Judicial Precedents for where constructive delivery was held to be enough satisfaction under S 16(2)(b) of CGST Act, 2017 to claim ITC

[Gautam Godhwani]

By virtue of Section 16(2)(b) wherein entitlement of ITC by a registered person is established only when he has received goods and services or both.

What is construed as ‘received’ has not been defined under the GST Law – whether physical delivery of such goods is required or a symbolic or constructive delivery by transfer of title and thereby transfer of risks and rewards of ownership shall also suffice.

It would be highly appreciated wherein the cases for the latter condition could be given - AKA ITC being allowed from the moment risk in goods has been passed or constructive delivery has taken place instead of actual delivery being the requisite norm, be it of this regime or the previous one.

These would be on the lines of S 19, S 20 and S 26 of SOGA.

One such case is of Automative Components Technology India Private Limited - 2020 (3) TMI 242 - AUTHORITY FOR ADVANCE RULING, TAMILNADU in AAR Tamil Nadu Order No. 05/ARA/2020 dated 31.01.2020. Another could be the case of the four member bench of Hon’ble Supreme Court in the case of Duni Chand Rataria vs. Bhuwalka Brothers Ltd.: 1954 (12) TMI 19 - SUPREME COURT has interpreted that delivery to mean and include “constructive delivery” as well.

Thanks and Regards,

Gautam.

[Amit Agrawal]

@ Shri Padmanathan Ji,

W.r.t. your last post, please let me add some more finer points to the ongoing discussion:

A. Just like delivery of goods, possession of goods need not be 'physical' but can be constructive.

B. This is what is meant by the explanation given u/s 16(2)(b) where having 'documents of title to goods' is treated as having possession or control on those goods. And having possession or control on those goods by the recipient is treated as deemed receipt of those goods for purpose of Section 16(2)(b).

C. I do not think even Sales Tax Act, 1930 contradict above position, though I would not want to use its delivery-related provisions (at first stage / as opening argument) purely because I find said explanation very clear & unambiguous and to avoid distraction from main argument. Of course, I can & will use provisions of Sales Tax Act, 1930 to explain how contrary view-point's reliance of them is grossly misplaced.

C1. Even otherwise, under GST, the terms "delivery" & "Possession" - themselves - are treated as 'different' as can be seen from Section 2(93)(b) of the CGST Act, 2017. So, entire focus of delivery-related provisions of Sales Tax Act, 1930 to link 'delivery' to 'physical receipt & then, physical possession' is faulty in my humble opinion. Under said explanation, 'delivery' is linked to 'documents of title to goods' (i.e. possession or control on those goods by the recipient) on deeming basis for purpose of Section 16(2)(b).

D. Said explanation is actually put in place, IMHO, so as NOT to limit availability of ITC only on physical receipt of those goods but to SPECIALLY ALLOW the ITC even when there is constructive delivery of goods to the recipient registered person by way of transfer of documents of title to goods.

E. Any contrary reading of that explanation (to the effect where availability of ITC to the recipient is made dependent solely upon physical receipt of those goods) is blatantly contrary to plain, simple & unambiguous reading of said explanation IMHO.

F. Also, limiting said explanation only to 'Bill To Ship To' nature of supply and NOT extending to 'One To One' contradict first part of the explanation itself (i.e. where the goods are delivered by the supplier to a recipient or .........). Moreover, this view also ignores crucial difference between wordings of this explanation and wordings of Section 10 (1) (b) of the IGST Act, 2017 which actually deals with 'Bill To Ship To' nature of supply by using the word "third person" which NOT used at all in this explanation u/s 16(2)(b).

F. There is many more real-life examples where ITC is taken by the recipient registered person - across many industries - without physical receipt of those goods but only on the basis of constructive deliveries (& thereby, constructive-receipt). For example: Dies / Mould sold by component manufactures to Original Equipment Manufacturers / OEM (like Baja Auto, Tata Motors, Hero, even in other industries like Washing Machine, Refrigerators & so on) without removal from factory (& using them for manufacturing components for these OEM/s). And, I do not think these OEM/s are contravening Section 16(2)(b) at all by taking ITC against these moulds / dies without physically receiving them.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Gautam Godhwani]

Also, I am reminded of the following provision in Section 122 (1) (vii) which goes as -

(vii) takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;

Does not this seem to run contrary to explanation of Section 16(2)(b) ?

Thanks and Regards,
Gautam.

[Amit Agrawal]

Dear Shri Gautam Godhwani Ji,

W.r.t. the query posted at serial No. 22, my views are as follows:

A. Under context of your query, penalty u/s Section 122 (1) (vii) has three main components .... first 'takes or utilises input tax credit, second 'without actual receipt' and 'third in contravention of the provisions of this Act or the rules made thereunder'.

B. Read together, if goods / services are treated as 'received' for purpose of Section 16(2)(b) read explanation thereunder while taking ITC against underlying supply of goods, there cannot be any contravention of law warranting penalty u/s 122 (1) (vii).

C. I can answer your query even by dealing with meaning of singular term namely 'without actual receipt' used u/s 122 (1) (vii) in context of GST Law. But, I am not going into those issues because in my view, above-said three components - read together- makes it crystal clear that Section 122(1)(vii) are NOT contrary to Section 16(2)(b).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Just to add to my last post:

D. If anything, wordings of said Section 122(1)(vii) actually implies that in some situations, ITC can be availed without actual receipt of goods / services and without any contravention of the provisions of this Act or the rules made thereunder.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan KV]

Just to

1. add flavour to the ongoing discussion, and

2. to trying to bringout practical scenarious in business and

3. apprehension of experts who do not agree to constructive delivery regarding "fake invoicing" etc,

I am sharing few live cases which I am dealing with currently:-

A. XYZ Pvt Ltd, dealer in Iron and Steel in Palakkad, Kerala has received notice under section 74 alleging that section 16(2)(b) is violated on following grounds:-

"XYZ pvt ltd has availed ITC on basis of an invoice received from ABC, Goa which is also covered by E-way bill number xxxxxxxxxxx however, the vehicle number mentioned in the e-way has not been seen crossing any toll plaza from goa to kerala as per NIC Analytics data report. Further, another e-way bill is also seen generated in Maharashtra for the same vehicle number on same date."

B. PQR Pvt Ltd has purchased goods from MNO Pvt Ltd. vide Inv No. xxxx. PQR Pvt Ltd has also made payment to MNO and availed ITC.

However, due to some contingency they are yet to take the delivery of the goods and it is still lying in MNO Pvt Ltd's godown.

The said stock is shown in balance sheet of PQR Pvt Ltd as "stock with third-parties".

During audit the officer wants to disallow the ITC due to not full-filing 16(2)(b).

These are real cases which I am dealing. I hope the difference can be made out in both above cases on same provision.

PS- I am fighting both cases on different grounds, which ofcourse is different issue.

[KASTURI SETHI]

Sh.Padmanathan Kollengode Ji,

The concept of 'constructive delivery' has been discussed in detail in the judgement of Supreme Court in the case of COMMERCIAL TAXES OFFICER Versus BOMBAY MACHINERY STORE - 2020 (4) TMI 769 - SUPREME COURT.

[Amit Agrawal]

In the case of COMMERCIAL TAXES OFFICER Versus BOMBAY MACHINERY STORE - 2020 (4) TMI 769 - SUPREME COURT, following observations of Apex Court are worth noting:

"15. ................................................ In the event, the authorities felt any assessee or dealer was taking unintended benefit under the aforesaid provisions of the 1956 Act, then the proper course would be legislative amendment. The Tax Administration Authorities cannot give their own interpretation to legislative provisions on the basis of their own perception of trade practise. This administrative exercise, in effect, would result in supplying words to legislative provisions, as if to cure omissions of the legislature."

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

Constructive delivery: transfer of documents of title can satisfy 'receipt' for input tax credit where facts and evidence support it.
Whether a registered person may claim input tax credit under Section 16(2)(b) when goods are not physically received depends on the explanation to that clause, which deems goods as received where delivery occurs to a recipient or any other person on the direction of the registered person or where documents of title are transferred. The explanation therefore permits recognition of possession or control via transfer of documents of title, enabling constructive delivery to satisfy the receipt requirement for ITC in specified situations, subject to evidential proof and potential administrative challenge.