Judicial Precedents for where constructive delivery was held to be enough satisfaction under S 16(2)(b) of CGST Act, 2017 to claim ITC, Goods and Services Tax - GST

[Gautam Godhwani]

By virtue of Section 16(2)(b) wherein entitlement of ITC by a registered person is established only when he has received goods and services or both.

What is construed as ‘received’ has not been defined under the GST Law – whether physical delivery of such goods is required or a symbolic or constructive delivery by transfer of title and thereby transfer of risks and rewards of ownership shall also suffice.

It would be highly appreciated wherein the cases for the latter condition could be given - AKA ITC being allowed from the moment risk in goods has been passed or constructive delivery has taken place instead of actual delivery being the requisite norm, be it of this regime or the previous one.

These would be on the lines of S 19, S 20 and S 26 of SOGA.

One such case is of Automative Components Technology India Private Limited - 2020 (3) TMI 242 - AUTHORITY FOR ADVANCE RULING, TAMILNADU in AAR Tamil Nadu Order No. 05/ARA/2020 dated 31.01.2020. Another could be the case of the four member bench of Hon’ble Supreme Court in the case of Duni Chand Rataria vs. Bhuwalka Brothers Ltd.: 1954 (12) TMI 19 - SUPREME COURT has interpreted that delivery to mean and include “constructive delivery” as well.

Thanks and Regards,

Gautam.

Posts / Replies

[Amit Agrawal]

In the context of the query raised, one must note that 'Explanation' given under Section 16(2)(b), which reads as follows:

"Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––

(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.]"

I am of the view that given explanation itself states that goods can be 'deemed as received' by the registered person - even before any movement OR even without any movement - where 'delivery' itself is treated as 'happened' by way of transfer of documents of title to goods from the supplier to the registered person.

Thus, constructive delivery of goods (& thereby, receipt of those goods) are explicitly allowed, without actual physical receipt of those goods, in many situations under Section 16(2)(b) itself by way of explanation given thereunder.

Various court-rulings of the past - in the context of the query raised - can be factual in nature / fact-specific where one needs to apply given explanation as well as find relevant court-rulings depending peculiar factual position with available evidences for each such disputes.

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

[KASTURI SETHI]

Sh. Gautam Godhwani Ji,

Frankly, honestly and sincerely expressing my views in this scenario, there is no hope at all on the basis of applying the term, 'constructive. delivery' to Section 16(2) of the CGST Act. Law is very much clear to the effect that goods should be physically in possession of the registered person who avails ITC. This is especially in view of the fact that the department has detected a large number of cases where ITC was availed fraudulently.

So legal meaning, essence & message of the term, 'constructive delivery' is not going to help you by any stretch of imagination.

These are my views just for academic interest /enrichment of your knowledge on the issue and not to be treated as legal/professional advice.

[Padmanathan Kollengode]

I agree with the views of Amit Ji. The Explanation itself explicitly deems the delievery of goods in certain situation without actual movement.

Further, it is also envisaged in Sale of Goods Act as you have mentioned. GST Law cannot be read in isolation and has to be understood with other prevailing laws.

[KASTURI SETHI]

Sh. Gautam Godhwani Ji,

Before arriving at final decision on this issue, be doubly sure that the legal and literal meaning and essence of the terms, , 'deemed' and 'deemed credit' are not stretched or overstretched. At the same time, the importance of punctuation marks cannot be brushed aside. Punctuation marks can change the whole scenario.

So many case laws are easily available on both terms.

[Alkesh Jani]

Dear Experts,

What if ground is taken by the department that Explanation is for "Bill to Ship to" supply and not for one to one supply?

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

In the Explanation, in addition to 'Bill to Ship to', that situation also covers where the supplier sends goods for job work direct to the the premises of job-worker. There may be some other such-like situation but not the situation /concept of 'constructive delivery' as opined by the querist with the support of case laws.

This is my thinking.

[Amit Agrawal]

Dear Shri Alkesh Jani Ji,

W.r.t. query raised by you, kindly note the followings:

A. As per Section 2(93)(a), “recipient” of supply of goods or services or both, means where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

B. Relevant portion from above-said explanation u/s 16 (2), in the context of the query raised, which reads as follows:

"Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––

(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

....................."

In views of above, I hold a view that said explanation also, specifically & unambiguously, covers 'constructive delivery' of goods by the seller to the buyer (i.e. without physical movement from seller & without physical receipt by the buyer) under circumstances as defined in said explanation. And hence, it is clear to me that said explanation is NOT limited for either "Bill to Ship to model of supply" or "delivery to job-worker or any agent of the recipient" or both.

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

[Amit Agrawal]

W.r.t. concern raised by Shri Kasturi Sethi Ji about 'detection of a large number of cases by Dept. where ITC was availed fraudulently (i.e. presumably without receipt of goods)', I would say that even constructive delivery of goods will be challenging to prove, for the recipient, IF Dept. takes due efforts & caution while investigating such cases & raising the SCN therefor.

Broadly specking, non-existent goods cannot be delivered even constructively.

Of course, if Dept. makes weak cases, I will not blame the subject explanation under discussion here for failing of such cases (specially at tribunal and above levels).

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

[Amit Agrawal]

Just to add to my earlier posts:

Kindly note Section 10 (1) (c) of the IGST Act, 2017, which reads as follow:

"10. (1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,––

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

(c) where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient;

.............................."

This demonstrate that 'delivery' of goods to the recipient can happen WITHOUT any movement of such goods either by the supplier or by the recipient.

And earlier-reproduced explanation makes it clear (among many situations / possibilities dealt therein) that delivery of goods to the recipient - by way of transfer of documents of title to goods - will be treated as receipt of goods by the registered person - even when there is no movement of goods - for purpose of fulfilment of condition of said Section u/s 16 (2) (b).

Summarising various posts of mine above, such constructive delivery is very much possible (& explicitly allowed in said explanation) And and such constructive delivery will be taken as 'goods received' by the registered person for purpose of Section u/s 16 (2) (b).

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

[Alkesh Jani]

Shri Amitji,

An article on similar issue was published on taxguru and view taken by the Dy, Commissioner of Comml. Taxes, is given below, as it is :-

"DISCUSSION ON SECTION 16(2)(b) OF THE CGST ACT

1. In the article, the authors had raised a question as to what will be construed as “received ”as contemplated under 16(2)(b) of the CGST Act 2017 with reference to the explanation and also to the first proviso given there under. They came to the conclusion on interpretation with the aid of certain provisions of the Sale of Goods Act 1930 that there seems to be no intent of the legislature behind allowing of ITC only on physical delivery of goods.

2. While appreciating their efforts made for a deep analysis of the issue, to the extend what I know would like to bring the following few points for further discussion on the issue dealt with in the Article cited above.

2.1 Under the system of claim exemption on the point of second sale as experienced in the past regime of single point taxation system and also claim of input tax credit under the multi point taxation under the VAT period during which the revenue had occasion to fight against large scale of evasion in the guise of exemption on second sales/claim of input tax by producing fake invoices without any actual purchase/ movement /actual payment of tax to the exchequer by many of the tax evaders. In order to curb and check such fraudulent nature of evasion and to remove the loop holes either by following the evasive or tax planning method and also in order to overcome the litigations met in the previous regime, it has since been tried now by making strict and stringent provisions under the present GST regime by the law makers. One of such attempt is the method of drafting the provision relating to the claim of input tax credit as envisaged under SECTION 16(2)(b) of the CGST Act read with rule 36 there under. The eligibility of input tax credit as envisaged under SECTION 16(2)(b) of the Act read with the above rule, among other procedures laid down, is subject to the cumulative satisfaction of both possession of Tax invoice prescribed under section 31 of the Act and also the possession of the goods.

2.2 The analytical portion of the explanation given to SECTION 16(2)(b) runs as follows:

For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise

2.3 The said Article, revolved round the words and phrases “received the goods”, “delivered” available in the above explanation given to SECTION 16(2)(b) of the Act and it was interpreted by the authors that the words “received goods” could not be interpreted as the physical delivery of goods since it was not the intent of the legislatures in framing the statute. In support of their view, they had taken aid of section 20, 26 and 35 of the Sale of Goods Act 1930 solely depending upon the concept of the transfer of ownership of the goods to the buyer.

2.4 with regard to the rule of interpretation for this purpose, I would like to refer the case of Grid Corporation of Orissa Limited and others Vs. Eastern Metals and Ferro Alloys and others 2010 (8) TMI 1165 - SUPREME COURT, the law in this regard has been summarized by the Supreme Court in the following terms : The golden rule of interpretation is that the words of a statute have to be read and understood in their natural, ordinary and popular sense. Where however the words used are capable of bearing two or more constructions, it is necessary to adopt purposive construction, to identify the construction to be preferred, by posing the following questions:

(i) What is the purpose for which the provision is made?

(ii) What was the position before making the provision?

(iii) Whether any of the constructions proposed would lead to an absurd result or would render any part of the provision redundant?

(iv) Which of the interpretations will advance the object of the provision? Such an exercise involving ascertainment of the object of the provision and choosing the interpretation that will advance the object of the provision can be undertaken, only where the language of the provision is capable of more than one construction.

2.5 By applying the above rulings, I already discussed point no (i) and (ii) above as per the findings given in para no. 2.1 above. The discussion on the later and remaining exercise involved in no.(iii) and (iv) above made me to deviate from the view of the authors for which I prepared to go to certain other provisions of the Sale of Goods Act 1930 and also certain internal aids from the CGST Act which were not looked in to by the authors . Here in below is my view.

2.6 As defined under section (2) of the Sale of Goods Act 1930 “delivery” means voluntary transfer of possession from one person to another According to section 33 of the Sale of Goods Act 1930, delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf.

2.7 So also, according to section 36 of the Sale of Goods Act 1930 the. Rules as to delivery has been prescribed as the one

(1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are at the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell, or, if not then in existence, at the place at which they are manufactured or produced.

(2) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time

2.8 The words receipt of goods as envisaged in the explanation given to SECTION 16(2)(b) of the CGST Act 2017 with reference to the provisions of the Sale of Goods as given above, would indicate only the voluntary transfer of possession from one person to another and nothing beyond that, both in the case of direct delivery and in the case of Bill to ship transaction consequent to the transfer of documents of title to the goods In both cases, it would mean the possession acquired in the event of physical delivery of the goods in respect of the direct delivery and in the case of bill to ship transaction, the possession acquired in the event of transfer of title to the goods. The possession so explained above is nothing but the receipt of goods as contemplated under SECTION 16(2)(b) of the CGST Act 2017

2.9 Moreover, the eligibility of input tax credit as envisaged under SECTION 16(2)(b) of the Act is subject to the cumulative satisfaction of both possession of Tax invoice prescribed under section 31 of the Act and also the possession of the goods as explained above.

2.10 As per section 31 of the CGST Act, 2017 an invoice for supply of goods needs to be issued before or at the time of removal of goods for supply to the recipient where the supply involves movement of goods. However, in other cases, invoice needs to be issued before or at the time of delivery of goods or making available goods to the recipient. Similarly, an invoice for supply of services needs to be issued before or after the provision of service but not later than thirty days from the date of provision of service conclusion

3. Fair reading of the above in a holistic view, would say that the eligibility to claim input tax credit is subject to the possession of tax invoice and also the possession of goods which is created by the action of physical delivery of the goods in the case of direct delivery and by way of transfer of title to goods in the case of Bill to ship transactions. As such there is no ambiguity or lacuna in drafting SECTION 16(2)(b) of the CGST Act 2017 as viewed in the Article.

G.Samidurai VAT/GST Practitioner & Retd.,

Dy, Commissioner of Comml. Taxes

(Tamilnadu)(Mobile 9442122187)"

[Gautam Godhwani]

Thank you for your views, Kasturi Sir and Amit Sir. But I am still confused as to whether there's any judicial precedent in support of constructive delivery other than the ones I mentioned before.

Any help in this would be much appreciated.

Thank you for the discussion on this once again.

Regards,
Gautam.

[Amit Agrawal]

Dear Shri Alkesh Jani Ji,

I have noted reproduction of your views / comments with reference to some article published on taxguru. However, you have not directly dealt with the reasoning/s given by me in my earlier posts.

Hence, I find it difficult to deal with your views / comments where both authors (i.e. you & other gentleman referred in your post) seems to haves differences under understanding 'Intention / Object' behind Section 16 (2) (b) and consequent differences in understanding explanation given therein. Those differences seems magnified by the fact that both rely on provisions of Sales of Goods Act, 1930 to support own contention / reasoning.

Accordingly, one must be aware of limitations at my end to share my views on your post. May that as it may, let me try to deal with your view-point to best of my abilities:

A. I respectfully do not agree with your analysis about objection / intention (in Para 2.1 of your post) behind Section 16 (2) (b) & explanation given therein.

A1. As per Section 31, tax-invoice can be issued before or at the time of (a) removal of goods for supply to the recipient, where the supply involves movement of goods; or (b) delivery of goods or making available thereof to the recipient, in any other case. So, condition prescribed u/s 16 (2) (b) limits registered to take ITC only upon receipt of goods and then, it explains what will be treated as 'deemed receipt of goods' by way of explanation.

A2. I do not have any reason to believe that this provision is particularly targeted for second sale or to fight against large scale of evasion by way of fake invoices without any actual purchase/ movement /actual payment of tax etc. This condition u/s 16(2)(b) is for all inputs (goods) on which registered person wants to avail ITC. This is because tax-invoice can be raised BEFORE removal / delivery etc. of goods.

B. I cannot deal with Para 2.3 of your post as it deals with article of some author, more so, when I do not agree with your views about 'Intent / Object' behind Section 16 (2) (b) & explanation given therein.

C. I also do not see any reason to say that the words used - in Section 16 (2) (b) & explanation given therein - are capable of bearing two or more constructions (as felt by you in Para 2.4 & 2.5 of your post) in the context of issue under discussion here.

C1. And I have already explained how & why Section 16 (2) (b) & explanation given therein is clear and unambiguous in my post at serial No. 7 above (as answer to query raised by you in the context of issue under discussion here). I have already explained in my earlier posts why & how said explanation also cover 'One to One Supply of goods' (i.e. in addition to 'Bill to Ship To' and many other situations).

C1.1. With due respect and at the cost of repetition, your post does not directly deal with my reasonings. This limits effectiveness of my counter-reply.

D. With regards to references made by you in your post about some of the provisions of Sales of Goods Act, 1930 (some of which the other gentleman, referred in your post, also seems to rely), I want to say as follows:

D1. For the context of dispute under consideration here, explanation is very clear and unambiguous that 'delivery' can be made, without any movement of goods, by way of transfer of documents of title to goods. And such activity in itself will be treated as goods received on 'deeming basis'.

D1.1. So, in my view, there is NO need to refer to delivery-related provisions of Sales of Goods Act, 1930 to see what amounts to 'delivery' and thereby, 'receipt of goods' to fulfil requirements of Section 16 (2) (b).

D1.2 This is more so when 'explanation' clearly treat 'receipt of goods' for specified situations on "DEEMING BASIS".

E. Without prejudice to above & purely as academic discussion, lets take provisions of Sales of Goods Act, 1930 and see if they have effect on the issue under discussion here:

E1. Section 33 of Sales of Goods Act, 1930 states as follows: Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf.

E2. Thus, even under Sales of Goods Act, 1930, delivery need NOT always be having 'the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf' for goods sold. Delivery of goods sold means 'doing anything which the parties agree shall be treated as delivery'.

E3. As explained in my various posts above, said explanation clearly says that 'delivery' can be made - without any movement of goods - by way of transfer of documents of title to goods and same is treated as receipt of goods on deeming basis for Section 16 (2) (b).

E4. Your efforts to equate "possession of goods' with 'actual physical receipt & thereby possession' by the recipient is contrary to above-explained Section 33 of Sales of Goods Act, 1930 itself.

E5. Section 2 (4) of Sales of Goods Act, 1930 reads as follows:

""document of title to goods" includes a bill of lading, dock-warrant, warehouse-keeper's certificate, wharfingers' certificate, railway receipt, [multimodal transport document,] warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented;"

E6. Thus, 'transfer of documents of title to goods' (the term used in explanation u/s 16 (2) (b)) means transfer of 'proof of the possession or control of goods' & the possessor of such document can transfer or receive goods thereby represented. And this activity 'in itself' is treated as sufficient requirement to fulfil conditions prescribed u/s 16 (2) (b).

F. Section 31 (1) (b) of the CGST Act, 2017 clearly points to difference between 'delivery of goods or making available thereof to the recipient' and same is for a situation where supply does NOT involve movement of goods. In other words, there can be a supply of goods where they is neither any movement of goods nor a delivery of goods but also only making goods available to the recipient.

F1. This is another reason why I feel that explanation u/s 16 (2) (b) of the CGST Act, 2017 should NOT be read from prism of delivery-related provisions of Sales of Goods Act, 1930.

Summarising above, I respectfully disagree with your views and reasoning to the effect that ''physical receipt of goods' by the recipient is a must to fulfil requirements of Section 16 (2) (b) on "One to One Supply''.

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

[KASTURI SETHI]

Sh. Gautam Godhwani Ji,

You have mentioned that you are still confused.

Every querist (may be assessee or advocate/consultant) posts query with hope that he will get opinions in his/her favour. Nobody wants to face the rigours of litigation as far as possible

. All experts on this forum sincerely, honestly and impartially dwell on merits of the issue which may culminate either in favour of the party or Govt. If you still find ambiguity in Section 16(2) of CGST Act, you can opt for advance ruling under Section 97 (1) as the issue is covered under Section 97 (2)(d) of CGST Act.

If I come by any case law in your favour, I shall post here without any hesitation. I shall also keep track on this issue.

[Amit Agrawal]

Dear Shri Gautam Godhwani Ji,

Kindly note that there is no tribunal formed yet under GST. And GST law is still nascent stage & evolving. It will take lot of time to get various legal issues settled (about implications of Section 16(2)(b) read with explanation given thereunder).

Even the cases referred by you are dealing with situations in different context (As a matter of fact, quoted AAR does not deal with the raised question (relating to ITC) by the applicant at all AND quoted Supreme Court ruling was dealing with the West Bengal Jute Goods Future Ordinance, 1949). And it is possible & very likely that Revenue will differentiate these rulings - either on facts or applicable law or both.

Hence, in my first post above, I have said that various court-rulings of the past - in the context of the query raised - can be factual in nature / fact-specific where one needs to apply given explanation as well as find relevant court-rulings depending peculiar factual position with available evidences for each such disputes.

That's why, to help tax-payer to defend themselves (where GST law is in nascent stage and evolving), I have given my views on the question of law raised by you - mainly relying on wordings used in the given explanation itself - to demonstrate that that explanation - in itself - allows constructive deliveries (in the context of ongoing discussion).

Also, as you must have noticed, in my initial posts above, I had NOT used delivery-related provisions of Sales of Goods Act, 1930 to support my reasoning. Only when someone else uses them to oppose my reasoning, I counter them by explaining why said provisions are NOT relevant because of clear and unambiguous wordings of the explanation.

And then, as part of additional defence & purely as academic discussion, I explained why & how delivery-related provisions of Sales of Goods Act, 1930 are mis-read and how those provisions of Sales of Goods Act, 1930 do not contradict my reasoning at all supporting constructive delivery allowed by the explanation.

Whole idea of mine is to keep the line of defence as simple & precise as possible, on the question of law raised by you (specially when law is still evolving and past case-law/s - if used to take support - will be differentiated by Revenue). This is more & specifically so because constructive delivery is specifically allowed - by the explanation - by way of transfer of documents of title to goods.

If one keeps bring other laws unnecessarily (say, delivery-related provisions of Sales of Goods Act, 1930) while defending , same gives more chance to Revenue to deny your defence by using their interpretation of those other laws (instead of concentrating on your defence of GST law using plain, clear and unambiguous wordings of explanation).

In addition to the question of law, which is under discussion here, factual aspects (& evidences thereof) will play vital role while defending ITC availed by the tax-payer. And these factual aspects (& evidences thereof) will always differ on case to case basis.

Wish you all the best!

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

[Gautam Godhwani]

Thank you Amit Sir and Kasturi Sir for your responses. Amit Sir, the point you have raised is right, that if one relies too much on other laws then the department would bring forth their own interpretation of other laws.

[Ganeshan Kalyani]

The accounting standard requires the physical movement of goods from the premise of the supplier once the invoice is raised. This is because from books the stock is removed then the stock should also get out from the premise. That is to match the books versus the physical count. Either goods should be dispatched to customer place or as per his direction to his desired party/ place.

[Padmanathan Kollengode]

Learned experts who disagree with constructive delivery, kindly explain how ITC is taken in case of a Sale and Lease back transaction?

The goods/machinery remains in the possession of with vendor-lessee even after the sale. Does that mean the Vendee-lessor cannot take ITC even after receiving invoice, paying consideration etc?

Ld friend Amit Ji had explained about place of supply u/s 10 where "supply without movement of goods" are also envisaged.

[KASTURI SETHI]

Sh.Padmanathan Kollengode Ji,

W.r.t. your above post seeking comments from those who do not agree with the views expressed in this query, I opine as under :-

More than sufficient light has been shed on the issue. Hence more than sufficient contents are available (irrespective of the material whether pro-party or pro-Govt.). An article authored by Sh. G.Samidurai VAT/GST Practitioner & Retd. Dy, Commissioner of Commercial Taxes (posted by Sh.Alkesh Jani Ji) is a mirror. Emphasis is laid on the text, texture, essence and context of the article.

If the concept of 'constructive delivery' is fitted into Section 16 of CGST Act, it will tantamount to a square peg in a round hole.

[Alkesh Jani]

Shri Amit Ji,

First, the views reproduced by me was with intention to appreciate the hard work of the person on the issue.

Secondly, even qurist has relied upon the Section 19,20 and 26 of SOGA.

The crux of the discussion is that goods are deemed to be received without physical /actual receipt of goods, and it can be termed as “constructive delivery”, if so, it would be hard to distinguish constructive delivery and fake invoice (invoice without actual supply). However, as far as my knowledge is permitting me, no court has given relief in case of fake invoices, only relief pertaining to criminal procedure is given i.e. bail.

Further, your intelligence level is too high for me and even after making several hard efforts, I cannot reach there, so I fail to convince myself or to accept the views taken by you. The way I found is to wait till any legal forum passes such decision, in the matter.

Thanks

[Amit Agrawal]

Dear Shri Alkesh Jani Ji,

W.r.t. hard work etc., I feel that I have taken more efforts to explain why those views are legally unsustainable. With due respect, there is lot of difference between interpretation of law & imagination of law.

W.r.t. use of provisions of Sales Tax Act, 1930 by the Querist, I have already clarified to the querist about my views and reasoning why there is no need to use them and also, why same should not be used.

It is unfortunate that despite elaborate efforts, I could not convince you. But, blame of such failure lies with me and not with you.

Let me give one more try to explain why "fake invoicing" is different that subject issue under discussion here:

One can avail ITC only on any inward-supply u/s 16 (1). Even Section 16 (2) starts as follows: "Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––

....."

So, various conditions prescribed u/s 16 (2) to avail ITC pre-supposes existence of inward supply. Non-fulfilment of conditions prescribed u/s 16 (2) does not necessarily mean that there was no inward supply.

As far as "fake-invoices" (as referred as common parlance) are concerned, allegation of Revenue is that there is no underling supply involved. And if so, delivery of goods - constructive or physical - cannot be made. In other words, Section 16(2)(b) does not come into picture at all when there is no inward-supply.

If Revenue carries out good investigation in cases of these "fake-invoices" and raise proper SCN, explanation u/s 16(2)(b) will not be stumbling block for Revenue to prove its case. In other words, any evidence (if any) presented by assessee to prove delivery of goods - constructive or physical - can also be proved as "fake-delivery" through good investigation by the Revenue.

Of-course, if Revenue treats only 'non-receipt of physical delivery' of goods by the recipient as sole ground to allege so-called "fake-invoicing", I believe that such case of Revenue will fail - specially at tribunal & above levels - where there is no other ground to allege non-supply and assessee can prove constructive delivery of goods.

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

[Amit Agrawal]

@ Shri Padmanathan Ji,

W.r.t. your last post, please let me add some more finer points to the ongoing discussion:

A. Just like delivery of goods, possession of goods need not be 'physical' but can be constructive.

B. This is what is meant by the explanation given u/s 16(2)(b) where having 'documents of title to goods' is treated as having possession or control on those goods. And having possession or control on those goods by the recipient is treated as deemed receipt of those goods for purpose of Section 16(2)(b).

C. I do not think even Sales Tax Act, 1930 contradict above position, though I would not want to use its delivery-related provisions (at first stage / as opening argument) purely because I find said explanation very clear & unambiguous and to avoid distraction from main argument. Of course, I can & will use provisions of Sales Tax Act, 1930 to explain how contrary view-point's reliance of them is grossly misplaced.

C1. Even otherwise, under GST, the terms "delivery" & "Possession" - themselves - are treated as 'different' as can be seen from Section 2(93)(b) of the CGST Act, 2017. So, entire focus of delivery-related provisions of Sales Tax Act, 1930 to link 'delivery' to 'physical receipt & then, physical possession' is faulty in my humble opinion. Under said explanation, 'delivery' is linked to 'documents of title to goods' (i.e. possession or control on those goods by the recipient) on deeming basis for purpose of Section 16(2)(b).

D. Said explanation is actually put in place, IMHO, so as NOT to limit availability of ITC only on physical receipt of those goods but to SPECIALLY ALLOW the ITC even when there is constructive delivery of goods to the recipient registered person by way of transfer of documents of title to goods.

E. Any contrary reading of that explanation (to the effect where availability of ITC to the recipient is made dependent solely upon physical receipt of those goods) is blatantly contrary to plain, simple & unambiguous reading of said explanation IMHO.

F. Also, limiting said explanation only to 'Bill To Ship To' nature of supply and NOT extending to 'One To One' contradict first part of the explanation itself (i.e. where the goods are delivered by the supplier to a recipient or .........). Moreover, this view also ignores crucial difference between wordings of this explanation and wordings of Section 10 (1) (b) of the IGST Act, 2017 which actually deals with 'Bill To Ship To' nature of supply by using the word "third person" which NOT used at all in this explanation u/s 16(2)(b).

F. There is many more real-life examples where ITC is taken by the recipient registered person - across many industries - without physical receipt of those goods but only on the basis of constructive deliveries (& thereby, constructive-receipt). For example: Dies / Mould sold by component manufactures to Original Equipment Manufacturers / OEM (like Baja Auto, Tata Motors, Hero, even in other industries like Washing Machine, Refrigerators & so on) without removal from factory (& using them for manufacturing components for these OEM/s). And, I do not think these OEM/s are contravening Section 16(2)(b) at all by taking ITC against these moulds / dies without physically receiving them.

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

[Gautam Godhwani]

Also, I am reminded of the following provision in Section 122 (1) (vii) which goes as -

(vii) takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;

Does not this seem to run contrary to explanation of Section 16(2)(b) ?

Thanks and Regards,
Gautam.

[Amit Agrawal]

Dear Shri Gautam Godhwani Ji,

W.r.t. the query posted at serial No. 22, my views are as follows:

A. Under context of your query, penalty u/s Section 122 (1) (vii) has three main components .... first 'takes or utilises input tax credit, second 'without actual receipt' and 'third in contravention of the provisions of this Act or the rules made thereunder'.

B. Read together, if goods / services are treated as 'received' for purpose of Section 16(2)(b) read explanation thereunder while taking ITC against underlying supply of goods, there cannot be any contravention of law warranting penalty u/s 122 (1) (vii).

C. I can answer your query even by dealing with meaning of singular term namely 'without actual receipt' used u/s 122 (1) (vii) in context of GST Law. But, I am not going into those issues because in my view, above-said three components - read together- makes it crystal clear that Section 122(1)(vii) are NOT contrary to Section 16(2)(b).

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

[Amit Agrawal]

Just to add to my last post:

D. If anything, wordings of said Section 122(1)(vii) actually implies that in some situations, ITC can be availed without actual receipt of goods / services and without any contravention of the provisions of this Act or the rules made thereunder.

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

[Padmanathan Kollengode]

Just to

1. add flavour to the ongoing discussion, and

2. to trying to bringout practical scenarious in business and

3. apprehension of experts who do not agree to constructive delivery regarding "fake invoicing" etc,

I am sharing few live cases which I am dealing with currently:-

A. XYZ Pvt Ltd, dealer in Iron and Steel in Palakkad, Kerala has received notice under section 74 alleging that section 16(2)(b) is violated on following grounds:-

"XYZ pvt ltd has availed ITC on basis of an invoice received from ABC, Goa which is also covered by E-way bill number xxxxxxxxxxx however, the vehicle number mentioned in the e-way has not been seen crossing any toll plaza from goa to kerala as per NIC Analytics data report. Further, another e-way bill is also seen generated in Maharashtra for the same vehicle number on same date."

B. PQR Pvt Ltd has purchased goods from MNO Pvt Ltd. vide Inv No. xxxx. PQR Pvt Ltd has also made payment to MNO and availed ITC.

However, due to some contingency they are yet to take the delivery of the goods and it is still lying in MNO Pvt Ltd's godown.

The said stock is shown in balance sheet of PQR Pvt Ltd as "stock with third-parties".

During audit the officer wants to disallow the ITC due to not full-filing 16(2)(b).

These are real cases which I am dealing. I hope the difference can be made out in both above cases on same provision.

PS- I am fighting both cases on different grounds, which ofcourse is different issue.