GST related query 17(5)

Hey Ajnas, here’s a detailed response to your GST query related to Section 17(5) and ITC reversal on a returned car:

Background recap:

• Car purchased by A Ltd for business use: ₹25,00,000 + 18% GST (Dec 2020).

• ITC on the car is ineligible as per Section 17(5) (except when used for certain purposes like renting out).

• ITC marked as ineligible in Dec 2020 GSTR-3B.

• Car is returned to supplier in Jan 2021.

• Supplier issues a credit note; auto-populated in Jan 2021 GSTR-2A.

Your questions:

1. Is the recipient (A Ltd) required to reverse the ITC?

• Since the car’s ITC was already not claimed (marked as ineligible in GSTR-3B for Dec 2020), there was no ITC taken initially.

• Upon return and credit note issuance, there is no ITC reversal needed because ITC was never availed on this transaction.

• If ITC had been claimed erroneously, reversal would be mandatory, but here ITC was not claimed.

2. If the ineligible ITC was shown correctly in the Dec 2020 GSTR-3B, is reversal required?

• No reversal is required because the ITC was never claimed.

• Showing it as ineligible ITC in GSTR-3B is the correct approach.

3. If the ineligible ITC was not reported in GSTR-3B, what are the consequences?

• Since ITC on such cars is ineligible anyway, not reporting it as ineligible ITC in GSTR-3B means wrong filing.

• The recipient should correct this by filing a rectification/amended return or adjust in subsequent returns.

• The department may initiate scrutiny or demand interest/penalty for wrong filing.

• But no reversal of ITC applies because ITC was ineligible from the start.

Summary: