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TMI Blog2023 (7) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to section 16(2) by an equivalent amount being added to his output tax liability unless he makes the payment within one hundred and eighty days from the date of issue of the invoice. It is, therefore, clear that no input tax credit is admissible unless the recipient pays the supplier the consideration for the supply received - Accordingly, from the definition it is revealed that the term consideration includes, in relation to the supply of goods or services, any payment, made or to be made, whether in money or otherwise, and also the monetary value of any act or forbearance. Thus, definition of consideration is an inclusive definition which covers in its ambit any form of payment. Therefore, if the payee owes the payer a debt, and accepts a reduction in such a debt liability as a valid form of payment, that should also be regarded as a valid consideration for a supply. On a combined reading of various provisions and the definition of consideration in Section 2 (31) of the CGST Act, 2017 it is evident that the settlement of the mutual debts through book adjustment by netting off of receivables of one GSTIN by another GSTIN of the same company, or net off of receivables with pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ornaments from the distinct person to the applicant, and further, another distinct supply of such ornaments from the applicant to the franchisee; attracting goods and services tax in terms of Section 7 of the CGST Act read with Section 10 of the IGST Act in respect of each such supply, and the nature of tax applicable has to be determined in accordance with the provisions of Section 7 and 8 of the IGST Act, 2017. - DR. S.L. SREEPARVATHY, IRS SHRI ABRAHAM RENN S., IRS, MEMBER Authorized Representative : Mr. Ajithkumar U, Finance Controller 1. M/s. Malabar Gold Private Limited (hereinafter referred to as the applicant) has multiple branches and is engaged in the retail and wholesale of jewellery. The applicant transfers gold bars of specified quantifies to jewel makers for making ornaments and purchases ornaments from them, where the jewel maker would charge making charges apart from the transaction value of ornaments sold to the applicant. Against the said purchase, the applicant would net off by way of book adjustment the value of gold bars given to them and would ultimately discharge only the value of making changes. On certain occasions, the sale of a gold bar would be made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that are unique in addition to unmatched value and quality. Its operations in India are controlled and monitored from the headquarters located in Kozhikode, Kerala, and its international operations from the corporate office located in Dubai, UAE. These operations are further supported by regional offices in other Indian states and across the other countries where it is present. The jewellery arm caters to a global audience supported by a team consisting of personnel from 14 nationalities that are proficient in 50 different languages. It successfully manages multifaceted retail formats with a presence in high streets, reputed malls, department stores, and travel retail. 4.2. The applicant transfers gold bars of specified quantities to jewel makers and purchases ornaments from them, wherein the jewel maker would impose a making charge apart from the transaction value of ornaments sold to the applicant. Against the said purchase, the applicant would net off the value of gold bars given to them and would ultimately discharge only the value of making charges. On certain occasions, the sale of a gold bar would be made by one branch with a GST Identification Number (GSTIN), whereas the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hisee showrooms, in case of franchise companies having multiple branches, the settlements are made from the head office of the company though invoices have been issued to each unit / GSTIN. 4.2.8. MGPL incurs certain expenses which are used for other branches/franchisees Some of the expenses are identifiable and can be charged to a particular branch/entity. Some other expenses are common; which are charged to all branches and entities based on some factors. MGPL charges the above expenses by issuing GST invoices. In the case of franchise companies having more than one branch, the settlements are made from the head office of the company though invoices have been issued to each showroom, 4.2.9 Other situations in which settlement is made by way of book adjustment. 4.3. Further it is also submitted that to ensure that the appropriate dues are either settled or paid, the company obtains the statement of account from the jewel maker/supplier for year-end reconciliation and verifies whether the book adjustments and payments are reflected/accounted for. These adjustments/payments are done at the company level and not the GSTIN level, as these are pure settlement of balances and each GSTIN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit availed by the recipient shall be added to his output tax. Further Rule 37 (Reversal of input tax credit in the case of non-payment of consideration) of CGST Rules 2017, provides 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 purpose of the second proviso to Section 16(2). 4.8. Further as per Section 25(4) of CGST Act, 2017 distinct person means a person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purpose of this Act , Explanation to Section 15 of CGST Act, 2017 provides, - a) a person shall be deemed to be a related party if - i) Such persons are officers or directors of one another s business (v) one of them directly or indirectly controls the other (vi) they are under the common control or management. 4.9. Further Schedule I of the CGST Act, Clause II provides that supply of goods or services or both between related persons or between district persons as specified in Section 25, when made in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case, the goods are delivered to and the services are rendered to various branches of MGPL and the; supplier/vend or raises invoices in the GSTIN of the respective recipient GSTIN. The respective various branches of the MGPL are recipients of goods or/and services, not the person who actually makes the payment, as the definition of the term recipient states that a recipient is a person who is liable to pay consideration, but such consideration could be settled by another person. 4.16. Under GST law, each GSTIN of the same company would qualify as a distinct person, and payment by one GSTIN on behalf of another GSTIN would not trigger any supply, as these are mere transactions in money. The definition of goods or services excludes transactions in money. Only a supply of goods or services is taxable as per the provisions of Section? of the CGST Act, 2017. When a particular transaction is neither goods nor services, it is not covered under the definition of supply to levy GST. As regards the requirement to make payment to the supplier of goods/services to comply with the provisions of Section 16 of CGST Act, to avail ITC, it is relevant to analyse whether book adjustment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on a 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 ITC availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed. The proviso doesn t prescribe or restrict the mode in which the payment must be made. Payment through adjustment of the books of accounts is a prevalent common practice. 4.19. Payment is a transfer of an asset to the payee for discharging an obligation arising out of transactions involving goods, services, or other legal obligations. The most common asset class used for such payment is money, although other assets unless specifically excluded by law, may be used provided the payee accepts payment by such assets other than money as good and sufficient discharge of the obligation. Of course, in the payer s books of accounts, such transfer will be reported as a reduction in the book value of the asset being transferred. 4.20. The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y establishes the debtor s right of set-off An entity s intentions with respect to the settlement of particular assets and liabilities may be influenced by its normal business practices, the requirements of the financial markets, and other circumstances that may limit the ability to settle net or to settle simultaneously. The aforesaid meaning of consideration 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 off receivable and payable in books of accounts, barter, exchange etc as well. Further, for the purpose of GST compliance, the terms of the arrangement between the parties to the contract gain importance and if such arrangement allows book adjustment which has the effect of reduction of any dues, it would qualify as payment. Any receivables or payables by different GSTINs will be adjusted / settled by the head office, as a prudent business practice. This is further substantiated by the practice of verification of the supplier statements to ensure that the book adjustments/payments are correctly accounted for by the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. (2) 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,- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; (aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37; (b) he has received the goods or services or both. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, clear that no input tax credit is admissible unless the recipient pays the supplier the consideration for the supply received. 7.4. The term consideration , as defined under clause (31) of section 2 of the CGST Act reads as follows; Consideration in relation to the supply of goods or services or both includes,- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: PROVIDED that a deposit given in respect of the supply of goods or services or both, shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply. 7.5. Accordingly, from the above definition it is revealed that the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument, by whatever name called, in lieu thereof by the supplier: SECTION 13 Time of supply of services - (1) The liability to pay tax on services shall arise at the time of supply as determined in accordance with the provisions of this section (2) The time of supply of services shall be the earliest of the following dates, namely:- (a) the date of issue of invoice by the supplier if the invoice is issued within the period prescribed, under section 31 or the date of receipt of payment, whichever is earlier; or (b) the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or (c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply: Provided that where the supplier of taxable service receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice relating to such excess amount. Explanation - For the purposes of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt GSTINs either by the same GSTIN or by other GSTINs. Therefore, the different scenario in which such payment is made as explained by the applicant has to be considered and analysed in detail for answering the questions. The circumstance / scenario listed as the 9th item [Para 4.2.9 above] namely; Other situations in which settlement is made by way of book adjustment ; is a very vague one which can be subjected to multiple: interpretations and hence no ruling can be issued on the goods and services tax liability or eligibility of input tax credit related to such transactions in the absence of complete information regarding the nature of the transactions that are perceived to be covered under the category by the applicant Therefore, we proceed to analyse arid decide the taxability only in respect of the transactions that are specifically enumerated in the eight different circumstances / scenario [Para 4.2.1 to 4.2.8 above] as listed by the applicant in their application. 8.1. The provisions regarding the meaning and scope of supply are contained in Section 7 of the CGST Act, 2017; which reads as follows; (1) For the purposes of this Act, the expression. - supply includes- (a) all f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furtherance of business. 8.3. In cases of scenarios covered under Paras 4.2.1 to 4.2.5 and 4.2.7 to 4.2.8 above where there is only arrangement of settlement of dues / payment of consideration for the goods and/or services received by one GSTIN by another GSTIN or payment of consideration by the Head Office in respect of goods and/or services received by different branches having different GSTIN s. the transaction involved is mere transaction in money and there is no separate supply of goods or services other than the supplies already received by the respective GSTIN s. Therefore, such transactions do not come within the meaning and scope of supply as defined in Section 7 of the CGST Act, 2017 and accordingly no liability for payment of GST arises on account of such transactions. 8.4. However, the cases covered under the 6th scenario [Para 4.2.6] are different. The activity is described as follows; MGPL purchases old gold from its franchisee showrooms. The above purchases are settled either in cash or by other modes of settlement like an issue of gold ornaments of equal value etc. The above settlements may be done either by the same GSTIN or different GSTIN of the same company. 8.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section. 15. (2) Subject to the provisions of section 12, supply of services where the location of the: supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply: Provided that the intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit. Explanation l.- For the purposes of this Act, where a person has,- (i) an establishment in India and any other establishment outside India; (ii) an establishment in a State or Union territory/ and any other establishment outside that State or Union territory; or (iii) an establishment in a State or Union territory and any other establishment registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons. Explanation 2. - A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory. 8.9. In view of the? provisions as discussed above, in cases where the franchisee supplies old gold to the applicant and a distinct person ..... X X X X Extracts X X X X X X X X Extracts X X X X
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