Value and tax payment condition under provio to Section 16(2)of CGST AcT

[Nikhil Virkar]

Whether Adjustment thru debit and credit note i/r/o non-related party supply transaction tantamount to payment of value and tax as envisaged under proviao to section 16 (2) of CGST Act to confirm the admissibility of ITC

[KASTURI SETHI]

Only debit note and credit note  would not suffice. Such notes must be supported by basic docs required for availment of ITC as specified in  Rule 36  of CGST Rules read with Section 34 of CGST Act.

[Nikhil Virkar]

Sir, my question is regarding adjustment of payments through debit and credit notes instead of making payment to each other of full bills, when the recipient is wanted to adjust / recover from a specific amount against bill of vendor.  Say - Supplier raised bill for Rs. value 100 + GST 18= total Rs. 118 on recipient.  Recipient want to recover bank charges Rs. 10/- from the supplier out of his bill amount.  Scenario 1:-  If recipient deduct Rs. 10/- if pay 108/- to the supplier, whether recipient will eligible to claim entire amount of ITC?  Scenario 2 :- If recipient raised financial debit note for Rs. 10/- and make payment of Rs. 108/-, whether entire ITC is available to the recipient?        

[KASTURI SETHI]

In my view, such adjustments are not allowed . 

(i) Read carefully 3rd proviso to Section 16 (2) below (d) which is extracted below

"Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him [to the supplier] of the amount towards the value of supply of goods or services or both along with tax payable thereon".

(ii) Also read Section 15 (2) (c) along with meaning and scope of  incidental expenses.

(iii) Bank charges are service charges and these fall in the meaning and scope of the term, "incidental expenses"

[Shilpi Jain]

Once the supplier has paid the entire tax to the Govt. for a supply then credit should be eligible to the recipient. 

The book adjustment of payables and receiveables is also a valid mode of payment and should not affect the ITC availed.

For financial credit note issued - ideally there should not be an issue on ITC to recipient though, knowing the reason for the same would be important before concluding.

[Nikhil Virkar]

Thank you sir and madam for your inputs.  

[KASTURI SETHI]

If Rs.ten is deducted from the tax invoice without GST effect, then there  should be no problem in such adjustments in the books of accounts. 

AI Summary

Payment requirement for input tax credit: adjustments via debit or credit notes need payment or documentary support to claim ITC.
Entitlement to input tax credit linked to payment of invoice value and tax to the supplier; debit or credit notes alone do not suffice unless payment is made or adjustments are supported by required documentary and payment records. Incidental expenses such as bank charges affect valuation and must be considered; if the supplier has paid the tax, recipient credit should not be impacted and book adjustments or a documented financial credit note are ordinarily acceptable.