2021 (12) TMI 464 - AAR - GST

Transfer of Credit to ISD under CGST Rules: Ruling Clarifies Tax Treatment & Compliance

The ruling by the Authority for Advance Ruling confirmed that the transfer of credit to an Input Service Distributor (ISD) under Rule 54(1A) of the CGST ... Transfer of input tax credit to Input Service Distributor under Rule 54(1A) - treatment of such transfer as outward taxable supplies - filing obligation of outward details in Form GSTR-1 - presentation of transferred credit in GSTR-3B - utilisation of IGST credit for discharging CGST and SGST liabilities under Section 49Transfer of input tax credit to Input Service Distributor under Rule 54(1A) - treatment of such transfer as outward taxable supplies - filing obligation of outward details in Form GSTR-1 - presentation of transferred credit in GSTR-3B - Transfer of credit under Rule 54(1A) to an ISD by issuance of an invoice or debit/credit note is to be treated as outward taxable supplies and the details must be furnished in Form GSTR-1; the taxable value and tax amount so transferred are to be reflected in returns including GSTR-3B. - HELD THAT: - Rule 54(1A) permits a registered person to transfer credit of common input services to an ISD by issuing an invoice or credit/debit note, which must state the taxable value and amount of credit to be transferred. Sections 37(1) of the CGST Act and Section 14 of the IGST Act read with rule 59(1) of the CGST Rules require furnishing details of outward supplies in Form GSTR-1 by every registered person other than an ISD and certain excluded persons. A combined reading leads to the conclusion that the transfer effected under Rule 54(1A) attracts the reporting obligation in GSTR-1; correspondingly the transfer and related amounts are to be reflected in the relevant heads of GSTR-3B so as to ensure proper compliance and reporting of the transfer of credit. [Paras 7, 8]Yes; transfer under Rule 54(1A) is outward taxable supplies and must be reported in Form GSTR-1 and appropriately shown in GSTR-3B.Utilisation of IGST credit for discharging CGST and SGST liabilities under Section 49 - treatment of IGST when transferor and transferee are in the same State - Where the transferor and the ISD transferee have the same PAN and are located in the same State, the ITC transferred will be available as CGST and SGST (not as IGST) by utilising available IGST credit in terms of Section 49. - HELD THAT: - The Authority observed that when an invoice is raised on an ISD having the same State code, the credit of tax can be issued for CGST and SGST by utilising IGST credit, pursuant to the provisions governing utilisation of input tax credit. Thus, for intra state transfers between registrations under the same PAN and State code, the practical effect is that the transferred credit is reflected as CGST and SGST, with IGST credit capable of being used to meet such Central and State tax components as provided by the law on set off/utilisation. [Paras 7, 8]Transfer of ITC between registrations in the same State (same PAN) will be in the form of CGST and SGST, utilising IGST credit as permissible under law.Treatment of transfers between registrations in different States - consistency with intra state transfer ruling - The position where transferor and transferee are in different States is answered by the ruling on intra state transfers and the obligation to report the transfer in returns; the treatment follows from the answer given to the intra state scenario. - HELD THAT: - The Authority indicated that the question regarding transfers between registrations in different States is addressed by its response to the intra state situation, i.e., reporting in GSTR 1 and GSTR 3B as outward details and the applicable mechanics of credit transfer under Rule 54(1A). No separate contrary dispensation was made; parties must follow the reporting and credit transfer mechanism as governed by the Rules and related provisions. [Paras 8]Answered by reference to the ruling in Question 2; parties must follow the same reporting and credit transfer mechanism under Rule 54(1A) and applicable credit utilisation provisions.Final Conclusion: The Authority rules that transfers of common input service credit to an ISD under Rule 54(1A) are to be treated as outward taxable supplies and must be reported in Form GSTR 1 and shown in GSTR 3B; where both registrations are under the same PAN and in the same State, the transferred ITC will be reflected as CGST and SGST, utilising IGST credit as permissible, and the position for inter state registrations is to be governed by the same reporting and transfer mechanism as indicated above. Issues:Interpretation of Rule 54(1A) of the CGST Rules for transferring credit to an Input Service Distributor (ISD) and its implications on tax treatment and compliance.Analysis:The applicant, M/s. Nile Limited, sought an advance ruling on the transfer of credit under Rule 54(1A) of the CGST Rules to their ISD registration. They highlighted their operations in Andhra Pradesh and Telangana, paying GST under Reverse Charge Mechanism on common input services. The company aimed to distribute input credit among all states through ISD registration, as per Rule 39 of the CGST Rules. However, they faced challenges in transferring IGST to their ISD registration due to both registrations being in the same state.The questions raised by the applicant focused on the tax treatment and compliance aspects of transferring credit to ISD. They sought clarity on whether such transfers would be considered as 'Outward Taxable Supplies' and how to reflect the details in GSTR-3B. Additionally, they inquired about the treatment of IGST when the transferor and transferee have the same PAN and are in the same state or different states.During the personal hearing, the authorized representatives reiterated the company's position, emphasizing the need for clarification on the transfer mechanism and applicable tax laws for such transactions. The discussion and findings highlighted Rule 54(1A)(a) of the CGST Rules, emphasizing the process for transferring credit to ISD through invoices, credit notes, or debit notes. It was clarified that details of such credit must be furnished in Form GSTR-1, with specific provisions for utilizing IGST credit for CGST and SGST when issuing invoices to ISD with the same state code.The ruling issued by the Authority for Advance Ruling addressed the questions raised by the applicant comprehensively. It confirmed that the transfer of credit to ISD under Rule 54(1A) would be considered as 'Outward Taxable Supplies,' with specific guidelines on reflecting details in GSTR-3B. The ruling also clarified the treatment of IGST when the transferor and transferee share the same PAN and are in the same state, emphasizing the issuance of CGST and SGST credits. Overall, the judgment provided clarity on the transfer mechanism, tax treatment, and compliance requirements for transferring credit to ISD under the CGST Rules.