2022 (11) TMI 260 - AAR - GST

Input Tax Credit - applicant is under Marginal Scheme - credit on expenses like Rent, Advertisement expenses, commission, Professional expenses and other like expenses - credit on Capital Goods for the Applicant under Marginal Scheme - HELD THAT - Rule 32(5) says that, a taxable supply provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price. If the value of such supply is negative, then it shall be ignored - rule 32(5) clearly bars availment of input tax credit on the purchase of those second hand goods which he is supplying, however there is no restriction on the availment of input tax credit in respect of input services or capital goods. After going through section 16 of CGST Act 2017 i.e Eligibility and conditions for taking input tax credit we can see that there is no bar on the registered tax payer to claim input tax credit on input services and corresponding expenses like Rent, Advertisement expenses, commission, Professional expenses, other like expenses and capital Goods while being under Margin Scheme (Rule 32(5) of CGST Rules) - the Applicant can claim input tax credit on the expenses in respect of input services and capital goods subjected to section 16 to 21 and rules 36-45 of CGST Act and Rules 2017.

Summary

Issues Involved:
1. Whether the applicant under the Marginal Scheme can claim Input Tax Credit (ITC) on expenses like rent, advertisement expenses, commission, professional expenses, and other similar expenses.
2. Whether ITC is allowed to be claimed on capital goods for the applicant under the Marginal Scheme.

Detailed Analysis:

Issue 1: ITC on Expenses under Marginal Scheme

Applicant's Position:
The applicant, engaged in the sale of second-hand goods (used gold jewellery), follows the Marginal Scheme under Rule 32(5) of the CGST Rules, 2017. They sought a ruling on whether they can claim ITC on various business expenses such as rent, advertisement, commission, and professional expenses. The applicant argued that as a registered dealer, they meet the conditions under Section 16 of the CGST Act, 2017, which entitles them to claim ITC on supplies used in the course or furtherance of their business.

Legal Provisions:
- Rule 32(5) of the CGST Rules, 2017: This rule stipulates that for taxable supplies involving second-hand goods, the value of supply is the difference between the selling and purchase prices. It bars the availment of ITC on the purchase of such goods but does not restrict ITC on input services or capital goods.
- Section 16 of the CGST Act, 2017: This section outlines the eligibility and conditions for taking ITC, allowing registered persons to claim credit on input tax charged on supplies used in business activities.

Findings:
The ruling clarified that Rule 32(5) explicitly bars ITC on the purchase of second-hand goods but not on input services or capital goods. Section 16 does not impose any restrictions on claiming ITC for input services and corresponding expenses like rent, advertisement, commission, and professional expenses.

Conclusion:
The applicant under the Marginal Scheme can claim ITC on expenses such as rent, advertisement expenses, commission, professional expenses, and other similar expenses, subject to compliance with Sections 16 to 21 and Rules 36-45 of the CGST Act and Rules, 2017.

Issue 2: ITC on Capital Goods under Marginal Scheme

Applicant's Position:
The applicant also sought clarification on whether ITC can be claimed on capital goods while operating under the Marginal Scheme.

Legal Provisions:
- Rule 32(5) of the CGST Rules, 2017: As previously mentioned, this rule restricts ITC on the purchase of second-hand goods but does not address capital goods.
- Section 16 of the CGST Act, 2017: This section allows registered persons to claim ITC on supplies used in their business, including capital goods, provided the conditions are met.

Findings:
The ruling indicated that there is no restriction under Rule 32(5) on claiming ITC for capital goods. Section 16 supports the claim of ITC on capital goods if used in the course or furtherance of business activities.

Conclusion:
The applicant can claim ITC on capital goods while under the Marginal Scheme, subject to compliance with Sections 16 to 21 and Rules 36-45 of the CGST Act and Rules, 2017.

Ruling:
1. The applicant under the Marginal Scheme can claim ITC on expenses like rent, advertisement expenses, commission, professional expenses, and other similar expenses, subject to Sections 16 to 21 and Rules 36-45 of the CGST Act and Rules, 2017.
2. The applicant can claim ITC on capital goods under the Marginal Scheme, subject to Sections 16 to 21 and Rules 36-45 of the CGST Act and Rules, 2017.