Vishesh Pvt. Ltd. of Chennai, Tamil Nadu, exclusively manufactures and sells product 'O2C' which is exempt from GST vide notifications with certain…

CA Final · Indirect Tax Laws · MTP · January 2026
Vishesh Pvt. Ltd. of Chennai, Tamil Nadu, exclusively manufactures and sells product 'O2C' which is exempt from GST vide notifications with certain taxable supplies. The company sells product 'O2C' only within Tamil Nadu and it is registered under GST under regular scheme. Further, all the inward supplies of the company are taxable under forward charge. The company expects the sales to grow in the current year. Owing to the growing demand for the product, the company decided to increase its production capacity and purchased additional machinery exclusively used for manufacturing 'O2C' on 1st August. The purchase price of such machinery was 45 lakh (exclusive of GST@ 18%). However, with effect from 1st December, exemption available on 'O2C' was withdrawn by the Central Government and GST @ 12% was imposed thereon. Can Vishesh Pvt. Ltd take input tax credit on additional machinery purchased exclusively for manufacturing 'O2C'? If yes, then when and how much credit can be availed? Advice Vishesh Pvt. Ltd. on the above issues with reference to the provisions of GST law. Correct provisions of law should form the part of your answer. (5 Marks)

Suggested Answer and Working Notes:

Where an exempt supply of goods by a registered person becomes a taxable supply, such person shall be entitled to take ITC, inter alia, in respect of capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable i.e. Nov 30. ITC on capital goods can be claimed after reducing the tax paid on such capital goods by 5% per quarter of a year or part thereof from the date of the invoice. Thus, Vishesh Pvt. Ltd. can take following amount of ITC on additional machinery purchased exclusively for manufacturing “O2C” by making an electronic declaration in prescribed form specifying the details of capital goods on the day immediately preceding the date from which such supply becomes taxable within 30 days of becoming eligible to avail ITC: = (45lakh × 18%) - (45lakh × 18% × 5% × 2 quarters) = 8,10,000 - 81,000 = 7,29,000

Topics: Input Tax Credit

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