GST ITC transfer from one state to another is not an inward supply

ITC transfer from one state to another is not an inward supply

JSW Steel Ltd. vs. Union of India (Orissa High Court)

Input Service Distributor can claim input tax credit only in the case of an inward supply, and an input tax credit transfer from one state to another is not an inward supply.

Facts of the Case 

JSW Steel Ltd. has units located in different States including the State of Odisha with its Head Office at Mumbai. The Head Office at Mumbai is registered as ISD and as normal taxpayer in the State of Maharashtra.

JSW as a Company (not as Head office at Mumbai) applied and participated in the tender process and was granted with the mining lease process for the four Iron mines situated within the State of Odisha.

Scrutiny of returns filed for the tax periods in question depicted that JSW Odisha has paid SGST and CGST under reverse charge mechanism on bid premium, royalty, DMF, NMET, NPV, etc. The order showed that having utilised a portion of the tax paid on RCM, JSW-company in Odisha has passed on to JSW Steel in Maharashtra, as ISD registration in the shape of IGST in the garb of outward supply of facilitation services to JSW Steel (ISD) and thus, utilising the excess/unutilised input tax credit lying at JSW Odisha.

Amount of input tax credit (ITC) stood transferred by JSW Odisha, has been distributed by JSW ISD Maharashtra to other units of JSW-Company located in the States of Tamil Nadu, Maharashtra and Karnataka

Argument by the Petitioner (JSW Steel Ltd)

JSW ISD Maharashtra being conduit is competent enough to distribute unutilised ITC to other units.

The Revenue Authorities of Odisha State are incompetent to disallow the transactions depicted in the accounts and returns of units of other States.

Raising demand of tax under the OGST/CGST Act where IGST has being already paid on the transactions would tantamount to double taxation.

The imposition of penalty as a consequence of adjudication by rejecting the ITC is draconian.

The company had prayed for quashing of the order and grant of interim stay.

Argument by Department

It was argued by the department issue of invoice by the branch office to its ISD is possible only if the branch office and the ISD have the same PAN and same State code.

It was not the case in JSW as both have different PAN numbers and State codes. The passing of ITC by raising invoice by the branch office is against the provision of OGST/CGST Rules and amounts to wrongful utilisation of ITC.

Mere terming the transaction as “facilitation” would not bring the same into the fold of “goods” or “service”. There being no “supply” as per definition of “supplier” contained in Section 2(105) of the OGST Act, the writ petitioner is wrong to contend that its action in claiming ITC above reproach.

JSW Odisha being not declared as ISD, the transfer of unutilized ITC by it to JSW ISD Maharashtra is not in consonance with the provisions of the statute particularly so in view of Rule 8 of the OGST Rules which reads as ‘every person being an ISD shall make a separate application for registration as such ISD’.

Therefore, ITC of JSW Odisha could not have been distributed by JSW ISD Maharashtra to other units located in other States including the State of Maharashtra, since the ISD being not registered as a normal tax payer is not entitled to make any outward supply of goods and services. JSW Steel Ltd. being the recipient of services in the State of Odisha is obligated to pay GST on reverse charge mechanism. Legal Issue Whether transfer of input tax credit from one to State to another can be treated as inward supply where the company instead of utilising the CGST and OGST so paid under RCM transferred a portion of it to its ISD treating the supply as facilitation services.

Observation of Court

The Odisha High Court observed that there was no documentary evidence to support the fact that JSW ISD Maharashtra has been awarded with the contract in the State of Odisha, and that the tax was deposited by JSW Odisha on behalf of JSW ISD Maharashtra. The Odisha High Court has ruled that an ISD can claim ITC only in the case of an inward supply, and an ITC transfer from one state to another is not an inward supply.

The HC besides declining to grant interim stay has directed the State government to file counter affidavit within six weeks and posted the matter to August 12 for further hearing.

Attached is the copy of Order passed by the Hon’ble Odisha High Court