Can ITC be availed on advances paid for goods or services?
Here is an interesting case — L&T ITHI Consortium v/s UOI [2024-VIL-1219-BOM] – wherein petitioner being an unincorporated consortium of two entities was formed for the sole purpose of construction of a bridge.
The consortium was issued with receipt vouchers from its constituents for advance payment of goods and services. It is the case of the petitioner that although it had paid GST on advances to its constituents, it was unable to avail ITC for the reason that the goods and services were not received by it and it was not in possession of the tax invoice.
The Court observed that –
1) The petitioner having discharged its output liability to its constituent was at a stage when the actual receipt of goods or services was being fructified. The petitioner was in a possession of document evidencing payment of tax in the form of receipt voucher, hence, there should not be blanket disallowance of ITC.
2) The purpose of tax invoice is to confer and attribute certainty in relation to the supply of goods or services. Further, Section 31(3) is a non-obstante clause which includes receipt voucher within the ambit of tax invoice. Thus, when a receipt voucher is accepted as a tax paying document, then ITC cannot be denied merely because of non-compliance with Section 31(1) read with Rule 36.
3) Section 16(2)(b) which necessitates the receipt of goods or services for being entitled to ITC should be read harmoniously with Section 16(1) which allows credits for the inputs intended to be used in the course or furtherance of business.
4) Denial of ITC on the ground of non-receipt of goods and services would mean that the government would collect tax without an actual supply by virtue of provision of Section 13(2). This was not the intention of the legislature, hence, Section 16 should be read in harmony with Section 13.
For the foregoing reasons above and having regard to the peculiar nature of the transaction, the Court held that ITC should be allowed to the petitioner.
