Page 10 - Chap7 ITC

Sec 17(5)(i) : No ITC in Fraudulent Cases

Q.11
Xenon Pvt. Ltd., a registered supplier in Agra is engaged in the manufacture of taxable goods. Goods
valued at ₹ 10,50,000 were supplied by the company to Freshbite Pvt. Ltd., a registered supplier located at
Firozabad, without the cover of an invoice with a fraudulent intent. Since the company evaded tax by not
issuing the invoice for the supply, a show cause notice was issued by the proper officer under section 74
requiring the company to pay tax @ 12% [₹ 1,26,000] and applicable interest and penalty. The company paid
the tax, interest and penalty after the order was passed by the proper officer. Examine the ITC entitlement of
Freshbite Pvt. Ltd. in respect of tax of ₹ 1,26,000 paid by Xenon Pvt. Ltd. [Study Mat]
Answer:
Ü As per Section 17(5)(i) of the CGST Act, tax paid under Sections 74 is not eligible for ITC.
Ü Further, as per Rule 36(3), ITC cannot be claimed on tax paid due to fraud, willful misstatement, or
suppression of facts.
Ü Since Xenon Pvt. Ltd. paid tax under Section 74, Freshbite Pvt. Ltd. cannot claim ITC.

QRP: No ITC on tax paid due to fraud, suppression, or under Sections 74..

05: Sec 17(5):- Combined Questions on Blocked credit

Q.12
Krishna Motors is a car dealer selling cars of an international car company. It also provides
maintenance and repair services of the cars sold by it as also of other cars. It seeks your advice on availability
of input tax credit in respect of the following expenses incurred by it during the course of its business
operations:
1) Cars purchased from the manufacturer for making further supply of such cars. Two of such cars are
destroyed in accidents while being used for test drive by potential customers. What would be your answer
if Krishna Motors purchases a demo vehicle for demonstration purposes.
2) Works contract services availed for constructing a car parking shed in its premises [Study Mat]

Answer:
1. ITC on Motor Vehicles (Section 17(5)(a)):
Ø No ITC on motor vehicles with seating capacity ≤13, except when used for resale or taxable supply.
ITC allowed on cars bought for resale.Ø

Ø No ITC on cars destroyed in accidents (blocked u/s 17(5)(h)).
ITC allowed for demo vehicles if solely used for demonstration.Ø

2. ITC on Works Contract (Section 17(5)(c)):
Ø No ITC on works contract services for immovable property (except for resale).
Ø Car parking shed is not plant & machinery, so ITC is not allowed.

QRPs:- † ITC on cars: Allowed for resale, blocked if goods destroyed.
† Demo cars: ITC allowed if solely for demonstration.

† Works contract ITC: Blocked for immovable property (except resale).

Q.13
With reference to the provisions of section 17, examine the availability of ITC in the following
independent cases:
1) 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.
2) 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.
3) ABC Ltd. availed maintenance & repair services from “Jaggi Motors” for a truck used for transporting its
finished goods [Study Mat] [CA Final RTP Nov 19]

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