ITC allowed in case of sale and buyback transactions where payment is settled through book adjustment [Read AAR]

The West Bengal Authority for Advance Ruling (AAR West Bengal) in the matter of PARAGON POLYMER PRODUCTS PVT LTD has ruled out that ITC is allowed in case of sale and buyback transactions where payment is settled through book adjustment.

The applicant is stated to be engaged in the business of trading of footwear in the state of West Bengal in the brand name of ‘Paragon’. The applicant intends to manufacture footwear through independent outsource units under the sale and buyback model where raw materials for production will be sold by the applicant to the outsourced vendors and the applicant will buy back the manufactured goods from the said vendors. The applicant expresses its willingness to settle these mutual debts through book adjustments and the net dues through bank transfer.

The Question and Ruling are as follows:

Question: In the case of sale and buyback transactions, whether the input tax credit is admissible in respect of goods purchased from outsourced vendors when payment is settled through book adjustment against the debt created on outward supplies to these vendors?

RULING

In the case of sale and buyback transactions, the input tax credit is admissible in respect of goods purchased from outsourced vendors, when payment is settled through book adjustment against the debt created on outward supplies to those vendors.

For Official Ruling Download PDF Given Below: