2020 (1) TMI 64 - AAAR - GST

Appellant Eligible for Full Input Tax Credit on Crane Lease/Hire

The appellate authority ruled that the appellant is eligible to avail full Input Tax Credit of the tax paid by SML Maharashtra on the lease/hire of ... Input tax credit - Supply between distinct persons treated as supply under Schedule I - Deemed payment for supplies made without consideration under proviso to Rule 37 of the CGST Rules - Payment of amount towards value of supply within 180 days under proviso to Section 16(2) - Tax invoice and valuation under GST - Book adjustment / netting off as mode of paymentInput tax credit - Supply between distinct persons treated as supply under Schedule I - Deemed payment for supplies made without consideration under proviso to Rule 37 of the CGST Rules - Book adjustment / netting off as mode of payment - Tax invoice and valuation under GST - Eligibility of the appellant to avail full input tax credit of tax paid by SML Head Office on lease/hire of cranes supplied to the appellant (a distinct person) for furtherance of business. - HELD THAT: - The transactions fall within Schedule I as supplies between distinct persons and are therefore taxable. The appellant is in possession of tax invoices, the goods/services were received for furtherance of business, tax has been paid by the Head Office and returns are filed. Although the Lower Authority restricted ITC relying on the fact that consideration is specified and payment was not made in cash, the Appellate Authority found that the consideration has been paid in substance either by receipt of payment from the ultimate customer into the Head Office account or by legitimate book adjustments (netting off receivables and payables) permitted by the commercial arrangement embodied in the MOU and recognised in accounting principles. The proviso to Rule 37 (deeming payment for supplies without consideration) need not be the only route to permit ITC; where value and tax have in substance been discharged through the mechanisms adopted (tax invoice, payment to Head Office account or lawful set off between receivable and payable), there is no justification to restrict ITC under Section 16(2). Applying these principles to the material before it, the Appellate Authority found no reason to deny or proportionately restrict the credit and therefore held that the appellant is entitled to claim full ITC subject to other conditions of Section 16 being met. [Paras 6, 8, 9]The appellant is eligible to avail full input tax credit of the tax paid by SML Head Office on the lease/hire of cranes to the appellant for furtherance of business, subject to the other conditions of Section 16 of the CGST/TNGST Act, 2017.Final Conclusion: The Appellate Authority modified the Original AAR and held that, on the facts and documents produced, the appellant may claim full input tax credit of the tax paid by the Head Office on lease/hire of cranes to the appellant, subject to compliance with the other statutory conditions for availment of credit. Issues Involved:1. Eligibility of Input Tax Credit (ITC) for GST paid on inter-state supply between distinct persons.2. Interpretation of Memorandum of Understanding (MoU) in the context of GST compliance.3. Applicability of the second proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules.4. Consideration of book adjustments and netting off receivables and payables in determining ITC eligibility.Issue-Wise Detailed Analysis:1. Eligibility of Input Tax Credit (ITC) for GST Paid on Inter-State Supply Between Distinct Persons:The appellant, SML Tamil Nadu, sought to determine the admissibility of ITC for the IGST paid by SML Maharashtra on the lease of cranes. The appellate authority examined whether the supply of cranes from SML Maharashtra to SML Tamil Nadu, which are distinct persons under GST law, qualifies for ITC. It was determined that the supply between distinct persons is taxable under Section 7 read with Schedule I of the CGST/TNGST Act 2017. The ruling concluded that the appellant is eligible for full ITC of the tax paid by SML Maharashtra, as the transaction is in the course of furtherance of business and meets the conditions under Section 16 of the Act.2. Interpretation of Memorandum of Understanding (MoU) in the Context of GST Compliance:The appellant argued that the MoU between SML Maharashtra and SML Tamil Nadu was established to adhere to GST provisions. The MoU specified that consideration for the lease of cranes was agreed upon for GST compliance purposes, not for commercial substance. The appellate authority agreed that the MoU should be read as a whole and not in isolation. The consideration mentioned in the MoU was necessary for compliance with valuation provisions under GST law. The ruling emphasized that the MoU was created to ensure operational feasibility and compliance with GST provisions, and thus, the appellant is entitled to ITC.3. Applicability of the Second Proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules:The original authority had ruled that the appellant was not eligible for full ITC due to non-payment of full consideration within 180 days, as per the second proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules. The appellant contended that the proviso to Rule 37, which provides for deemed payment of value for supplies between distinct persons, should apply. The appellate authority found that the proviso to Rule 37 indeed applies, as the transaction is between distinct persons and the value of supplies made without consideration is deemed to have been paid. Therefore, the appellant is eligible for full ITC.4. Consideration of Book Adjustments and Netting Off Receivables and Payables in Determining ITC Eligibility:The appellant argued that the receivables and payables between SML Maharashtra and SML Tamil Nadu are set off against each other, as recognized by accounting standards. The appellate authority agreed that the consideration stands paid either by the customer of the appellant or through book adjustments. The ruling emphasized that the netting off of receivables and payables is permissible under accounting principles and should not restrict the eligibility of ITC. The appellant is entitled to full ITC as the consideration is deemed to be paid through these adjustments.Ruling:The appellate authority ruled that the appellant is eligible to avail full Input Tax Credit of the tax paid by SML Maharashtra on the lease/hire of cranes, subject to other conditions of eligibility as per Section 16 of the CGST/TNGST Act 2017. The ruling modified the original advance ruling authority's decision, allowing the appellant to claim full ITC.