ITC not eligible where payments are netted off against receivables

Categories: Advance Ruling
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M/s. Sanghvi Movers Ltd., Tamil Nadu (“the Applicant or SML TN”) is a branch office of M/s. Sanghvi Movers Ltd. Pune, Maharashtra (“SML HO”), which is engaged in the business of providing medium-sized heavy-duty cranes on wet-lease basis i.e. Own, Operate and Maintain and provide entire operating crew, such as crane operators, riggers, helpers, technicians, engineers, etc., to the customers as per the requirement. SML HO has pan-India presence and cranes are deployed across India as per the requirements of customers.

The applicant entered into a Memorandum of understanding (“MoU”) with SML HO for ‘Crane & Trailer Supplies’ to SML TN Depot at TN Chennai, from where the applicant would further sub-lease such cranes to final customers. SML HO agrees to provide cranes, cranes components, parts & trailer on monthly rental basis to SML TN. The ownership rests with SML HO. The payments are however made by the SML TN to SML HO on netting off basis i.e. adjustment of receivable and payable in book of accounts are made and net amount is payable.

Issue involved:

Whether Integrated Goods and Services Tax (“IGST”) payable on inter-state inward supply of leasing service from supplier SML HO for providing further supply on hire charges would be admissible as Input Tax Credit (“ITC”)?


The Hon’ble AAR, Tamil Nadu vide Order No. 26/AAR/2019 dated June 21, 2019 observed as under:

  • As per MoU lease /hire charges payable by SML TN to SML HO is netted off in books of accounts and is considered as deemed payment.
  • As per proviso to Section 16(2), the applicant will not be eligible for full ITC, as they are not paying the full amount to their supplier SML HO, rather net amount is being paid.

Accordingly, the Hon’ble AAR, Tamil Nadu held that, supplies received from SML HO is not eligible for the full ITC. Rather ITC shall not be available to the extent specified in the restrictions as per second proviso Section 16(2) of CGST Act read with Rule 37 of CGST Rules, 2017.

Citation: [2019] 108 70 (AAR – TAMILNADU)