The Bombay High Court has held that Goods and Services Tax (GST) Input Tax Credit (ITC) cannot be denied on advance receipts.
The petitioner is an unincorporated consortium of two entities, namely, Larsen and Toubro Ltd. (L&T) and IHI Infrastructure Systems Co. Ltd., Japan (IHI). On 4 January, 2017, the Mumbai Metropolitan Region Development Authority invited tender for procurement and construction of a bridge for the “Mumbai Trans Harbour Link (MTHL) Project”. The project was being funded by the Japan International Co-operative Agency.
The petitioner was formed as an unincorporated consortium of L&T & IHI, “solely to bid for” and if successful, execute the project. The petitioner was a successful bidder. A letter of acceptance was issued to the petitioner by MMRDA on 17 November, 2017.
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A Consortium Agreement dated 22 December, 2017 was entered into between L&T and IHI. Thereafter, a Contract Agreement dated 26 December, 2017 was entered between MMRDA and petitioner.
The petitioner, as also the consortium members of the petitioner obtained registration under the GST laws, in compliance with the GST provisions. For the execution of the project work, purchase orders dated 23 March, 2018, back-to-back with the Contract Agreement, were issued by the petitioner to its members, i.e., L&T and IHI.
The members of the petitioner would raise bills on the petitioner for the portion of the work executed by them each month. In turn, the petitioner would raise a single consolidated invoice on the client, namely, MMRDA.
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Being back-to-back contracts, there was virtually no value addition by the petitioner. The payment realised by the bank was to be transferred by the petitioner to its members.
In regard the issues as arising in the present petition, it is the petitioner’s case that under Clause 14.2 of the General Conditions of Contract (GCC), the Employer [i.e. the MMRDA] was to make an advance payment as an interest-free loan to the petitioner [the contractor], upon the petitioner furnishing a bank guarantee. Such loan was to be repaid through percentage deduction from the interim payment to be made to the contractor. 7. The first tranche of such advance payment along with GST amount of Rs.32.02 crores was paid by the MMRDA to the petitioner in March, 2018.
The petitioner has contended that though the tender documents clearly stipulated that such amounts would be a loan which was to be repaid in the course of execution of the contract, it was inadvertently treated as an “advance consideration” under the contract and consequently, the petitioner was constrained to remit tax even though, according to the petitioner, there was no supply of service, in view of the statutory provisions of Section 7 of the GST Acts, which stipulate that “supply” includes supply “agreed to be made”. As also Section 13 of the Goods and Services Tax Act providing that receipt of payment shall determine “time of supply”, notwithstanding that service has not been provided.
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It was the petitioner’s case that accordingly, GST (Rs.32.02 crores approximately) being CGST and MGST, was leviable on the advance amounts. The MMRDA remitted Rs.32.02 crores of GST amount to the petitioner along with the advance amount, as the first tranche. The petitioner in turn remitted the said amount in cash through the electronic cash ledger to the GST Department. The petitioner has contended that an “Advance Receipt Voucher” dated 6 March, 2018 for Rs.32.02 crores in terms of Section 31(3)(d) of CGST and MGST Act, 2017 was issued by the petitioner to MMRDA.
The petitioner contends that the entire amount received by the petitioner from MMRDA as an advance/loan was to be recovered from the bills to be raised by the petitioner in the course of execution of the contract.
It was noted that, “These provisions contemplate a variety of situations, even when at a belated stage, an invoice can be issued and which can be a situation of advance payment being received in relation to the transactions between the parties. Thus, Section 31 is required to be holistically read so as to make the provision meaningful and more particularly in the context in hand.”
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It was also observed that, “For such reason, when the petitioner satisfied the requirements of Section 31(3)(d) as also accepted by the revenue to be a tax paying document, it would not be correct in law that the petitioner is denied input tax credit, merely because the petitioner has not complied with the part of the provisions, namely sub-section (1) of Section 31 read with Rule 36. In any event, Rule 36 cannot control the operation of Section 31 being the substantive statutory provision.”
It was thus held by the Division Bench of Justices G S Kulkarni and Jitendra Jain that, “in the peculiar facts of the case on the basis of Receipt Voucher issued by L&T in favour of the petitioner, the petitioner was entitled to avail the Input Tax Credit under section 16 of the CGST/MGST Act.”
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