Page 13 - Chap7 ITC

ABC Company Ltd. also provides service of hiring of machines along with man power for operation. As per
trade practice machines are always hired out along with operators and also operators are supplied only when
machines are hired out.
Receipts on outward supply (exclusive of GST) for the month of November, 20XX are as follows:

Particulars GST paid (₹)
Hiring receipts for machine 5,25,000
Service charges for supply of man power operators 2,35,000

Assume the rates of GST to be as under:
(i) Service of hiring of machine 12%
(ii) Supply of manpower operator service 18%
(Ignore CGST, SGST or IGST for the sake of simplicity)

Compute the amount of input tax credit available and also the net GST payable for the month of
November 20XX by giving necessary explanations for treatment of various items.

Note: Opening balance of input tax credit is Nil.[Study Mat]
Answer:- Computation of net GST payable by ABC Company Ltd. :
Particulars GST payable (₹)
Gross GST liability [Refer working note (2) below] 91,200

Less: Input tax credit [Refer working note (1) below] 82,000
Net GST liability 9,200
Working Notes:
(1) Computation of Input Tax Credit (ITC) available with ABC Company Ltd. in the month of November
20XX:

Particulars GST (₹)
Health insurance of factory employees [Note – 1] 20,000
Raw material received in factory [Note – 2] Nil
Works contractor’s service used for installation of plant and machinery [Note -3] 12,000
Manufacturing machinery directly sent to job worker’s premises under challan [Note -4] 50,000

Purchase of car used by director for business meetings only [Note -5] Nil
Outdoor catering service availed for business meetings [Note -6] Nil
Total ITC available 82,000

Notes :
1) ITC on health insurance is allowed if it's mandatory under law [Proviso to Sec 17(5)(b)] . Since it's required under
the Factories Act, 1948, ITC is allowed.
2) As per Section 16(2) proviso, if goods are received in installments, ITC is allowed only after the last installment is
received. So, ABC Ltd. can claim ITC next month on receiving the second installment.
3) As per Section 17(5)(c), ITC on works contract services is blocked for construction of immovable property,
except for plant and machinery. In this case, since it's for installing plant and machinery, ITC is allowed.
4) As per Section 19(5) & Rule 45, ITC is allowed on capital goods sent directly to a job worker under a challan.
5) As per Section 17(5)(a), ITC on motor vehicles is allowed only for specific uses like resale, passenger transport,
training, or goods transport. Since ABC Ltd. doesn't use the car for goods transport, ITC is not allowed.
6) As per Section 17(5)(b)(i), ITC on outdoor catering is blocked unless used for further supply or part of a taxable
composite/ mixed supply. Since ABC Ltd. supplies machines, ITC is not allowed.

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