Can a Registered Person claim an Input Tax Credit of IGST whose Place of Supply is different from the Recipient’s State?

[ADITYA SINHAL]

There has always been a nebulousness about the availability of the Input tax credit [ITC] of IGST whose Place of supply [POS] is lying in a state different from the recipient's state of registration.

Let’s fathom what the statute and the prescribed rules, tell about the concerned topic.

LEGISLATIVE FRAMEWORK

For the availability of ITC of IGST, we need to refer:

Section 20 of the IGST Act which speaks about the,

‘Application of provisions of Central Goods and Services Tax Act’: Subject to the provisions of this Act and the rules made thereunder, the provisions of Central Goods and Services Tax Act relating to,––

(iv) 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:

Hence, to learn about the availability of IGST now we have to refer to section 16 of the CGST Act –

‘Eligibility and conditions for taking input tax credit.’

(i)Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Note: - Assuming for the time being, that all other clauses of section 16 have been duly complied with, and that the concerned ITC is not blocked under section 17

The primary condition to avail of the ITC of IGST is that the person shall be “registered” and the credit should fall under the definition of “input tax”

Now let’s refer to the definitions given under the CGST Act:

1. REGISTERED PERSON:

Section 2(94) “registered person” means a person who is registered under section 25 but does not include a person having a Unique Identity Number.

Now to ascertain who is a “registered person” under the CGST Act we need to check section 25.

Section 25. Procedure for registration.- (1)Every person who is liable to be registered under section 22 or section 24 shall apply for registration in every such State or Union territory in which he is so liable within thirty days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed

Let’s refer to Sections 22 & 24:

Section 22. Persons liable for registration. (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both if his aggregate turnover in a financial year exceeds twenty lakh rupees

Section 24. Compulsory registration in certain cases. Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,–

Hence a person needs to be registered in a state from where he “makes a taxable supply” i.e. where the person has a Fixed Establishment or Place of business.

Once the person takes registration in a state from where he makes a taxable supply, the person qualifies as a “Registered Person”.

2. INPUT TAX CREDIT:

Section 2(62) “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes-……….

Definition of Integrated tax under IGST ACT:

Section 2(12) “integrated tax” means the integrated goods and services tax levied under this Act.

There is a single IGST Act [unlike state-specific SGST Acts] which governs all the IGST-related provisions and once the person gets registered under the CGST Act [as there is no separate registration required under the IGST Act as per Section 20(5) of IGST Act], he becomes eligible to avail of the Input tax credit of IGST.

*CBIC CIRCULAR No. 184/16/2022-GST*

The relevant portion of the circular is reproduced below:

“Subject: Clarification on the entitlement of input tax credit where the place of supply is determined in terms of the proviso to sub-section (8) of section 12 of the Integrated Goods and Services Tax Act, 2017 – reg.

Attention is invited to sub-section (8) of section 12 of Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as “IGST Act”) which provides for the place of supply of services by way of transportation of goods, including by mail or courier, where location of the supplier as well as the recipient of services is in India. As per clause (a) of the aforesaid sub-section, the place of supply of services by way of transportation of goods, including by mail or courier, to a registered person shall be the location of such registered person.

However, the proviso to the aforesaid sub-section which was inserted vide the Integrated Goods and Services Tax (Amendment) Act, 2018 w.e.f. 01.02.2019 provides that where the transportation of goods is to a place outside India, the place of supply of the said service shall be the place of destination of such goods.

In such cases, as the place of supply of services, as per the proviso to sub-section (8) of section 12 of IGST Act, is the concerned foreign destination and not the State where the recipient is registered under GST, doubts are being raised regarding the availability of input tax credit of the said services to the recipient located in India.”

As clearly stated in clarification to issue number 3, subject to fulfilment of sections 16 and 17 (which we already discussed above), the recipient of service of transportation of goods shall be eligible to avail of the input tax credit, even if the place of supply of said input service is outside India.

POS of such service in the recipient’s GSTR-2B would be ’96-Foreign Country’ and would not be the state of registration of the recipient of such service.

Given the above clarification, we can draw a similar principle for itc of IGST on domestic goods and services too and the same shall also be eligible irrespective of POS.

*REFLECTION IN GSTR-2B “itc available or not” TABLE*

It is quite evident from the fact that the GSTN is also allowing such IGST and showing them “available” in contrast to the ITC of CGST-SGST whose POS lies in a state other than the recipient's state, intending not to restrict such ITC.

CONCLUSION:

From the perusal of the relevant portion of the statute, circulars and GSTN forms, it can be easily concluded that it is immaterial to check the state in which the POS of IGST falls because once the person becomes a “Registered Person” under the law, he becomes eligible to avail of the “Input tax” credit of IGST.

For confirming the state in which a person is required to take registration, it is important to check the location from where such a person makes a taxable supply and not where the POS of input tax credit [IGST] falls,

and, to confirm whether a tax is an “Input tax” or not one needs to ascertain if it is levied under the IGST Act, which is a single centralized law and shall not be tagged state-specific.

REVENUE APPROPRIATION

It has also been alleged sometimes that such IGST (whose POS lies in another state) is not eligible because of issues in the revenue appropriation.

Let’s go through relevant sections, rules and forms to have a better understanding of the same;

Chapter VIII of the IGST Act speaks about the “Apportionment of tax and settlement of funds” and,

Section 18 of that chapter talks about the “Transfer of input tax credit”: On utilisation of credit of integrated tax availed under this Act for payment of,––

(a) Central tax in accordance with the provisions of sub-section (5) of section 49 of the Central Goods and Services Tax Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and the Central Government shall transfer an amount equal to the amount so reduced from the integrated tax account to the central tax account in such manner and within such time as may be prescribed;

(b) Union territory tax in accordance …………………………….;

(c) State tax in accordance with the provisions of the respective State Goods and Services Tax Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and shall be apportioned to the appropriate State Government and the Central Government shall transfer the amount so apportioned to the account of the appropriate State Government in such manner and within such time as may be prescribed.

Explanation.––For the purposes of this Chapter, “appropriate State” in relation to a taxable person, means the State or Union territory where he is registered or is liable to be registered under the provisions of the Central Goods and Services Tax Act.

The explanation confirms that once the recipient avails IGST input to offset the output liability of CGST/SGST, then the central government (custodian of IGST revenue) will transfer such utilized/offsetted portion of IGST to the “appropriate state”, i.e. the state where the recipient is registered. Leading to which revenue transmits to the recipient’s state and not to the state where the POS lies.

Let us now go through the “Goods and Services Tax Settlement of Funds Rules, 2017” framed in this regard:-

Rule 4 of the relevant rules talks about,

Report of Cross-Utilisation and Apportionment of Integrated Tax between Centre (Integrated Tax) and State (State Tax) or Central (Integrated Tax) and Centre (Union Territory Tax).—

(1) The details relating to the transfer of funds to be made between Centre (Integrated Tax) and State (State Tax) or Centre (Integrated Tax) and Centre (Union territory Tax) shall be sent by Goods and Services Tax Network to the Authorities, in FORMS GST STL 01.01 to GST STL – 01.12, for each State and Union Territory, as follows—

(a) monthly consolidated statement for each State in FORM GST STL – 01.01 containing the details referred to in clause (b) relating to the total amount to be transferred from the Centre (Integrated Tax) to the State (State Tax) or the Centre (Union Territory Tax), or vice-versa, on account of cross-utilisation of credit as per section 53 of the Central Goods and Services Tax Act and the Goods and Services Tax Act of the concerned State(hereinafter referred to as State Goods and Services Tax Act), section 21 of the Union Territory Goods and Services Tax Act and section 18 of the Integrated Goods and Services Tax Act, and from the Centre (Integrated Tax) to the State (State Tax) or the Centre (Union Territory Tax) on account of apportionment as provided for in section 17 of the Integrated Goods and Services Tax Act;

(b) the monthly reports containing State-wise details pertaining to the information contained in FORM GST STL – 01.01 are as under—

(i) ……….

(ii) list of registered persons of the State or Union territory who have adjusted liability of State Tax or Union Territory Tax, as the case may be, from the input tax credit of Integrated Tax, as provided under section 18 of the Integrated Goods and Services Tax Act, in FORM GST STL – 01.03.

Rule 5 of the relevant rules talks about,

Report of Cross-Utilisation and Apportionment of Integrated Tax between Centre (Integrated Tax) and Centre (Central Tax).—

The details relating to the transfer of funds between Centre (Integrated Tax) and Centre (Central Tax) to be made in a particular month relating in FORMS GST STL 02.01 to GST STL – 02.02, are as follows:

(a) monthly consolidated statement containing State-wise details in FORM GST STL – 02.01 containing the month-wise details relating to the total amount to be transferred from the Centre (Integrated Tax) to the Centre (Central Tax), or vice-versa, on account of cross-utilisation of credit as provided for in section 53 of the Central Goods and Services Tax Act and section 18 of the Integrated Goods and Services Tax Act, and from the Centre (Integrated Tax) to the Centre (Central Tax) on account of apportionment as provided for in section 17 of the Integrated Goods and Services Tax Act;

(b) monthly reports containing State-wise details containing list of registered persons who have adjusted liability of Central Tax from the input tax credit of Integrated Tax, as provided under section 18 of the Integrated Goods and Services Tax Act, in FORM GST STL – 02.02.

Note: The summary of Central Tax paid from the input tax credit of Integrated Tax shall be reflected in column 4 of FORM GST STL 02.01.

It can be easily understood that GSTN sends monthly consolidated statements and lists of registered persons, for whom IGST was used to pay off CGST-SGST liability in Report GST STL – 01.01, 01.03, 02.01, 02.02 as per rule 4(1) clause (a)-(b) & rule 5 clause (a)-(b), having details of the transfer of fund between Centre [IGST] & State [SGST], and books adjustment between Centre [IGST] & Centre [CGST] based on returns filed by person.

As we know primarily GSTR-3B is the only return in which offsetting of liability takes place, hence the transfer/adjustment shall also happen based on GSTR-3B filed by the recipient, and not as per GSTR-1 filed by the Supplier.

Let us understand this with an example:

Transaction 1 - A person registered in Gujarat makes a taxable supply to a person registered in Madhya Pradesh and shows POS as Rajasthan charging IGST Rs 1,00,000/-.

Transaction 2 - Thereby, the recipient registered in Madhya Pradesh avails the ITC of that IGST (1,00,000/-) in GSTR-3B and supplies further to a person registered in Madhya Pradesh charging CGST-SGST each Rs 55,000/- total Rs 1,10,000/-, utilizing complete ITC of IGST (1,00,000/-) to offset liability of CGST-SGST.

In transaction 1, the IGST paid (1, 00,000/-) by the person registered in Gujarat gets accrued to the IGST Account in the custody of the Central Government.

In transaction 2, as per section 18 clause (a) and (c) of the IGST Act already discussed earlier, as soon as the person registered in Madhya Pradesh utilizes the ITC of IGST to set off or for the payment of liability of CGST-SGST,

“the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and the Central Government shall transfer an amount (50,000/-) equal to the amount so reduced from the integrated tax account to the central tax account (i.e., book adjustment), and submit it in the statement as per rule 5 of GST Settlement rules, also

the integrated tax shall be apportioned to the appropriate State Government and the Central Government shall transfer the amount (50,000/-) so apportioned to the account of the appropriate State Government, i.e. to the state of registration of the recipient [Madhya Pradesh not Rajasthan], and submit it in the statement as per rule 4(1) (a) GST Settlement rules

 

CONCLUSION:

Settlement/Appropriation of IGST upon utilisation for the CGST-SGST liability can be done even in cases where the POS of such IGST falls in a state other than the state of registration of recipient, based upon the understanding developed on perusal of section 18 of the IGST Act and rules of settlement thereof.

Additional learnings:

1. In cases where ITC of IGST is being used to offset IGST liability, there is no book adjustment or appropriation is done.

2. There is no provision in the settlement of fund rules for transfers/appropriation of CGST-SGST mutually because they don’t get offset mutually which aligns with Section 49(5) (e & f) of the CGST Act.

3. Appropriation of IGST in case of supply to a recipient who is URD or Composition person, is ascertained as per table 3.2 of Form GSTR-3B, for which a circular number 89/08/2019 dated 18-02-2019 was also issued confirming the importance of the said table, and the appropriation of such IGST is done as per section 17(1) (a) of the IGST Act.
4. Once a registered person avails the ITC of IGST and reverses/pays it back on account of section 17(5) of the CGST Act, the appropriation of such revenue is done in accordance with section 17(1) (b) of the IGST Act.

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