2019 (5) TMI 701 - AAR - GST

Input tax credit - Restriction u/s 16(2) where consideration is not paid within 6 months - consideration for inward supplies paid through book adjustment - reversal of credit - Sections 16 and 49 of the GST Act - transactions where the payment had not been made by account payee cheque or account payee draft or through electronic banking clearance - HELD THAT - In the present context, consideration , as defined under section 2(31), provides the scope and ambit for modes of payment. It 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. This definition of consideration cast the net so wide that almost no form of payment is excluded. The recipient can pay the supplier consideration by way of setting off book debt. Unless the law specifically restricts the recipient from claiming the input tax credit when consideration is paid through book adjustment, credit of input tax cannot be denied on this ground alone. Rule 19(8) of the West Bengal Value Added Tax Rules, 2005, specifically provided that credit of input tax would be available only if the payment was made by account payee cheque or account payee draft or through electronic banking clearance when such payment exceeded rupees twenty thousand in a day. No such restriction is apparently provided under the GST Act. The Applicant can pay the consideration for inward supplies by way of setting off book debt. The GST Act and rules made there under does not restrict the recipient from claiming the input tax credit when consideration is paid through book adjustment, subject to the conditions and restrictions as may be prescribed and in the manner specified in Sections 16 and 49 of the GST Act.

Summary

Issues:
1. Admissibility of the Application
2. Interpretation of input tax credit provisions under the GST Act

Issue 1: Admissibility of the Application
The Applicant, engaged in the manufacturing and retailing of jewellery, sought an advance ruling on the admissibility of input tax credit when settling mutual debts through book adjustments with franchisees. The Applicant's question was deemed admissible under section 97(2)(d) of the GST Act as the issues raised were not pending or decided elsewhere, and there were no objections from the revenue officer. Thus, the Application was admitted for further review.

Issue 2: Interpretation of input tax credit provisions under the GST Act
The Applicant argued that the GST Act does not explicitly link input tax credit to the mode of payment for inward supplies and cited Indian Accounting Standard 32 to support book adjustments as a valid commercial practice. In contrast, the Revenue contended that all transactions should be conducted through online banking systems for input tax credit eligibility. The Authority analyzed relevant sections of the GST Act, emphasizing that section 49(1) pertains to tax payment methods to the Government, not transactions between recipients and suppliers. The Authority highlighted the third proviso to section 16(2), which limits input tax credit entitlement to transactions where the recipient pays the supplier for the supply received. However, the definition of "consideration" under section 2(31) was broad, encompassing various payment forms, including book debt adjustments. As the GST Act does not restrict input tax credit claims for payments made through book adjustments, the Authority ruled in favor of the Applicant, allowing consideration for inward supplies via book debt setting off, subject to prescribed conditions under sections 16 and 49 of the GST Act.

In conclusion, the Authority ruled that the Applicant can settle inward supply consideration through book debt adjustments without jeopardizing input tax credit claims, provided compliance with prescribed conditions and regulations. This ruling remains valid unless declared void under specific provisions of the GST Act.