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CMA Intermediate · Direct and Indirect Taxation · Input Tax Credit

Anand Steel Ltd, a registered manufacturer of taxable goods, incurs the following tax on inward supplies during a month: (i) Rs 40,000 on cement and labour for constructing a new factory building on its own account, capitalised; (ii) Rs 30,000 on installation of foundation and structural support for a plant that makes its outward supply; (iii) Rs 20,000 on goods used in the manufacture of taxable goods. What total credit is not blocked?

Rs 50,000 is available. Credit on construction of the factory building on own account is blocked, but plant and machinery is excluded from that block and includes its foundation and structural supports. So the Rs 30,000 foundation tax and Rs 20,000 on manufacturing inputs are both eligible.

  1. ARs 90,000
  2. BRs 50,000Correct
  3. CRs 20,000
  4. DRs 70,000

Explanation

Construction of a building on own account is blocked by section 17(5)(d) (Rs 40,000). Plant and machinery includes its foundation and structural supports, so item (ii) is outside the block and eligible. Item (iii) is eligible. Total = 30,000 + 20,000 = Rs 50,000. Rs 20,000 wrongly blocks the foundation.

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