Input Tax Credit on RCM Paid for Transportation of Gifts

[Ramanathan Seshan]

Dear Experts,

Company A purchases gifts to distribute to its dealers during festive occasions. The GST paid on the procurement of these gifts is not eligible for input tax credit (ITC), as they are considered gifts under GST law.

However, for transporting these gifts from one location to another, the company hires a transporter and pays GST under the Reverse Charge Mechanism (RCM).

My question is: Can Company A claim ITC on the GST paid under RCM for the transportation of these gifts, even though the gifts themselves are ineligible for ITC?

Regards,

S Ram

AI Summary

Input tax credit on RCM-paid transport: eligibility hinges on whether transport is an input in furtherance of taxable supplies.
Whether ITC on GST paid under the reverse charge mechanism for transportation of promotional gifts is claimable depends on whether the transportation is a distinct input service incurred in the furtherance of taxable supplies; contributors cite the end use theory, absence of a one to one correlation requirement, and credit utilisation rules as supporting allowance, while opposing views rely on the statutory blocking of credit on gifts and potential rule based reversals, making the issue fact sensitive and disputable.