2025 (9) TMI 1044 - AAR - GST

Input tax credit of IGST on imports remains allowed despite deferred supplier payment under Section 16(2) proviso and Rule 37

AAR, Gujarat held that input tax credit of IGST paid on imported goods remains admissible where payment to the foreign supplier is deferred beyond 180 ... Admissibility of Input Tax Credit (ITC) of Integrated GST (IGST) paid on the import of goods, where payment to the foreign supplier is deferred beyond 180 days from the date of invoice but made within the time limits permitted under FEMA and RBI guidelines - Requirement of reversal as per the second proviso to Section 16(2) read with Rule 37 of the CGST Rules, 2017 - HELD THAT:- The applicant feels, that the second proviso to section 16 read with rule 37 of the CGST Rules, 2017, would not apply in respect of import of goods wherein the IGST, in respect of which ITC is availed, already stands discharged. The applicant, has also given further reasons, which are already mentioned supra and is not being repeated for the sake of brevity. Whereas, the Department is of the view that wordings of the proviso to the Section 16(2) read with Rule 37 of the CGST Rules, make no distinction in terms of domestic supplies and imports in respect of the applicability of the said provision. GST Council has been formed under Article 279A(4) of the Constitution of India. The Hon’ble Supreme Court, in the case of Mohit Minerals P Ltd [2022 (5) TMI 968 - SUPREME COURT] held that the recommendations of GST Council have persuasive value. The above minutes of the GST Council meeting held in 2016, reveal the intent behind the second proviso to Section 16(2) of CGST Act, 2017. Having adopted the recommendation, the intent of the Legislature, in not allowing the ITC, is writ large. Further, having already deposited the IGST while clearing the goods from Customs, now, not allowing the ITC on the grounds of non-payment of the value of the goods to the supplier, by no stretch of imagination can be termed as an anti-evasion measure, the Government revenue already having been protected. Moreover, while interpreting the statute, the intention of the Legislature cannot be ignored. Further, in the present case, the IGST having already been paid by the applicant, gives rise to a situation almost akin to a transaction wherein the recipient pays the duty through RCM. In case of payment of duty through RCM, there is an exclusion provided under the second proviso to section 16(2) of the CGST Act, 2017. The Input Tax Credit (ITC) of Integrated GST (IGST) paid on the import of goods, where payment to the foreign supplier is deferred beyond 180 days from the date of invoice but made within the time limits permitted under FEMA and RBI guidelines, remains admissible under Section 16 of the CGST Act, 2017, and is not required to be reversed as per the second proviso to Section 16(2) read with Rule 37 of the CGST Rules, 2017. ISSUES PRESENTED AND CONSIDERED 1. Whether an application for advance ruling is not admissible under the proviso to Section 98(2) of the CGST Act where a similar question is pending or decided in proceedings against a different legal entity (including related persons). 2. Whether the second proviso to Section 16(2) of the CGST Act, read with Rule 37 of the CGST Rules, 2017, requires reversal of Input Tax Credit (ITC) of IGST paid on import of goods where payment to the foreign supplier is deferred beyond 180 days from the date of invoice but is made within time limits permitted under FEMA/RBI guidelines. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of advance ruling where similar question is pending/decided in proceedings against another entity Legal framework: Proviso to Section 98(2) of the CGST Act provides that the Authority shall not admit an application where the question raised is already pending or decided in any proceedings in the case of the applicant under any provision of the Act. Precedent treatment: No binding precedent was applied to displace the literal scope of the proviso; statutory text was applied. Interpretation and reasoning: The proviso is strictly confined to proceedings in the case of the applicant. The Authority examined facts and documents and found no evidence that proceedings (SCN or appeal) were in the applicant's own case. Distinct GSTINs and PANs, absence of legal relationship in the statutory sense, and the statutory definition of 'applicant' preclude extension of the bar to related or merely coincidentally searched entities. The Authority distinguished other pending proceedings that involved domestic-supplier non-payment issues as factually different from the present question concerning import/IGST and foreign-supplier deferred payment. Ratio vs. Obiter: Ratio - proviso to Section 98(2) applies only where the identical question is pending/decided in proceedings in the applicant's own case; proceedings against distinct entities (even if related) do not bar admission. Obiter - factual observations about searches/coincidental coverage not creating legal nexus. Conclusion: The application was admissible; the proviso to Section 98(2) did not bar admission. Issue 2 - Applicability of second proviso to Section 16(2) and Rule 37 to imports where IGST is paid but supplier payment deferred beyond 180 days Legal framework: Section 16(2) (with its second proviso) denies entitlement to ITC where recipient fails to pay value of supply along with tax within 180 days of invoice (except supplies on which tax is payable on reverse charge basis). Rule 37 prescribes reversal mechanics and re-availment on subsequent payment. Rule 36(1)(d) prescribes bill of entry as document for availing ITC on imports. FEMA/RBI Master Circular and trade credit/ECB rules govern permissible deferred payment/maturity for imports. Precedent treatment (followed/distinguished): The Authority treated GST Council minutes as persuasive of legislative intent (consistent with the persuasive value attributed by higher court decisions). The Authority referenced Supreme Court principles on statutory interpretation in taxing statutes (plain meaning and purpose) and equality under Article 14; cases cited were used as persuasive guidance rather than overruling any binding authority. Interpretation and reasoning: - Textual analysis: The proviso speaks of non-payment 'to the supplier of goods or services ... the amount towards the value of supply along with tax payable thereon within 180 days from the date of issue of invoice by the supplier.' In imports the tax element (IGST) is discharged to the Government at customs clearance; what remains unpaid to the foreign supplier is only the value of the goods. The Authority emphasized that the non-obstante clause does not override the literal effect of who remains unpaid. - Analogy to reverse charge: The proviso expressly excludes supplies on which tax is payable on reverse charge basis, reflecting legislative intent not to dis-entitle ITC where the recipient pays tax. Payment of IGST at import by the importer to the Government is analogous to recipient payment under reverse charge; the proviso's exclusion rationale supports non-application to imports where IGST has been paid. - Documentary basis for ITC on import: Rule 36(1)(d) identifies bill of entry, not commercial invoice issued by an unregistered foreign supplier, as the proper document for ITC on imports. The proviso's reference to 'invoice'/'tax invoice' (Section 2(66)) contemplates documents issued by a registered person; a foreign commercial invoice does not qualify as a tax invoice under the CGST Act. - Legislative intent: Minutes of GST Council (5th/6th meetings) reveal the provision's anti-evasion purpose and consideration of goods vs services; the Authority considered these minutes persuasive of intent to limit reversal to circumstances where tax is not otherwise secured. The Authority cited principles that taxing statutes should be construed on plain terms and to effectuate purpose. - Constitutional equality: Treating import cases (where IGST is paid) differently from domestic reverse-charge-like situations would treat equals unequally; Article 14 principles support extending the reverse-charge exclusion analogy to paid-IGST imports. Ratio vs. Obiter: Ratio - second proviso to Section 16(2) read with Rule 37 does not apply to imported goods where IGST has been discharged at customs and only the value to the foreign supplier remains unpaid beyond 180 days; such ITC remains admissible and need not be reversed if payment to foreign supplier is deferred within FEMA/RBI permitted limits. Obiter - observations about RBI/FEMA Master Circular timelines, and comparisons with domestic cases not squarely on point are ancillary reasoning supporting the main ratio. Conclusions: - Where IGST on imported goods has been paid to the Government at the time of clearance, the second proviso to Section 16(2) and Rule 37 do not mandate reversal of ITC solely because payment of the value of goods to the foreign supplier is deferred beyond 180 days, provided payment is made within FEMA/RBI permitted periods. - The appropriate document for ITC on imports is the bill of entry; commercial invoices of foreign suppliers do not constitute 'tax invoice' under the CGST Act for the purpose of Section 16(2) proviso. - The advance ruling: ITC of IGST paid on import remains admissible and is not required to be reversed under second proviso to Section 16(2) read with Rule 37 where payment to foreign supplier is deferred beyond 180 days but made within FEMA/RBI time limits.