Official Suggested Answer
Section 16(2)(b) of the CGST Act, 2017 provides that no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless he has received the goods or services or both.
Explanation to section 16(2)(b) of the CGST Act, 2017 provides that it shall be deemed that the registered person has received the goods or, as the case may be, services, where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise.
Further, it has been clarified vide a circular that in case of Ex-works contract, the property in the goods can be considered to have been passed on to the dealer by the Original Equipment Manufacturer (OEM) upon handing over of the said goods to the transporter at his factory gate, meaning thereby that the goods can be considered to have been delivered to the registered person (the dealer), through the transporter, by the supplier (the OEM) at his factory gate and the supply of the said goods can be considered to have fructified at the factory gate of the OEM, even though the goods may be physically received by the registered person (the dealer) after the transit period.
In the given case, since the contract between M/s Ganesh Traders (OEM) and MMPL (dealer) is ex-works, pick up vans are considered to be received by MMPL on 29th April i.e. the date on which the vans are handed over to the transporter, even though they were physically received in the month of May.
So, initially on 29th April, full ITC of ₹28 lakh [₹10 lakh X 10 vans X 28%] can be availed while filing the return of the month of April.
Subsequently, after the receipt of vans in the showroom, 2 vans were destroyed due to fire and written off in the books.
So, ITC in respect of such vans, which was already availed has to be reversed while filing the return of the next month-May, since ITC on the goods, which are destroyed is not available in accordance with section 17(5) of the CGST Act, 2017.
The Amount of ITC which has to be reversed in the return of next month is = ₹5.6 lakh [₹10 lakh X 2 vans X 28%].
Source: ICAI Board of Studies. open source PDF ↗
Worked Solution
✓ VerifiedAvailability of ITC to MMPL on Pick-Up Vans — Discussion under GST Law
Nature of Supply and Applicability of ITC
The supply from M/s Ganesh Traders (Ahmedabad, Gujarat) to MMPL (Udaipur, Rajasthan) is an inter-state supply, attracting IGST @ 28%. MMPL, being a registered dealer of motor vehicles, is eligible to avail Input Tax Credit (ITC) under Section 16(1) of the CGST Act, 2017.
A preliminary issue under Section 17(5)(a) of the CGST Act, 2017 arises regarding blocked credit on motor vehicles. However, Section 17(5)(a) restricts ITC only on motor vehicles used for transportation of persons with seating capacity not exceeding 13 (including driver). Pick-Up vans are goods-carrying vehicles, not passenger vehicles, so Section 17(5)(a) does not apply. Moreover, even if they were passenger-type vehicles, MMPL's purpose is further supply (stock-in-trade), which is an explicit exception. Accordingly, ITC on these vans is not blocked under Section 17(5)(a).
Month in Which ITC is Available — Deemed Receipt under Ex-Works Contract
Under Section 16(2)(b) of the CGST Act, 2017, one of the conditions for availing ITC is actual receipt of goods. In the present case, physical delivery at MMPL's showroom in Udaipur occurred on 2nd May. However, this is an ex-works contract, meaning the seller's obligation is complete at the factory gate.
As per the Explanation to Section 16(2)(b) of the CGST Act, 2017: "It shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person... before or during movement of goods, either by way of transfer of documents of title to goods or otherwise."
Since M/s Ganesh Traders handed over the vans to the transporter on behalf of MMPL on 29th April, and delivery was complete at the factory gate on that date, MMPL is deemed to have received the goods on 29th April.
All four conditions of Section 16(2) are satisfied in April:
- (a) Tax invoice raised by M/s Ganesh Traders and recorded by MMPL — 29th April ✓
- (b) Deemed receipt of goods — 29th April ✓
- (c) Tax charged in the invoice has been or will be paid to the Government ✓
- (d) Return (GSTR-3B) to be filed for April ✓
Therefore, MMPL is eligible to avail ITC in the month of April (in its return for the April tax period).
Amount of ITC Available — Effect of Destruction of Two Vans
Out of 10 vans, 2 vans were completely destroyed by fire in the first week of May and written off in the books. As per Section 17(5)(h) of the CGST Act, 2017, ITC shall not be available in respect of goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.
Since 2 vans were destroyed and written off, the ITC attributable to those 2 vans is blocked under Section 17(5)(h). While ITC on all 10 vans becomes eligible in April (upon deemed receipt), the credit on the 2 destroyed vans must be reversed in May (the month of destruction/write-off).
Summary of ITC Availability:
- ITC eligible in April (on all 10 vans upon deemed receipt): ₹28,00,000
- ITC to be reversed in May on 2 destroyed vans: ₹5,60,000
- Net ITC finally available to MMPL: ₹22,40,000 (on 8 vans)
The payment made on 2nd May (₹1,00,00,000 + ₹28,00,000 GST) is within 180 days of the invoice date and hence does not trigger any reversal under Rule 37 of the CGST Rules, 2017.
Write it like this
1The skeleton
- Kill Section 17(5)(a) blocked credit in your FIRST paragraph — examiners are trained to look for this issue immediately on motor vehicle questions; if you skip it, they assume you missed it even if everything else is right.
- Quote the Explanation to Section 16(2)(b) verbatim — the deemed receipt rule is the entire crux of the April vs. May timing question; paraphrasing it costs you the mark because the examiner needs to see you know the exact statutory text.
- Run the four-condition Section 16(2) checklist as a mini-table or (a)/(b)/(c)/(d) list — this signals completeness and lets the examiner tick off marks one-by-one; a flowing paragraph hides your points.
- Keep April ITC and May reversal in separate, clearly labelled paragraphs — the question asks two things (which month, how much); if your answer doesn't have two distinct answers, the examiner will struggle to award both parts.
- End with a three-line computation box showing ₹28L → reverse ₹5.6L → net ₹22.4L — numerical questions always earn the final mark in the last line; a conclusion buried inside prose is routinely missed.
2Examiner-rewarded phrases
3Common trap
Heads up — the single most common mistake here is saying ITC is available in May because that's when MMPL physically received and paid for the vans. You'll lose the core timing mark. The entire point of this question is the Explanation to Section 16(2)(b) — once goods hit the transporter on 29th April on MMPL's behalf, deemed receipt is April, full stop. Don't let the 2nd May physical delivery date distract you.