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TMI Blog2020 (1) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under sub-section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void sb-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such advance ruling has never been made. At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act. The subject appeal has been filed under Section 100(1) of the Tamilnadu Goods Services Tax Act 2017 / Central Goods Services Tax Act 2017 (hereinafter referred to the Act ) by M/s. Sanghvi Movers Limited (hereinafter referred to as Sanghvi or Appellant ). The appellant is registered under GST vide GSTIN 33AACCS3775K1Z4. The appeal is filed against the Order No.26/AAR/2019 = 2019 (8) TMI 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for providing cranes on hire charges, they will in turn raise an internal work order on SML Maharashtra for providing the required cranes on hire charges. On receipt of internal work order from the appellant, SML Maharashtra transports the crane and its components to the customer s location /project location on the instructions of the appellant. For each type of crane given on hire charges, the crane operator maintains a separate monthly log sheet at the customer/ project location, wherein daily and hourly details of crane usage and idle time are maintained, based on which the monthly service invoice is raised by the appellant on respective customers. Further, an invoice from SML Maharashtra is issued to the appellant and the value considered for levying GST is approximately 95% of the value charged to the customer by the appellant. 2.2 SML Maharashtra discharges IGST on the value of hire charges recovered from the appellant treating the same as inter-state supply of service. Consequently, the recipient i.e. the appellant avails credit of IGST charged/ paid by SML Maharashtra on the value of hire charges charged on the invoice. The appellant sought the authority for advance r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n provisions under GST law. Such consideration does not have any sort of commercial substance. Being a legal entity, accounting of revenue and flow of money is only when the transaction is with customer, inter-branch transactions are not considered to be revenue generating transactions. Since GST law requires the tax payers to undertake GST compliances and discharge GST liability, it is necessary to assign a value for such inter-branch transactions. The objective of preparing MOU is to ensure business operation feasibility and compliance with provision under GST law. The need to enter into an MOU arose only on account of Schedule I of CGST Act, wherein transactions between distinct persons even if made without consideration have been subjected to GST. Therefore, the Appellant is of the view that it would be incorrect to draw a conclusion by isolating a few clauses in the MOU. The MOU should be read as a whole, collectively taking into consideration the intention of the MOU. As the movement of crane from SML Maharashtra to SML Tamil Nadu would be taxable supply, SML Tamil Nadu would be entitled to avail ITC of IGST charged by SML Maharashtra if all the conditions of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces to issue a tax invoice, showing the description, value and tax charged thereon. Therefore, in the instant case, since SML Maharashtra is supplying taxable services to SML Tamil Nadu in terms of Schedule I of the CGST Act, it is mandatory for SML Maharashtra to issue a tax invoice showing the value and tax charged thereon. If the interpretation adopted by the Authority were to be adopted, it would lead to absurd situations wherein distinct persons i.e. every branch office of a legal entity would be forced to open separate bank accounts and undertake thousands of bank payment transactions with other distinct persons (branch offices) of the same entity, only in order to avail ITC. It would completely defeat the purpose of introducing the proviso to Rule 37 of the CGST Rules, 2017. The Authority for Advance Ruling has erred in concluding that payment needs to be made even for supplies made between distinct persons, only because consideration is specified in the MOU/tax invoice. SML Tamil Nadu has been led to specify the consideration in the MOU/tax invoice and discharge applicable GST, only on account of Schedule I read with Section 31 (2) of the CGST Act. If such an extreme v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are two separate charges which are not netted off against one another. Rather the up-keepment charges payable my SML Maharashtra are netted off against the up-keepment charges receivable by SML Tamil Nadu and the lease/ hire charges payable by SML Tamil Nadu are netted off against the lease/ hire charges receivable by SML Maharashtra, by way of book adjustments at an entity level. Based on accounting principles, the receivable and payable have to be considered at an entity level and not at a GST registration level, as such book adjustments of netting off are made at an entity level in the books of accounts i.e. the receivable of SML Maharashtra is netted off against the payable of SML Tamil Nadu in the books of accounts of SML. Further, while preparing financial statements, transactions between SML, Maharashtra and SML Tamil Nadu are netted off in books of account and these transactions do not form part of revenue or expenses/ purchases disclosed in financial statements. Further, without prejudice to the above submissions, even if one were to agree with the interpretation of the Authority for Advance Ruling wherein the up-keepment charges receivable by SML Tamil Nadu are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of payment (i.e. netting off) between supplier i.e. SML, Maharashtra and recipient i.e. SML Tamil Nadu, is already agreed well in advance through the MOU (relevant para of MOU is also referred in the order). In such a case, denying ITC of IGST merely by claiming that payment is not made by SML Tamil Nadu to SML Maharashtra would be incorrect and will be against the provision of GST law. In the ruling pronounced by the West Bengal Authority for Advance Ruling in the case of M/s. Senco Gold Limited = 2019 (5) TMI 701 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL , the Authority for Advance Ruling has provided the following clarification 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 . In the above ruling, the transaction was between the Applicant and its customers who are neither related persons nor distinct persons, and payment between them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as extended on 08.11.2019. The Authorized representatives of the Appellant S/Shri. K. Sivarajan, CA; Nitin Vijaivergia, Abhijit Sawarkar and Vipin Bang appeared for hearing. They handed out a compilation of Flow of Transactions and relevant Statutory Provisions along with additional written submissions, which they reiterated. DISCUSSION : 6. We have carefully considered the various submissions made by the Appellant and the applicable statutory provisions. The issue before us for determination is 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. 7. From the submissions before us we find that with 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es/ payables between the distinct persons are set off as brought out in the tax invoice raised by the SML HO and Clause 10 of the MOU and setting off of receivables against payables are recognized in the accounting standards. Further, the ultimate customer is directed to make payment in the Bank Account of HO and therefore the entire consideration of value raised by the SML HO on the appellant stands paid. They claim that they are eligible of the entire ITC of the GST paid by SML HO. 8. The relevant Statutory Provisions under GST Act are examined as under: LEVY AND COLLECTION OF TAX 7.(1) For the purposes of this Act, the expression supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and SCHEDULE I [See section 7] ACTIVITIES TO BE TREATED AS SUPPLY EVEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed; Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. Rule 37. Reversal of input tax credit in the case of non-payment of consideration.- (1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section(2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction 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 said proviso 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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