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 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.

---

---

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.

---