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2020 (1) TMI 64 - AAAR - GSTInput tax credit - lease of Cranes, to distinct person for sub-lease to the ultimate customer - settlement of dues / account between the customers and HO directly - supplies received from M/s. Sanghvi Movers Ltd., Maharashtra, the applicant M/s. Sanghvi Movers Ltd., Tamil Nadu - 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, subject to fulfillment of all other conditions under section 16 of CGST Act, read with Section 20(iv) of IGST Act - challenge to AAR decision. Whether GST paid by the SML Maharashtra on the lease of Cranes, to their distinct person, the appellant, for sub-lease to the ultimate customer is eligible as credit in the hands of the appellant? HELD THAT - The implementation of GST and the Act providing the supply between the distinct persons of the same PAN but in different states as a Supply under Section 7 read with Schedule I of the CGST/TNGST Act 2017, the appellant has entered into an MOU with the Head Office of the appellant drawing the modus for the transactions between them and compliance of GST provisions. The HO of the appellant is the title holder of all the cranes, which they lease to the appellant, for further sub-lease by the distinct person. Whether the appellant is eligible for the ITC of the entire tax paid by SML HO in the stated transactions? HELD THAT - This is a case which is covered by Schedule I of the CGST Act. The transaction is between distinct persons. The appellant in the tax invoice raised on their customers mentions that the payment to be made either by Cheque/DD in the name of SANGHVI MOVERS LIMITED or directly to the account of SML HO at Pune. The appellant has represented that the receipts and payables are accounted at the entity level only. The HO being distinct person in the eyes of law and the transaction is in the course of furtherance of business, the supply is taxable supply for which SML HO has adopted a value agreed under the Pricing clause of the MOU and paid the tax on the value declared in the Invoice. The proviso to Rule 37, provides for deemed payment of value in such transactions. Even considering that the proviso to Rule 37 does not have application in the case at hand as there is a value stated in the Tax Invoice as held by the Lower Authority, we find no reason to restrict the Input Tax Credit of the tax paid by the SML HO, in the hands of the appellant as it has been substantially brought out that the consideration stands paid to the SML HO either by the customer of the Appellant or by setting off against the payables of the appellant to SML HO, in respect of lease/ hire of Cranes, etc which is as per the established accounting principles. Therefore there are no reason to restrict the eligibility of ITC credit under Section 16 (2) of the Act, in the case at hand. Thus, the appellant is eligible to avail full Input tax credit of tax paid by SML HO on the lease/ hire of cranes to them for furtherance of business, subject to other conditions of eligibility to such credit as per Section 16 of CGST/TNGST Act 2017.
Issues Involved:
1. Eligibility of Input Tax Credit (ITC) for GST paid on inter-state supply between distinct persons. 2. Interpretation of Memorandum of Understanding (MoU) in the context of GST compliance. 3. Applicability of the second proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules. 4. Consideration of book adjustments and netting off receivables and payables in determining ITC eligibility. Issue-Wise Detailed Analysis: 1. Eligibility of Input Tax Credit (ITC) for GST Paid on Inter-State Supply Between Distinct Persons: The appellant, SML Tamil Nadu, sought to determine the admissibility of ITC for the IGST paid by SML Maharashtra on the lease of cranes. The appellate authority examined whether the supply of cranes from SML Maharashtra to SML Tamil Nadu, which are distinct persons under GST law, qualifies for ITC. It was determined that the supply between distinct persons is taxable under Section 7 read with Schedule I of the CGST/TNGST Act 2017. The ruling concluded that the appellant is eligible for full ITC of the tax paid by SML Maharashtra, as the transaction is in the course of furtherance of business and meets the conditions under Section 16 of the Act. 2. Interpretation of Memorandum of Understanding (MoU) in the Context of GST Compliance: The appellant argued that the MoU between SML Maharashtra and SML Tamil Nadu was established to adhere to GST provisions. The MoU specified that consideration for the lease of cranes was agreed upon for GST compliance purposes, not for commercial substance. The appellate authority agreed that the MoU should be read as a whole and not in isolation. The consideration mentioned in the MoU was necessary for compliance with valuation provisions under GST law. The ruling emphasized that the MoU was created to ensure operational feasibility and compliance with GST provisions, and thus, the appellant is entitled to ITC. 3. Applicability of the Second Proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules: The original authority had ruled that the appellant was not eligible for full ITC due to non-payment of full consideration within 180 days, as per the second proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules. The appellant contended that the proviso to Rule 37, which provides for deemed payment of value for supplies between distinct persons, should apply. The appellate authority found that the proviso to Rule 37 indeed applies, as the transaction is between distinct persons and the value of supplies made without consideration is deemed to have been paid. Therefore, the appellant is eligible for full ITC. 4. Consideration of Book Adjustments and Netting Off Receivables and Payables in Determining ITC Eligibility: The appellant argued that the receivables and payables between SML Maharashtra and SML Tamil Nadu are set off against each other, as recognized by accounting standards. The appellate authority agreed that the consideration stands paid either by the customer of the appellant or through book adjustments. The ruling emphasized that the netting off of receivables and payables is permissible under accounting principles and should not restrict the eligibility of ITC. The appellant is entitled to full ITC as the consideration is deemed to be paid through these adjustments. Ruling: The appellate authority ruled that the appellant is eligible to avail full Input Tax Credit of the tax paid by SML Maharashtra on the lease/hire of cranes, subject to other conditions of eligibility as per Section 16 of the CGST/TNGST Act 2017. The ruling modified the original advance ruling authority's decision, allowing the appellant to claim full ITC.
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