Clarification on ITC Eligibility and Refund in Case of Cost Recovery from Foreign Holding Company

[Sudhir M]

ABC Ltd procured goods and services and paid the vendors along with applicable GST. Subsequently, ABC Ltd recovered the amount paid (including GST) from its holding company located outside India.

(i) Whether ABC Ltd is eligible to claim ITC on such expenses?

(ii) If the answer to question (i) is yes, can ABC Limited include this ITC while calculating the refund of unutilised ITC for exports?

[YAGAY and SUN]

(i) Eligibility of Input Tax Credit (ITC):

In accordance with Section 16(1) of the Central Goods and Services Tax Act, 2017 ("CGST Act"), a registered person is entitled to take input tax credit of goods or services or both, which are used or intended to be used in the course or furtherance of business. The fact that ABC Ltd has recovered the expense from its holding company located outside India does not per se restrict its entitlement to ITC, provided that the underlying procurement was made in the course or furtherance of business, and all other conditions stipulated under Section 16 and Rule 36 of the CGST Rules, 2017 are satisfied. Further, the recovery of such expense from a foreign entity may constitute a supply under Entry 1 of Schedule I of the CGST Act (supply between related persons without consideration), or alternatively may qualify as a taxable outward supply under Section 7(1) read with Section 2(6) of the Integrated Goods and Services Tax Act, 2017 ("IGST Act") as an export of service, subject to fulfillment of conditions prescribed therein. Therefore, ABC Ltd is eligible to claim input tax credit on such expenses, provided the said services are used in the course or furtherance of business and the ITC is not blocked under Section 17(5) of the CGST Act.

(ii) Refund of Unutilised ITC for Exports:

Yes, if ABC Ltd qualifies the conditions under Section 16(3) of the IGST Act read with Rule 89 of the CGST Rules, it may claim refund of unutilised input tax credit in the case of export of services under the LUT (Letter of Undertaking) route without payment of tax. The ITC claimed on inward supplies used for effecting such zero-rated supplies, including the services provided to its holding company outside India (assuming they qualify as export of services under Section 2(6) of the IGST Act), would form part of the eligible credit for computation of refund under Rule 89(4). However, care must be taken to ensure that the place of supply is outside India and the consideration is received in convertible foreign exchange or in Indian rupees wherever permitted by the RBI, and all conditions for treating the transaction as export of service are duly fulfilled.

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[Shilpi Jain]

ITC eligibility should not be affected merely because you have recovered the amount from another person. Once eligible ITC, refund should be eligible provided the other conditions are satisfied.

[Shilpi Jain]

There is no concept of unjust enrichment for availment of ITC nor is it applicable for exports.

AI Summary

Input Tax Credit eligibility confirmed despite cost recovery from foreign holding, and unutilised ITC may be refundable for exports.
ITC is claimable if the procured inputs or services were used in the course or furtherance of business and are not blocked; recovery from a foreign holding does not per se disqualify ITC, though such recovery may itself be a taxable supply. If those outward transactions qualify as exports of services, the taxpayer may claim refund of unutilised ITC for zero-rated supplies under the LUT route, provided place of supply, receipt of consideration in permissible foreign exchange or permitted rupees, and refund procedural conditions are satisfied.