A registered person is entitled to avail the benefit of Input Tax Credit if the conditions stated in Section 16 of the CGST Act are met. In case even a single condition is dissatisfied, ITC cannot be claimed and thus, the same cannot be used to offset the GST liability on outward supply.
On perusal of section 16, it is clear that there might be certain circumstances, where although the outward supply is taxable, the GST on inputs is not available to be claimed as ITC. In addition, there might be cases where the inputs purchased for making certain outward taxable supplies are exempt from GST and so no ITC is available to be claimed. However, if such a registered person is dealing in other taxable goods/ services as well and the inputs corresponding to the same are taxable and eligible for ITC purpose in relation to GST paid thereon, then an obvious issue is confronted i.e. whether ITC of one commodity can be used to set off GST liability on another commodity?
For the same, attention can be drawn to Section 16(1) of the CGST Act which mentions that the 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 of furtherance of his business. This implies that the provision calls for a direct nexus between the inputs and the final products manufactured from these inputs to be proved. In the absence of the same, it will be reasonable to conclude that the inputs are not used or intended to be used in the course or furtherance of the business.
The above conclusion is backed by Advance Ruling in the case of M/s Aristo Bullion Pvt Ltd dated 27.01.2021. Hence, ITC of one commodity cannot be used to adjust GST liability on another commodity if direct nexus between the two cannot be proved. In such a situation it will be considered that the inputs are not used or intended to be used in the course or furtherance of the business.and so requirement of Section 16 will not be met.
