Summary: Under the GST Act, the admissibility of Input Tax Credit (ITC) when goods are delivered to a cold storage facility rather than the purchaser’s registered place of business is a key concern. Section 16(2)(b) of the GST Act allows ITC as long as the goods are received by the recipient or a third party on their direction, making it clear that physical receipt at the registered business location is not required. For instance, if M/s ABC, a GST-registered entity, instructs M/s XYZ to deliver goods to “Cold Storage – H,” the goods are considered received under Section 16(2)(b) when delivered, making ITC available to M/s ABC. Another concern is whether the cold storage facility must be registered as a place of business under GST. Though “place of business” under Section 2(85) includes warehouses, failure to register such a location may only attract a penalty under Section 125 of the GST Act, which can be mitigated by Section 126, provided no tax evasion occurs. Therefore, M/s ABC can claim ITC without the cold storage being registered as a place of business, and no penalties should apply under the current scenario. This article clarifies these aspects, providing a detailed understanding of ITC eligibility when goods are stored externally.
Introduction: There has been some confusion regarding the admissibility of Input Tax Credit (ITC) under Section 16 of the GST Act when the delivery of goods is not taken at the purchaser’s registered principal place of business but at an external warehouse or cold storage facility. This issue can be illustrated with the following example:
M/s ABC, a GST-registered entity, purchases goods worth ₹1 crore plus 12% GST from M/s XYZ, another GST-registered entity. M/s ABC instructs M/s XYZ to deliver the goods to “Cold Storage – H.” M/s ABC does not have a fixed contract with any specific cold storage facility and avails cold storage services from various service providers based on availability and competitive pricing. As a result, the cold storage facility is not registered as a place of business under the GST Act.
This article examines the admissibility of ITC to M/s ABC in such scenarios.
Allegation 1: ITC is Not Available Due to Non-fulfillment of Section 16(2)(b)
Analysis:
Section 16(2)(b) of the GST Act states:
“16(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,—
(a)
(b) he has received the goods or services or both.
[Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services—
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during the movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.]”
The explanation provided under Section 16(2)(b) clearly establishes that goods are deemed to be received by M/s ABC when M/s XYZ delivers them to any third party (in this case, Cold Storage – H) at the direction of M/s ABC.
Conclusion: There is no legal requirement for goods to be received at the purchaser’s registered place of business to avail ITC under Section 16(2)(b).
Allegation 2: The Cold Storage Facility Must Be Registered as a Place of Business
Analysis:
As per Section 2(85) of the GST Act, the term “place of business” is defined as follows:
“(85) “place of business” includes—
(a) a place where the business is ordinarily carried on, including a warehouse, a godown, or any other place where a taxable person stores, supplies, or receives goods or services or both; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called;”
One might argue that Cold Storage – H qualifies as a “place of business” under the GST Act’s definition. However, the question arises whether this place must be registered under Section 25. Failure to register such a place of business could potentially attract a penalty under Section 125 (general penalty) as Section 122(xi) does not apply since M/s ABC is already registered.
However, Section 126 (Discipline related to penalty) stipulates that no penalty shall be imposed if the amount of tax involved is less than ₹5,000. Since there has been no tax evasion as a result of not registering the cold storage facility, this provision offers protection against penalties. The imposition of a penalty by any tax officer.
Conclusion: ITC is admissible under Section 16(2)(b), and M/s ABC is shielded from penalties under Section 126 of the GST Act.
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