Input tax credit is admissible if consideration is paid through book adjustment

Input tax credit is admissible if consideration is paid through book adjustment. The GST Act and rules does not restrict the claiming of ITC when consideration is paid through book adjustment – AAR

ABCAUS Case Law Citation:
ABCAUS 2948 (2019) (05) AAR

The Applicant was engaged in the manufacturing and retailing of jewellery and articles made of gold, silver, platinum, diamonds and other precious stones.

Apart from his own retail stores, the Applicant also maintained a network of franchisee-operated stores. He granted such a franchisee the right and license to operate a showroom and to use, in connection therewith, certain Proprietary Marks and System in accordance with a Franchise Agreement (hereinafter the Agreement).

The Applicant raised tax invoices on the Franchisee for the supply of jewellery and other articles and also for Franchise Support Services in terms of the Agreement periodically.

On its part, the Franchisee also raised tax invoices on the Applicant for the supply of old gold, silver etc., received from the customers.

The Applicant intended to settle the mutual debts through book adjustments and sought an advance ruling on  whether the input tax credit is admissible when he settles through book adjustment the debt created on inward supplies from the Franchisee.

The question raised was admitted for an advance ruling under section 97(2)(d) of the GST Act.

The Advance Ruling Authority (AAR) held that the Applicant can pay the consideration for inward supplies by way of setting off book debt. The GST Act and rules made there under does not restrict the recipient from claiming the input tax credit when consideration is paid through book adjustment, subject to the conditions and restrictions as may be prescribed and in the manner specified in Sections 16 and 49 of the GST Act.

It was clarified that this Ruling is valid subject to the provisions under Section 103 until and unless declared void under Section 104(1) of the GST Act.

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