ITC on Support services by JV to its member

[Narayan Pujar]

In one of the cases, two parties formed a Joint Venture (JV) pursuant to a railway contract awarded to the JV. As per prevailing industry practice, the entire contract was sub-contracted on a back-to-back (on a toto) basis to the lead member of the JV. Accordingly, the member executed the project and raised invoices on the JV, which in turn raised invoices on the Railways.

Owing to contractual and statutory obligations, the JV incurred certain expenses such as bank guarantee charges, labour cess, audit fees, and similar costs. These expenses are intrinsic and unavoidable for execution of the railway contract and are directly attributable to the said project.

Given that the entire contract was sub-contracted to the JV member, the expenses incurred by the JV effectively constitute support services facilitating execution of the contract by the member. Accordingly, the JV has raised tax invoices on the member towards provision of such support services. The said arrangement is also in consonance with Section 7(1)(c) of the CGST Act, 2017, read with Schedule I, which recognizes certain transactions as deemed supplies.

However, the department has disputed the eligibility of input tax credit (ITC) in the hands of the JV member (recipient), alleging that the transaction is merely a pass-through of expenses and not in the course or furtherance of business.

How should one defend the ITC here?

[Vijay kumar]

As per Sn.16(1), ITC is eligible if the service is used for business or furtherance of business. If same came can be proved by JV member, there would be no issue. Both being different entities, books of account should be relied to prove the same. If it is supply at the hands of JV and JV paid the tax in terms of Sn.7 r/w Sn.15 r/w Rule 28, ITC eligibility of JV member cannot be questioned, in my view.

Further, Sn.16(2) conditions should be satisfied like invoice, receipt of service from / thr' JV, payment by JV member to JV etc.

 

[Raam Srinivasan Swaminathan Kalpathi]

Dear Querist

I am of the opinion that you have a strong case as regards the ITC availment despite the claims raised by the GST Department, subject of course to meeting the conditions set out in Sec.16(2)r w r 36. I would request you to go through the following landmark case law delivered by the Bombay HC. This may provide the much needed clarity - 2024 (11) TMI 978 - BOMBAY HIGH COURT -Re L&T IHI Consortium (2025).

[KASTURI SETHI]

There is no substance in the contention of the department. It is stretching the law.

[KASTURI SETHI]

The department is applying the term, "pass-through' in a different way. Here its application/use is not in the fitness of things.

[Shilpi Jain]

The credit is eligible. The officer is only being more creative in putting reasons to deny the credit!!

[Narayan Pujar]

Thank you all for your opinions.

AI Summary

Input tax credit on joint venture support services turns on genuine business use, invoicing, and statutory compliance. Input tax credit on support services supplied by a joint venture to its member is discussed in the setting of a railway contract subcontracted on a back-to-back basis to the lead member. The joint venture's contractual and statutory costs are treated as support services facilitating execution of the project, with tax invoices raised on the member and tax paid on the supply. The dispute concerns the department's objection that the arrangement is a mere pass-through of expenses and not for business use. The text indicates that credit is defended on the basis that the supply is genuine, business-related, supported by invoices and books, and satisfies the statutory conditions for input tax credit.