Clarification on availability of input tax credit as per clause (b) of sub-section (2) of section 16 of the Central Goods and Services Tax Act, 2017 in respect of goods which have been delivered by the supplier at his place of business under Ex-Works Contract

Circular No.: 241/35/2024-GST
Date of Circular: 31st December 2024
Relevant Sections and Rules:

• Section 16(2)(b), CGST Act, 2017 – Condition for availing input tax credit (ITC): “receipt of goods”
• Section 16(1), Section 17(5)(h), CGST Act – Entitlement and disqualification of ITC
• Section 168(1), CGST Act – Power to issue instructions

Clarification on ITC Availability in Ex-Works (EXW) Contracts Where Goods Are Delivered at Supplier’s Premises

1. Issue Raised:
   Automobile dealers enter into Ex-Works (EXW) contracts with Original Equipment Manufacturers (OEMs), where:

• Ownership transfers at OEM’s factory gate,
• Dealer arranges transport (sometimes through OEM),
• Goods are invoiced and accounted for at factory gate.

However, some tax officers objected that ITC can be claimed only after physical receipt at dealer’s premises, not at factory gate.

2. Legal Background – Section 16(2)(b) and Explanation:

• A registered person can claim ITC only after receiving the goods.
• The Explanation under Section 16(2)(b) deems goods to be “received” if:
  • Delivered to the recipient or their agent (e.g., transporter),
  • Based on the recipient’s direction,
  • Before or during movement, via transfer of documents or otherwise.

3. Clarification Issued:
4. For Automobile Sector (and Similar EXW Contracts):

• Where OEM hands over goods to the transporter at factory gate as per dealer’s instructions,
• And invoice is raised and accounted by the dealer at that point,
  ➤ The goods shall be deemed received by the dealer, fulfilling Section 16(2)(b).

1. Applicable to All Similar Supplies under EXW Terms:

• This principle extends to any supply under EXW terms where:
  • Goods are handed over to the recipient or a transporter acting on their behalf,
  • At the supplier’s place of business, and
  • Ownership transfers at that point.

➤ ITC is allowed on such handover even if physical receipt at dealer’s premises happens later.

4. Conditions to Avail ITC in Such Cases:

• Goods must be used or intended to be used in business (Section 16(1)).
• Other ITC conditions under Section 16 and 17 must be met.

🚫 If goods are later:

• Diverted for non-business use, or
• Lost, stolen, destroyed, written off, gifted, or given as samples,
  ➤ ITC will be denied under Section 17(5)(h).

Source: Circular No.: 241/35/2024-GST