The Appellate Authority for Advance Ruling, Tamil Nadu, examined the admissibility of input tax credit in the hands of a branch office where payments to the head office were settled through netting-off of receivables and payables in the books of accounts. The appellant, a branch office of Sanghvi Movers Ltd., Maharashtra, was engaged in sub-leasing cranes received from its head office for use in the course of business. The ownership of the cranes remained with the head office, and the branch paid lease or hire charges as agreed under a Memorandum of Understanding.

The head office raised tax invoices charging IGST on the lease or hire charges and discharged the tax liability treating the transaction as an inter-State supply between distinct persons. The branch availed input tax credit of the IGST charged. However, the consideration payable by the branch to the head office was not discharged by separate monetary payment but was settled through netting-off of receivables and payables between the two entities, in accordance with established accounting principles.

The Authority for Advance Ruling had restricted the availability of input tax credit on the ground that full payment of consideration had not been made within the meaning of the proviso to Section 16(2) of the CGST Act read with Rule 37 of the CGST Rules. Aggrieved by this restriction, the appellant preferred an appeal before the Appellate Authority.

The Appellate Authority observed that supplies between distinct persons in the course or furtherance of business are taxable even in the absence of consideration, as provided under Schedule I of the GST Act. It further noted that the head office had discharged IGST on the value declared in the tax invoices and that the consideration stood effectively paid either through receipts from the ultimate customers or by adjustment against payables in the books of accounts of the branch and the head office.

The Appellate Authority held that, in such circumstances, the consideration must be regarded as having been paid, and the proviso to Rule 37 contemplates deemed payment in transactions between distinct persons. Since the tax had been paid to the Government and the supply was used in the course or furtherance of business, there was no justification to restrict the input tax credit.

Accordingly, the Appellate Authority ruled that the branch office was entitled to avail full input tax credit of the IGST paid by the head office, notwithstanding that the settlement of consideration was effected through netting-off of receivables and payables, and set aside the restriction imposed by the lower authority.


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