Delhi GST Dept Clarifies ITC Availability on Supply of Goods in Ex-Works Contracts [Read Order]

The Delhi Goodsand Services Tax (DGST) Department has issued a significant clarification regarding the availability of Input Tax Credit (ITC) in cases involving the supply of goods under ex-works contracts. The clarification resolves confusion faced by taxpayers and field officers on the eligibility of ITC when goods are collected by the recipient or their transporter directly from the supplier’s premises.

In an ex-works supply model, the supplier makes goods available at their premises, and the buyer bears the responsibility and cost of transportation. This model had led to differing interpretations on whether such supplies qualify as “receipt of goods” under Section 16 of the Central Goods and Services Tax (CGST) Act, 2017, and thus whether the recipient is eligible to claim ITC.

The DGST circular emphasizes that ITC shall not be denied merely because goods were collected by the recipient from the supplier’s premises under an ex-works contract. It states clearly that “receipt of goods” under Section 16(2)(b) includes scenarios where the goods are collected by the recipient’s authorized transporter from the supplier’s location, provided there is sufficient documentary evidence to establish the receipt.

The department further noted that many suppliers and recipients faced objections during audits and assessments, where field formations interpreted “receipt” to mean only door-delivery by the supplier. Such objections, the DGST Department now confirms, are not tenable if the recipient has control and takes possession of the goods through a valid ex-works agreement and subsequent transportation.

The circular draws upon the provisions of the CGST Act, relevant case law, and the principle of commercial prudence. It underscores that the law does not prescribe the mode of delivery or possession, as long as the recipient receives the goods and uses them in the course or furtherance of business.

This clarification is expected to bring relief to various sectors, especially manufacturing and trading enterprises, where ex-works transactions are common. It reinforces that ITC should not be restricted purely on technical or procedural grounds if the core conditions of eligibility are met.

However, the department has advised taxpayers to maintain proper documentation, such as purchase orders, invoices, delivery challans, e-way bills, and proof of transportation arranged by the recipient, to establish receipt of goods.

This circular is applicable prospectively and is expected to serve as a guiding framework for assessing officers and taxpayers alike on eligibility of ITC based on actual possession and use of goods, not on the method of delivery.

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