ITC on material issued to Contractor

[SUSHANTA MISHRA]

M/s ABC Hydro Ltd is engaged in the business of generation of Electricity. It has four hydro electric project in the state of Himachal Pradesh. The company has started construction of a new hydro electric project in the state of HP. The company has awarded a contract for construction of dam to M/s X Ltd. As per terms of contract M/s ABC (contractee) shall supply Cement and Steel to M/s X, (contractor) on recoverable basis to maintain quality . Accordingly M/s ABC Ltd purchased Cement and Steel from manufacturer with GST paid invoices and issued the materials (cement and steel) to M/s X by raising GST invoice. Whether M/s ABC can claim ITC? Will it not covered under Block credit under Sec 17(5)(d) as the inputs are used for works account for own use? May please clarify.

[Ganeshan Kalyani]

For this particular transaction M/a. ABC will considered as trading and thus becomes eligible for credit.

[Himansu Sekhar]

ABC can take the credit. The supply of goods happened by ABC to x. It was also open for x to buy goods from market instead of abc. It is a separate transaction.

AI Summary

Input tax credit on supplied materials: credit permissible where issuance to contractor is invoiced as a separate supply. A power company purchased cement and steel, paid GST, and issued them to its construction contractor on a recoverable basis by raising GST invoices. The query was whether such issuance is excluded from Input Tax Credit as blocked credits for inputs used in works for the taxpayer's own account. The discussion concluded the issuance amounted to a taxable supply (trading activity) by the company, so it may claim Input Tax Credit because the contractor could have bought the materials independently.