Summary:

The Gujarat Authority for Advance Ruling (‘the GAAR’) has held that Input Tax Credit (‘ITC’) of IGST paid on import of goods is admissible under Section 16 of the Central Good and Services Tax Act, 2017 (‘the CGST Act’), even if payment to the foreign supplier is deferred beyond 180 days from the date of invoice. As long as the payment is made within the time limits prescribed under Foreign Exchange Management Act, 1999 (‘FEMA’) and Reserve Bank of India (‘RBI’) guidelines, there is no requirement to reverse the ITC.

Facts:

• The Applicant imported goods from outside India, paid applicable duties and IGST and claimed ITC of the IGST paid
• The Applicant contemplated to make payment to the foreign supplier beyond 180 days from the date of import/shipment
• Since these deferred payments complied with FEMA and RBI guidelines, the Applicant contended that the second proviso to Section 16(2) of the CGST Act read with Rule 37 of the Central Goods and Service Tax Rules, 2017 (‘the CGST Rules’), was not applicable to their case

Issues before the GAAR:

1. Whether the ITC of IGST paid on import of goods is admissible under Section 16 of the CGST Act, if payment to the foreign supplier is made beyond 180 days from the date of invoice but within the time limits permitted under FEMA and RBI guidelines?
2. Does the second proviso to Section 16(2) read with Rule 37 of the CGST Rules, require reversal of ITC in such cases where payment is delayed beyond 180 days?

Discussion and Ruling:

• The GAAR held that the second proviso to Section 16 of CGST Act read with Rule 37 of the CGST Rules would not apply in respect of import of goods, wherein IGST already stands paid to the Government, on account of the following:
  • Based on a strict reading of Section 16(2), ITC restriction applies where both value and tax remain unpaid beyond 180 days. In the case of imports, while the value of supply may be unpaid, the IGST is already discharged, satisfying the core condition for availing ITC
  • The second proviso to Section 16(2) excludes reverse charge transactions, indicating a legislative intent to allow ITC where tax is paid by the recipient
  • The prescribed document for claiming ITC on imports is the Bill of Entry not the commercial invoice issued by the foreign supplier. The invoice referenced in the second proviso to Section 16(2) is defined as a tax invoice under Section 2(66) of the CGST Act, which can only be issued by a registered person, unlike a commercial invoice issued by a foreign supplier
  • The RBI, through its Master Circular No. 9/2011-12 dated July 1, 2011, has permitted Authorized Dealer Banks to approve trade credit for imports with maturity up to one year from the date of shipment
• The  minutes of the GST Council meeting held in 2016 indicate that the intent behind the second proviso to Section 16(2) was to curb ITC misuse. However, in the case of imports where IGST is already paid, revenue is not at risk, and therefore denying ITC cannot be seen as an anti-evasion measure
• Not allowing ITC on the ground of non-payment of value of supply to the foreign supplier when IGST already stands paid, would amount to treating equals as unequal, which cannot be permitted
• Accordingly, the GAAR held that ITC of IGST on imports remains admissible under Section 16 of the CGST Act, even where payment to the foreign supplier is deferred beyond 180 days, provided it is made within the time limits prescribed under FEMA and RBI guidelines. Hence, there is no requirement to reverse such ITC.

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