#GSTCase-39-Persons Registered in one State cannot claim ITC of CGST & SGST paid in another State
Storm Communications (P.) Ltd.,  101 taxmann.com 479 (AAR-WEST BENGAL)
Whether payment of CGST of one State can be used as ITC for another State?
Applicant is a supplier of Event management services and is registered in West Bengal, Jharkhand, Odisha, Maharashtra and Delhi.
The applicant organises 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.
- Observation by AAR:
AAR emphasized on following concepts: Place of Supply, Electronic Credit Ledger, Input Tax Credit, Registered Person and Separate Registrations being treated as Distinct persons under the Act.
- 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.
- Electronic Credit Ledger: Electronic credit ledger contains the balance of input tax credit on inward supplies as per the return of a registered person.
- Input Tax: The word Input Tax has been defined under Section 2(62) of CGST Act wherein ‘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 intra-state supplies with place of supply being the same place where the supplier is located.
- Registered Person: Input Tax Credit of CGST and SGST paid on inward intra-state supply with place of supply being Tamil Nadu, could have been taken by a person registered in Tamil Nadu and would have reflected in his credit ledger. Separate Registrations are regarded as “distinct person” within the meaning of Section 25(4) of the GST Act and if registered in Tamil Nadu, registered persons in Tamil Nadu and West Bengal would have been treated as distinct persons.
- Distinct Persons: 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.
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.
The judgement has at the outset linked Place of Supply to the State to which the revenue belongs. Once the State to which the revenue belongs is identified, then the Input Tax Credit can be credited in Electronic Credit Ledger of the Registered person of that State only. If a person is not registered in that particular state, then there is no mechanism under GST Law for transfer of Input Tax Credit i.e. tax belonging to another state to electronic credit ledger of person registered in another state (otherwise than by ISD etc.). Therefore, credit of the tax paid in a particular state on Intra State Supplies cannot be claimed by person without being registered in that particular State.
The judgement highlights the most common faced by Event Management Service Providers and in the larger context by all registered persons in relation to Hotel Services. This issue was raised in the 25th GST Council Meeting wherein council agreed to the same and decided to have a relook at it but somehow it seems it has either not seen the light of the say or has been put on hold for a long time to come.
Agenda Item 9 of the 25th GST Council Meeting provided as under:
“In case of B2B supply of accommodation services like hotels, etc. the place of supply of service should be the location of the registered person and not where the hotel etc. is located in order to permit availment of input tax credit to the registered person. The Hon’ble Minister from Kerala stated that a hotel service was availed where the place of consumption was, that is, where the hotel was located and it was not a B2B transaction. The Commissioner (GST Policy), CBEC stated that on account of place of supply rules, persons registered, say in Bengaluru or Mumbai, were not organizing conferences etc. in Kerala or any other State as they were not getting input tax credit and they were moving these conferences to cheaper destinations in the South-East Asian countries.”
It was agreed as follows:
20.4. For Agenda Item 9, the Council agreed to the proposals for changes in the GST Law as presented in Annexure I to Agenda Item 9 with the following modifications I suggestions: –
“The place of Supply Rules for B2B supply of accommodation services (Sl.No.42 of Annexure I) to be discussed along with the rate of tax on accommodation services;”
The amendment could not however see the light of the day and the issue persists.