The Central Board of Indirect Taxes and Customs (CBIC) issued a circular clarifying the eligibility of Input Tax Credit (ITC) under Section 16(2)(b) of the Central Goods and Services Tax (CGST) Act, 2017. This clarification addresses scenarios where goods are delivered under Ex-Works (EXW) contracts and the point at which a recipient is deemed to have received the goods for ITC purposes.
The circular clarifies that input tax credit (ITC) can be claimed on goods delivered under Ex-Works (EXW) contracts, even if the goods are not physically received at the recipient’s business premises. The receipt is deemed to occur when the goods are handed over to the transporter on behalf of the recipient.
What is an Ex-Works (EXW) Contract?
An Ex-Works (EXW) contract is a trade agreement where the supplier fulfils their obligation to deliver goods once they are made available at their premises (e.g., factory or warehouse). Key features of an EXW contract include:
Ownership Transfer: Ownership and risk are transferred to the buyer as soon as the supplier hands over the goods to the buyer’s agent, such as a transporter.
Transportation Responsibility: The buyer arranges for the transportation and insurance of the goods. In some cases, the supplier may arrange transport on behalf of the buyer.
Minimal Supplier Obligation: The supplier’s responsibility ends when the goods are handed over at their premises.
Does the Circular Apply to All Types of Contracts?
No, this circular does not apply in cases where the supplier undertakes the transportation of goods themselves and retains ownership and risk during transit.
For such contracts:
Ownership and risk transfer to the buyer only upon the delivery of goods at the buyer’s premises.
ITC is available to the buyer only after the goods are physically received at their business premises.
This clarification is vital to distinguish scenarios where ITC is claimed based on the deemed receipt of goods under EXW contracts versus contracts where transportation is managed entirely by the supplier.
What does Section 16(2)(b) of the CGST Act state?
Section 16(2)(b) of the CGST Act states that input is available only if the recipient has "received" the goods or services. This provision includes deemed receipt scenarios where goods are delivered to a transporter or another person on the recipient’s behalf.
What is "deemed receipt" under GST?
"Deemed receipt" means that goods are considered received for ITC purposes if:
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;
Such direction may be given before or during the movement of goods; and
The goods may be delivered either by way of transfer of documents of title to goods or otherwise.
How does this clarification apply to EXW contracts?
Under EXW contracts:
The supplier’s obligation ends when goods are handed over to the transporter at their premises (e.g., factory gate).
Ownership and risk transfer to the recipient at the point of handover.
ITC can be claimed by the recipient once the goods are handed over to the transporter, even if they have not physically reached the recipient’s premises.
What about contracts where the supplier arranges transportation and retains ownership during transit?
In cases where the supplier arranges transportation and retains ownership and risk during transit, the circular does not apply. ITC can be claimed only after:
The transportation is completed.
The goods are physically received at the recipient’s premises.
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