2019(08)LCX0131(AAR)
AAR-WEST BENGAL
Senco Gold Ltd
decided on 08/08/2019
WEST BENGAL AUTHORITY FOR ADVANCE
RULING
GOODS AND SERVICES TAX
14 Beliaghata Road, Kolkata - 700015
(Constituted under section 96 of the West Bengal Goods and Services Act, 2017)
BENCH
Mr Sydney DSilva, Joint Commissioner, CGST & CX (Member)
Mr Parthasarathi Dey, Senior Joint Commissioner, SGST (Member)
Preamble
A person within the ambit of Section 100 (1) of the Central
Goods and Services Act, 2017 or West Bengal Goods and Services Act, 2017
(hereinafter collectively called the GST Act), if aggrieved by this Ruling,
may appeal against it before the West Bengal Appellate Authority for Advance
Ruling, constituted under Section 99 of the West Bengal Goods and Services Act,
2017, within a period of thirty days from the date of communication of this
Ruling, or within such further time as mentioned in the proviso to Section 100
(2) of the GST Act.
Every such appeal shall be filed in accordance with Section 100 (3) of the GST
Act and the Rules prescribed thereunder, and the Regulations prescribed by the
West Bengal Authority for Advance Ruling Regulations, 2018.
Name of the applicant |
Senco Gold Ltd |
Address |
41A AJC Bose Road Nonapukur Tram Depot, 10th Floor, Kolkata - 700017 |
GSTIN | 19AADCS6985J1ZL |
Case Number | 08 of 2019 |
ARN | AD190219000161K |
Date of application | February 14,2019 |
Order No. & date | 02/WB/AAR/2019-20 dated 08/05/2019 |
Applicant's representative heard | Vikram Khaitan, FCA |
1. Admissibility of the application
1.1 The Applicant is engaged in
the manufacturing and retailing of jewellery and articles made of gold, silver,
platinum, diamonds and other precious stones under the brand name Senco Gold &
Diamonds¯. Apart from his own retail stores, the Applicant also maintains a
network of franchisee-operated stores. He grants such a franchisee the right and
license to operate a showroom and to use, in connection therewith, certain
Proprietary Marks and System in accordance with a Franchise Agreement
(hereinafter the Agreement), a copy of which has been submitted at the time of
Hearing. The Applicant raises tax invoices on the Franchisee for the supply of
jewellery and other articles and also for Franchise Support Services in terms of
the Agreement periodically. On its part, the Franchisee also raises tax invoices
on the Applicant for the supply of old gold, silver etc., received from the
customers. The Applicant intends to settle the mutual debts through book
adjustments. He seeks an advance ruling on whether the input tax credit is
admissible when he settles through book adjustment the debt created on inward
supplies from the Franchisee.
1.2 The question raised is admissible for an advance ruling under section
97(2)(d) of the GST Act.
1.3 The Applicant declares that the issues raised in the application are not
pending nor decided in any proceedings under any provisions of the GST Act. The
officer concerned from the revenue has raised no objection to the admissibility
of the Application.
1.4 The Application is, therefore, admitted.
2. Submissions of the Applicant
2.1 The Applicant draws attention
to the second proviso to section 16(2) of the GST Act. It provides:
where a recipient fails to pay to the supplier of goods or services or both,
other than the supplies on which tax is payable on reverse charge basis, the
amount towards the value of supply along with tax payable thereon within a
period of one hundred and eighty days from the date of issue of invoice by the
supplier, an amount equal to the input tax credit availed by the recipient shall
be added to his output tax liability, along with interest thereon, in such
manner as may be prescribed.¯
2.2 The Applicant argues that apart from the above proviso, the GST Act nowhere
makes availing of input tax credit dependent upon the payment to be made for the
inward supply. The captioned proviso also does not prescribe or restrict the
mode in which the payment has to be made. The Applicant submits that payment
through adjustment of the books of accounts is a prevalent commercial practice.
Para 42 of Indian Accounting Standard 32 provides that a financial asset and a
financial liability shall be offset and the net amount presented in the balance
sheet when, and only when, an entity (a) currently has a legally enforceable
right to set off the recognized amounts; and (b) intends either to settle on a
net basis, or to realize the asset and settle the liability simultaneously.
2.3 ln this connection the Applicant refers to rule 19(8) of the West Bengal
Value Added Tax Rules, 2005, that restricted claim of input tax credit to
transactions where the payment had been 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.
3. Submissions of the Revenue
3.1 The concerned officer from
the Revenue refers to section 16(1) of the GST Act, which provides that
entitlement to take credit of input tax is subject to the conditions and
restrictions as may be prescribed and, in the manner, specified in section 49.
Section 49(1) provides that every deposit made towards tax, interest, penalty,
fee and any other amount shall be made through internet banking or by using
credit or debit cards or NEFT or RTGS or by such other mode and subject to such
conditions and restrictions as may be prescribed. Explanation (a) to section 49
further provides that the date of credit to the account of the Government in the
authorized bank shall be deemed to be the date of deposit in the electronic cash
ledger.
3.2 According to the concerned officer, the above provisions make it clear that
all transactions of the supplier and the recipient should be made through the
online banking system.
Therefore, the recipient is ineligible to claim credit of input tax if the
payment is made by way of book adjustment instead of through any banking
channel.
4. Observation & Findings 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. It 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.
In 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 avail of 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.¯
It clearly limits the recipients 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 recipients 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. It 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 payers books of accounts, such
transfer will be reported as a reduction in the book value of the asset being
transferred.
4.5 In the present context, consideration, as defined under section 2(31),
provides the scope and ambit for modes of payment. It includes, in relation to
the supply of goods or services, any payment, made or to be made, whether in
money or otherwise, 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 payers
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.
In view of the foregoing, we rule as under.
RULING
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.
(SYDNEY D'SILVA)
Member
West Bengal Authority for Advance Ruling
(PARTHASARATHI DEY)
Member
West Bengal Authority for Advance Ruling
Equivalent .