Whether ITC can be availed on exempted goods when exported?

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If you have this question, your response would naturally get influenced because the outward supply being exempted goods. Yes, when your outward supplies are exempt, you shouldn't avail Input Tax credit as per sec 17(2), reproduced below.

"Sec 17 (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies."

 Now, the catch is what if the exempted goods being exported or otherwise regarded as "zero-rated supply". Lets refresh our knowledge from sec 16 of IGST Act 2017 in this context and build from there.

"Sec 16 (1) “zero rated supply” means any of the following supplies of goods or services or both, namely:––

(a) export of goods or services or both; or

(b) supply of goods or services or both 1[for authorised operations] to a Special Economic Zone developer or a Special Economic Zone unit.

(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply"

Sec 16(2) of IGST Act 2017 clearly drives home that irrespective of the fact whether the outward supply per se being exempt supply, will be regarded as Zero-rated supply for the purposes of availing Input Tax Credit. 

Also, if you refer sec 17(2) of CGST Act 2017, ITC can be availed for effecting taxable supplies including zero-rated supplies. Such Zero-rated supplies irrespective of its underlying goods or services being supplied are exempt or not, is not relevant for availing ITC.

We are almost well into 5 years with GST regime, these things may spin your head. Please find my recent survey on linked-in with few groups as below. 






Thus, the survey results are apparent that largely respondents are influenced with outward supply being exempt goods. This blog will help someone to correct their practices. Feel free to share, and enlighten those around you.

- LDR | Partner in L D RAJ & CO | www.ldraj.in

Lets redefine your GST expertise


The opinions, suggestions or thoughts expressed are that of the author of this article, please exercise adequate care in applying to your own scenario with appropriate technical advise as deem necessary.

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