There may be certain situations wherein a person who is registered under GST law in State X receives any supply of goods or services or both from other State Y and instead of IGST, CGST and SGST of State Y is charged in tax invoice issued by the supplier. The classical example of such a situation is in regard to hotel accommodation services wherein due to place of supply being location of the hotel, it will always be intra-State supply subject to CGST + SGST.
In regard to above situations, a question arises, as to whether Input Tax Credit in respect of CGST and SGST of State Y can be availed by person who is registered in State X. Let’s deliberate the above in the succeeding paras.
1. Can SGST Credit (ITC) of other State be availed in other State:
As per Section 2(62) of the SGST Act of respective State the term ‘input tax’ of which credit can be availed, has been defined. As per the definition ‘input tax’ inter alia means State Tax charged on any supply of goods or services or both made to him.
The term ‘State Tax’ as per Section 2(104) of the SGST Act means tax levied under that SGST Act. Accordingly the term “State Tax” for the purpose of availing of input tax credit, will not include State Tax in respect of other State (where the recipient of supply is not registered) and therefore a registered person cannot avail the credit of SGST of other State.
Further apart from above legal position, we can also say that under GST law, a State would not allow credit of tax charged by the other State, as same would lead to its revenue loss. Under GST law, free flow / utilization of credit is only allowed in respect of IGST which is referred to as ‘washout tax’. It has even been mandated in GST law that the credit of CGST of a State cannot be used against SGST liability in that State and vice versa.
2. Can CGST Credit (ITC) of other State be availed in other State:
Now issue before us is as to whether CGST credit of other State can be availed or not. In this regard a line of argument can be that CGST being a central levy, a taxpayer should be eligible to avail credit of same even if same has been charged by supplier of another State. Further when the supplier in its invoice will mention GSTIN of the recipient the credit of CGST of other State would be reflected in GSTR-2A of such recipient and thus it appears that ITC can be availed.
However in this regard to availing of CGST credit of other State, there is an adverse advance ruling in the case of Storm Communications (P.) Ltd., [2019] 101 taxmann.com 479 (AAR-WEST BENGAL). Lets discuss the ruling as under:
2.1 Advance Ruling on issue of availing of ITC of other State:
In this case the issue on which advance ruling sought was “Whether payment of CGST of one State can be used as ITC for another State?”
Facts of the Case:
The applicant is a supplier of Event management services and is registered in West Bengal, Jharkhand, Odisha, Maharashtra, and Delhi.
The applicant organizes events on behalf of clients and, for this purpose, books conference halls, banquet halls, outdoor caterers etc. Sometimes applicant has to move to other states, where they are not registered, to serve clients in those states, and incur miscellaneous expenses for booking hotels, banquet halls and on food. On such inward supplies, they are charged CGST & SGST of that particular state and invoices are issued as B2B with Applicant’s GSTIN. These invoices are also reflected in the Applicant’s GSTR-2A.
Order of West Bengal AAR: Deliberations and Order
The major points of deliberations in the order of AAR are as under:
a) Place of Supply: In terms of Section 12(3) & (4) of the IGST Act, 2017, place of supply will be the location of the hotel, banquet hall or restaurant, where the services are actually performed; in this case, Tamil Nadu. Hence, in this case, the suppliers in Tamil Nadu have rightly charged CGST & SGST on the invoices, since all the transactions are intra-state and revenue belongs to the State of Tami Nadu.
b) Electronic Credit Ledger: Section 49(4) of the GST Act provides that the amount available in the electronic credit ledger, as defined under Section 2(46), may be used for making such payment toward outward tax liability. The electronic credit ledger contains the balance of input tax credit on
inward supplies as per the return of a registered person.
c) Input Tax: Under Section 2(62) of the GST Act “Input tax‟ in relation to a registered person, inter alia, means, the CGST, SGST and IGST charged on any supply of goods or services to the registered person. CGST and SGST are two components of the GST charged on intrastate supplies and IGST is the GST charged on inter-state supplies.
d) Credit linked to Registration: As input tax and its credit are always linked with whether the person is registered or not, the two components of GST paid on inward intra-state supply in Tamil Nadu could have been taken credit of, if only registration is taken in Tamil Nadu under Section 25(1) of the GST Act.
e) Distinct Persons– Credit not transferable: The architecture of the GST Act is such that even if a person is registered in different states all such registrations will be treated as distinct persons, and input tax in the credit ledger of one such person is not transferable to the credit ledger of another. If the person is not registered in a particular state, the tax paid on the inward supplies in that state is not ‘input tax’ in relation to the said person in the state where he registered.
Based upon above deliberations the AAR adjudged that as the Applicant is not registered under section 25(1) in Tamil Nadu, SGST and CGST paid on intra-state inward supply in Tamil Nadu are not ‘input tax’ to the said person. In no case, the Applicant can claim/adjust/avail ITC outside Tamil Nadu on the said invoices, even if the invoices are issued as B2B mentioning the Applicant’s GSTIN in West Bengal.
Applicant cannot avail ITC or cannot adjust ITC of one State from the output liability of another State along with this applicant cannot adjust GST paid in unregistered State for the payment of IGST.
3. Concluding remarks:
In view of above deliberations, we can conclude that the SGST credit of a State cannot be availed by a person registered in other State. Further in regard to CGST Credit also adverse ruling exists according to which credit of CGST Credit of other State cannot also be availed. Though ruling of Advance Authority are binding on the particular applicant but have strong persuasive value in other cases. Thus considering the existing law and advance ruling taxpayers should not avail CGST Credit of other States even if same is appearing in their GSTR-2A.
However, we should always remember that such blockage would normally happen only in cases of hotel accommodation/stay services wherein the place of supply is the location of hotel (immovable property).
In other cases, such blockage situation won’t be triggered as normally the place of supply is the location of the recipient of the supply and thus where the supplier is located in other State he shall charge IGST, on which credit ca freely be availed, of course, subject to Section 16 and 17 of the CGST Act, 2017.
It may also be noted that the above matter of blockage of credit in case of hotels etc was discussed in 25th GST Council Meeting wherein changes in GST law in regard to the place of Supply Rules for B2B supply of accommodation services were also approved. However, till date no amendment in the law has taken place in this regard, due to which blockage of such credit continues.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
