ITC cannot claimed for IE. Indirect expenses (IE) are expenses that are not directly related to the production or sale of goods or services and are not eligible for ITC.
Examples of indirect expenses may include rent, utilities, and administrative expenses. In order to claim ITC, the expense must be directly related to the production or sale of taxable goods or services.
The Maharashtra Authority of Advance Ruling (AAR) ruled that Input Tax Credit cannot be claimed on Indirect Expenses like rent, commission, professional fees, telephone incurred for purpose of business.
The applicant, Deccan Wheels purchases second-hand cars (goods) and after minor processing on it such as change of tires, change of battery, repairs, servicing, internal cleaning, polishing, etc, which does not change the nature of the goods, the said goods are sold.
The applicant does not claim the Input tax credit on the purchase of second-hand goods and has opted for Margin Scheme and applies GST rate as per Notification No 8/2018- Central Tax (Rate) dt 25/01/2018.
The applicant has sought the advance ruling on whether Input Tax Credit can be claimed on other indirect expenses incurred for the purpose of business such as rent, commission, professional fees, telephone etc.
The coram of Rajiv Magoo and T.R.Ramnani observed that the concessional rate under the notification shall not apply,
if the supplier of such goods has availed input tax credit as defined in clause (63) of section 2 of the Central Goods and Services Tax Act, 2017,
CENVAT as defined in CENVAT Credit Rules, 2004 or the input tax credit of Value Added Tax or any other taxes paid, on such goods.
In other words, since the applicant has been availing the benefit of the said notification and paying GST at a concessional rate, they shall not avail Input Tax Credit, as queried. Subscribe Taxscan AdFree to view the Judgment.
Items on which ITC is not allowed
Input tax credit (ITC) is not generally allowed for motor vehicles, vessels, aircraft, or goods transport agencies with a seating capacity of 13 or fewer people (including the driver). There are a few exceptions to this rule:
- f such vehicles or conveyances are sold.
- If the conveyance is used for transporting passengers or goods.
- If the conveyance is used for training people on how to drive, fly, or navigate it.
- If the services provided are for the general insurance, servicing, repair, or maintenance of such vehicles or conveyances.
- If the services provided are for food and beverages, outdoor catering, beauty treatment, health services, or cosmetic and plastic surgery. However, if the goods and/or services are used to provide the same type of services or are part of a composite supply, ITC will be allowed.
ITC will not be allowed in the following cases:
- If tax has been paid due to non-payment or underpayment, excessive refund, or ITC utilisation or availed by fraud or willful misstatement or suppression of facts or confiscation and seizure of goods.
- In the case of standalone restaurants, which are only charged a 5% GST but cannot claim ITC on inputs.