M/s Accurate Testing Services, a registered supplier tests and certifies each batch of machine tools before its dispatch by Zeal Tools Pvt. Ltd., engaged in supply to SEZ Units. Some of these tools are dispatched to a un

CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · PYQS · June 2024
M/s Accurate Testing Services, a registered supplier tests and certifies each batch of machine tools before its dispatch by Zeal Tools Pvt. Ltd., engaged in supply to SEZ Units. Some of these tools are dispatched to a unit in a SEZ without payment of GST as these supplies are not taxable. The CFO of M/s Zeal Tools Pvt. Ltd. approached his company tax expert to know whether they need to carry out reversal of ITC paid on the testing services received from M/s Accurate Testing Services to the extent attributable to the SEZ supplies. Explain the correct legal provision in context of IGST Act, 2017.

Answer & Explanation:

Under section 16(2) of the IGST Act, credit of input tax is allowed to be taken for inward supplies used to make zero rated supplies. Under section 17 of the CGST Act also, ITC is disallowed only to the extent it pertains to supplies used for non-business purposes or supplies other than taxable and zero-rated supplies. Supplies to SEZ units are zero rated supplies in terms of section 16(1) of IGST Act. Thus, full ITC is allowed on inward supplies of Zeal Tools Ltd. used for effecting supplies to the unit in the SEZ.

Topics: Goods and Services Tax (GST)

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