QUESTION

Dear Madam/Sir, I have a Query Regarding Input tax Credit. My assessee is trading in Gold and silver. Now assessee is doing hedging to mitigate his risk for buying gold and silver on ncdx platform. So in this case, credit generated in hedging transaction on brokerages paid on hedging transaction is allowable to set off against main transaction of buying and selling of Gold and silver? Please do needful as soon as possible with reason of the same

ANSWER

Facts of the case:Whether ITC generated in hedging transaction (brokerages paid) can be utilized for payment of outward tax on buying and selling of Gold and silver.

Law Applicable
SECTION 16 OF CGST ACT

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

SECTION 2 OF CGST ACT

(60) 'input service' means any service used or intended to be used by a supplier in the course or furtherance of business;

Interpretation: Hedging refers to process of reducing the risk of loss caused due to price fluctuation. Hedging transaction on NCDX platform is an inward supply of service used for mitigating risk on taxable output supply of gold and silver.

Further it is not blocked as per section 17(5).

Thus ITC of brokerage paid on hedging transaction is available on such input services.

Conclusion:ITC on brokerages paid is eligible and can be used for payment of output tax liability on buying and selling of Gold and silver.(Reply dt.12/3/2020)