INPUT TAX CREDIT BLOCKED U/S 17(2) & 17(3) OF CGST ACT 2017

[SOPL SOPL]

Dear Sir/Madam

We are Gst registered Sole proprietorship concern providing security services to our clients through third party security agency.Security agency being non body corporate raise Rcm invoice on us and we raise Rcm invoice on our client being Gst registered person located in taxable territory.

As per Sec 17(2) read with Sec17(3) ,among other things, input tax credit is not allowed if the outward supply is chargeable under reverse charge.Due to this we are loosing input tax credit paid under rcm basis even in trading of service which should not be the motive of the Gst law.

[Shilpi Jain]

See if u can act as a facilitator and charge gst only on your margin. Claim the 3rd party security charges as a pure agent reimbursement. This however will also depend on your business feasibility.

[ABHISHEK TRIPATHI]

M/s SSOE,

You have rightly pointed the lapse of credit because of rcm.

17(2) r/w 17(3) is the obstacle for you.

You need to reconsider the business arrangement/model.

AI Summary

Input tax credit denial under reverse charge increases unrecoverable tax on procured third party services, prompting business model changes.
Denial of input tax credit occurs when a GST-registered proprietor procures security services from a third-party agency and tax is payable under the reverse charge mechanism, preventing claim of credit and creating an unrecoverable tax cost; suggested commercial responses are to act as a facilitator charging GST on margin and treating third-party charges as pure agent reimbursements, or to restructure the business arrangement to mitigate the credit blockage, while acknowledging the statutory blocking provision remains binding.