Availability of ITC under margin scheme -Rule 32(5)

Authority for Advance Rulings (‘AAR’) in the case of M/s Attica Gold Private Limited - 2022 (11) TMI 260 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA “the applicant” has issued a ruling regarding availability of Input Tax Credit on various expenses like rent, advertisement expenses, commission etc. to a registered person who is discharging the tax under margin scheme as stipulated under rule 32(5) of CGST Rules, 2017.  Captioned ruling has been analyzed in this update.

• The petitioner is a private limited company engaged in the business of sale of used gold jewelry (second-hand goods).
• The applicant buys the used gold jewelry from individuals (unregistered under GST) and follows margin scheme as provided under Rule 32(5) which provides for discharge of GST only on the margin earned in the sale/purchase of second-hand goods provided no ITC has been taken on purchase of such goods.
• Apart from the purchase cost, applicant has to incur various other business expenses like rent, professional charges etc. on which GST outgo is there.

• Whether Applicant who is under Marginal Scheme can claim Input Tax Credit on the expenses like Rent, Advertisement expenses, Commission, Professional expenses and other like expenses?
• Whether ITC is allowed to be claimed on Capital Goods for the Applicant under Marginal Scheme?

• That they satisfy the conditions laid down under section 16 of GST Act in order to claim the Input Tax credit.
• That various expenses like rent, professional charges, commission etc. are incurred in the course or furtherance of business and they are business necessity.
• That Rule 32(5), only mandates that the ITC of purchase of second-hand goods should not be taken to avail the marginal scheme benefit and thus the ITC on rest of the goods and services in business (apart from the purchase of second-hand goods) is not restricted.

• Rule 32(5) of CGST Rules, 2017
• Section 16 of CGST Act, 2017

• AAR noted that Rule 32(5) clearly bars availment of input tax credit on the purchase of second-hand goods however there is no restriction on the availment of input tax credit in respect of input services or capital goods.
• Section 16 of CGST Act also does not put any restriction on claim of ITC on various services used by a business engaged in sale of second-hand goods discharging the GST under marginal scheme. 

AAR finally ruled as under on the stated questions:

• Applicant who is under Marginal Scheme can claim Input Tax Credit on the expenses like Rent, Advertisement expenses, Commission, Professional expenses and other like expenses subject to section 16 to 21 and rules 36-45 of CGST Act and Rules, 2017.
• ITC can be claimed on Capital Goods for the Applicant under Marginal Scheme subject to section 16 to 21 and rules 36-45 of CGST Act and Rules, 2017.

In this ruling, AAR has clarified that the ITC shall be permissible to a registered person paying GST under marginal scheme (Rule 32(5)) since the said scheme only bars the availment of ITC on purchase of second-hand goods only and does not specify any such restriction on other ITC on other business expenses and capital goods.

(Author can be reached at dinesh.singhal@snr.company or cadineshsinghal@gmail.com).