Page 19 - Chap7 ITC

8) Full ITC for Exports: Since exports are zero-rated, full ITC is allowed without apportionment (Sec 16 IGST
Act & Sec 17(2) CGST Act).
9) ITC Utilization Rules:
† IGST credit is used first for IGST, then CGST & SGST.

†CGST & SGST credits can be used only after IGST is fully utilized.

10) ITC cannot be used to pay tax under reverse charge, which must be paid in cash.

Flowchem Palanpur (Gujarat) has entered into a contract with R Refinery, Abu Road (Rajasthan) on
Q.18
1st July to supply 10 valves on FOR basis. The following information is provided in this regard:
1) List price per valve is ₹ 1,00,000, exclusive of taxes.
2) One of the conditions of the contract is that Flowchem should ensure a two stage third party inspection for
the valves during the manufacturing process. Cost of two stage inspection of ₹ 15,000 (for 10 valves) is
directly paid by R Refinery to testing agency.
3) R Refinery requires a special packing for the valves. Cost of special packing is ₹ 10,000 (for 10 valves).
4) Flowchem arranges for erection and testing of the valves supplied by it at R Refinery's site. Cost of erection
etc. is ₹ 15,000 (for 10 valves).
5) Goods are dispatched with tax invoice on 20th July, and they reach the destination at Abu-Road on 21st
July. Lorry freight of ₹ 5,000 has been paid by R Refinery directly to the lorry driver.
Assume CGST and SGST rates to be 9% each and IGST rate to be 18%. Opening balance of ITC of IGST is Nil,
CGST is ₹ 20,000 and SGST is ₹ 20,000. All the given amounts are exclusive of GST, wherever applicable.
Flowchem has also undertaken following local transactions during the month of July on which it has paid
CGST and SGST as under:

Sr. Amount paid Amount paid
Particulars
No. CGST (₹) SGST (₹)
Availed services of works contractor to erect foundation for fixing the
1. 5,000 5,000
machinery to earth, in the factory
2. Laid pipelines (from the water source outside the factory) upto the gate of 10,000 10,000
the factory for the purpose of production facility.
3. For the purpose of smooth and convenient mobile communication in its
factory, it has installed telecommunication tower of a mobile company 5,000 5,000
(with due permission)

4. It has entered into an agreement with a travel company to provide home 2,500 2,500
travel facility to its employees when they are on leave.
5. It has entered into an agreement with a fitness centre to provide wellness 2,000 2,000
services to its employees after office hours

Work out the net GST [CGST, SGST or IGST, as the case may be] payable from Electronic Cash Ledger of
Flowchem, Palanpur (Gujarat) for the month of July after making suitable assumptions, if any. [Study Mat]
Answer:
Computation of net GST payable by Flowchem for the month of July :

Particulars IGST (₹) CGST (₹) SGST (₹)
Output tax liability [Working Note 1] 1,88,100 - -
Less: ITC of CGST [Working Note 2] (25,000) - -
Less: ITC of SGST has been utilized only after ITC of CGST has been (25,000) - -
utilized fully as per proviso to section 49(5)(c) [Working Note 2]

Net GST payable from Electronic Cash Ledger 1,38,100 - -

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