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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 ..... the Act shall be binding only (a) On the applicant who had sought it in respect of any matter referred to in subsection (2) of Section 97 for advance ruling; (b) On the concerned officer or the jurisdictional officer in respect of the applicant. 3. Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the said advance ruling have changed. 4. Under Section 104(1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it 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 Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers across India. 2.1 In order to comply with the provisions of GST law and ensure operational feasibility, SML Maharashtra has entered into a formal service arrangement with all SML branch offices (including SML TamilNadu) by entering into a Memorandum of Understanding (MoU), wherein SML Maharashtra has agreed to provide cranes and crane components to all SML branch offices on hire charges. As part of the service arrangement, whenever the appellant receives a final work order from its customers 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 Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MOU: .......At the time of raising internal work order on SML HO by SML Depot lease/ hire charges for the Cranes, Cranes components, parts and Trailer' will be charged at rate as per the rates agreed in a respective work order and up-keepment charges will be as per and specified in Schedule I enclosed hereunder." * The above clause in Para 10 when read with the preamble, clearly indicates that the consideration specified in the MOU is only for the purposes of compliance with valuation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed to be supply, even if made without consideration. The present transaction clearly falls within the ambit of Schedule I of the CGST Act wherein SML Maharashtra supplies services to SML Tamil Nadu without any commercial consideration. Further, for the purpose of GST compliance and discharging GST, the MOU provides the mechanism to determine the value. * In terms of Section 31 (2) of the CGST Act, it is mandatory for a registered person supplying taxable services 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es payable by SML Tamil Nadu to SML Maharashtra shall be settled by netting off the lease/ hire charges receivable by SML Maharashtra with the lease/ hire charges payable by SML Tamil Nadu, in the books of accounts of SML as a whole. The Authority has erred by concluding that the up-keepment charges receivable by SML, Tamil Nadu are being netted off against the lease/ hire charges payable by SML Tamil Nadu. The up keepment charges and the lease/ hire charges 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CGST Act, provides the scope and ambit for modes of payment. It includes "any payment made or to be made, whether in money or otherwise". The term "otherwise" is very wide, and it would include all modes of payment i.e. netting of receivable and payable in books of account, barter, exchange, etc. as well. There is no specific restriction under the CGST Act, which restricts that payment should be made in cash or through bank account only. * The mode 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 G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettle the asset and liability on a net basis. Accordingly, SML, Tamil Nadu should be eligible for full ITC as all the conditions of Section 16(2) of the CGST Act, are being satisfied. PERSONAL HEARING: 5. The Appellant was granted personal hearing as required under law before this Appellate Authority on 10th October 2019. The appellant sought adjournment vide their letter dated 27th September 2019. Another opportunity was 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 G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 7 of the Act readwith Schedule I of the Act and therefore the proviso to Rule 37 which provides for full ITC is applicable to their case. The consideration on the tax invoice raised by SML HO on the appellant is approximately 95% of the price charged on the ultimate customer by the appellant. SML HO pays IGST on the value. The receipts and payables are calculated on an entity level and the receivables/ 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 disposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; 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 proportionat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the distinct persons. Therefore the issue to be decided is whether the appellant is eligible for the ITC of the entire tax paid by SML HO in the stated transactions. 8.3 From the various submissions before us, we find 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 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 Inpu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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