ITC reversal as per Third proviso to section 16(2) not required in case of payment through book adjustment
WEST BENGAL AUTHORITY FOR ADVANCE RULING
The Relevant Text of Ruling as follows :
4. Observation & Findinqs of the Authority
4.1 Section 49(1) deals with the manner in which the supplier shall make payment of tax, interest etc. to the Government to be credited to his electronic cash ledger. The Applicant has made no submission that he intends to deposit tax to the Government in any other manner.
4.2 Section 49(2) provides that the input tax credit as self-assessed in the return of the registered person shall be credited to his electronic credit ledger. lt does not prohibit the Applicant from reporting in the return input tax credit when consideration is paid to the supplier by way of book adjustment. ln fact, section 49 does not deal with the mode of the transaction between the recipient and the supplier. This Authority, therefore, finds the only merit in the submissions of the concerned officer from the Revenue to the extent of payment of tax.
4.3 Third proviso to section 16(2) of the GST Act says: “the recipient shall be entitled to availof the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.” lt clearly limits the recipient’s entitlement to input tax credit only to transactions where he has paid the consideration for the supply received, along with the tax payable thereon. Such input tax may be provisionally credited to the recipient’s electronic credit ledger, but the same will be reversed, according to the second proviso to section 16(2), by an equivalent amount being added to his output tax liability unless he makes the payment within one hundred and eighty days from the date of issue of the invoice. lt is, therefore, clear that no input tax credit is admissible unless the recipient pays the supplier the consideration for the supply received.
4.4 A 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. Of course, in the payer’s books of accounts, such transferwill be reported as a reduction in the book value of the asset being transferred.
4.5 ln the present context, ‘consideration’, as defined under section 2(31), provides the scope and ambit for modes of payment. lt includes, in relation to the supply of goods or services, any payment, made or to be made, whether in money or otherurrise, and also the monetary value of any act or forbearance. This definition of ‘consideration’ cast the net so wide that almost no form of payment is excluded. For example, a mix of money and monetary value of the goods offered together with it is a valid ‘consideration’. Similarly, if the payee owes the payer a debt, and accepts a reduction in such a debt liability as a valid form of payment, that should also be regarded as a valid ‘consideration’ for a supply. In other words, reduction in book debt (an asset in the payer’s books of accounts) is a valid ‘consideration’.
4.6 The above discussion establishes that the recipient can pay the supplier consideration by way of setting off book debt. Unless the law specifically restricts the recipient from claiming the input tax credit when consideration is paid through book adjustment, credit of input tax cannot be denied on this ground alone. Rule 19(8) of the West Bengal Value Added Tax Rules, 2005, specifically provided that credit of input tax would be available only if the payment was made by account payee cheque or account payee draft or through electronic banking clearance when such payment exceeded rupees twenty thousand in a day. No such restriction is apparently provided under the GST Act.
ln view of the foregoing, we rule as under.
The Applicant can pay the consideration for inward supplies by way of setting off-book debt. The GST Act and rules made there under does not restrict the recipient from claiming the input tax credit when consideration is paid through book adjustment, subject to the conditions and restrictions as may be prescribed and in the manner specified in Sections 16 and 49 of the GST Act.
This Ruling is valid subject to the provisions under Section 103 until and unless declared void under Section 104(1) of the GST Act.