The Kerala Authority for Advance Ruling (KAAR) has held that settlement of mutual debt through book adjustment is a valid mode of payment of consideration and the input credit is admissible.
Paragon Polymer Products Private Limited, the applicant is in the business of manufacturing and trading footwear. The question before the authority was, in the case of sale and buyback transactions, whether the input tax credit is admissible in respect of goods purchased from outsourced vendors when payment is settled through book adjustment, against the debt created on outward supplies to these vendors.
The applicant submitted that in the course of manufacturing footwear, the applicant outsources some activities to outside vendors. In a few such cases the applicant is planning to sell a few raw materials required for the production to these vendors.
The supply of materials by the applicant to these vendors will be made as a sale by raising taxable sales invoices. The vendors along with the raw materials purchased from the applicant and other materials directly procured by them, manufacture footwear/parts of footwear as per the applicant’s requirement and return them to the applicant.
The transfer is also made as a sale by the vendor to the applicant under the cover of a taxable sales invoice. The applicant intends to settle these mutual debts through book adjustments and settle the net dues only through bank transfer.
The Authority comprising of Dr.S.L. Sreeparvathy, IRS &Shri. Abraham Renn S, IRS held that ‘the input tax credit is admissible when consideration is paid through book adjustment as detailed above, subject to the other conditions and restrictions prescribed Sections 16, 17 and 18 of the CGST Act, 2017.
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