GST in case of an Ex-works contract!

In the 55th GST Council meeting, a significant amendment was proposed concerning the availability of the Input Tax Credit (ITC) under Section 16(2)(b) of the CGST Act, 2017. This clarification specifically addresses Ex-Works contracts, where goods are delivered by the supplier to the recipient or a transporter at the supplier's place of business. Under such contracts, the property in goods transfers to the recipient at the point of delivery, leading to an important question regarding the recipient's eligibility to claim ITC. 

Let’s understand the changes!

Proposed change

Clarification on availability of Input Tax Credit as per section 16(2)(b) of CGST Act, 2017 in respect of goods that have been delivered by the supplier at his (supplier’s) place of business :

The GST Council recommended clarifying that in an Ex-Works contract, where goods are delivered by the supplier to the recipient or transporter at the supplier's place of business, and the property in goods transfers to the recipient at that point, the goods are considered to be "received" by the recipient under section 16(2)(b) of CGST Act, 2017 and the recipient may claim Input Tax Credit (ITC) on such goods, subject to the conditions outlined in Sections 16 and 17 of the CGST Act, 2017.

Key Highlights

1. Ex-works contract is a shipping arrangement in which a seller makes a product available at a specific location, but the buyer has to pay the transport costs.
2. As per section 16(2)(b) of the CGST Act, 2017, a taxpayer can claim ITC only when he has received the goods or services or both. 
3. Clarification on Ex-Works Contracts: The GST Council has clarified the treatment of goods delivered under Ex-Works contracts where delivery takes place at the supplier's place of business.
4. Definition of "Received" Goods: Goods delivered at the supplier's premises, where ownership is transferred to the recipient, will be considered "received" under Section 16(2)(b) of the CGST Act.
5. Eligibility for Input Tax Credit (ITC): Recipients can claim ITC on such goods, subject to the conditions outlined in Sections 16 and 17 of the CGST Act, 2017.

Conclusion

 The clarification provided by the GST Council in the 55th meeting regarding Ex-Works contracts brings much-needed clarity to the treatment of goods delivered at the supplier's place of business. By defining these goods as "received" for ITC purposes when ownership transfers at the supplier’s location, the amendment ensures that recipients can rightfully claim Input Tax Credit, provided they meet the requirements of the CGST Act. This move is a positive step toward simplifying GST compliance and fostering smoother transactions for businesses involved in such contracts. As the GST landscape continues to evolve, businesses need to stay updated with these changes to maximize their benefits and ensure regulatory compliance.

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