Eligibility as ITC

[Bharat Cholleti]

Dear sir,

We got a supply of goods contract from APCPDCL (Electricity board), which supply got delayed, penalty imposed by the APCPDCL on that IGST was collected, Is supplier will be entitle to take ITC of IGST paid on penalty. please advise. Thanks in advance.

[KASTURI SETHI]

Such a situation is covered under Schedule-II in Clause 5 (e) but it will not be litigation-free.

[Bharat Cholleti]

Thanks for replying the query,

In which way there will be litigation sir, as it is already notified as service under Sch II.

Pls explain

[KASTURI SETHI]

The word,'penalty' is not mentioned specifically in Clause 5 (e) of Schedule-II.

[Ganeshan Kalyani]

I agree with the views of Sri Kasturi Sir.

[Shilpi Jain]

The question I understand is not whether there is GST liability. The query is whether the SUPPLIER is eligible for ITC of tax paid on penalty..

As far as the SUPPLIER is concerned, once tax is assessed in the the hands of APCPDCL and it has been paid tax, credit should be eligible to the supplier. Thereby, even if tax is not liable on the transaction as per the clarification in circular 178 and still it is paid, in my view credit should not be denied.

[Shilpi Jain]

Alternatively, the supplier can ask APCPDCL to refund the GST collected from supplier in the light of the circular 178

AI Summary

Input tax credit eligibility for IGST paid on penalty may arise when tax is assessed and paid by the recipient.
Whether a supplier may claim Input Tax Credit of IGST paid on a penalty imposed by a contracting authority is contested: the transaction has been identified as a service under Schedule II but 'penalty' is not expressly mentioned, creating potential dispute. If tax is assessed and paid by the recipient authority, the supplier may be able to claim credit of the tax so paid; alternatively the supplier could seek repayment from the authority in light of GST circular clarification.