Top Stories GST: ITC Allowable for Goods Purchased from External Vendors When Payment is Settled through Book Adjustment in Sale and Buyback Transactions, rules AAR [Read Order] The bench held that the Recipient can pay the supplier by way of setting book debt since the provision of the GST Act has not put any restriction in this regard By Amal Michael – On March 1, 2024 4:15 pm – 2 mins read A two member bench of West Bengal Authority for Advance Ruling Goods and Services Tax ( AAR ) held that settlement of mutual debts through book adjustment is a valid mode of payment under the Goods and Service Tax ( GST ) Act, 2017.

The authority observed that Input Tax Credit ( ITC ) is allowable for goods purchased from external vendors when payment is settled through book adjustment in sale and buyback transactions. Assessee, Paragon Polymer Products Pvt Ltd contended that the proposed ‘sale and buyback model’, the raw materials required for manufacturing of footwear will be supplied first by the applicant to the outsourced vendors against issue of tax invoice. The vendors will manufacture footwear using the inputs.received from the applicant along with other materials as may be purchased from other suppliers.

Assessee further contended that the payment through books of accounts is a prevalent commercial practice in market. Banking on the para 42 of Indian Accounting Standard 32, the applicant states that a financial asset and a financial liability shall be offset and the net amount presented in the balance sheet when, and only when, an entity (a) currently has a legally enforceable right to set off the recognized amounts; and (b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously The bench comprising Tanisha Dutta ( Joint Commissioner, CGST & CX ) and Joyjit Banik ( Senior Joint Commissioner, SGST ) held that settlement of mutual debts through book adjustment is a valid mode of payment under the GST Act. Recipient can pay the supplier by way of setting book debt since the provision of the Act has not put any restriction in this regard. Therefore, claiming credit of Input Tax Credit ( ITC ) cannot be denied on the sole ground that consideration is paid through book adjustment. Assessee was represented by Sibin Mathew John.