2024 (1) TMI 1094 - AAR - GST

Input Tax Credit - sale and buyback transactions - goods purchased from outsourced vendors, when payment is settled through book adjustment against the debt created on outward supplies to these vendors - HELD THAT - The second proviso to sub-section (2) of section 16 of GST Act restricts credit of input tax to the recipient unless he pays the consideration to the supplier for inward supplies received by him along with tax payable thereon within the stipulated time of one hundred and eighty days from the date of issue of invoice. The term consideration has been defined in clause (31) of section 2 of the GST Act in an inclusive manner that extends the scope and range for mode of payment. Further, as per the said definition, it is immaterial whether the payment is made by the recipient or by any other person. Further, when there is barter of goods or services, the same activity constitutes supply as well as a consideration. For example, when a barber cuts hair in exchange for a painting, hair cut is a supply of services by the barber. It is a consideration for the painting received. Similarly, supply of painting is supply by painter and the painting is the consideration for hair cut. Thus, the settlement of mutual debts through book adjustment is a valid mode of payment under the GST Act. Recipient can pay the supplier by way of setting book debt since the provision of the Act has not put any restriction in this regard. Therefore, claiming credit of input tax cannot be denied on the sole ground that consideration is paid through book adjustment.

Summary

Issues Involved:
The judgment addresses the admissibility of input tax credit in sale and buyback transactions when payment is settled through book adjustment against the debt created on outward supplies to vendors.

Issue 1: Applicant's Business Model
The applicant intends to manufacture footwear through independent outsource units under a sale and buyback model. The applicant will sell raw materials to vendors and buy back the manufactured goods, settling mutual debts through book adjustments and bank transfers.

Issue 2: Applicant's Question
The applicant raises a question on whether input tax credit is admissible for goods purchased from outsourced vendors in sale and buyback transactions when payment is settled through book adjustment against the debt created on outward supplies.

Issue 3: Legal Interpretation
The Authority examines the provisions of the GST Act, specifically Section 16, which deals with input tax credit entitlement. It notes that the Act restricts credit of input tax to the recipient unless payment is made to the supplier within a specified time.

Issue 4: Definition of Payment and Consideration
The judgment discusses the definitions of 'payment' and 'consideration' under the GST Act. It highlights that settlement of mutual debts through book adjustment is a valid mode of payment, as the Act does not restrict such transactions.

Judgment:
The Authority rules that in sale and buyback transactions, input tax credit is admissible for goods purchased from outsourced vendors, even when payment is settled through book adjustment against the debt created on outward supplies. This decision affirms that settlement through book adjustment is a valid mode of payment under the GST Act, allowing recipients to claim input tax credit without restriction based on the method of payment.