ITC Availment in Dies/pattern/fixtures by the customer

[Deepak Kumar]

I am a manufacturer of iron casting. My customer has placed an order for specified product, for that pattern is required. My customer has sanctioned 20 lakh budget for that pattern and asked me only to get it ready. I have got the pattern manufactured from 3rd vendor in Rs 5 lakh. The vendor has invoiced me for Rs 5 lakh, I took the credit on 5 lakh. Subsequently, I have raised the sale invoice for that pattern to my Customer for Rs 20 lakh and charged GST on it. Though it's a fact that I will not be sending that pattern physically, because I will manufacturer the product from this patter as desired by my customer, for that I need the pattern with me. Now my queries:

1. As pattern will always be with me only, can my customer take ITC on it? Though I have raised a sale invoice to my customer, he only is the actual owner, but since pattern is in my possession, can he avail ITC? Have my customer ever used this patter for furtherance of his business?

2. If my customer is in different state, can I raise the IGST invoice? Whether it will be right in respect of Section 10(c) and 11 of IGST Act?

Please guide.

[Sadanand Bulbule]

Refer CBIC Circular No. 47/21/2018-GST dated 08/06/2018.

[Deepak Kumar]

Dear Sir

I have referred to this Circular.

The crux of  the Sl No. 1 explaination of this circular is, what i have understood is as the Customer (OEM) is providing the pattern to the me(Component Manufacturer) on FOC basis, I need not to reverse the ITC. Okay, that is fine.

But, the component manufacturer has never send those goods to OEM. After getting the pattern manufactured from other vendors, he kept it with himself(Component manufacturer). So, though he has raised the sale invoice, he never issued any E-Way Bill or never despatched the goods also. In this case, when the OEM was never in possession of those pattern, can he avail the ITC?

Can the department question this availment?

[Sadanand Bulbule]

To avail ITC, the recipient has to comply the mandatory condition of Section 16[2][b].

[Shilpi Jain]

There was a recent circular as per which it was made clear that having to receive goods to avail credit does not mean that the goods need to be received at the registered place of business. Thus, even if the pattern is with the contractor the owner can still avail the credit.

The question about charging IGST requires consideration of how this can be done since restricting ITC in this case could be a big cost.

[Deepak Kumar]

Thank you mam..

Can you please give the reference of that circular?

It would be very helpful.

AI Summary

Input Tax Credit entitlement when recipient lacks physical receipt depends on meeting the statutory receipt condition under Section 16(2)(b). Availability of Input Tax Credit where invoiced goods remain with the supplier depends on satisfying the receipt condition in Section 16(2)(b); administrative guidance indicates receipt need not be at the registered business location and goods held by a contractor may still permit the owner to claim ITC if statutory conditions are met. Separately, invoicing an out of state owner raises IGST treatment questions when goods are not despatched and no e way bill is issued.