The applicant, SML Tamil Nadu, is a branch office of SML Maharashtra (HO) which is engaged in the business of providing cranes on rental/lease/hire basis. For this, the applicant entered into a memorandum of understanding (MOU) with HO, wherein he shall hire cranes from HO and pay 95% of value charged to the customer as service consideration to HO. For cost incurred for upkeep and maintenance of cranes during the period of hire, the applicant shall issue a tax invoice and recover an amount on a cost plus mark up from HO.
It is explicitly provided in para 10 of MOU that such lease/hire charges shall be payable by the applicant to HO by netting off receivable & payable in the books of accounts and will be treated as deemed payment as per the provision of GST Law. Hence the applicant is not paying the full consideration of such transactions but the same is being netted off against the receivable for upkeep charges that HO has to pay to the applicant.
Would the applicant be eligible to avail input tax credit on such supplies when consideration is netted off against receivables?
The applicant contended that as per proviso to rule 37, the condition to make actual payment to supplier within 180 days is not applicable to them as the said transaction is taking place between distinct persons as specified by Schedule I of CGST Act, 2017.
As per proviso to rule 37, the value of supplies “made without consideration’ as specified in Schedule I shall be deemed to have been paid as per second proviso to section 16(2). In the instant case, there is consideration to be paid by applicant to HO as per MOU. Hence proviso to rule 37 shall not be applicable to the applicant.
Accordingly, the applicant is not eligible for the full ITC on inward supplies received from HO, but only to the extent specified in the restrictions as per second provision to section 16(2) of CGST Act.
Source: Order no 26/AAR/2019 dated 21.06.2019
