Page 1 of 5
Circular No. 241/35/2024-GST
F. No. CBIC-20001/14/2024-GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
North Block, New Delhi,
Dated the 31
st
December, 2024
To,
The Principal Chief Commissioners/ Chief Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam / Sir,
Subject: Clarification on availability of input tax credit as per clause (b) of sub-
section (2) of section 16 of the Central Goods and Services Tax Act, 2017 in
respect of goods which have been delivered by the supplier at his place of
business under Ex-Works Contract-reg.
Reference has been received from automobile sector seeking clarification on
availability of input tax credit (hereinafter referred to as “ITC”) as per clause (b) of sub-
section (2) of section 16 of the Central Goods and Services Tax Act, 2017 (hereinafter
referred to as “CGST Act”) in respect of goods which have been delivered by the supplier at
his place of business under Ex-Works Contract.
1.2 It has been stated that in automobile sector, the contract between the automobile
dealers and the Original Equipment Manufacturers (OEMs) is generally an Ex-Works (EXW)
contract, and as per the terms of the contract, the property in goods (i.e. vehicles) passes to
the dealer at the factory gate of the OEM, when the goods are handed over to the transporter
at the instance of the dealer, and the delivery on the part of the OEM is complete at his
factory gate. The transport may be arranged by the OEM on behalf of the dealer and where
insurance is arranged, it may also be done on behalf of the dealer. Any claim in case of loss
has to be lodged by the dealer. The dealer also duly accounts for the invoice in his books of
accounts on such delivery of the vehicles at the factory gate of the OEM. The dealer avails
Page 2 of 5
ITC on the date the vehicles are billed to him and handed over to the transporter by the OEM
at his factory gate. However, some field formations are taking a view that ITC can be availed
by the dealer only after the vehicles are physically received by him at his business premises
and show cause notices have been issued to a number of dealers, demanding tax for wrongful
availment of ITC for contravention of provisions of clause (b) of sub-section (2) of section
16 of the CGST Act.
2. In order to ensure uniformity in the implementation of the provisions of law across the
field formations, the Board, in exercise of its powers conferred by sub-section (1) of section
168 of the CGST Act, hereby clarifies the issue as below.
3. Sub-section (2) of section 16 of the CGST Act is a non-obstante clause to section 16
of the CGST Act which enlists the conditions, failing which the registered person is not
entitled to ITC in respect of supply of goods or services or both. One of the conditions as per
clause (b) of the said sub-section (reproduced below) is that a registered person is not entitled
to claim ITC in respect of any supply of goods or services or both unless he has “received”
the said goods or services or both. The Explanation to the said clause provides for deemed
receipt of goods and services in certain scenarios.
“Section 16. Eligibility and conditions for taking input tax credit.
…
(2) Notwithstanding anything contained in this section, no registered person shall be
entitled to the credit of any input tax in respect of any supply of goods or services or
both to him unless, -
...
(b) he has received the goods or services or both.
Explanation.- For the purposes of this clause, it shall be deemed that the registered
person has received the goods or, as the case may be, services-
(i) where the goods are delivered by the supplier to a recipient or any other person on
the direction of such registered person, whether acting as an agent or otherwise,
before or during movement of goods, either by way of transfer of documents of title to
goods or otherwise;
Page 3 of 5
(ii) where the services are provided by the supplier to any person on the direction of
and on account of such registered person;
…”
3.1 From a plain reading of the clause (b) of sub-section (2) of section 16 of the CGST
Act, it is quite apparent that there is no reference of any particular place where goods are
required to be “received” by the registered person. This is in contrast to the erstwhile Central
Excise regime, where the provisions contemplated physical receipt of the goods at the factory
of the manufacturer for taking CENVAT credit on the said goods. In most of the State VAT
Acts, the provisions related to credit of the input tax did not have any explicit mention of
physical receipt of goods at any particular place and input tax credit was allowed on purchase
of goods.
3.2 Explanation to clause (b) of sub-section (2) of section 16 of the CGST Act provides
that the goods would be deemed to have been “received” by the registered person for the
purpose of this clause, where:
a) the goods are delivered by the supplier to a recipient or to any other person on the
direction of such registered person, whether acting as an agent or otherwise;
b) such direction may be given before or during movement of goods; and
c) the goods may be delivered either by way of transfer of documents of title to goods or
otherwise.
3.2.1 The said Explanation provides that where goods are delivered by the supplier to any
other person, whether acting as an agent or not, upon the direction of the registered person,
and where such delivery occurs either through transfer of documents of title to goods or
otherwise, the registered person is deemed to have “received” such goods for the purpose of
the clause (b) of sub-section (2) of section 16 of CGST Act. Accordingly, in cases where
goods are delivered by the supplier to the registered person, either directly or to any other
person on the directions of the said registered person, the registered person shall be
considered to have “received” the said goods for the purpose of clause (b) of sub-section (2)
of section 16 of CGST Act.
3.3 In the instant case, as per the terms of the EXW contract between the dealer and the
OEM:
Page 4 of 5
a) the goods are being handed over by the OEM to the transporter at his factory gate
for onward transmission to the dealer;
b) transport is arranged by OEM on the behalf of dealer; and
c) if insurance is arranged, it is done on the behalf of dealer and any claim in case of
loss has to be lodged by the dealer.
3.3.1 In such a scenario, the property in the said goods can be considered to have been
passed on to the dealer by the OEM upon handing over of the said goods to the transporter at
his factory gate, meaning thereby that the goods can be considered to have been delivered to
the registered person (the dealer), through the transporter, by the supplier (the OEM) at his
factory gate and the supply of the said goods can be considered to have fructified at the
factory gate of the OEM, even though the goods may be physically received by the registered
person (the dealer) after the transit period. Accordingly, it is clarified that as per Explanation
to clause (b) of sub-section (2) of section 16 of CGST Act, the registered person (the dealer)
can be considered to have “received” the said goods at the time of such handing over of the
goods by the supplier to the transporter, at his factory gate, for their onward transmission to
the said registered person (the dealer).
3.4 The same principle is applicable in respect of supply of other goods also where the
contract between the supplier and recipient is an EXW contract, and as per terms of the
contract, the goods are to be delivered by the supplier to the recipient, or to any other person
(including a transporter) on behalf of the recipient, at his (supplier’s) place of business and
the property in the goods stands transferred to the recipient at the time of such handing over.
In such cases, the said goods can be construed to have been “received” by the said recipient at
the time of handing over the said goods to the recipient or to the transporter, as the case may
be, as per provisions of clause (b) of sub-section (2) of section 16 of CGST Act.
3.5 It is also mentioned that as per provisions of sub-section (1) of section 16 of the
CGST Act, a registered person is entitled to input tax credit only in respect of supply of
goods or services or both, which is used or intended to be used in the course or
furtherance of business. Therefore, the input tax credit may be available to the registered
person on such receipt of goods by the said registered person from the supplier at his
(supplier’s) factory gate or business premises, subject to fulfilment of other conditions of
Page 5 of 5
section 16 and section 17 of CGST Act, including the condition that the said goods are used
or intended to be used in the course or furtherance of business by the said registered person.
3.6 It is also to be noted that if the goods are found to have been diverted for non-business
purposes at any stage, either before physically receiving the said goods at his business
premises or subsequently, the registered person shall not be entitled to input tax credit on
such goods in terms of sub-section (1) of section 16 of CGST Act. Further, if at any time after
“receiving” the goods, such goods are lost, stolen, destroyed, written off or disposed of by
way of gift or free samples, the registered person would not be entitled to the input tax credit
in respect of such goods as per provisions of clause (h) of sub-section (5) of section 17 of
CGST Act.
4. It is requested that suitable trade notices may be issued to publicize the contents of
this Circular.
5. Difficulty, if any, in the implementation of this Circular may be brought to the notice
of the Board. Hindi version would follow.
(Sanjay Mangal)
Principal Commissioner (GST)
