The AAR Authorizes Input Tax Credit By GST Debt Settlement


Businesses can claim an input tax credit (ITC) under the goods and services tax (GST) system even if the obligation to pay the inputs between them, including the tax, is met by adjustments in their books, ruled an advance ruling authority (AAR).

AAR’s Bengal wing made the ruling during a hearing of a case involving Senco Gold, a jewelry supplier. The company also operates a network of franchise stores.

Explaining the case, Harpreet Singh, a partner at KPMG, said the plaintiff charged the franchisee with tax invoices for the supply of jewelry and for the provision of franchisee support services.

As a result, the franchisee also made the applicant pay tax invoices for the supply of antique jewelry received from customers. The claimant intended to settle the mutual debts through accounting adjustments.

However, for the purposes of benefiting from the ITC, Article 16 of the CGST Act requires the purchaser to pay the supplier the amount corresponding to the value of the supply, as well as the tax payable on it within 180 days. according to the date of the invoice.

As such, the Applicant requested an advance ruling on the eligibility of the input tax credit if it settled through an accounting adjustment the debt created on the franchisee’s inbound supplies.

AAR authorized the requester to do so. It found that the applicant could pay the consideration for the incoming supplies by offsetting an accounting debt.

He said a payment is a transfer of an asset to the recipient to fulfill an obligation arising from transactions involving goods, services or other legal obligations.

The most common asset class used for such payments is money, although other assets – unless expressly excluded by law – may be used, provided the payee accepts such a form of payment.

Singh said: “While the decision appears to bring great relief to taxpayers, it remains to be seen whether the same would apply in cases where the supplier reduces its debt by offering discounts to its customer, without a corresponding reduction in debt. tax. “

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