Ineligible GST input for place of difference

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Daya

Daya (Querist)
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15 July 2022 what is section and Ineligible ITC due to difference in place of supply. Please give examples.

Asha Kanta Sharma

Asha Kanta Sharma

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09 July 2024 Section 17 of the Central Goods and Services Tax (CGST) Act, 2017 deals with the Apportionment of credit and blocked credits. It outlines certain scenarios where Input Tax Credit (ITC) cannot be claimed or is restricted. One such scenario is related to Ineligible ITC due to difference in place of supply.

Here’s how it works with an example:

### Example Scenario:

**Situation:**
A registered person in State A purchases goods or services from a supplier in State B. According to GST rules, the place of supply for these goods or services is determined based on various factors like the nature of supply, location of supplier, and location of recipient.

**Place of Supply Difference:**
If the place of supply determined under GST rules differs from the state where the recipient is registered (State A), this can lead to Ineligible ITC under Section 17 of the CGST Act.

**Example:**
1. **Goods Purchase:**
- **Supplier:** Located in State B
- **Recipient:** Registered in State A
- **Place of Supply:** As per GST rules, the place of supply for the goods is determined to be State B.

In this case, since the place of supply is determined to be in State B, the recipient in State A cannot claim Input Tax Credit (ITC) because the CGST and SGST charged by the supplier (based in State B) do not pertain to the recipient's State (State A).

2. **Services Procurement:**
- **Supplier:** Located in State B
- **Recipient:** Registered in State A
- **Place of Supply:** As per GST rules, the place of supply for the services is determined to be State B.

Similarly, if the place of supply of services is determined to be in State B, the recipient in State A cannot claim ITC for the CGST and SGST paid on those services, as these taxes do not pertain to the recipient's state.

### Section 17 and Ineligible ITC:

Under Section 17(5) of the CGST Act, Input Tax Credit (ITC) is blocked or ineligible in cases where goods or services are used for effecting exempt supplies or where the place of supply is outside the taxable territory (i.e., outside the state where the recipient is registered).

### Key Points:

- **ITC Eligibility:** ITC can generally be claimed only for taxes paid on goods or services that are used in the course or furtherance of business, and where the place of supply aligns with the state where the recipient is registered.

- **Exceptions and Compliance:** It's crucial for businesses to understand and comply with these rules to avoid claiming ineligible ITC, which could lead to compliance issues and penalties.

This understanding helps businesses in correctly assessing their eligibility for Input Tax Credit under GST laws, ensuring compliance and efficient tax management.