be available as input tax credit in terms of section 16(1) of the CGST Act 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. Therefore, since no GST is paid on such services, there cannot be any input tax credit on such services.

(4) As per Section 7 read with Para 1 of the Schedule III of CGST ActServices by employees to employer in the course of or in relation to his employment is not a supply.

(5) Input tax credit on supply of life insurance service is not blocked if the Government has made it obligatory for an employer to provide such service to its employees [Section 17(5) (b)(iii)(A) of the CGST Act], Therefore, GST paid on premium for life insurance policies will be available as input tax credit.

(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) of the CGST Act.

(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 bond 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 input tax credit and full credit will be available [Section 16 of the IGST Act read with section 17(2) of the CGST Act].

(9) As Per Rule 88A Manner of Utilisation of ITC is:
The rule 88A provides as under:

• ITC of IGST should first be utilized towards payment of IGST.
• Remaining ITC of IGST, if any, can be utilized towards the payment of CGST and SGST/UTGST in any order, i.e. ITC of IGST can be first utilized either against CGST or SGST.
• ITC of CGST, SGST/UTGST can be utilized towards payment of IGST, CGST, SGST/ UTGST only after the ITC of IGST has first been utilized fully.

(10) Section 49(4) of the CGST Act 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) of the CGST Act. Therefore, tax payable under reverse charge cannot be set off against the input tax credit 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.

Question 10.
Flowchem Palanpur (Gujarat) has entered into a contract with R Refinery, Abu Road (Rajas-than) on 1st July, 2020 to supply 10 valves on FOR basis for its project, with following terms and conditions:

1. List price per valve is ₹ 1,00,000, exclusive of taxes.
2. The valves go through two stage third party inspection during manufacturing, as required by R Refinery. Cost of inspection of ₹ 15,000 is directly paid by R Refinery to testing agency. A special packing is to be done, as required by R Refinery. Cost of special packing is ₹ 10,000.
3. A special packing is to be done, as required by R Refinery. Cost of special packing is ₹ 10,000.
4. After making supply of valves, Flowchem has to arrange for erection and testing at the site for commissioning. Cost of erection etc. is of ₹ 15,000.
5. The goods were dispatched with tax invoice on 20th July, 2020 and they reached the destination at Abu-Road on 21st July, 2020. The lorry freight of ₹ 5,000 has been paid by R Refinery directly to lorry driver.

Assume the CGST and SGST rates to be 9% each and IGST rate to be 18%. Opening ITC of CGST is ₹ 20,000 and SGST is ₹ 20,000. All the given amounts are exclusive of GST, wherever applicable.
It has also undertaken following local transactions during the month of July, 2020 on which it has paid CGST and SGST as under:
Answer:

Particulars	Amount paid CGST (₹)	Amount paid SGST (₹)
1. It has acquired services of works contractor to erect foundation for fixing the machinery to earth in the factory.	5,000	5,000
2. It has laid pipe line upto the gate of its factory to bring the water to the factory for the purpose of production facility.	10,000	10,000
3. For the purpose of smooth and convenient communication in its factory, it has installed telecommunication tower of a mobile company (with due permission), the mobile phones of which have been provided to staff for factory work.	5,000	5,000
4. It has entered into an agreement with a travel company to provide home travel facility to its employees when they are on leave.	2,500	2,500
5. It has entered into an agreement with a fitness centre to provide wellness sendees to its employees after office hours	2,000	2,000

Work out the GST liability [CGST & SGST or IGST, as the case may be] of Flowchem Palan-pur (Gujarat) for July, 2018 after making suitable assumptions, if any, [May 2019, 9 Marks]
Answer:
(a) Computation of GST liability of Flowchem, Palanpur (Gujarat) for July 2020

Particulars	CGST @ 9% (₹)	SGST @ 9% (₹)	IGST @ 18% (₹)
Output tax liability [Working Note 1]			1,88,100
Less: ITC available for set off [Working Note 2]	25,000	25,000
CGST			(25,000)
SGST			(25,000)
Net GST liability payable in cash			1,38,100

Working Note 1 – Computation of output tax liability of Flowchem for July 2020

Particulars	Amount (₹)
List price of 10 valves (₹ 1,00,000 × 10) (It has been assumed that the charges for inspection, special packing, erection and freight are in respect of 10 valves)	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) of the CGST Act, 2017, 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.

Assuming that 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.

(2) As per section 15(2) of the CGST Act, 2017, 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) of the CGST Act, 2017, 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, i.e. Abu Road (Rajasthan) the location of the supplier (Gujarat). The supply is an inter-State supply liable to IGST.

Question 11.
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:

• Annual 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:
• Annual 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 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%

Note: – Opening balance of input tax credit of GST is nil. [MTP, May 2019, 10 Marks]
Answer:
(a) Computation of net GST payable by M/s XYZ

Particulars	GST payable (₹)
Gross GST liability [Refer Working Note 1 below]	2,63,400
Less: Input tax credit [Refer Working Note 2 below]	2,00,000
Net GST liability	63,400

Working Notes

(1) Computation of gross GST liability

Particulars	Value received (₹)	Rate of GST	GST payable (₹)
Hiring charges for excavators	18,00,000	12%	2,16,000
Service charges for supply of manpower for oper­ation of excavators [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) of the CGST Act, 2017 wherein the principal supply is the hiring out of the excavator. There­fore, the supply of manpower for operation of the excavators will also be taxed at the rate applicable for hiring out of the excavator (principal supply), which is 12%.]	20,000	12%	2,400
Service charges for soil testing and seismic evalu­ation [Soil testing and seismic evaluation services being independent of the hiring out of excavator the rate applicable to them, is 18%.]	2,50,000	18%	45,000
Gross GST liability			2,63,400

(2) Computation of input tax credit available for set off

Particulars	GST paid (₹)	ITC avail­able (₹)
Annual maintenance services for excavators [Refer Note]	1,00,000	1,00,000
Health insurance for excavator operators [It is Blocked as per section 17(5) of CGST Act, 2017]	11,000	–
Scientific and technical consultancy [Refer Note]	1,00,000	1,00,000
Total input tax credit available		2,00,000

Note: The annual maintenance service for the excavators does not get covered by the bar under section 17 of the CGST Act, 2017 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.

Question 12.
X, is a manufacturer of roofing sheets, and has total input tax credit of ₹ 1,60,000 as on 30-06-2020. He provides the following other information pertaining to June 2020:
(1) Input tax on for raw materials in June is ₹ 40,000.
(2) Input tax on account of Harvest caterers in connection with his Housewarming ₹ 10,000.
(3) Input tax on inputs contained in exempt supplies of ₹ 2 lakh in June is ₹ 20,000.
(4) GST paid on cosmetic and plastic surgery of CEO of the company is ₹ 30,000.
(5) Total turnover (inter-State, taxable @ 18%) for the month of June 2020 is ₹ 60 lakh. Compute the ITC available and his output tax liability for the month of June 2020. [May 2019, 10 Marks]
Answer:
Compute the ITC available and his output tax liability of X for June 2020

Particulars	Amount (₹)
Output tax liability for June 2020
GST on taxable turnover for June 2020	10,80,000
[Being inter-State supply, the same is leviable to IGST @ 18% = ₹ 60,00,000 × 1896]
Add: Ineligible ITC [Refer working note below] [ITC out of common credit, at­tributable to exempt supplies shall be added to the output tax liability in terms of rule 42 of the CGST Rules, 2017]	1,290
Total output tax liability	10,81,290
Total ITC available as on 30.06.2020	1,60,000

Working Note:
Computation of ineligible ITC to be added to output tax liability

Particulars	Amount (₹)
Input tax on raw materials [Note 1]	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 [Note 4]	Nil
Total ITC credited to the Electronic Credit Ledger in terms of rule 42	40,000
Common credit [Note 5]	40,000
ITC attributable towards exempt supplies	1,290
[Common Credit x (Aggregate value of exempt supplies during the tax period/ Total turnover during the tax period) – Rule 42 of the CGST Rules, 2017 = ₹ 40,000 × ₹ 2,00,000/₹ 62,00,000 – (rounded off)]

Note:

1. As per Section 16(1) of the CGST Act, 2017 Being used in the course or furtherance of business, input tax on raw materials is available as ITC

2. As per Section 17(5) of the CGST Act, 2017 ITC on outdoor catering is blocked 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, ITC not allowed

3. As per Rule 42 of the CGST Rules, 2017 Input tax on inputs contained in exempt supplies, Not available as ITC and thus, not credited to the Electronic Credit Ledger

4. As per section 17(5) of the CGST Act, 2017 ITC on cosmetic and plastic surgery is blocked if the same are not used for making the same category of outward supply or as an element of a taxable composite/mixed supply.

5. As per Rule 42 of the CGST Rules, 2017 ITC credited to Electronic Credit Ledger (₹ 40,000) – ITC attributable to inputs and input services intended to be used exclusively for effecting taxable supplies (Nil).
It has been assumed that input tax on raw materials is attributable to both taxable and exempt activity

6. The information provided in the question leaves scope for multiple assumptions. The answer given above is based on one such assumption. Other assumptions can also be made to answer this question.

Question 13.
‘All-in-One Store’ is a 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 the month of October, 20XX:

(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 Skore 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 business purpose – ₹ 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 liability for the month of October, 20XX

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%.
2. All the sales and purchases made by the Store are within Maharashtra. All the purchases are made from registered suppliers. All the other expenses incurred are also within the State.
3. Wherever applicable, the amounts given are exclusive of taxes.
4. All the necessary conditions for availing the ITC have been complied with.

Answer:
A. Computation of ITC credited to Electronic Credit Ledger
As per rule 42 of the CGST Rules, 2017, 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 [‘Cl’] 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) of the CGST Act, 2017

Computation of total input tax involved [T]

Particulars	(₹)
GST paid on taxable items [₹ 55,00,000 x 1896]	9,90,000
Items exempted vide a notification [Since exempted, no GST is paid]	Nil
Items not leviable to tax [Since non-taxable, no GST is paid]	Nil
GST paid under reverse charge on freight paid to GTA for inward transportation of taxable items – [₹ 1,00,000 x 5%]	5,000
GST paid under reverse charge on freight paid to GTA for inward transportation of exempted items – [₹ 80,000 x 5%]	4,000
GST paid under reverse charge on freight paid to GTA for inward transportation of non-taxable items – [₹ 20,000 x 5%]	1,000
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 to CGST Act, 2017 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 purpose	4,000
GST paid on items given as free samples	4,000
Total input tax involved in a tax period (October, 20XX) [T]	11,57,000

Computation of T1, T2, T3

Particulars	(₹)
GST paid on monthly rent attributable to personal purposes [1/3 of ₹ 99,000]	33,000
GST paid on inputs used for personal purpose	5,000
Input tax exclusively attributable to non-business purposes [Tl]	38,000
GST paid under reverse charge on freight paid to GTA for inward transportation of exempted items	4,000
[As per section 2(47) of the CGST Act, 2017, 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.]
GST paid under reverse charge on freight paid to GTA for inward transportation of non-taxable items [Exempt supply includes non-taxable supply in terms of section 2(47) of the CGST Act, 2017. Hence, input service of inward transpor­tation of non-taxable items is exclusively used for effecting exempt supplies.]	1,000
Input tax exclusively attributable to exempt supplies [T2]	5,000
GST paid on rent a cab services availed for business purpose	4,000
[ITC on rent a cab service is blocked under section 17(5)(b)(i) of the CGST Act, 2017 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. It has been assumed that it is not obligatory for an employer to provide the same to its employees under any law for the time being in force.
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) of the CGST Act, 2017],
Input tax for which credit is blocked under section 17(5) of the CGST Act, 2017 [T3] **	8,000

**Since GST paid on inputs used for personal purposes has been considered while computing Tl, the same has not been considered again in computing T3.
ITC credited to the electronic credit ledger Cl = 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
GST paid under reverse charge on freight paid to GTA for inward transportation of taxable items	5,000
Input tax exclusively attributable to taxable supplies [T4]	9,95,000

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) × 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 October, 20XX
= ₹ 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 of the CGST Rules, 2017. 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. 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) × 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 of October, 20XX

Question 14.
Vansh Shoppe is a registered supplier of both taxable and exempted goods, registered under GST in the State of Rajasthan. Vansh Shoppe has furnished the following details for the month of April, 2020:

	₹
(1) Details of sales:
Sales of taxable goods	50,00,000
Sales 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 (₹ 30,000 for land line phone installed at the shop and ₹ 20,000 for mobile phone given to employees for official use)	50,000
Audit fees paid to a Chartered Accountant (₹ 35,000 for filing of income tax return & the statutory audit of preceding financial year and ₹ 25,000 for filing of GST return)	60,000
Premium paid on health insurance policies taken for specified employees of the shop. The Government has not notified such health insurance service under section 17(5)(b)(iii)(A) CGST Act, 2017	10,000
Freight paid to goods transport agency (GTA) for inward transportation of non-taxable goods	50,000
Freight paid to goods transport agency (GTA) for inward transportation of taxable goods	1,50,000
GST paid on goods given as free samples	5,000

All the above amounts are exclusive of all kinds of taxes, wherever applicable.
All the purchases and sales made by Vansh Shoppe are within Rajasthan. All the purchases are made from registered suppliers. All the other expenses incurred are also 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.
Assume that all the necessary conditions for availing the ITC have been complied with. Ignore interest, if any.

You are required to compute the following:
(1) Input Tax Credit (ITC) credited to Electronic Credit Ledger
(2) Common credit
(3) ITC attributable towards exempt supplies out of common credit
(4) Net GST liability for the month of April, 2020 [May 2019, Old, 10 Marks]
Solution:
(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) of the CGST Act, 2017 is not credited to electronic credit ledger [Sections 16 and 17 of the CGST Act, 2017],

In the light of the aforementioned provisions, the ITC credited to electronic credit ledger of Vansh Shoppe is calculated as under:

Particulars	Amount (₹)	CGST @ 6% (₹)	SGST @ 6% (₹)
GST paid on taxable goods	45,00,000	2,70,000	2,70,000
Goods not leviable to GST [Sine e non-taxable, no GST is paid]	4,00,000	Nil	Nil
GST paid on monthly rent for shop	3,50,000	21,000	21,000
GST paid on telephone expenses	50,000	3,000	3,000
GST paid on audit fees	60,000	3,600	3,600
GST paid on premium of health insurance policies	10,000	Nil	Nil
[ITC on life insurance service is blocked if the Government has not notified such services under section \l(5)(b){iii)(k) of the CGST Act],	5,000	Nil	Nil
GST paid on goods given as free samples
[ITC on goods disposed of by way of free samples is blocked under section 17(5) of the CGST Act, 2017]
Freight paid to GTA for inward transportation of non-taxable goods under reverse charge	50,000	Nil	Nil
[Since definition of exempt supply under section 2(47) of the CGST Act, 2017 specifically includes non-taxable supply, the input service of inward transportation of non-taxable goods is being exclusively used for effecting exempt supplies.]	1,50,000	3,750	3,750
Freight paid to GTA for inward transportation of taxable goods under reverse charge
ITC credited to the electronic ledger		3,01,350	3,01,350

(2) Computation of common credit
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 of the CGST Act, 2017 read with rule 42 of the CGST Rules, 2017].

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 transportation of taxable goods	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 × (Aggregate value of exempt supplies during the tax period/Total turnover during the tax period) [Section 17 of the CGST Act, 2017 read with rule 42 of the CGST Rules, 2017].

Particulars	CGST (₹)	SGST (₹)
ITC attributable towards exempt supplies	4,600	4,600
[₹ 27,600 × (₹ 10,00,000/₹ 60,00,000)]

(4) Computation of net GST liability for the month of April, 2020

Particulars	CGST (₹)	SGST (₹)
GST liability under forward charge
Sale of taxable goods [₹ 50,00,000 × 6%]	3,00,000	3,00,000
Add: Ineligible ITC [ITC out of common credit, attributable to exempt supplies]	4,600	4,600
Total output tax liability under forward charge	3,04,600	3,04,600
Less: ITC credited to the electronic credit ledger	3,01,350	3,01,350
Net GST payable [A]	3,250	3,250
GST liability under reverse charge
Freight paid to GTA for inward transportation of taxable goods [₹ 1,50,000 × 2.596]	3,750	3,750
Freight paid to GTA for inward transportation of non-taxable goods
[₹ 50,000 × 2.5%]	1,250	1,250
Total output 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 of the CGST Act, 2017]. However, tax payable under reverse charge is not an output tax in terms of definition of output tax provided under section 2(82) of the CGST Act, 2017. Therefore, tax payable under reverse charge cannot be set off against the input tax credit and thus, will have to be paid in cash.

Question 15.
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’, ‘NT’ 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 the period April 2OXX – September 20XX:

Particulars	(₹)
Turnover of ‘M’	14,00,000
Turnover of ‘N’	6,00,000
Turnover of ‘O’	10,00,000
Export of ‘M’ with payment of IGST	2,50,000
Export of ‘O’ under letter of undertaking	10,00,000
Consultancy services provided to independent clients located in foreign countries under LUT. In all cases, the consideration has been received in convertible foreign exchange within 2-3 months from the date of the invoice	20,00,000
Sale of building (excluding stamp duty of ₹ 2.50 lakh, being 296 of value)	1,20,00,000
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 ‘M’	3,50,000
Common inputs and input services used for supply of goods and services mentioned above [Inputs – ₹ 35,00,000; Input services – ₹ 15,00,000]	50,00,000

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 period April 20XX- September 20XX.

Note: Assume that all the domestic transactions of Surana & Sons are intra -State and that rate of GST on goods and services are 12% and 18% respectively. All the conditions necessary for availing the ITC have been compiled with. Turnover of Surana & Sons was ₹ 85,00,000 in the previous financial year. All the amounts given above are exclusive of GST, wherever applicable. [MTP, Nov 19, 9 Marks]
Solution:
Computation of net GST liability of Surana & Sons for the period April 20XX – September 20XX

Particulars	(₹)
GST payable on outward supply [Refer Working Note 1]	3,18,000
GST payable on legal services under reverse charge [₹ 3,50,000 × 18%] [Tax on legal services provided by an advocate to a business entity, is payable under reverse charge by the business entity. 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.]	63,000
Common credit attributable to exempt supplies during the period April 20XX – September 20XX [Refer Working Note 2]	4,74,820
Total GST liability	8,55,820
Less: Input tax credit (ITC) [Refer Working Note 3]	7,53,000
Less: Tax paid in cash (₹ 63,000 + ₹ 39,820)	1,02,820
[Tax payable under reverse charge is not an output tax in terms of section 2(82) of the CGST Act, 2017. Therefore, tax payable under reverse charge cannot be set off against the input tax credit and thus, 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 @ 1296]	14,00,000	1,68,000
Turnover of ‘N’ [Tax on ‘N’ is payable under reverse charge by the recipient of such goods]	6,00,000	Nil
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) (Zero Rated Supply)	10,00,000	Nil
Consultancy services provided to independent clients located in foreign countries under LUT.	20,00,000	Nil
[The activity is an export of service in terms of section 2(6) of the IGST Act, 2017]
[Export of services is a zero rated supply]
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, 2017 and hence, is not liable to any tax]
Interest received on investment in fixed deposits with a bank [Ex­empt vide Notification No. 12/2017]	4,00,000	Nil
Sale of shares	2,50,00,000	Nil
[Shares are neither goods nor services in terms of section 2(55) and 2(102) of the CGST Act, 2017. Hence, it 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 period April 20XX – September 20XX

Particulars	(₹)
Common credit on inputs and input services -[Refer Working Note 3 below]	6,90,000
Common credit attributable to exempt supplies (rounded off) = Common credit on inputs and input services × (Exempt turnover during the period/Total turnover during the period] = ₹ 6,90,000 × ₹ 1,33,50,000/₹ 1,94,00,000	4,74,820
Exempt turnover = ₹ 1,33,50,000 and total turnover = ₹ 1,94,00,000 [Refer note below]

Note:
As per section 17(3) of the CGST Act, 2017, 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. 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.

As per explanation to rule 42 of the CGST Rules, 2017:- The aggregate value of exempt supplies inter alla 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 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 × 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 period April 20XX- September 20XX

Particulars	(₹)
Common credit on inputs and input services	6,90,000
[Tax on inputs – ₹ 4,20,000 (₹ 35,00,000 × 12%) + Tax on input services – ₹ 2,70,000 (₹ 15,00,000 × 18%)]
Legal services used in the manufacture of taxable product ‘M’	63,000
ITC available in the Electronic Credit Ledger	7,53,000

Question 16.
With the help of information given below in respect of a manufacturer for the month of September, 2020, calculate eligible input tax credit for the month and also calculate the amount of ITC to be reversed In September, 2020 and October, 2020. There is no carry forward credit or reversal requirement. Only the current month’s information is to be considered for calculation purposes.

Particulars	Amount in ₹
1. Outward supply of taxable goods	70,000
2. Outward supply of exempted goods	40,000
Total Turnover	1,10,000
3. Inward supplies	GST paid (₹)
Capital goods purchased which are exclusively used for taxable outward supply	2,000
Capital goods purchased which are exclusively used for exempted outward supply	1,800
Capital goods purchased which are used for both taxable and exempted outward supply	4,200

[Nov 2018, Old, 7 Marks]
Solution:
(a) Computation of eligible ITC and the ITC to be reversed

Particulars	₹	ITC (₹)
Capital goods exclusively used for taxable outward supply [Full ITC is available under rule 43(1)(b) of the CGST Rules, 2017] – [A]		2,000
Capital goods exclusively used for exempted outward supply		Nil
[Since exclusively used for non-business purposes, ITC is not avail­able under rule 43(1)(a) of the CGST Rules, 2017]		‘
Capital goods used for both taxable and exempted outward supply -Common credit [B]	4,200
[Commonly used for taxable and exempt supplies – Rule 43(1)(c) of the CGST Rules, 2017]
Common credit for the tax period (month here) = 4,200 4- 60 [Rule 43(1)(e) of the CGST Rules, 2017]	70
Common credit attributable to exempt supplies in a month [C] (rounded off) = (40,000/1,10,000) × ₹ 70 [Rule 43(1)(g) of the CGST Rules, 2017	25.45
Eligible credit out of common credit for September, 2017 [B] -[C] (rounded off)		4,174.55
Total eligible credit for September, 2020		6,174.55
Amount of ITC to be reversed in September, 2020 [B]		25.45
Amount of ITC to be reversed in October, 2020 [B]		25.45

Examiner’s Comment
Many examinees computed the total common credit correctly, but wrongly calculated the common credit for the tax period (month).

Question 17.
Soren Enterprises is in possession of certain capital goods and purchases more of them as per the following particulars:

Particulars	Input tax on capita goods(₹)	Status of its use
Capital Goods A	12,000	Exclusively used for non- business pur­pose.
Capital Goods B	24,000	Exclusively used for zero- rated supplies.
Capital Goods C	60,000	Used both for taxable and exempt sup­plies.
Capital goods D (has been exclusively used for 2 years for exempted supplies)	1,20,000	Now there is change in use, both for taxable and exempt supplies.
Capital goods E (has been exclusively used for 3 years for taxable supplies)	1,80,000	Now there is change in use, both for taxable and exempt supplies.

Useful life of all the above capital goods is considered as 5 years.
Apportion the input tax credit of capital goods, while being informed that aggregate value of exempt supplies during the tax period being ₹ 6,00,000 and total turnover during the tax period being ₹ 12,00,000. [May 2018, Old, 7 Marks]
Solution.
Apportionment of common credit pertaining to capital goods

Particulars	ITC (₹)
Capital goods ‘A’ [WN 1]	Nil
Capital goods ‘B’ [WN 2]	–
Capital goods ‘C’ [WN 3]	60,000
Capital goods ‘D’ [WN 4]	1,20,000
Capital goods ‘E’ [WN 5]	1,80,000
Total common credit	3,60,000
Common credit for the tax period under rule 43(1)(e) of CGST Rules, 2017 = 3,60,000 ÷ 60m	6,000
Common credit attributable to exempt supplies in a tax period in terms of rule 43(1 )(g) of CGST Rules, 2017	3,000
= (Turnover of exempt supplies/Total turnover) × Common credit

Working Notes:-
1. Capital goods ‘A’ exclusively used for non-business purposes, ITC is not available under rule 43(1)(a) of CGST Rules, 2017
2. As per the rule 43(1)(b) of CGST Rules, 2017 For ITC purposes, taxable supplies include zero-rated supplies. Hence, full ITC of ₹ 24,000 is available
3. Capital goods ‘C’ Commonly used for taxable and exempt supplies

Examiner’s Comment
The question requires the examinees to apportion the input tax credit pertaining to capital goods. Most of the examinees were ignorant of the methodology of apportionment of credit of capital goods where nature of use of capital goods change from exclusive use for non-business purpose/exempt supplies to common use.
Consequently, apportionment of common credit in respect of capital goods D and E was wrongly calculated by most of the examinees.

Question 18.
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 2OXX, 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, 2OXX was ₹ 9,00,000, ₹ 10,00,000 and ₹ 6,00,000.
XYZ Pvt. Ltd. has furnished the following details:

Particulars	Price (₹)	GST (₹)
(a) Machinery ‘U’ purchased on 01.10.20XX for being used in manufacturing all the three products	2,00,000	36,000
(b) Machinery ‘V’ purchased on 01.10.20XX for being used in manufacturing product ‘Alpha’ and ‘Gama’	1,00,000	18,000
(c) Machinery ‘W’ purchased on 01.10.20XX for being ex­clusively used in manufacturing product ‘Beta’	3,00,000	54,000
(d) Machinery ‘X’ purchased on October 1, three years before 01.10.20XX for being exclusively used in man­ufacturing product ‘Gama’. From 01.10.20XX, such machinery will also be used for manufacturing product ‘Beta’.	5,00,000	90,000
(e) Machinery ‘Y’ purchased on October 1, four years before 01.10.20XX for being exclusively used in manufacturing product ‘Beta’. From 01.10.20XX, such machinery will also be used for manufacturing product ‘Gama’.	4,00,000	72,000
(f) Machinery ‘Z’ purchased on October 1, two years be­fore 01.10.20XX for being used in manufacturing all the three products	3,00,000	54,000
(g) Raw Material used for manufacturing ‘Alpha’ purchased on 05.10.20XX	1,50,000	27,000
(h) Raw Material used for manufacturing ‘Beta’ purchased on 10.10.20XX	2,00,000	36,000
(i) Raw Material used for manufacturing ‘Gama’ purchased on 15.10.20XX	1,00,000	18,00

Compute the following for the month of October. 20XX:

(i) Amount of Input tax credit (ITC) credited to Electronic Credit Ledger
(ii) Amount of common credit
(iii) Common credit attributable to exempt supplies
(iv) GST liability of the company payable through Electronic Cash Ledger.

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 ¡8%. All the conditions necessary for availing the ITC have been complied with. Ignore interest, if any and make suitable assumptions wherever required. [RTP, May 2019]
Solution:
i. Input Tax Credited to Electronic Credit Ledger

Particulars	ITC (₹)
Computation of amount of ITC credited to Electronic Credit Ledger, for the month of October, 20XX
(a) Machinery ‘U’ – ‘A’ [Note 1]	36,000
(b) Machinery ‘V’ [Note 2]	18,000
(c) Machinery ‘W’ [Note 3]	–
(d) Machinery ‘X’ – [Note 4]	90,000
(e) Machinery ‘Y’ [Note 5]	–
(f) Machinery ‘Z’ [Note 6]	–
(g) Raw Material used for manufacturing ‘Alpha’ [Note 7]	27,000
(h) Raw Material used for manufacturing ‘Beta’ [Note 7]	–
(i) Raw Material used for manufacturing ‘Gama’ [Note 7]	18,000
ITC credited to Electronic Credit Ledger, for the month of October, 20XX	1,89,000

Notes:
(1) As per Rule 43(1)(c) of the CGST Rules, 2017:- ITC in respect of capital goods used commonly for taxable supplies and exempt supplies denoted as A shall be credited to the electronic credit ledger.

(2) As per Rule 43(1)(b) of the CGST Rules. 2017 :- 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.

(3) As per Rule 43(1)(a) of the CGST Rules, 2017 :- 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.

(4)

(5) Machinery Y’ is being used for effecting both taxable and exempt supplies from 01.10.20XX. 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.

(6) Machinery Z’ is being used for effecting both taxable and exempt supplies from October 1, two years prior to 01.1 0.2OXX. Therefore, ITC in respect of such machinery would have already been credited to the electronic credit ledger.

(7) 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 of CGST Rules, 2017].

ii. Amount of Common Credit

Particulars	ITC (₹)
Computation of common credit for the month of October, 20XX
(a) Value of ‘A’ for Machinery TT purchased on 01.10.20XX	36,000
(b) Value of ‘A’ for Machinery ‘X’ purchased 3 years before 01.10.20XX and used for effecting both taxable and exempt supplies from 01.10.20XX	90,000
(c) Value of ‘A’ for Machinery ‘Y’ purchased 4 years before 01.10.20XX and used for effecting both taxable and exempt supplies from 01.10.20XX [Note]	72,000
Total common credit for the month of October, 20XX [Tc = a+ b+ c]	1,98,000

Note:

iii. Common Credit Attributable to Exempt Supply

Particulars	ITC (₹)
Computation of common credit attributable to exempt supplies, for the month of October, 20XX
(a) ITC attributable to a month on common capital goods during their useful life – Tm [Note 1]	3,300
(b) ITC at the beginning of October, 20XX on all common capital goods whose useful life remains during the tax period – Tr [Note 2]	42,00
(c) Common credit attributable to exempt supplies, for the month of October 20XX – Te = Tr × Turnover of exempt supplies during October 20XX. Total turnover of XYZ Pvt. Ltd. during October 20XX=4,200 × 10,00,000/25,00,000	1,680

Notes:

1. ITC attributable to a month on common capital goods during their useful life (Tm) shall be computed in accordance with rule 43(1)(e) of CGST Rules, 2017 as under
= Tc ÷ 60
= 1,98,000 ÷ 60
= 3,300

2. Useful life of capital goods used commonly for effecting taxable supplies and exempt supplies shall be taken as five years from the date of the invoice for such goods [Rule 43(1)(c) of the CGST Rules, 2017]. Machinery ‘Z’ is used commonly for effecting taxable and exempt supplies from October 1, two ears before 01.10.20XX. Hence, its useful life remains in the month of October 20XX and therefore, Tr will be aggregate of Tm (ITC pertaining to a month) for Machinery ‘Z’ and Tm for other machineries computed under point 3(a).
Tm for machinery ‘Z’ will be computed as under:
₹ 54,000 ÷ 60 = ₹ 900
Tr = Tm for machinery ‘Z’ + Tm for other machineries
Tr= ₹ 900 + 3,300 = 4,200

iv. GST Liability of the Company payable through Electronic Cash Ledger

Particulars	ITC (₹)
Computation of GST liability of the company for October 20XX payable through Electronic Cash Ledger
IGST payable on ‘Alpha’ [₹ 9,00,000 x 18°o]	1,62,000
IGST payable on ‘Beta’ [Exempt]	Nil
IGST payable on ‘Gama’ [₹ 6,00,000 × 18%]	1,08,000
Total IGST payable on outward supply	2,70,000
Amount added in output tax liability (ITC reversed/payable to Deptt.)	54,000
Common credit attributable to exempt supplies for the month of October, 20XX = \(\frac{4,200}{25 L}\) = 10L	1,680
Total output tax liability of October, 20XX	3,25,680
Less: ITC available in the Electronic Credit Ledger	1,89,000
IGST payable from Electronic Cash Ledger	1,36,680

Question 19.
Oberol 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, 2OXX was ₹ 2,00,000, ₹ 10,00,000 and ₹ 12,00,000. Oberol 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 Oberol Industries and amount of common credit attributable towards exempted supplies, If any, for the month of April, 20XX.

Particulars	GST paid (₹)
Machine ‘A’ purchased on 01.04.20XX for being exclusively used for non-busi­ness purposes	19,200
Machine ‘B’ purchased on 01.04.20XX for being exclusively used in manu­facturing zero- rated supplies	38,400
Machine ‘C’ purchased on 01.04.20XX for being used in manufacturing all the three products – X, Y and Z	96,000
Machine ‘D’ purchased on April 1, 2 years before 01.04.20XX for being ex­clusively used in manufacturing product Z. From 01.04.20XX, such machine will also be used for manufacturing products X and Y.	1,92,000
Machine ‘E’ purchased on April 1, 3 years before 01.04.20XX for being ex­clusively used in manufacturing products X and Y. From 01.04.20XX, such machine will also be used for manufacturing product Z.	2,88,000

Solution:

Particulars	₹	Ineligible Credit(₹)	Amount to be credited to E Cr L(₹)
Machine ‘A’ [WN 1]		19,200
Machine ‘B’ [WN 2]			38,400
Machine ‘C’ [WN 3]	96,000		96,000
Machine ‘D’ [WN 4]	1,92,000		1,92,000
Machine ‘E’ [WN 5]	2,88,000
Total common credit	5,76,000
Common credit for the tax period (in the given case, a month) under rule 43(l)(e) of CGST Rules, 2017	9,600
= ₹ 5,76,000 ÷ 60
Common credit attributable to exempt supplies in April, 20XX under rule 43(1 )(g) of the CGST Rules, 2017 [WN 6]		4,800
Amount to be credited to the electronic credit ledger of Oberoi Industries for the month of April, 20XX			3,26,400

Working Notes: –
1. Machine A’ exclusively used for non-business purposes, ITC is not available under rule 43(1)(a) of CGST Rules, 2017
2. As per rule 43(1)(b) of CGST Rules, 2017 For ITC purposes, taxable supplies include zero-rated supplies. Hence, full ITC is available.
3. Commonly used for taxable and exempt supplies – Rule 43(1)(c) of the CGST Rules, 2017
4.

5.

6. Common credit attributable to exempt supplies in April, 2OXX under rule 43(1)(g) of the CGST Rules, 2017:
= (Turnover of exempt supplies/Total turnover) × Common credit
= (12,00,000/24,00,000) × ₹ 9,600 = ₹ 4,800
Such credit, along with the applicable interest, shall be added to the output tax liability of Oberoi Industries [ITC Reversed]

Question 20.
Happy Ltd. located at Aiwar (Rajasthan), exclusively, manufacture and sells the product “shine & shine”, which exempt from GST. Happy Ltd. sells “shine & shine” only within Rajasthan. The turnover of Happy Ltd in the previous year was ₹ 60 lakh. Happy Ltd. purchased additional machinery (capital goods) for manufacturing “shine & shine” on 1st April, 2020. The invoice for supplied machinery also was issue on 1st April, 2020. The purchased price of the machinery was ₹ 25 lakh exclusive of CGST and SGST @12% (6% +6%).

On the 1st December 2020 exemptIon available on the product “shine & shine” was withdrawn by the Central Government and CGST and SGST @18% (9% + 9%)was imposed thereon. The turnover of Happy Ltd. on 30 September 2020 was ₹ 45 lakh. Examine the issue and provide the answer (with supporting explanatory note for each answer) to the following:

i. Does Happy Ltd. have register under CGST Act 2017?
ii. Can Happy Ltd., take credit of tax paid on machinery purchased? If yes, what is the amount of input tax credit (ITC)that can be availed? [Nov. 2018, 5 Marks]
Solution:
(i) As per section 22 of the CGST Act, 2017 :- A supplier is liable to be registered under GST in the State/UT from where he makes the taxable supply if his aggregate turnover in a financial ear(FY) exceeds ₹ 20 lakh in such State/UT (₹ 10 lakh in a Special Category State i.e. Nagaland, Tripura, Mizoram & Manipur). The term ‘aggregate turnover’ includes exempt turnover also.

Note : If the Supplier exclusively engaged in intra-State supply of goods in any state/Union Territory (except Nagaland, Tripura, Mizoram, Manipur, Arunachal Pradesh, Meghalaya, Telangana, Puducherry, Uttarakhand & Sikkim) limit shall be ₹ 40,00,000/- subject to some exception.

However, section 23(1) of CGST Act, 2017 a person exclusively engaged in making exempt supplies is not liable to registration.

As per the combine reading of above provisions although the ‘aggregate turnover’ of Happy Ltd. exceeds the applicable threshold limit on 30.09.2020 [₹ 45 lakh], it was not required to be registered till 30.11.2020 as it supplied only exempted goods till that day. Therefore, Happy Ltd. needs to register within 30 days from 01.12.2020 (the date on which its supplies became taxable) as its turnover had already exceeded the threshold limit on 0 1.12.2020.

(ii) As per section 17 of the CGST Act, the input tax credit (ITC) on capital goods used or intended to be used exclusively for effecting exempt supplies is disallowed. However, where an exempt supply by a registered person becomes a taxable supply, such person gets entitled to take proportionate ITC on such capital goods in terms of section 18(1)(d) of CGST Act, 2017. Thus, a non-registered person cannot take ITC on capital goods under this provision.

As per section 18(1)(a) of CGST Act, 2017, a person who has applied for registration within thirty days from the date on which he becomes liable to registration and has been granted such registration is also not entitled to take ITC on capital goods held with him on the day immediately preceding the date from which he becomes liable to pay tax.

In the given case, Happy Ltd. is not registered at the time when its exempt supply becomes taxable. Thus, the company cannot take proportionate ITC on capital goods as mentioned above. Further, the company will also not be entitled for credit on capital goods held with it when it applies for registration in the prescribed manner.

Examiner’s Comment
Majority of the examinees answered wrongly on the basis of section 18(1)(d) of the CGST Act. However, the question has to be answered on the basis of section 18(1)(a) which is relevant in the case when a person gets registered for the first time as in this case Happy Ltd. is not a registered person on account of manufacturing exclusively exempted goods.

Question 21.
Quanto Ltd. is not required to register under CGST Act, 2017, but it wishes to obtain voluntary registration, so It applied for voluntary registration on 17th September, 2020 and registration certificate has been granted to it on 25th September, 2020. The CGST and SGST liability for the month of September, 2020 is ₹ 24,000 each.
Quanto Ltd. provides the following Information of Inputs and capital goods held In stock on 24th September, 2020. It is not engaged in making inter-State outward taxable supplies.

Particulars	Amount (₹)
Input procured on 02-09-2020 lying in stock
– CGST @6%	4,500
– SGST @6%	4,500
Input received- on 21-07-2020 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 were procured on 19-09-2019
– IGST @ 18%	36,000
Inputs valued at ₹ 50,000 procured on 13-09-2020 lying in stock:
– IGST @ 18%	9,000
Capital goods procured on 12-09-2020
– CGST @6%	12,000
– SGST @6%	12,000

You are required to compute the amount of tax to be paid in cash by Quanto Ltd. for the month of September, 2020.
You are also required to mention reasons for treatment of all above items. [Nov. 2018, Old, 10 Marks]
Solution:
(a) Computation of net GST liability (to be paid in cash) by Quanto Ltd. for the month of September, 2020

Particulars	CGST (₹)	SGST (₹)
Output tax liability for the month	24,000	24,000
Less: Input tax credit (ITC) [Refer Note-2 below]	12,000	12,000
	9,000 (IGST)
Net GST payable (in cash)	3,000	12,000

Notes:
1. Credit of IGST shall be utilized towards payment of IGST, CGST and SGST in that order. Since Quanto Ltd. does not make any inter-State supply, credit of IGST has been utilized towards payment of CGST [Section 49(5) of the CGST Act, 2017].
2. As per section 18(1)(b) of the CGST Act, 2017-
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) of the CGST Act, 2017].

In this case, since Quanto Ltd. has been granted voluntary registration on 25.09.2020, it will be entitled to ITC on inputs held in stock and inputs contained in semi-finished/finished goods held in stock, on 24.09.2020. In view of the said provisions, eligible ITC for Quanto Ltd. is computed as follows:

Particulars	CGST (₹)	SGST (₹)	IGST (₹)
Inputs held in stock since 02.09.2020	4,500	4,500
Inputs received on 21.07.2020 contained in semi-finished goods held in stock	7,500	7,500
Inputs contained in finished goods held in stock which were procured on 19.09.2019 [Procured prior to one year, hence ITC cannot be availed]			Nil
Inputs held in stock since 13.09.2020			9,000
Capital goods procured on 12.09.2020	Nil	Nil
Total ITC	12,000	12,000	9,000

Examiner’s Comment
Although most of the examinees correctly answered the question, few of them erroneously allowed the ITC on capital goods procured on 12-09-2020 also.

Question 22.
Bedi Manufacturers, a registered person, instructs Its supplier to send the capital goods directly to Rajesh Enterprises, who Is a job worker, outside Its factory premises for carrying out certain operations on the goods. The goods were sent by the supplier on 10-04.2020 and were received by the job worker on 15-04-2020.

Rajesh Enterprises carried out the job work, but did not return the capital goods to their principal Bedi Manufacturers. Discuss whether Bedi Manufacturers are eligible to retain the Input tax credit availed by them on the capital goods.
What action under the GST Act is required to be taken by Bedi Manufacturers?
What would be your answer if in place of capital goods, jigs and fixtures are supplied to the job worker and the same has not been returned to the principal? [Nov. 2018, Old, 6 Marks]
Solution:
As per section 19(5) of the CGST Act, 2017:- The principal is entitled to take input tax credit of capital goods sent for job work even if the said goods are directly sent to job worker.

As per section 19(6) of the CGST Act, 2017Where the capital goods sent directly to a job worker are not received back by the principal within a period of 3 years of the date of receipt of capital goods by the job worker, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were received by the job worker.

In view of aforementioned provisions, Bedi Manufacturers are eligible to retain the input tax credit availed by them on the capital goods.

However, if the capital goods are not returned by Rajesh Enterprises within 3 years from 15.04.2020 (date of receipt of capital goods by job worker), it shall be deemed that such capital goods had been supplied by Bedi Manufacturers to Rajesh Enterprises on 15.04.2020 and Bedi Manufacturers shall be liable to pay the tax along with applicable interest.

However, there is no time limit for return of moulds and dies, jigs and fixtures or tools sent out to a job worker for job work [Section 19(7) of the CGST Act, 2017].

However, if Rajesh Enterprises does not return the jigs and fixtures to Bedi Manufacturers, it shall not be considered as a supply of jigs and fixtures to Rajesh Enterprises by Bedi Manufacturers. In this case also, Bedi Manufacturers will be eligible to retain the input tax credit availed by them.

Question 23.
Genie Engineers had a mould delivered directly to a job worker from the supplier for making certain precision parts for use in the factory of Genie Engineers. As per agreement, the mould was to remain with the job worker as long as work was being sent to him. After four years a departmental audit team that visited the job worker noticed the mould and traced it to Genie Engineers. GST was demanded from Genie Engineers for taking ITC without receiving the mould and furthermore for not bringing the mould back after three years of delivery to the job worker. How should they respond to this?
Solution:
Genie Engineers should reply on the following lines:
Under section 19(6) of CGST Act, the principal may take ITC on capital goods sent to a job worker for job work without being first brought to his place of business.

The capital goods sent for job work should either be returned to the principal or must be supplied from the job worker’s premises within 3 years from sending them to the job worker or direct receipt by the job worker from the supplier. If the above time-lines are not met, it is deemed that the capital goods were supplied by the principal to the job worker (in other words, tax will be payable on them) on the day they were sent out to the job worker [Section 19(6)].

However, sub-section (7) of section 19 provides that the time-limit of three years in subsection (6) for bringing back the capital goods from the job worker does not apply to moulds.
Hence, Genie Engineers have correctly taken the ITC on moulds.

Question 24.
Sarani Weavers at Mumbai is an input service distributor and intends to distribute input tax credit u/s 20 of the CGST Act, 2017, for the month of March 2020. The following are the details available for such distribution:

Branch	Turnover of the last quarter (Amt. in ₹)	ITC specifically applicable to the branch (Amt. in ₹)
		IGST – ₹ 12,000
Ganganagar Branch	10,00,000	CGST – ₹ 3,000
		SGST – ₹ 3,000
Madhugiri Branch	5,00,000	Nil
Kosala Branch	15,00,000	Nil
		IGST- ₹ 1,50,000
Mumbai HO	20,00,000	CGST- ₹ 15,000
		SGST- ₹ 15,000

Inputs/Input services used commonly by all branches against which ITC available is: CGST – ₹ 60,000
SGST – ₹ 60,000 IGST – ₹ 1,20,000
ITC (IGST) of December 2019, ₹ 10,000 which was inadvertently left out, whether same can be considered for distribution in March, 2020.
Madhugiri branch uses inputs to manufacture exempted products.
All branches are outside Maharashtra. Turnover excludes duties & taxes payable to Central and State Government.
Determine the input tax distribution. [May 2018, Old, 4 Marks]
Solution:
ITC Distributed As per Section 20 of the CGST Act, 2017, read with Rule 39 of CGST Rule, 2017

Particulars	Ganga­nagar Branch	Madhugiri Branch	Kosala Branch	Mumbai HO
(1) ITC specifically attributable to Ganganagar Branch
CGST	3,000
SGST	3,000
IGST	12,000
(2) ITC specifically attributable to Mumbai (HO)
CGST				15,000
SGST				15,000
IGST				1,50,000
(3) Common credit distributed among the Three branches & Head offices in the proportion of turnover of the last Quarter [10L : 5L : 15L : 20L] Or in short (2 : 1 : 3 : 4)
CGST 60,000	12,000	6,000	18,000	24,000
SGST 60,000	12,000	6,000	18,000	24,000
IGST 1,20,000	24,000	12,000	36,000	48,000
Total	66,000	24,000	72,000	2,76,000

Notes:

1. ITC of ₹ 10,000 of December 2019 cannot be distributed in March 2020 as ITC available for distribution in a month is to be distributed in the same month.

2. In the above answer, Mumbai HO has been assumed as a Branch for the purpose of distribution of credit. However, it is also possible to answer the question by not assuming Mumbai HO as the branch for the purpose of distribution of credit. In that case, common credit will be distributed among Ganganagar, Madhugiri and Kosala branches.

3. The aggregate amount of input tax credit for inputs/input services used commonly by all the branches is assumed to be the ITC pertaining to only input services.

Question 25.
What are the conditions applicable to Input Service Distributor to distribute the credit? [Nov. 2018, Old, 4 Marks]
Solution:
The following conditions are applicable to Input Service Distributor to distribute the input tax credit (ITC):-

(i) The credit can be distributed to the recipients of credit against an ISD invoice containing prescribed details.

(ii) The amount of the credit distributed shall not exceed the amount of credit available for distribution.

(iii) The credit connected to an input service must be distributed only to the particular recipient to whom that input service is attributable.

(iv) If the input service is attributable to more than one recipient, the relevant ITC is distributed pro ratato 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.

(v) 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.

(vi) 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.

(vii) Both ineligible and eligible ITC are to be distributed separately.

(viii) ITC of CGST, SGST/UTGST and IGST are to be distributed separately.

Question 26.
Arise India Pvt. Ltd., a company engaged in manufacturing of various goods, has its corporate office at Mumbai and manufacturing units in Pune and Chennai and service centres in Kolkata j and Bengaluru. The manufacturing units at Pune and Chennai and service centres at Kolkata and Bengaluru are registered in Maharashtra, Tamil Nadu, West Bengal and Karnataka respectively. The corporate office is registered as an input service distributor. All the units and centres of Arise India Pvt. Ltd. are operational in the current year. The corporate office intends to distribute input tax credit (ITC) for the month of October 20XX. The following details are available for such distribution:
Table 1

Unit/centre	Turnover for the quarter ending September 20XX*(₹)	Eligible ITC on input services attributable to a specific unit/centre, for the month of October 20XX(₹)
Pune	20,00,000	IGST – ₹ 3,00,000;
		CGST – ₹ 30,000;
		SGST – ₹ 30,000
Chennai	30,00,000	IGST – ₹ 24,000;
		CGST – ₹ 6,000;
		SGST – ₹ 6,000
Kolkata	10,00,000	Nil
Bengaluru	40,00,000	Nil

* Note: Turnover excludes all taxes and duties

Table 2

Particulars	CGST	SGST	IGST
(i) Input services used bv all units and centres
(a) Eligible ITC under the provisions of the GST law	1,20,000	1,20,000	2,40,000
(b) Ineligible ITC in terms of section 17(5) of the CGST Act, 2017	40,000	40,000	80,000
(ii) Inputs used by Pune unit and Kolkata centre	60,000	60,000
(iii) Input services used by Chennai unit and Bengaluru centre (ITC pertaining to such invoices is eligible ITC under the provisions of the GST law)	30,000	30,000	10,000

Chennai unit manufactures exempted products.
Compute the amount of ITC to be distributed to each of the units and centres. [RTP May 2020]
Solution:
Computation of ITC to be distributed by lSD

Particulars	Pune unit (₹)	Chennai unit (₹)	Kolkata centre (₹)	Bengalu­ru centre (₹)
(i) IGST credit of ₹ 3,00,000, CGST credit of ₹ 30,000 and SGST credit of ₹ 30,000 specifically attributable to Pune unit [Note 1]	3,00,000 (IGST) 30,000 (CGST) 30,000 (SGST)
(ii) IGST credit of ₹ 24,000, CGST credit of ₹ 6,000 and SGST credit of ₹ 6,000 specifically attributable to Chennai unit [Note 2]		36,000 (IGST)
(iii) Eligible ITC pertaining to input ser­vices used by all units and centres [Note 3]                ‘	24,000 (CGST) 24,000(SGST) 48,000 (IGST)	1,44,000 (IGST)	48,000 (IGST)	1,92,000 (IGST)
(iv) Ineligible ITC pertaining to input services used by all units and cen­tres [Note 4]	8,000 (CGST) 8,000 (SGST) 16,000 (IGST)	48,000 (IGST)	16,000 (IGST)	64,000 (IGST)
(v) Inputs used by Pune unit and Kol­kata centre [Note 5]	Nil	Nil	Nil	Nil
(vi) Input services used by Chennai unit and Bengaluru centre [Note 6]		30,000 (IGST)		40,000 (IGST)

Notes:

1. IGST credit of ₹ 3,00,000, CGST credit of ₹ 30,000 and SGST credit of ₹ 30,000 specifically attributable to Pune unit will be distributed as IGST credit of ₹ 3,00,000, CGST credit of ₹ 30,000 and SGST credit of ₹ 30,000 respectively, only to Pune unit, since recipient is located in the same State in which ISD is located [Section 20(2)(c) of the CGST Act, 2017 read with clauses (e) & (f)(i) of sub-rule (1) of rule 39 of the CGST Rules, 2017].

2. Total GST credit (CGST+ SGST + IGST) of ₹ 36,000 specifically attributable to Chennai unit will be distributed as IGST credit of ₹ 36,000, only to Chennai unit, since recipient and ISD are located in different States [Section 20(2)(c) of the CGST Act, 2017 read with clauses (e) & (f)(ii) of sub-rule (1) of rule 39 of the CGST Rules, 2017],

3. Eligible ITC of CGST [₹ 1,20,000], SGST [₹ 1,20,000] and IGST [₹ 2,40,000] will be distributed among the units and centres in the ratio of their turnover of the last quarter [Section 20(2) (e) of the CGST Act, 2017 read with clause (a)(ii) of the explanation to the said section and rule 39(1)(b) of the CGST Rules, 2017].

Ratio of the turnover of the units and centres in last quarter, previous to the month during which ITC is to be distributed:
= 20 lakh : 30 lakh : 10 lakh : 40 lakh
= 2:3: 1:4

Therefore,
Pune unit will get – ₹ 24,000 [1,20,000 × (2/10)] as CGST credit, ₹ 24,000 [1,20,000 × (2/10)] as SGST credit and ₹ 48,000 [2,40,000 × (2/10)] as eligible IGST credit [Clauses (e) & (f)(i) of sub-rule (1) of rule 39 of the CGST Rules, 2017].

Chennai unit will get – ₹ 1,44,000 [₹ (1,20,000 + 1,20,000 + 2,40,000) × (3/10)] as IGST credit [Clauses (e) & (f)(ii) of sub-rule (1) of rule 39 of the CGST Rules, 2017], The credit attributable to a recipient is distributed even if such recipient is making exempt supplies [Clause (d) of sub-rule (1) of rule 39 of the CGST Rules, 2017].

Kolkata centre will get – ₹ 48,000 [₹ (1,20,000 + 1,20,000 + 2,40,000) × (1 /10)] as IGST credit [Clauses (e) & (f)(ii) of sub-rule (1) of rule 39 of the CGST Rules, 2017].
Bengaluru will get – ₹ 1,92,000 [₹ (1,20,000 + 1,20,000 + 2,40,000) × (4/10)] as IGST credit [Clauses (e) & (f)(ii) of sub-rule (1) of rule 39 of the CGST Rules, 2017],

4. Ineligible ITC of CGST [₹ 40,000], SGST [₹ 40,000] and IGST [₹ 80,000] will also be distributed among the units and centres in the ratio of their turnover of the last quarter [Section 20(2)(e) of the CGST Act, 2017 read with clause (a)(ii) of the explanation to the said section and rule 39(1)(b) of the CGST Rules, 2017].

Ratio of the turnover of the units and centres in last quarter, previous to the month during which ITC is to be distributed:
= 20 lakh : 30 lakh : 10 lakh : 40 lakh
= 2:3: 1:4

Therefore,
Pune unit will get – ₹ 8,000 [40,000 × (2/10)] as CGST credit, ₹ 8,000 [40,000 × (2/10)] as SGST credit and ₹ 16,000 [80,000 × (2/10)] as eligible IGST credit.
Chennai unit will get – ₹ 48,000 [₹ 1,60,000 × (3/10)] as IGST credit.
Kolkata centre will get – ₹ 16,000 [₹ 1,60,000 × (1/10)] as IGST credit.
Bengaluru will get – ₹ 64,000 [₹ 1,60,000 × (4/10)] as IGST credit.

5. ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services only and not goods (inputs or capital goods).

6. Eligible ITC of CGST [₹ 30,000], SGST [₹ 30,000] and IGST [₹ 10,000] will be distributed among the Chennai unit and Bengaluru centre in the ratio of their turnover of the last quarter [Section 20(2)(d) of the CGST Act, 2017 read with clause (a)(ii) of the explanation to the said section and rule 39(1)(b) of the CGST Rules, 2017].

Ratio of the turnover of the Chennai unit and Bengaluru centre in last quarter, previous to the month during which ITC is to be distributed:
= 30 lakh : 40 lakh
= 3:4
Therefore,
Chennai unit will get – ₹ 30,000 [₹ 70,000 × (3/7)] as IGST credit. Bengaluru unit will get – ₹ 40,000 [₹ 70,000 × (4/7)] as IGST credit.

Question 27.
Ceramity Ltd. has following units:
A. Factory in Hassan, Karnataka; closed from 2019-20 onwards, no turnover.
B. Factory in Tumkur, Karnataka; turnover of ₹ 27 crores in 2019-20;
C. Service centre in Hyderabad, Telangana; turnover of ₹ 1 crore in 2019-20;
D. Service centre in Chennai, Tamil Nadu; turnover of ₹ 2 crores in 2019-20;
Ceramity Ltd.’s corporate office functions as ISD. It has to distribute ITC of ₹ 9 lakh for De-cember, 2020. Of this, an invoice involving tax of ₹ 3 lakh pertains to technical consultancy for Tumkur unit. What should be the distribution of the credit?
Solution:
As per rule 39(a) of CGST Rules relating to ITC:

₹ 3 lakh is attributable to Tumkur unit, and will be transferred to Tumkur unit only.

Of the remaining ₹ 6 lakh, Hassan unit will not be entitled to any credit as ITC is distributed to only those recipients which supply goods and/or services.

₹ 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 2019-20.

• Tumkur unit will get (27 crore/30 crore) x 6 lakh = ₹ 5.4 lakh;
• Hyderabad service centre will get (1 crore/30 crore) × 6 lakh = ₹ 20,000; and
• Chennai service centre will get (2 crore/30 crore) × 6 Lakh = ₹ 40,000.

Question 28.
Mr. George, a registered supplier of goods at Kerala who pays GST under regular scheme, has made the following transactions (exclusive of tax) during April 2020:

Source	Purchases (₹)	Sales (₹)	Tax Rate
New Delhi	5,00,000	10,00,000	18%
Trivandrum	2,50,000	8,00,000	9% each for SGST & CGST
Total	7,50,000	18,00,000

He has complied with all the conditions for availing the ITC and has the following ITC credit on 01-04-2020:

Source	Taxes (₹)	Interest (₹)	Penalty (₹)
CGST	30,000	1500	500
SGST	30,000	1500	500
IGST	1,00,000	2000	500

Compute the net CGST, SGST and IGST payable by Mr. George durIng April 2020 in cash? [May 2019, 9 Marks]
Solution:
(a) Computation of CGST, SGST and IGST payable by Mr. George during April 2020

Particulars	Amount (₹)	CGST @ 9% (₹)	SGST @ 9% (₹)	IGST@ 18% (₹)
Sales made to New Delhi (Inter State Supply)	10,00,000			1,80,000
Sales made in Trivandrum (Inter State Supply)	8,00,000	72,000	72,000
Total		72,000	72,000	18,000

(b) Computation of Net CGST, SGST and IGST payable in cash by Mr. George during April 2020

Particulars	CGST	SGST	IGST
Total Tax liability	72,000	72,000	1,80,000
Less :- ITC Available during April 2020(working Note)
IGST	(10000)	—	(180000)
CGST	(52500)	—	—
SGST	—	(52500)	—
Total Net liability	9500	19500	0

Working Note : Computation of ITC Available

Particulars	Amount	CGST	SGST	IGST
Opehing balance of ITC		30,000	30,000	1,00,000
Add: Purchases from New’ Delhi	5,00,000			90,000
[Being inter-State purchase, IGST would have been paid on it.]
Add : Purchases from Trivandrum	2,50,000	22,500	22,500
Total input tax credit		52,200	52,500	1,90,000

Note: ITC of IGST has been utilized to pay IGST liability first and the balance ITC of IGST has been used to pay CGST liability. Interest and penalty paid are not available as credit.

Question 29.
Bring out the salient features of cross utilization of Input tax credit (ITC) under the GST Law? [Nov. 2017, 3 Marks]
Solution:
[New Mechanism Prescribed for Utilisation of ITC [New Rule 88A inserted in the CGST Rules]
The new rule provides as under:

• ITC of 1GST should first be utilized towards payment of IGST.
• Remaining ITC of IGST, if any, can be utilized towards the payment of CGST and SGST/UTGST in any order, i.e. ITC of IGST can be first utilized either against CGST or SGST.
• ITC of CGST, SGST/UTGST can be utilized towards payment of JGST, CGST, SGST/UTGST only after the ITC of IGST has first been utilized fully.