Whether transfer of title in goods by filing the bill of entry on payment of IGST and import duty, without the physical receipt of the goods by the customer tantamount to receipt of goods for the purpose of claiming input tax credit as contemplated under section 16(2) (b) of CGST Act, 2017 – What constitutes ‘receive’ for the purposes of claiming ITC
Input tax credit is one of the fundamental tenet of GST Law and therefore the application of its provisions in letter and spirit as intended by the legislation becomes non-negotiable for the unerring implementation of the GST Law. Claiming input tax credit is a substantive right that cannot be hoodwinked by the Revenue with the play of words as drafted in the plenary legislation, while completely ignoring the intendment of the lawmakers.
16 of the Act, gives detailed conditions relating to the entitlement of ITC and once he has completed with the conditions, he shall not be denied the right to claim such credit. Here it becomes pertinent to mention that for any interpretation where the law is susceptible of ambiguities or capable of being acted upon in two or more ways, the necessary intendment of the legislation by looking at other provisions of the GST law or notifications and clarifications, as issued from time to time must be look into to draw the correct inference which also alliance with the objective of introducing the law.
One such debate arises with the conditions by virtue of Section 16(2)(b) wherein entitlement of ITC by a registered person is established only when he has received goods and services or both. What is construed as ‘received’ has not been defined under the GST Law – whether physical delivery of such goods is required or a symbolic or constructive delivery by transfer of title and thereby transfer of risks and rewards of ownership shall also suffice.
In this regard, it is necessary to bring to the fore, the provision of the law wherein the meaning of ‘transfer’ has been expounded. Schedule II Sl. No. 1 of the said Act clearly states transfer encompasses, among other things, “any transfer of the title in goods”. Though this provision relates to supply of goods for the purposes of levy of GST, it would be grossly remiss not to apply the same principle towards entitlement of ITC, inasmuch as ‘receive’ under Section 16(2)(b) would also mean constructive receipt through the transfer of title in goods to the buyer. Otherwise the intention of the legislation shall be devoid of the principle of equity, just and good conscience. Reliance has been placed on Automative Components Technology India Private Limited in AAR Tamil Nadu Order No. 05/ARA/2020 dated 31.01.2020 of automative components, wherein it was determined that “it is evident that ‘transfer of title in goods’ is supply of goods. In the case in hand there is transfer in title of moulds for a consideration and the supply is in the course of business, therefore, the same constitutes supply of goods and GST is liable to be paid on such supply”
As we take a closer look at the impugned condition we observe that the word ‘received’ nowhere implies presence of physical connection. It is much broad in nature and may include actual as well constructive delivery of goods. Further, the word ‘received’ has also been used along with the word ‘services’. It is well understood that service does have any physical existence and hence using the word ‘received’ with the word service clearly reflects the intent of the legislation to mean transfer of ownership and not transfer of possession. Had the intention of the legislature was to ensure physical receipt of goods, it would have never clubbed the condition of ‘received’ with services, which does not have a physical existence. It is, only, since ‘received’ is in its constructive meaning, was service also included in it, instead of culling out ‘services or both’ and putting it as a separate condition to mean constructive receipt for services only. Thus in the content of GST Law we may conclude that the use of the word ‘received’ in Section 16(2)(b) is for transfer of title in goods and not physical possession of goods.
Finally, for the authorities it is a revenue-neutral situation. The revenue does not lose anything since the buyer becomes entitled to ITC only when such tax has actually been paid by the seller. Furthermore, the contention that seller might not pay the tax does not hold water in our case, since it pertains to import of goods on which all duty including IGST were paid and thereafter goods cleared by filing the Bill of Entry to further strengthen our argument, we submit that we are in possession of the
Bill of Entry copies as the tax paying document which has been mandated as, inter alia, the document based on which ITC shall be claimed vide Rule 36(1)(d).
In light of the above, we may conclude that transfer of ownership in goods is the essence behind a sale transaction. Transfer of physical delivery may not be required in certain trade situations. Further allowing ITC without physical delivery does not put the Revenue at any prejudicial position as it is completely neutral transaction. However, not allowing ITC puts the bona fide tax payer at a disadvantage and may lead to huge working capital blockage land thus impede business. There appears to be no intent of the lawmakers behind allowing ITC only on physical delivery of goods.
Relevant provisions of ‘Sale of Goods Act, 1930’
Section 19 – Property passes when intended to pass – The property in them is transferred to the buyer at such time as the parties to the contract intend it to transfer.
Section 20 of the Act states when the property in goods passes to the buyer when the contract is made and it is immaterial whether the time of payment of the price or the time of delivery of the goods or both is postponed.
Section 26 of the Act states when the property in goods is transferred to the buyer the goods are at the buyer’s risk whether the delivery has been made or not.