The Karnataka Authority of Advance Ruling (AAR) in the case of Attica Gold Private Limited dated 27.10.2022, has held that the input tax credit (ITC) on capital goods and expenses like rent, advertisement expenses, commission, professional expenses, and other like expenses, are eligible while discharging GST liability under the ‘Marginal scheme', subject to sections 16 to 21 and rules 36-45 of the CGST Act and Rules 2017.

The applicant is in the business of selling used gold jewellery (second-hand goods). The applicant follows the “Marginal Scheme” for discharging the GST liability under Rule 32(5) of the CGST Rules 2017. Under Rule 32(5), the value of supply is the difference between the selling price and the purchase price and is ignored if the value of supply is negative.

The applicant sought the advance ruling on the issue of whether an applicant who is under the Marginal Scheme can claim an Input Tax Credit on the expenses like Rent, Advertisement expenses, commission, Professional expenses and other expenses. Also, whether ITC is allowed to be claimed on capital goods for the Applicant under Marginal Scheme.

The AAR observed that Rule 32(5) of the CGST Rules bars availment of input tax credit on the purchase of those second hand goods which he is supplying, however there is no restriction on the availment of input tax credit in respect of input services or capital goods. Further, Section 16 of the CGST Act 2017 deals with eligibility and conditions for taking input tax credit, and there is no bar on the registered taxpayer to claim the input tax credit on input services and corresponding expenses like rent, advertisement expenses, commission, professional expenses, other like expenses, and capital goods while being under the margin scheme (Rule 32(5) of the CGST Rules).

The AAR observed that the applicant can claim input tax credits on the expenses in respect of input services and capital goods, subject to sections 16 to 21 and rules 36-45 of the CGST Act and Rules 2017.