Availment of Import Credit (IGST), Goods and Services Tax - GST

[SURYAKANT MITHBAVKAR]

We have manufacturing of Pharmaceutical Machinery & Equipment registered under GST Act. We have imported free bottle sample from our customer for machine trial purpose. Customer has shipped bottle sample declaring a value. While clearing the material, our custom authority has charged us Custom duty, IGST on assessable value declared by our customer.

Our query is that can we avail IGST credit in above case since we are not paying any material cost to our customer. It is free of cost however we have paid custom duty & IGST as Charged by our custom department for clearance of the Goods (Sample).

Posts / Replies

[Padmanathan Kollengode]

In my opinion since, IGST has been paid, the credit of the same can be availed.

[Alkesh Jani]

Shri

I am of the view that as there is no consideration it cannot be termed as 'Supply'. The duty paid is of customs duty and ITC of IGST can be claimed only if there is a consideration. Duty paid is to be treated as cost to the company.

Thanks

[Padmanathan Kollengode]

At Alkesh sir,

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–

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,

but does not include the tax paid under the composition levy;

Section 2(63) “input tax credit” means the credit of input tax;

Section 2(10) of IGST Act - ‘‘import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India;

As per Section 2(62), Input tax is IGST charged on import of goods. Whether or not there is consideration or it is supply, IGST is charged here as goods are coming into India here from outside India.

Therefore, it will be covered under input tax and ITC shall be available in my view.

[Shilpi Jain]

Credit will be eligible. Also, once the department is charging IGST on the transaction even if there is no consideration, it cannot state that credit will not be allowed since there is no consideration involved.

Also in this case there is no FAILURE to pay the consideration.

[Alkesh Jani]

Shri Padmanathan Kollengode ji,

I duly acknowledge your reply. You have quoted the definitions, please quote the provisions/ authority which will help me to learn how this transaction is within the ambit of supply.

Here it is pertinent to note that ‘Samples’ can be imported duty free upto certain amount and with conditions, all facts are not available, therefore, view was taken that no ITC can be taken, as it is not litigation free matter.

Thanks

[Padmanathan Kollengode]

Shri Alkesh Ji,

To the best of my knowledge as long as the tax paid falls within the definition of input tax credit and the conditions prescribed Under Section 16 or 17 are met, ITC shall be available.

[Amit Agrawal]

Interesting question/s raised by Shri Alkesh Jani Ji!

Besides Section 2 (62) (a) of the CGST Act, 2017, one also needs to note Section 2 (67) which reads as follows:

"(67) “inward supply” in relation to a person, shall mean receipt of goods or services or both whether by purchase, acquisition or any other means with or without consideration;"

Contrast between Section 2 (67) (i.e. inward supply) & 2 (83) (i.e. outward supply) are also worth noting:

"(83) “outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business;"

In my view, the word 'supply' used in Section 16 (1) needs to be read with Section 2 (62) (a) and 2 (67) of the CGST Act, 2017 along-with Section 7 (2) & proviso u/s 5 (1) of the IGST Act, 2017 and of-course Section 3 (7) of the Customs Tariff Act, 1975.

Hence, ITC of subject IGST - paid at the time of import of sample/s - is available to the registered tax-payer in my humble view.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan Kollengode]

Thank you Alkesh ji and Amit ji for making this discussion knowledgable.

[Alkesh Jani]

Dear Experts Shri Padmanathan Kollengode ji and Shri Amit Ji ,

I am a learner and wish to be in this state forever. As far as my knowledge permits me, first the activity should fall within the ambit of "Supply" for purpose of levy of GST and then to ascertain that activity is supply of service or goods and then exempted or nil rated. To quench my thirst of knowledge I wish to raise the following queries :-

1. How this activity or which provisions of Section 7 of CGST is applicable for terming this activity within the ambit of supply, without consideration.

2. Which provisions of Section 16 is applicable for availment of ITC.

3. On going through Section 17(5) the opening lines starts with "Notwithstanding..." and there is no mention of terms such as 'Taxable person', Registered person' 'supplier' recipient' etc. which are defined but not used. For Section 17 (5) (h) can we simplify as under :-

"(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

Can we say, goods disposed of by way of free samples either by supplier or recipient, ITC is not available.

4. If department disputes the ITC on the above ground what stand can be taken.

The query raised is for personal knowledge only.

Thanks in advance

[Amit Agrawal]

Dear Shri Alkesh Ji,

My defence for ITC so availed will start with the followings:

Following facts from the query are worth noting: We have manufacturing of Pharmaceutical Machinery & Equipment registered under GST Act. We have imported free bottle sample from our customer for machine trial purpose.

To my mind, this import is even though on free on cost basis, same is not without consideration.

Both supplier of machinery (i.e. importer of bottles, in subject case) and customer (presumably, buyer of the machinery from India) are interested in results of trial of the machinery and hence, this import is for a consideration. And the IGST is paid at time of import of these bottles in India under proviso u/s 5 (1) of the IGST Act, 2017 read with Section 3 (7) of the Customs Tariff Act, 1975.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Dear Shri Alkesh Jani Ji,

Kindly allow me to address your remaining questions (Please treat this as part of pure academic discussions, efforts to improve my though process & understanding nitty-gritties of relevant legal provisions better & nothing more):

Question 1. How this activity or which provisions of Section 7 of CGST is applicable for terming this activity within the ambit of supply, without consideration.

Answer: As explained my last post above, there is consideration (even though non-monetary) involved. BUT, for purpose of this post, lets treat / assume subject import is without consideration (which is whole reason for enlarging this discussion on such complex issue).

Even though subject import does not fall into 'supply' as defined u/s 7, the term 'supply'- used u/s 16 (1) - have different connotation (i.e. meaning & context other than what is given under Section 7) where reliance is placed on Section 2 (62) (in contrast to Section 2 (83), which is explained in my post at serial No. 3 above).

Question 2. Which provisions of Section 16 is applicable for availment of ITC.

Answer: I will again rely on Section 16 (1) read with my answer to Question No. 1. Furthermore, Section 2 (62) is worth noting & same is as follows:

“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–

(a) the integrated goods and services tax charged on import of goods;

................

Problem here - as pointed out by you (i.e. if I understood your point correctly) in your post at serial No. 2 - is Section 2 (58) which state that “integrated tax” means the integrated goods and services tax levied under the Integrated Goods and Services Tax Act. Hence, you are correct to say that IGST is paid at the time of subject import under Section 3 (7) of the Customs Tariff Act, 1975 and your point is (i.e. if I understood correctly) that this IGST so paid cannot be called as ÍGST paid under proviso to Section 5 (1) of the IGST Act, 2017.

Now, said Section 5 (1) reads as follows:

"Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:

Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975.) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962. (52 of 1962.)"

Your point (i.e. if I understood correctly) is this import is without consideration and hence, same cannot be called as inter-state supply u/s 7 of the IGST Act. Consequently, your feel that IGST so paid is not u/s 5 (1) of the IGST Act, 2017 and hence, no ITC is available there-against.

I beg to differ with you for following reasons:

a) Section 2 (10) of the IGST Act, 2017, ‘‘import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India.

b) For falling under ‘‘import of goods”, there need not be a supply u/s 7 of the CGST Act, 2017 or inter-state supply u/s 7 of the IGST Act, 2017. This becomes clear when on reads Section 2 (11) of the IGST Act, 2017 which states that ‘‘import of services” means the supply of any service, where––.......'

c) In view of above, proviso u/s 5 (1) of the IGST Act, 2017 needs to be understood distinctly from main provision. For falling under main provision, it is not in doubt that there needs to be inter-state-supply (i.e. supply first and then, such supply should be inter-state). However, for falling under proviso of said Section 5 (1), it need not be supply or inter-state supply and IGST is levied therein against 'import of goods' per se (& nothing more is required). In other words, IGST paid at the time of subject import is indeed IGST paid under IGST Act, 2017 (& same is not only paid under Customs Act) even though it is not supply / 'inter-state supply'.

(Please note that validity / vires of said proviso is not subject matter of this discussion. BUT, IGST Act itself is framed to levy & collect tax (i.e. IGST) on ínter-state supplies. And I agree that this can be problematic for person claiming subject ITC. Only saving grace is I doubt that Revenue will challenge validity of said proviso just to deny ITC where amounts involved will not be huge and same cases will not be in very large numbers)

d) For same reasons, clause (i) of Section 2 (62) covers IGST paid on subject imported goods even though no supply is involved.

Question 3. On going through Section 17(5) the opening lines starts with "Notwithstanding..." and there is no mention of terms such as 'Taxable person', Registered person' 'supplier' recipient' etc. which are defined but not used. For Section 17 (5) (h) can we simplify as under :-

"(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

Answer: Even though there is no mention of terms such as 'Taxable person', Registered person' 'supplier' recipient' etc. (which are defined but not used), one cannot ignore the words 'lost, stolen, destroyed, written off or disposed of by way of gift' while interpreting the words 'goods disposed of by way of free samples'. All these words describes events which can take place place at the end of registered tax-payer (who is otherwise entitled for ITC u/s 16 (1) but denied due to specific blockage u/s 17 (5)). Second, the word 'disposed off of goods' - from point of tax-payer claiming ITC - is not used for any goods received as 'samples' in common parlance as sample are always meant to be used by the recipient. Further, ITC - as a basic concept - is for inward supplies of the registered taxpayer.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.