ITC Eligibility, Goods and Services Tax - GST

[Ethirajan Parthasarathy]

 As per Schedule 1, certain transactions between related parties attract GST even if no consideration is charged. This means entity providing service will have to raise invoice for a certain amount & calculate GST thereon. Let us assume one such invoice is raised by Company “A” to Company “B” for a sum of Rs.1,00,000/- plus 18% GST. Section 16 provides the following condition to be complied with by Company B for taking input tax credit.

“Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed”

It is not clear how Company B will satisfy the above condition when they are not really liable to pay 1,18,000/- to Company A. At the most, they can only pay 18,000/-. I request the experts to give their opinion.

Posts / Replies

[V Rajalakshmi]

According to Proviso to Rule 37 (1) of the CGST rule, the consideration for schedule 1 transactions is considered as having been made or deemed to have been made, so a reversal of ITC is not necessary.

[Shilpi Jain]

Agreed. The said condition is Deemed to be satisfied for sch I transactions

[Padmanathan Kollengode]

Assuming company A and Company B are related/ distinct person, it will be covered under schedule I para 2. The invoicing has to be done in accordance with Rule 28.

Now coming to ITC, second proviso to section 16(2) provides for reversal of ITC on non-payment of consideration within 180 days in manner as may be prescribed. The prescription is contained in Rule 37. Proviso to Rule 37 reads as under:

Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16:

Thus Company B is deemed to have paid Company A for the purpose of Rule 37 and the second proviso under 16(2) is complied with for ITC allowability.