EXAMPLE-101

A manufacturer XY Ltd, purchased goods from Y (unregistered under GST) for Rs 100000. XY Ltd paid integrated tax under reverse charge @ 18% i.e. of Rs 18000 under Section 5(4) of IGST Act. Goods purchased by the manufacturer is eligible input goods and used for the purpose of business. Whether manufacturer can take credit of tax paid under reverse charge while purchased from unregistered person.

Answer

The definition of input tax under section 2(62) of CGST Act, includes the tax payable under sub-section (4) of section 5 (Reverse Charge). The credit can be availed if such goods and/or services are used, or are intended to be used, in the course or furtherance of his business.

Thus, XY ltd eligible for credit of integrated tax of Rs 18000.