ITC of RCM paid on transport of Exempted Goods

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As a dealer of both exempt and taxable goods, you're asking about claiming Input Tax Credit (ITC) on Reverse Charge Mechanism (RCM) paid for transport services used with exempt goods. Generally, ITC is not eligible for services used exclusively for exempt supplies, as per Section 17(2) of the CGST Act. However, ITC is available for transport services used for taxable goods under Section 16(1). For mixed usage, apportionment rules (Rules 42 & 43) apply to determine the eligible ITC proportion.

REVITAL GST & MANAGEMENT PRIVA

REVITAL GST & MANAGEMENT PRIVA (Querist)
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20 July 2022 We are a dealer of exempted as well as Taxable goods.
We use transportation services a lot. from which some is used for transportation of exempted goods, while others are used for transport of taxable goods.

In this regards,
can i use ITC of RCM paid on Transportation of Exempted goods.?? or is it not eligible, considering the service is used for exempted goods.?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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20 July 2022 It's not eligible, considering the service is used for exempted goods.

REVITAL GST & MANAGEMENT PRIVA

REVITAL GST & MANAGEMENT PRIVA (Querist)
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21 July 2022 Can we have relevant Section code.?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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02 August 2024 Under GST, Input Tax Credit (ITC) on Reverse Charge Mechanism (RCM) for transportation services can be complex when the services are used for exempted goods. Here’s a detailed explanation regarding your situation:

### **1. ITC on RCM for Transportation of Exempted Goods**

- **General Rule:**
- As per **Section 17(2)** of the CGST Act, 2017, ITC is not available on input tax used for the supply of exempt goods or services. Therefore, if the transportation services are used exclusively for the transportation of exempt goods, ITC on RCM paid for such transportation services is generally **not eligible**.

- **Section Reference:**
- **Section 17(2)**: Specifies that the credit is not available on input tax used for exempt supplies. This includes the scenario where the transport services are used to handle exempt goods.

### **2. ITC on RCM for Transportation of Taxable Goods**

- **Eligibility for ITC:**
- ITC is available on transportation services if these services are used for the transport of taxable goods. So, for transportation services related to taxable goods, you can claim ITC on RCM.

- **Section Reference:**
- **Section 16(1)**: Allows claiming ITC on inputs, input services, and capital goods used for the furtherance of business, including taxable supplies.

### **3. Mixed Use of Transportation Services**

- **Partial ITC:**
- If the transportation services are used for both exempt and taxable goods, you need to determine the proportion of usage. Only the ITC related to the transportation of taxable goods can be claimed.
- **Rule 42** and **Rule 43** of the CGST Rules deal with the apportionment of ITC when inputs and input services are used for both taxable and exempt supplies.

### **4. Procedural Aspects**

- **Documentation and Records:**
- Maintain detailed records of transportation services used for both exempt and taxable goods. This includes invoices and the proportion of use.

- **Adjustment:**
- Calculate the proportion of ITC attributable to taxable supplies and adjust your ITC accordingly.

### **Summary:**

- **For transportation of exempted goods:** ITC on RCM is generally **not available** as per **Section 17(2)**.
- **For transportation of taxable goods:** ITC is available, and you should claim it under **Section 16(1)**.
- **Mixed use:** Allocate ITC based on the proportion of use between exempt and taxable supplies as per **Rules 42 and 43**.

Always consult with a GST professional to ensure compliance with the latest regulations and for specific guidance based on your situation.

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