2023 (7) TMI 573 - AAR - GST

Input Tax Credit (ITC) - Condition of actual payment within stipulated time period - Section 16(4) of CGST Act, 2017 - net off of receivables of one GSTIN by another GSTIN of the same company, or net-off of receivables with payables of supplier of goods/ service - Whether such adjustments wouId trigger any nature of supply between the two GSTINs? HELD THAT - The second proviso to subsection (2) of Section 16 specifies that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services with tax payable thereon. The provision clearly limits the entitlement of the recipient to input tax credit only to transactions where he has paid the consideration for the supply received, along with the tax payable thereon. Such input tax may be provisionally credited to the recipient s electronic credit ledger, but the same will be reversed in terms of the second proviso to section 16(2) by an equivalent amount being added to his output tax liability unless he makes the payment within one hundred and eighty days from the date of issue of the invoice. It is, therefore, clear that no input tax credit is admissible unless the recipient pays the supplier the consideration for the supply received - Accordingly, from the definition it is revealed that the term consideration includes, in relation to the supply of goods or services, any payment, made or to be made, whether in money or otherwise, and also the monetary value of any act or forbearance. Thus, definition of consideration is an inclusive definition which covers in its ambit any form of payment. Therefore, if the payee owes the payer a debt, and accepts a reduction in such a debt liability as a valid form of payment, that should also be regarded as a valid consideration for a supply. On a combined reading of various provisions and the definition of consideration in Section 2 (31) of the CGST Act, 2017 it is evident that the settlement of the mutual debts through book adjustment by netting off of receivables of one GSTIN by another GSTIN of the same company, or net off of receivables with payables of supplier of goods/service is a valid mode of payment of consideration for the receipt of goods and / or services and it satisfies the requirement of the second proviso to sub-section (2) of Section 16 of the CGST Act, 2017. Whether such book adjustments of amount payable by one GSTIN by another GSTIN would amount to supply between the two GSTINs? - HELD THAT - The arrangement of settlement of dues / payment of consideration for the goods and / or services received by one GSTIN by another GSTIN or payment of consideration by the Head Office in respect of goods and / or services received by different branches having different GSTINS as detailed do not come within the meaning and scope of supply as defined in Section 7 of the CGST Act, 2017 Liability of GST in different scenario - HELD THAT - In the scenario where the franchisee supplies old gold to the applicant and a distinct person supplies new gold ornaments of equal value as consideration to the franchisee of the applicant on behalf of the applicant and the applicant reimburses the consideration to the distinct person by book adjustment; there are in effect two supplies. The first supply is the supply of old gold by the franchisee to the applicant and the second supply is the supply of new gold ornaments of equal value made by the distinct person, to the franchisee on the direction of the applicant. It is pertinent to refer to the provisions of Section 10 of the IGST Act, 2017 that prescribes the place of supply of goods other than the supply of goods imported into or exported from India and also the provisions of Section 7 of the IGST Act, 2017 that defines inter-state supply. As per Clause (b) of subsection (1) of section 10 ibid; where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person . Thus, in cases where the franchisee supplies old gold to the applicant and a distinct person supplies new gold ornaments of equal value as consideration to the franchisee of the applicant on behalf of the applicant, there is a supply of gold ornaments from the distinct person to the applicant, and further, another distinct supply of such ornaments from the applicant to the franchisee; attracting goods and services tax in terms of Section 7 of the CGST Act read with Section 10 of the IGST Act in respect of each such supply, and the nature of tax applicable has to be determined in accordance with the provisions of Section 7 and 8 of the IGST Act, 2017.

Summary

Issues Involved:
1. Whether net-off of receivables of one GSTIN by another GSTIN of the same company, or net-off of receivables with payables of supplier of goods/service would amount to payment to the vendor meeting the compliance requirements of Section 16(4) of CGST Act, 2017.
2. Whether such adjustments would trigger any nature of supply between the two GSTINs.

Summary:

Issue 1: Compliance with Section 16(4) of CGST Act, 2017
The applicant, engaged in retail and wholesale of jewellery, sought an advance ruling to determine if the net-off of receivables of one GSTIN by another GSTIN of the same company, or net-off of receivables with payables of suppliers, would meet the compliance requirements of Section 16(4) of the CGST Act, 2017. The applicant argued that such adjustments are common business practices and should be considered valid payments under GST law. They cited various provisions of the CGST Act, including Section 2(31) defining 'consideration' and Section 16(2) regarding the conditions for availing Input Tax Credit (ITC). The applicant also referenced previous rulings, such as those in M/s. Seneo Gold Limited and M/s. MRF Ltd., which supported the validity of book adjustments as a mode of payment.

The Authority for Advance Ruling (AAR) examined the relevant provisions and concluded that the settlement of mutual debts through book adjustment is a valid mode of payment. It satisfies the requirement of the second proviso to sub-section (2) of Section 16 of the CGST Act, 2017. Therefore, the net-off of receivables of one GSTIN by another GSTIN of the same company, or net-off of receivables with payables of suppliers, would amount to payment to the vendor and meet the compliance requirements of Section 16(4) of the CGST Act, 2017.

Issue 2: Nature of Supply Between Two GSTINs
The applicant also sought clarity on whether such book adjustments would trigger any nature of supply between the two GSTINs. The AAR analyzed various scenarios presented by the applicant, including the purchase of goods and services by different GSTINs within the same company, and the settlement of dues by the Head Office.

The AAR ruled that in most cases, such as the settlement of dues/payment of consideration for goods and/or services received by one GSTIN by another GSTIN, the transactions involved are mere transactions in money and do not constitute a supply of goods or services under Section 7 of the CGST Act, 2017. Therefore, no GST liability arises from such transactions.

However, in scenarios where the franchisee supplies old gold to the applicant, and a distinct person supplies new gold ornaments of equal value as consideration to the franchisee on behalf of the applicant, there are two supplies involved. The first supply is the old gold by the franchisee to the applicant, and the second supply is the new gold ornaments by the distinct person to the franchisee. These transactions are considered separate supplies under Section 7 of the CGST Act, 2017, and are liable to GST.

Ruling:
1. The Applicant can pay the consideration for inward supplies by way of net-off of receivables of one GSTIN by another GSTIN of the same company, or net-off of receivables with payables of suppliers. The input tax credit is admissible when consideration is paid through book adjustment, subject to the conditions and restrictions prescribed in Sections 16, 17, and 18 of the CGST Act, 2017.
2. The arrangement of settlement of dues/payment of consideration for goods and/or services received by one GSTIN by another GSTIN or payment of consideration by the Head Office does not constitute a supply under Section 7 of the CGST Act, 2017. However, transactions involving the supply of old gold by the franchisee and new gold ornaments by a distinct person constitute separate supplies and are liable to GST.