2019 (8) TMI 1009 - AAR - GST

Input Tax Credit - applicant is not paying the full consideration of the transaction - receipt of cranes for further supply on hire charges - reverse charge mechanism - inter-state movement of cranes by the supplier - HELD THAT - The customer has placed a service order for Crane hiring, based on which the applicant has placed a work order on SML and Tax invoice is raised by SML on the applicant and thereupon by the applicant on the customer. The applicant states that in each transaction a tax invoice is raised and the goods are received by SML who further leases them out to its (SML s) customers. The applicant has also submitted sample copies of GST returns filed by them with payment to GST. However, it is seen from the MOU itself (Para 10) that the applicant is not paying the full consideration of the transaction to SML HO but the same is being netted off against the receivable by SML for the upkeepment charges that SML HO has to pay to the applicant as per the MOU. As per proviso to Section 16(2), the applicant will not be eligible for full input tax credit as they are not paying the full amount to their supplier SML HO as seen in the MOU where payments are netted off against receivables. The applicant in his application has stated that as per proviso to Rule 37, the condition to make actual payment to supplier within 180 days is not applicable to the applicant. However, the proviso clearly states that, the value of supplies made without consideration as specified in Schedule I shall be deemed to have been paid as per second proviso to Section 16(2). In the instant case, there is a consideration to be paid by SML to SML HO as per Para 10 of the MOU and the consideration in specified in the invoices raised by SML HO on the applicant. Hence, proviso to Rule 37 i.e. exemption from making full payment, will not be applicable to the applicant. Accordingly, the applicant will not be eligible for the full ITC as per the inward supplies received from SML HO as they would be required to reverse such ITC if taken as per second proviso Section 16(2) of CGST Act and Rule 37 of CGST Rules - In the instant case, the transaction is an inter-state supply as the supplier is in a different state from the place of supply, the applicant would be paying IGST on their inward supplies from SML HO. As per Section 20 (iv) of IGST Act, provisions of Central Goods and Services Tax Act relating to input tax credit shall, mutatis mutandis, apply, so far as may be, in relation to integrated tax as they apply in relation to central tax as if they are enacted under this Act. Thus, the applicant is not eligible for the full ITC on the inward supplies received from SML HO, but only to the extent specified in the restrictions as per second proviso Section 16(2) of CGST Act and Rule 37 of CGST Rules read with Section 20(iv) of IGST Act.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on IGST charged for inter-state movement of cranes by SML Maharashtra to SML Tamil Nadu.

Detailed Analysis:

Issue: Eligibility of ITC on IGST Charged for Inter-State Movement of Cranes

Facts and Background:
The applicant, a branch office of Sanghvi Movers Limited (SML) in Tamil Nadu, is engaged in providing cranes on a rental/lease/hire basis. SML Maharashtra supplies these cranes to SML Tamil Nadu, which in turn sub-leases them to customers. The applicant sought an advance ruling on whether they are eligible to avail ITC on the IGST charged by SML Maharashtra for the inter-state movement of cranes.

Applicant's Contentions:
1. Service Arrangement and MoU: SML Maharashtra and its branch offices, including SML Tamil Nadu, operate under a formal service arrangement documented in a Memorandum of Understanding (MoU). Under this MoU, cranes are provided on hire charges from SML Maharashtra to SML Tamil Nadu, which then sub-leases them to customers.
2. Tax Invoicing and IGST Payment: SML Maharashtra issues invoices to SML Tamil Nadu, charging IGST as the place of supply is Tamil Nadu. The applicant claims that they receive tax invoices and the service, making them eligible to avail ITC on the IGST paid.
3. Compliance with GST Law: The applicant argued that since the transaction is between distinct persons under GST law, and the IGST is paid into the Tamil Nadu Government's treasury, they should be entitled to avail ITC.
4. Clarifications and Previous Rulings: The applicant referred to Circular No. 21/21/2017-CGST and a previous ruling by the Maharashtra Authority for Advance Ruling, which treated such inter-state movements as taxable supplies.

Authority's Findings:
1. Distinct Persons and Taxability: Under GST, SML Maharashtra and SML Tamil Nadu are treated as distinct persons. The inter-state supply of cranes is taxable, and IGST is applicable.
2. Eligibility Criteria for ITC: The eligibility for ITC is governed by Section 16 of the CGST Act, which requires the recipient to be in possession of a tax invoice, have received the goods/services, and the tax to be paid to the government.
3. Payment Conditions: As per Section 16(2)(d) of the CGST Act and Rule 37 of the CGST Rules, the recipient must pay the supplier within 180 days. The applicant's MoU indicates that payments are netted off against receivables, not fully paid, which affects ITC eligibility.
4. Proviso to Rule 37: The proviso to Rule 37 exempts supplies made without consideration from the 180-day payment condition. However, in this case, there is a consideration specified in the invoices, so the exemption does not apply.
5. Reversal of ITC: Due to the netting off of payments and not making full payment within 180 days, the applicant is required to reverse the ITC availed as per the second proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules.

Ruling:
The applicant, M/s. Sanghvi Movers Ltd., Tamil Nadu, is not eligible for the full Input Tax Credit on the supplies received from M/s. Sanghvi Movers Ltd., Maharashtra. They are only eligible to the extent specified in the restrictions as per the second proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules, read with Section 20(iv) of the IGST Act, subject to fulfillment of all other conditions under Section 16 of the CGST Act.

Conclusion:
The ruling clarifies that the applicant cannot avail full ITC on IGST charged for inter-state movement of cranes due to non-compliance with the payment conditions specified under GST law. The applicant must reverse the ITC if full payment is not made within 180 days, as per the relevant provisions of the CGST and IGST Acts.