The makers of the GST Law always intended it be a simpler tax regime, but they couldn’t ascertain as to when it started turning complex. The very object of ensuring ease of doing business has been diluted by the highly complex, inconsistent and illegitimate provisions of the law. Certain provisions are drafted in such a manner that they are self-contradictory and do not stand the test of legality. However, there is a great saying that every dark cloud has a silver lining and likewise GST has turned out to be an evolving law, brining better versions of itself and refining and ironing out the self-contradictions within itself. The GST Council has also been sporting enough to bring amendments wherever felt necessary. However, there are still many areas where the Council must decide immediately to ensure the desired object of ease of business.
Input Tax Credit (ITC) is the base of GST Law and its success or failure depends entirely on the manner ITC provisions are implemented in letter and spirit. Section 16 of the CGST Act, 2017 gives detailed conditions regarding entitlement of ITC and one shall have to religiously comply with them to become eligible to entitle the same. It is worth mentioning that there are many apparent ambiguities in such conditions and each & every condition u/s 16 has become a subject matter of debate. There are serious arguments for and against such conditions. One such condition requires entitlement of ITC by a registered person only if he has received the goods or services or both. Now, the question arises as to what will be construed as ‘received’? Whether only physical delivery of such goods is required or even symbolic or constructive delivery shall suffice. By way of this article, the author has attempted to give a point of view to this issue and how can the provisions be harmoniously interpreted in a manner so as to arrive at the correct and desired interpretation of the law.
(b) he has received the goods or services or both
A plain reading of the above provisions gives us the following understanding:
i) ITC can be availed by a registered person only if he has received the goods or services or both. [Section 16(2)(b)]
ii) In case of supply of goods, it shall be deemed that the registered person has received the goods if,
a) Goods are delivered by the supplier to a recipient.
b) Goods are delivered by the supplier to any other person on the direction of the registered person whether acting as an agent or
c) The delivery may occur either before or during movement of goods.
d) The delivery may occur either by way of transfer of documents of title to goods or
[First Explanation to Section 16(2)(b)]
iii) In case of supply of services, it shall be deemed that the registered person has received the service if, the services are provided by the supplier to any person on the direction of and on account of such registered person. [Second Explanation to Section 16(2)(b)]
iv) Where goods against an invoice are received in lots, the registered person shall be entitled to take credit upon receipt of the last lot. [First Proviso to Section 16(2)]
v) Where goods against an invoice are received in instalment, the registered person shall be entitled to take credit upon receipt of the instalment. [First Proviso to Section 16(2)]
3. Issues arising out of the above provisions
i) Interpretation of the term ‘received’
Literal meaning of the word ‘Receive’:
To get or accept something that is sent or given to you.
(Source: https://www.oxfordlearnersdictionaries.com/definition/american_english)
From the above, we observe that the word ‘received’ nowhere implies presence of physical connection. It is much broad in nature and may include actual as well as constructive delivery of goods.
Thus, in the context of GST Law, we may conclude that the use of word ‘received’ in Section 16(2)(b) is for transfer of title in goods and not physical possession of goods. Further, the word ‘received’ has also been used along with the word ‘services’. It is well understood that service does not have any physical existence and hence using the word received with the word service clearly reflects the intent of the legislature to mean transfer of ownership and not transfer of possession.
Explanation to section 16(2)(b) states that goods shall be deemed to be received even if they are delivered by the supplier of goods to any other person on the direction of the registered person whether acting as an agent or otherwise. Further, it neither require physical movement of goods nor does it require transfer of documents of title to goods or otherwise. Thus, the legislative intent behind drafting the section seems to be very clear to the effect that it does not require any physical possession to be handed over to the buyer.
Further, the word “otherwise” used twice in this legal sentence open the scope of broad sense of intent of the law maker. The makers of law did not intend to restrict the entitlement of credit in any way on account of physical receiving of goods or services, that’s why the provision was kept open ended by using the word “otherwise”. If we further analyse the sentence “before or during movement of goods”, it gives us a clear indication of the legislative intent that the goods can be received by the buyer even without movement of goods.
Provisions of Sale of Goods Act, 1930
Section 20 states that the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.
Section 26 states that when the property in goods is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not.
Section 35 states that unless there is any express contract to the contrary, the seller of goods is not bound to deliver them until the buyer applies for delivery.
A critical analysis of the above provisions leads us to the following broad conclusions:
Stock in Transit A/c…….Dr.
Input IGST A/c …….Dr.
To Creditor A/c………Cr.
Creditor A/c ……..Dr.
To Bank A/c ………Cr.
Sale by Transfer of Delivery Order
Place of Dispatch in E-Way Bill
From the above analysis, we may conclude that the word ‘received’ is not meant to imply actual delivery of goods, but ownership of goods. Thus, the test for determining whether the buyer has ‘received’ the goods or not is the passing of ownership and not physical delivery of goods. By accepting the invoice generated by the seller, the buyer is receiving ownership on goods which is the actual legislative intent behind the provision.
iii) Availment in case of purchase of Goods in Lots or Instalments
iii) Delivery delayed due to National Lockdown:
4. Position under the earlier laws:
Rule 4(1) of the CENVAT Credit Rules, 2002 allowed availment of input “immediately on receipt of the inputs in the factory of the manufacturer”. Thus, in case of the Central Excise Act, 1944, receipt of goods in the factory premises was necessary. However, the Excise Law and the GST Law are entirely different in its nature. Under the Excise Laws, the point of levy of excise duty was manufacture of goods and ITC can be availed only on inputs. Thus, goods have to physically reach the factory to enable manufacture of goods and subsequent levy of duty. However, no such similar condition was there under the State VAT Laws.
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