Web Analytics
6bb3d9a4d4f2b06c2b12621d7e592c30.jpg

Whether ITC is permissible when the payment is settled through Book Adjustment?

30 May, 2024
2565 View

Yes, the West Bengal, AAR in the case of Paragon Polymer Products (P.) Ltd., In re [2023 TAXONATION 1457 (WEST BENGAL-AAR)]held that the claim of input tax credit by the taxpayer cannot be denied under the second proviso to sub-section (2) of section 16 of the Central Goods and Services Tax Act, 2017 when payment is settled through book adjustments because the law has not put any restriction on such adjustments.The Advance Ruling Authority of West Bengal observed that the Applicant intends to enter into agreements with different vendors to whom they outsource the process of manufacturing footwear/parts of footwear. In this process, the Applicant procures raw materials and supplies to those outsourced vendors raising tax invoices. In return, vendors make outward supplies of finished goods to the Applicant for which payment is settled through book adjustment against debt created on the buy-back model. Therefore, the Applicant plays as supplier while supplying raw materials and emerges as the recipient when purchasing finished goods from those outsourced vendors. The AAR opined that the provision of Section 16(1) and (2) of the CGST Act, restricts credit of input tax to the recipient unless he pays the consideration to the supplier for inward supplies received by him along with tax payable thereon within the stipulated time limit of one hundred and eighty days from the date of issue of invoice and noted that the term 'consideration' has been defined in clause (31) of Section 2 of the CGST Act in an inclusive manner that extends the scope and range for mode of payment. Further, as per the said definition it is immaterial whether the payment is made by the recipient or by any other person. Further, when there is barter of goods or services, the same activity constitutes supply as well as a consideration. The AAR held that the settlement of mutual debts through book adjustment is a valid mode of payment under the CGST Act.

 

Author’s Comments

The Second proviso to section 16(2) of the CGST Act read with rule 37 of the CGST Rules provides a time limit of 180 days to pay the suppliers where input tax credit has been availed. Normally we have seen quite a number of cases where demand for reversal of ITC is fastened based on creditors’ balance appearing in the financial statements. The appearance of credit balance does not ipsi dixit imply non-compliance with any condition to avail theITC. No adverse inference can be drawn without showing ‘bill-wise delay’ in settlement of creditors, without this, allegations are deeply rooted in guesswork, estimate and conjecture which will be incompatible with the demand under Chapter XV of the Act.

 

Further there is no restriction under the law to settle payments through book adjustment and this was decided in the case of Senco Gold Ltd [ 2019 TAXONATION 13 (WEST BENGAL-AAR)] wherein it was held that the payment is a transfer of an asset to the payee for discharging an obligation arising out of transactions involving goods, services or other legal obligations. The most common asset class used for such payment is money, although other assets unless specifically excluded by law, may be used provided the payee accepts payment by such assets other than money as good and sufficient discharge of the obligation

 

Topic-Paragon Polymer Products Pvt. Ltd. (WEST BENGAL-AAR)

Citation-2023 TAXONATION 1457 (WEST BENGAL-AAR)

CA Ritesh Arora

 

CLICK HERE TO READ FULL CASE LAW 

OR 

SUBSCRIBE GST E-LIBRARY (INDIA'S HIGHEST GST CASE LAW DATA)

FOR MORE UPDATE ON GST/ IT JOIN OUR FREE WHATSAPP GROUP BY CLICKING ON THIS LINK https://chat.whatsapp.com/ILCu7dfsrD07gj5RddywZd

whatsapp Facebook share link LinkedIn share link Twitter share link Email share link

Comment: