2019 (2) TMI 1082 - AAR - GST

Clarification on Input Tax Credit rules and liability determination based on invoice issuance date

The Authority ruled that Input Tax Credit (ITC) on goods is only available upon physical receipt, and the liability to pay tax is determined by the time ... Input Tax Credit - receipt of goods - deemed receipt - time of supply - issue of invoice as event determining time of supply - Bill to - Ship toInput Tax Credit - receipt of goods - deemed receipt - Bill to - Ship to - Input tax credit on goods invoiced by the supplier in an earlier month is available to the applicant only upon actual receipt of the goods by the applicant; the explanation deeming receipt where goods are delivered to a recipient on the direction of the buyer (Bill to - Ship to) is not attracted where buyer and recipient are the same person. - HELD THAT: - The Authority examined the explanation to clause (b) of sub section (2) of Section 16 and held that it applies to cases where goods are delivered by the supplier to a recipient on the directions of the registered person (i.e., Bill to - Ship to arrangements) where buyer and recipient are different. In the present facts the buyer and the recipient are identical (the applicant); therefore the deeming provision does not operate to treat goods as received before physical receipt. Consequentially, entitlement to Input Tax Credit arises only when the applicant has actually received the goods. [Paras 7]Input tax credit on the goods will be available only when the applicant has received the goods.Time of supply - issue of invoice as event determining time of supply - Liability to pay tax for supplies where invoice is issued prior to physical delivery arises at the time of supply determined under Section 12, which is the earlier of issue of invoice or receipt of payment. - HELD THAT: - The Authority relied on Section 12(2) to determine the time of supply of goods. It noted that where the supplier issues an invoice earlier than the physical delivery, the date of issue of the invoice constitutes the time of supply. Therefore, for the purposes of return filing and tax payment, the tax liability arises in the month in which the invoice is issued (or on the earlier date of receipt of payment, if applicable). [Paras 8]Tax liability arises at the time of supply, which is the earlier of the date of issue of invoice or the date of receipt of payment.Final Conclusion: The Authority ruled that (i) input tax credit on goods invoiced in a prior month can be claimed only upon actual receipt of those goods by the applicant (the deeming provision for receipt does not apply where buyer and recipient are the same), and (ii) the supplier's tax liability arises at the time of supply, being the earlier of invoice issue date or receipt of payment, so an invoice issued before physical delivery fixes the tax period for payment and return. Issues:1. Input Tax Credit on goods received in a different month from when the invoice is raised.2. Liability to pay tax based on the time of supply of goods.Issue 1: Input Tax Credit on goods received in a different month:The applicant, a retail trading business, faced a challenge where goods purchased from a supplier remained in transit for 5-10 days, leading to a delay in booking purchases for the next month. The question was about claiming Input Tax Credit (ITC) when the invoice is raised by the seller in the previous month but goods are received in the next month. The applicant argued that as per CGST/HGST Act, they should be entitled to claim ITC in the same month as the invoice, as the tax is deemed paid by the supplier upon delivery to the transporter. However, the Deputy Excise & Taxation Commissioner emphasized that ITC can only be availed upon physical receipt of goods, and the law requires the registered person to be in possession of goods for ITC. The Authority ruled that ITC on goods is only available when the applicant physically receives the goods.Issue 2: Liability to pay tax based on the time of supply of goods:The applicant also raised a concern about issuing invoices to end customers before receiving physical delivery of goods due to monthly sales targets and incentives. They argued that tax liability arises when the invoice is raised and tax is collected, even if physical possession of goods is pending. The Authority referred to Section 12 of the CGST/HGST Act, stating that the time of supply of goods is determined by the date of issue of the invoice by the supplier. Therefore, in cases where invoices are issued before goods are delivered, the date of the invoice is considered the time of supply for tax purposes. The Authority concluded that the liability to pay tax is based on the time of supply, which is the date of the invoice issuance, even if physical delivery of goods occurs later.In summary, the Authority ruled that Input Tax Credit on goods is only available upon physical receipt, and the liability to pay tax is determined by the time of supply based on the invoice issuance date. The decision clarifies the tax treatment in scenarios where goods are in transit between invoice issuance and physical receipt, providing guidance on claiming ITC and determining tax liability accurately.