Clarification on Input Tax Credit under Section 16(2)(b) of the CGST Act for Goods Delivered via Ex-Works Contracts |Circular No. 241/35/2024-GST | Dated: December 31, 2024|

Issued by the Government of India, Ministry of Finance, Central Board of Indirect Taxes and Customs (CBIC), GST Policy Wing

Circular No. 241/35/2024-GST | Dated: December 31, 2024

The CBIC has issued this circular to address queries raised, particularly from the automobile sector, regarding the availability of input tax credit (ITC) as per Section 16(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act). The clarification pertains to goods delivered by suppliers at their place of business under Ex-Works (EXW) contracts.

Key Context:

In the automobile sector, it is common for Original Equipment Manufacturers (OEMs) and dealers to operate under EXW contracts. Under such arrangements:

• Ownership of goods (e.g., vehicles) transfers to the dealer when the OEM hands over the goods to a transporter at the factory gate.
• Transportation and insurance may be arranged by the OEM on behalf of the dealer, who bears the risks of transit.
• Dealers record the invoice and avail ITC once goods are handed over at the factory gate.

Certain field offices have interpreted the law to mean ITC can only be availed after physical receipt of goods at the dealer’s premises, leading to disputes and issuance of show-cause notices.

Key Clarifications:

1. Interpretation of “Receipt of Goods”:
   

   • Section 16(2)(b) specifies that ITC can only be availed if the goods or services are “received” by the registered person.
   • The explanation under Section 16(2)(b) deems goods as “received” when delivered to a recipient or another person (e.g., transporter) on the recipient’s behalf, regardless of physical receipt.

2. Applicability to EXW Contracts:
   

   • Under EXW terms, when goods are handed over to a transporter at the supplier’s factory gate, ownership and risks transfer to the dealer.
   • In such cases, delivery to the transporter is considered delivery to the dealer, and the goods are deemed “received” for the purpose of claiming ITC.

3. Conditions for ITC Availability:
   

   • ITC is available if goods are used or intended for business purposes and other conditions of Sections 16 and 17 of the CGST Act are met.
   • If goods are diverted for non-business purposes or lost, stolen, or destroyed, ITC cannot be claimed.

4. Uniform Application of Provisions:
   

   • The clarification applies to all EXW contracts where goods are delivered at the supplier’s premises or factory gate.

Responsibilities for Compliance:

• Dealers and Businesses: Ensure records substantiate the receipt of goods as per the provisions of Section 16(2)(b).
• Field Offices: Follow the uniform guidelines provided in this circular to avoid inconsistencies in the application of ITC rules.

Further Instructions:

CBIC has directed the issuance of trade notices to disseminate the contents of this circular widely. Any difficulties in implementation should be reported to the Board for resolution. (https://taxinformation.cbic.gov.in/view-pdf/1003255/ENG/Circulars)